Source: Robin Roth, Senior Contracts Editor, Conferon, Inc.
E-Specs: March 11, 2002

The trend in contracts is for hotels to allocate more risk to the consumer and consequently we are seeing groups increasingly being held liable for F&B cancellation and attrition. Fortunately there are some basic principles that will help enlighten the negotiation process and guide all parties towards a fair bargain.

A - USE A SEPARATE CLAUSE. It is easiest to calculate actual damages if all F&B performance terms are covered in a single clause. Sometimes hotels include F&B in the group cancellation or the room’s attrition clause – or all three areas of liability are combined into one impossible clause! Each important topic in a contract should be covered separately.

B - CHARGES SHOULD BE FOR LOST PROFIT ONLY. When a contract is not performed, the party suffering the loss is entitled to be placed in the same state as if the contract had been performed. In practical terms, a hotel will be entitled to recoup its lost profit. This varies for F&B since liquor is more profitable than breakfast but on average lost profit is 30-35% of the anticipated F&B revenue. This should be specifically defined in the contract clause.

C - GET CREDIT FOR RESOLD FUNCTIONS. If canceled functions are replaced or if events are added in conjunction with the meeting (ICWs), the resulting profit should be credited toward the damages owed by the group for cancellation of a function or reduction in attendance. Performance charges should be due after the meeting dates since that is when the hotel would have suffered the loss and resold functions can be calculated.

In addition to these essential elements, other important points to consider are that performance charges are normally not taxable, use of the word "penalty" should be avoided, and either a per-event or an aggregate clause should be used. The aggregate clause commits the group to a total dollar amount and is more commonly used. For more details see "Food and Beverage Performance" in The Conferon Guide to Meeting Management at http://www.conferon.com/solution/index.html, call a Conferon Account Executive or Salesperson or visit www.conferon.com.

(Note: This information is not intended to be "legal advice." A qualified attorney should be consulted to review all contract issues.)