The best way to address attrition problems is to do it before a contract is signed. When negotiating a contract here are some approaches you may want to consider.
- Ask for no attrition clause at all. Hotels are more amenable to this than might be thought. You just have to ask. However, it is not just enough to have no attrition clause - the clause must state that there will be no penalties for
- If the hotel insists on an attrition clause ask for a larger percentage. If they offer 10% ask for 20%. If they offer 20% ask for 30%, etc.
- Make sure that there is "last room sold" phrasing in the clause. This is sometimes referred to as a "resell" clause. Essentially what this phrase means is that any attrition penalties that are incurred will only be applied if the hotel is
not sold out. For example, if you exceed your allowed attrition by 10% on a 100 room block, you would be responsible for 10 rooms. However, if the hotel had only five empty rooms on the nights in question then they have successfully re-sold
five of your rooms and you should not pay any penalty for those rooms.
- Get verbiage in the contract that states rooms will be credited to your room block no matter what method was used to make the reservation and no matter what rate was quoted for that reservation. Reservations are made in all kinds of ways
including some that extend beyond your stated method of reservations. For example, you may have a $150 rate for your group. Attendees are told to call in to the hotel and give them your group code or go to a website and enter the group code.
Once that code is entered, that is how your group pick-up is tracked. However, it is not at all unusual for attendees to book rooms outside the block. Maybe they found a lower rate on the internet or maybe they bought a low-priced tour
package. It really doesn't matter. If they are in the hotel for your conference and they didn't make a reservation using your prescribed procedure, your organization will not get credit for the room.
- If the contract has a F&B minimum, make sure that minimum is tied to the attrition clause. If you only pick-up 80% of your block (as allowed by attrition clause), then your F&B minimum should be automatically reduced to 80% of the
original number. After all, if your contract calls for 100 attendees and there are only 80, should the minimum remain the same as it was when 100 attendees were expected? Are they each going to consume 25% more F&B and are you willing to pay
- Most penalty clauses call for liquidated damages roughly equal to the total amount of revenue outlined in the contract including F&B, rooms and meeting room charges. In some cases, they call for "anticipated revenue". These types of
charges could include spa charges, golf fees, shopping, internet usage, phone and a host of other charges. If you see "anticipated revenue" penalties this should set off a red flag during negotiations. In many cases, these charges are wishful
thinking on the hotel's part and can be removed upon request. However, if the property is a smaller high-profile resort and especially if it is in a remote location, the property can make a case for those charges. At the very least, any kind
of anticipated revenue clause should clearly outline what is included.
- The term "liquidated damages" is a bit of a misnomer and inserted into these clauses for legal reasons. It provides cover for charging the total revenue outlined in the contract. The reality is that any penalties of this type should call
for "lost profit" as opposed to "lost revenue". Hotels make most of their money on rooms - not F&B. For every dollar spent on rooms, as much as 75% could be classified as profit. In F&B the opposite is true - a successful F&B operation might
generate a 25% profit on every dollar spent. As an example, if you know that you are going to exceed allowable attrition seven days in advance - and the hotel knows it, they are only going to order food inventory supplies to service actual
attendance - not what was expected in the original contract or up to allowed attrition levels. Therefore, if you are paying for lost F&B revenue you are not only paying for lost profit - you are paying for food inventories that were never
ordered in the first place. When negotiating attrition clauses, you should always ask to have any references to revenue in penalty clauses changed to profit. It is a tough negotiation but not unreasonable, and a hotel that really wants your
business may very well go with it.
- When negotiating an attrition clause, regardless of all the items listed above, ask that any attrition penalties due be applied to the event in question. Point #3 outlines this process and its benefits.