Navigating Force Majeure
Hospitality attorney Jonathan Howe shares advice
on how meeting contracts are changing and the must-have contract clauses.
After two years of commiserating and collaborating, meeting planners and hoteliers are growing frustrated in negotiations. That’s understandable: We’ve all suffered losses during the pandemic, and both sides are bent on minimizing their risks in contracts for future events.
Hotels have taken an enormous financial hit, often bearing the brunt of business that never materialized. Properties across the United States lost a collective $111.8 billion in room revenue alone during the pandemic, according to the American Hotel & Lodging Association’s “2022 State of the Hotel Industry Report,” produced in collaboration with Accenture.
A confluence of other factors is making negotiations more difficult, often to the surprise and dismay of meeting planners. More than half say room rates and F&B prices are higher than expected, and that staffing is inadequate, according to the latest Northstar/Cvent Meetings Industry PULSE Survey. Nearly as many (48 percent) complain that contract terms aren’t flexible enough to meet their needs.
Following is a closer look at the reasons behind today’s tense negotiating environment.
Hotel Contract Terms
Earlier in the pandemic we heard happy tales of hotels and planners working in partnership to manage cancellations and changes, and few held fast to contract terms or imposed penalties.
With two years of harsh learning experiences behind us, standard clauses are being expanded and new ones invented in an understandable effort to minimize the risk of losses due to cancellation or attrition.
The force majeure clause, in particular, has taken on a life of its own — and that has kept industry attorney Jonathan T. Howe, founding partner of Chicago’s Howe & Hutton firm, very, very busy.
"Force majeure” is defined as an unforeseen incident beyond either party’s control that prevents the meeting from taking place, Howe explained in a recent column for NorthstarMeetingsGroup.com. A storm that makes travel impossible or a fire that destroys the venue would be a true force majeure. “What we’ve got now is a bastardized force majeure situation,” he said, with people adding “a whole laundry list of factors” that don’t qualify as force majeure.
That’s keeping hoteliers busy, too, says John Hawley, executive director of association group sales for Hilton Worldwide. “We’re on the cusp of making force majeure something that it really isn’t,” he told attendees during a panel discussion at the Professional Convention Management Association’s Convening Leaders in January.
“Let’s have a conversation about what’s important,” suggests Hawley. “What’s critical? What is in your control and what is not in your control? Realize that force majeure leans toward ‘not in control.’ So when you see ‘threat of’ or ‘fear of’ in a contract, it’s too broad and it’s not going to hold up.”
Everyone is grappling with inflation, which stems from several underlying issues, explains Ben Johnston, COO of Kapitus, which provides financing for small- and mid-size businesses. Simply put, everything is more expensive. Planners should realize that hotels need to pass some of those cost increases along to customers.
As of late February, the average daily hotel rates in the United States had risen for seven straight weeks, according to lodging analytics firm STR. Eighty percent of the 166 STR-defined markets reported higher ADR for that week than the comparable week in 2019.
Demand is outpacing the return of labor to the market, Johnston told M&C in a recent Q&A. Fully 94 percent of hotels are understaffed, according to an October 2021 AH&LA survey of 500 properties. Of those, almost half say they’re severely understaffed. Nearly all — 96 percent — are trying to hire, but struggling to fill their open positions.
Group demand is growing slowly but steadily, but leisure demand is barreling back, commanding the bulk of available guest rooms, particularly in leisure markets and on weekends.
Meanwhile, hotel supply has diminished: Since April 2020, STR has recorded 804 permanent hotel closures in the United States, representing 76,256 guest rooms. Another 176 properties (33,674 rooms) are still closed temporarily — and it’s likely that some of those will be reclassified as permanently closed.
“Hotels and restaurants have faced real challenges getting a steady supply of the basic foods they need to provide their service, which has inflated the cost of goods,” said Johnston. In a November 2021 survey of 500 hotels by AH&LA, hotels reported a 79 percent cost increase on cleaning and housekeeping supplies, a 77 percent increase for linens and other soft goods, and a 77 percent rise in food-and-beverage supplies.
Short Lead Times
Hedging against new Covid variants and other uncertainties, meetings stakeholders are delaying decisions. Both planners and suppliers are fielding requests for events with less than two months’ lead time — often much less. In an extreme example, a planner had half an hour to book a group of 30 for two nights, with meeting space. The participants were already en route to their chosen hotel.
Compressed time lines create a lot of pressure across the entire meetings landscape, says Danielle Cirami-Gillis, vice president of strategic partnerships for PRA Business Events. “This requires all partners to communicate at an elevated level about what is possible in the shortened cycle.”
When organizations downsized during the pandemic, the meetings industry lost scores of high-level meeting planners and experienced hotel contacts. Seasoned professionals who were laid off or left often were replaced with relative newcomers to the business. That mires down negotiations, as the more experienced party needs to educate the newbies, say sources on both sides of this conundrum.
Time is wasted and frustration is heightened when the negotiating parties aren’t honest from the outset, says Cirami-Gillis. “Transparency is more important than ever, and flexibility is key.”
How to Plan a Low-Maintenance Meeting
As hotels grapple with labor shortages, planners can help by arranging less labor-intensive events. Christy Froehlich, CMP, co-owner of Precision Planners, shared these tips.
- Skip the front desk. Encourage attendees to use virtual check-in and checkout, and to access their room keys via smartphone, if possible.
- Go light on housekeeping. Arrange for a daily “tidy-up” of guest rooms, or tell attendees that housekeeping service is only available on request.
- Book a restaurant. Consider a buyout of an on-site eatery. You’ll be taken care of by restaurant staff, which gives the banquet team a break.
- Be flexible with menus. Does the hotel offer daily or weekly menus based on available items? Can you piggyback on the menu of another group? This eases food prep and could bring down your F&B costs.
- Go buffet-style. Self-service requires fewer banquet staff than plated meals.
- Plan for dietary restrictions. Determine needs and plan special meals well in advance to avoid a last-minute scramble.
- Stay close outdoors. Hold F&B functions in event areas with convenient access to banquet kitchens, and minimize complicated setups.
- Skip room drops. Rather than have goodies delivered to guest rooms, have guests grab and go from the meeting space.