Attrition

Protect Your Next Corporate Event From Attrition

Attrition clauses are a part of standard hotel and cruise line contracts and are used to ensure that organizations fulfill their contracted obligations. Attrition fees are compensation to the hotel or cruise line for the rooms/cabins that might have been sold had they not been removed from the market by the organization’s contract. It is best to negotiate the attrition allowances and penalties before you sign the contract.

Dealing With Attrition Before Your Contract Is Signed:

Request that there be no attrition clause; hotels can be surprisingly open to this idea. It’s even better to have a clause that states there will be no penalty for attrition, and not just have the absence of an attrition clause.

Ensure that the contract has a re-sell clause in it. What this means is that attrition penalties are only incurred if the hotel is not sold out. i.e. if you exceed your allowed attrition by 20% on a 100 room block, you’d be responsible for 20 rooms. But if the hotel only had 5 empty rooms on the nights of your stay, then that means that they resold 15 of your rooms and you shouldn’t be responsible under penalty for those rooms.

Be sure that the contract states that rooms will be credited to your block of rooms no matter what methods were used in obtaining the rooms. If someone gets a deal on the internet but is still there for your conference, that still needs to count towards your block in order to prevent attrition. Including the proper verbiage can also prevent this.

If there is an F&B (food and beverage) minimum, be certain that this minimum is tied directly to your attrition clause. That way if you can only pick up 80% of your block, you’re only responsible for 80% of the F&B spend as well.

Penalty clauses usually call for liquidated damages approximately equal to the amount of revenue specified in the contract including rooms, F&B and meeting room charges. Occasionally, they call for “anticipated revenue.” These kinds of charges can include spa charges, golf fees, shopping charges, internet and data usage fees, phone charges and an entire host of other charges and fees. During negotiations, if you see any anticipated charges, this should immediately throw up a red flag. This is often the hotel trying to slip in a contractual form of “wishful thinking” and is usually removed upon request. However, smaller and more high profile properties can often make a case for these charges, and in this case, just be sure that all inclusions are spelled out.

Hotels have a tendency to mislead in their contract verbiage. When you see “liquidated damages,” it usually is just a legal cover for them to charge the total revenue outlined in the contract. Any penalties that fall under this are often referred to as “lost revenue,” but should realistically be called “lost profit” because hotels make the majority of their money on rooms and not F&B. For every dollar spent on a room, as much as 75% of that total is considered profit. The opposite is true for F&B. For example, say you know you’ll exceed your attrition seven days in advance and the hotel knows it. They’re only going to order enough food to cover expected guests, not what was originally stated in the contract or allowed attrition levels. So if you’re paying for lost F&B revenue, you’re not only covering lost profit, but you’re paying for food that was never even ordered in the first place. When negotiating these clauses, be sure to request that references to revenue be changed to profit. They may not want to, but if they want your business bad enough, they may go with it.

When you’re negotiating your attrition clause, be sure to request that any attrition penalties due are applied to the event in question.

Dealing With Attrition After Your Contract Is Signed:

If you’re facing penalties after the fact, your options are much more limited, but there are a few things you can do:

If there’s a re-sale clause present in your contract, be sure that the hotel confirms occupancies on the nights in question. They have reports in place that allow them to do this. This means that if you exceed your attrition number by five rooms, and the hotel has five rooms open, you’re responsible to pay for the full five. But if you exceed your attrition by five and they only have two rooms available, you’re only responsible for the 2 vacancies. You can also find out if there are other groups that may be in the hotel that are also dealing with attrition. If there are, find out how the hotel is pursuing this because they can’t charge the attrition of rooms to two parties.

If you pick up, say, 200 rooms on a night but have 250 guests register for your event AND pick up their credentials at your registration desk, They’re obviously attending and have to be staying somewhere in the vicinity. Have the hotel match the in-house guest list against your registration list. Chances are that you’ll find some of your attendees have made reservations on their own and failed to use the registration method and group code that you provided. These rooms should then be credited to your block no matter how your attendees made their reservations.

This one is never a guarantee but it is certainly worth a try. Ask your hotel if you can apply your penalty fees to a future meeting. Hotels are just like any other business in that they want to guarantee future business and maintain healthy client relationships. You’re going to have to pay your penalties that are outlined in your contract, but you can see if they’d be willing to possibly consider those payments as a cash deposit on a meeting that’s made within a specified timeframe (this is usually a year). Sometime if you’re willing to sign a contract right there on the spot, the hotel might be able to waive the fees entirely in order to guarantee your return and future business.

Offer to settle with the hotel. Not all organizations are large and capable of paying large and exorbitant attrition penalties and fines. If you level with the hotel and tell them what you can afford to pay, they’re often open to settling. Normally, hotels aren’t after legal action unless there is a substantial amount involved, and they usually hate pursuing legal action against clients who would rather be future business.

If you know you’re going to face attrition, you can always try to resell the rooms that you’re missing out of your block. This is time consuming and doesn’t always work, but if you package the rooms at a discounted rate and off them to people in your organization or your clients, you can help curb the amount you would have to pay in fees. ISI Travel Solutions can also help in instances like this. We deal with a large number of hotels and organizations throughout they year and can certainly be in assistance in trying to find new people to purchase the attrition rooms on your block.

DISCLAIMER

The strategies and tactics detailed above are based on our development of best practices. We’re not attorneys and our ideas are offered only as recommendations based on our industry experience. All hotel contracts are legal documents and any questions that are legal in nature should be directed to your legal counsel.