Contracting in the new Environment

John CaldwellWashington, DC

June 5, 2009

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OVERVIEW

• Basics--what Is Contracting?• What’s So Different About Travel?• Best Practices for Long Term Relationships• Negotiating to “Yes”• How Long?• Pitfalls and Challenges Today.• Dealing With Changes.• Divorce or Counseling?

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Differences Between Contract and Handshake

• Legal Object.• Consensual.• Supported by Exchange of Promises.• Must Be Specific, Not Speculative.• Terms Are Clear and Understandable• Beware of Side Letters• Cultural Resistance to “Paper” Agreements

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Contract Differences for Travel

• Pervasive Uncertainties and Market Instability• Definitional Cans of Worms. “Transactions”,

“Attrition”• Subjectives, “Satisfaction”, “Best Practices”,

“Account Management”, “Consulting”.• So Many Differing Boilerplates.• Reluctance to Commit.

– Its Tuesday, Let’s Rebid.– One Way Out Clauses.

• Suspicion Rather Than Partnering.– Who’s Hiding Whose Money?– Open Books Are a Myth?

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Getting to Yes

• Both Sides Need to Understand Each Other:• Suppliers

– Reasonable RFPs. 100 Pages?– Adequate Profit.– Re Negotiate for Major Change.– Customer Listens and Is Accessible.

• Buyers– Lowest Price, Highest Quality.– Commit but Not Too Much.– Accountability.– Pro Active Relationship Management.

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Special Industry Challenges

• How Long to Contract?• Service Level Agreements?• How Much Delivery by the Customer?• Who Is in Charge of the Relationship?• Paying Back Incentives.• What Excuses Buyers From Performing Their Side?

– Bad Economy Not the Answer.

• Sub Contracting and Using Franchisees or JVs.• Mergers and Acquisitions.• Disclaimers and Damage Limits.• Who Owns the Information? How Is It Protected?

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Challenges (cont.)

• Unambiguous Definitions– All the Area Airports or Just Specific Ones Like JFK?– Is a Transaction a “Void” or a “Refund” ?– Can You Drive a Truck Through “Material Change”?– Jurisdiction and Venue.– Meetings Attrition.

• What Is the Measure of Liquidated Damages?• Boilerplate resell clauses in standard meetings contracts.• Attrition waivers this year.

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Pitfalls

• Contracting Away Safety Protection?• Holding the Supplier or TMC Responsible for

Everything That Could Happen?• Processing, Researching and Marketing Company

Data.• Traveler Consents.• Automatic Term Roll Overs Without Notice or

Review of the Deal.• Automatic Retroactive Fee Increases.• Putting the Final Contract in a Drawer or Saved in

a Hidden File.

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PITFALLS

• Relying on Outdated Volume Numbers.• “Exclusivity”.• Politics.• Business Reciprocity• Rushing the Decision.

– One Week RFP Bidding.– Moving Without Stakeholders on Board.– No Feedback Until Its Too Late.

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MORE PITFALLS

• Not Firing Customers or Refusing to Bid.• Failure to identify employee names and

salaries in cost plus deals.• Decisions on All or Mostly Price.

– Ignoring That Ticket Costs Are 10% or Less of Travel Expenses.

– Suppliers Are Not Fungible.

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Final Pitfalls

• Wasting Time for What You Know You Cannot Have.– Unrealistic or No Market Share.– Discounts Outside Reality.– Unworkable Penalties.– Non- Compete Clauses.

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Recommendations

• Be Mindful If You Can of These Points: – Lawyers Involved Early at Time of RFPs.– Define Technical Terms. – Watch Out for the Parol Evidence Rule.– Dual Duties of Employer and TMC to Protect Travelers.– Stay Away From Evergreen Terms. – Avoid Overly Complex Slas.– Do Not Add Everything in the World to the Contract

• Require Regular Review of Contract Results– Readjustments If Needed for the Partnership

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Final Thought

• Web Based Site for Common Data for All Suppliers.– Avoid Pushing Button X Every Time an RFP

Issues.– Most of Data Available As Non Sensitive but at

Too Many Different Sites And/or Hand Outs, Etc.– Nothing on Price or Competitively Sensitive but

Access but Be Restricted to Customers.– Updates Quarterly.– NBTA and ACTE Could Co Sponsor and Share

the Expenses.

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THANKS FOR YOUR ATTENTION

• I Enjoy Coming Here As a Midwestener• We Need Some of Your Friendliness and

Openess in DC, Big Time• Hang On, Our Industry Is Coming Back and

World Commerce Depends on it.