Flexibility of Hotel Management Contracts.
By Mila Petruk ~ Exclusive Column
Monday, 28th May 2012
In hotel industry, management contracts have become an interesting point of discussion with the appearance of hotel outsourcing, franchising and other forms of business ownership.

For this reason, hotel owners as well as hotel managing companies are looking at the most fragile aspect of their operations – management contracts.

In order to address all sides of business in a single document, both parties have to make sure that all their interests are preserved and that the contract results in the expected outcome. However, there are several points within the contract which create a number of obstacles for both the hotel owners and the managing companies.

The primary problem here is the overall flexibility of hotel management contract. Should it be adjusted to each case and each hotel, or should the company ensure its standards by providing standard form of contract? Should the issues and articles of the contract be violated?

And finally, to what extent are these violations and amendments allowed so that the interests of the managing company are still in place?

Therefore, after consulting with some of the lawyers in the field of hospitality industry, we have come up with the interesting list of issues which can be violated in the hotel management contract.

These are the following points:

Company standards. For hotel chains, violation of their standards is not acceptable in any occasion. For this reason, the standards of the company are not negotiable within the management contract.

Control degree. The majority of companies does not change or shift their control measures within the contract. The degree of control provides guarantees which secure both the job of the operator and the owner of the hotel.

Legal issues related to ownership. Change of ownership as well as other legal procedures of hotel ownership is not discussed within the management contracts. These issues are linked to the subject of the contract and cannot be removed without simultaneous contract cancellation.

Profit structure. For each hotel, be it is chain hotel or individual hotel, the structure of the profit is specific and relates to the overall hotel operations. Despite the fact that the managing company can implement changes to the hotel management, the structure of financial hotel management which affects the whole operations cannot be amended.

Reservation fees. In most hotel management contracts, these are non-negotiable. Hotel operators usually provide set reservation fees which cannot be changed due to seasonality and the ability of the hotel to fit their financial objectives.
Despite the fact that these deal breakers are in most cases non-negotiable, for some hotel chains management contract is an evolutionary thing. They remain fully flexible with the hotels they manage and tend to adapt changes even to the deal breakers mentioned above.

However, the essential point here is to always relate to these deal breakers and ask yourself whether these issues have been discussed fully with the hotel owners or managing company. If not considered at all, the results can lead to non-functional management contract.

Mila Petruk is a hospitality consultant and a founder of Milina Outsourcing Management (MOM) which provides consulting to hotels and restaurants including mystery guest audit, temporary staffing and training support. Being a hospitality industry enthusiast, Mila has a global insight into the developing trends of hotel and restaurant business all over the world.

Having a rich international hotel work experience and an MBA from one of the reputed Swiss hotel schools, she has applied it in almost every hotel department she had worked. Contact Mila at mila.petruk@gmail.com.
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