By Mattie Yallaly
The travel and hospitality industry offers a veritable garden of goods and services available to multiple companies and their travel programs. Identifying those preferential choices is a large task in itself, but once chosen, thus begins the task of creating a mutually beneficial agreement between the involved parties. This is no small task, as this contract will need to demonstrate longevity, responsibilities, and obligations.
The Contract Basics
Basic business law defines a contract as an agreement between two parties that creates an obligation to perform (or not perform) a particular duty. Stipulations to the agreement include a lawful purpose, consideration, competent parties, and genuine assent in order for it to be valid. While aspects of a contract will vary depending on its purpose, they typically consist of three parts: an offer, the acceptance, and the consideration. Of course, these components can be built using as many sections or sub-sections as needed.
Clarity is our friend. When reviewing a proposed contract, or a standing contract that is due for renewal, one should verify that it is comprehensible. Clear language ensures that all parties involved are on the same page, literally. Any items that may not be understandable should be defined or rewritten plainly. There is no shame in asking for an explanation of a clause or a definition of a term.
Dates and deadlines should be clearly outlined, particularly termination dates and the requirements to terminate a contract. Some parties may require a 60 to 90-day notice to terminate, or the contract automatically renews. While “evergreen” contracts may seem convenient, it can be easy to lose track of time and forget the end date. Then the opportunity to make modifications may be lost. Additionally, keep in mind any conversion or possible blackout dates that may affect others in the company so that proper and accurate communication can be coordinated.
Pay special attention to those parts of the offer that require a monetary commitment and stipulations if that commitment is not met. For instance, in return for a pricing tier, the other party guarantees to incur a defined amount of productivity. Verify that any repercussions from failure to meet those expectations are acceptable.
The Key-Terms and Benefits
One primary benefit of negotiating a contract is securing risk management. In this day of “all things online,” electronic security is a relatively newer component. Legal obligations regarding personal information should be carefully considered and reviewed. Not only civil, but also criminal charges could result from a lack of preparedness and responsibility. Enlisting specialized legal review to ensure that assigned responsibilities are up-to-date with current case law will help protect all parties involved.
Service Level Agreements (SLAs) and Key Performance Indicators (KPIs) may also be included. These designs should be useful and pertinent to monitor the effectiveness of the agreement. This may consist of end-user survey results, the use of the product or service metrics, or resulting costs. Designate those who are responsible for providing data and a schedule of when that data is presented. SLAs and KPIs often fall by the wayside, however, these components are excellent ways to determine if the contract is working as desired, or they might highlight needed modifications. These reports often coincide with standard contract performance reviews. It is a good idea to request the data prior to the meeting for examination and question preparation.
Default terms (NOT a reference to a preselected option in a computer program) outline the ramifications of failure to fulfill obligations. Knowledge of these details not only helps to identify a breaching party but also provides options for the non-breaching party. Sometimes this section includes Termination for Cause and/or Termination for Convenience. These clauses should have specific criteria and the evidence required when termination may be applicable. A breach does not always mean an end to the agreement. The parties involved may be able to negotiate a resolution and repair the partnership.
Indemnification is another important aspect that may or may not be present in the contract. It can represent either compensation for loss or security against legal liability for any damages or represent losses stemming from the contract. Hold harmless clauses also provide liability protection for damages or risk to another party. Understanding these clauses helps to ensure that an even distribution of accountability is in place.
The Successful Contract
Changes to business operations, clientele, and acquisitions may affect the direction of a contract renewal. As a part of the negotiation process, updates can result in an increased partnership with greater development of service or product. Keeping a log of issues and ideas will help to ensure a more comprehensive and effective review.
Contracts are negotiable. The agreement between the parties involved can be as complicated or simple as needed. The parties work to obtain favorable terms and minimize financial, legal, and operational risks while gaining the desired services and projects. Negotiations offer the time to customize and compromise, as once signed, modifications to the contract may be more difficult. Be sure to take time, ask questions, and redline as needed.
A thorough contract review helps to reduce risk and increase the positive impact for all involved. As law, interpretation and business need to continue to evolve. Regular reviews help to highlight outdated provisions and identify areas for improvement, which in turn promotes a strong partnership for better success.