In my experience, when both owners and operators reach the end of a hotel management agreement negotiation there are always things that potentially could have been done differently. In this article, I’ll identify a number of the more common issues and to keep it balanced, I have identified an equal number for both owners and operators.
1. Testing the market
- Consider operator selection programme rather than exclusive negotiation
- Seek to compare operational and commercial differences between operators
- Facilitate competitive bids to get world’s best practice
- Seek to accumulate market information for future projects
2. The consequences of when to go exclusive
- How should the operator selection programme proceed?
- When should exclusivity take place – when commercial terms agreed or later stage?
- Consider the operator’s legal agreements for ancillary / non-core commercial issues (e.g. rights of first refusal, financing limitations and purchasing)
- How to proceed should negotiations with the preferred operator falter
3. Determine which matters have significant commercial value
- Be strategic – what are you seeking to achieve from the negotiation
- Pick your battles – pursue the commercially significant issues and accept the peripheral issues
- Be prepared to be bold (e.g. consider other commercial alternatives other than just relying on Performance Test and/or AOP)
4. Are significant commercial issues being conceded without a value-driven negotiation?
- Don’t settle for second best (e.g. press for a Performance Test that actually works)
- The most significant issues are best resolved with properly structured competitive process for operator selection programme
- Be determined and prepared for an investing time and efforts for a thorough negotiation – the best deals are generally not done quickly
5. Which consultants should be engaged and when
- Identify the skill sets you lack and engage appropriate consultants to provide the relevant skills
- Consider engaging the consultants at the outset – it may cost more but it may just be worth it
- Ensure that all your consultants are marching to the same tune as you are
- If you are paying for advice, consider it carefully – even if you initially disagree with it
1. Don’t assume that the owner and its consultants know what is distinctive about you
- Does the market understand your unique/distinctive service offering
- To what extent do you provide an information kit to prospective owners to highlight what is “special” about your offering and how you are different from your competitors?
- Repeat your major selling points over and over again
- Take every opportunity to inform owner consultants – it’s better that they sing your praises rather than you
2. Be flexible and reasonable
- Amplify your niche and value proposition in today’s competitive world – be prepared to be sufficiently flexible or reasonable to get the right the deal
- Separate the wood from the trees – shame to lose a deal over a word in an indemnity clause
- Approach to negotiation may indicate how parties will deal with disputes during contractual term
- Thinking and approach of commercial and legal teams should be constantly aligned
3. Don’t allow negotiations to blow out
- Ensure that the negotiation team is focused and pro-active
- At the outset determine a timetable and seek to follow it religiously
- Ensure that all relevant tasks are identified and responsibility attributed to each
- Particularly important in complex hotel/branded residence and condo hotel developments
4. Be aware of the local market nuances
- Before pitching, study the local market for specific practices and approaches to commercial terms
- For international operators, consider the value proposition of local operators
- If unsuccessful, seek appropriate feed back as to competitive qualifiers (e.g. fees, term and/or premature termination)
4. Don’t make promises that are unrealistic
- Don’t oversell (it’s a long term relationship and it will come back to haunt you)
- Don’t place too much importance on information which you are not prepared to stand behind (e.g. forecasts)
- Be honest about your strengths and weaknesses with respect to your competitive set
I appreciate that that this is by no means an exhaustive list that can be improved in the next negotiation. I trust, however that at least some of the considerations set out above resonate with you – and if at least one of the considerations helps you with your approach in a beneficial way then all the better.