Procurement Strategies: Negotiating for 2021 vs extending 2020 rates

In Blog by Janin

It is commonly agreed that the annual corporate lodging RFP process needs an overhaul.

Spending six months negotiating a yearlong program every year is not efficient or effective. Yet, opinions vary on how to manage that change. While there are many logical and expedient reasons to overhaul the corporate lodging program to COVID-19 endorsed needs, some corporations might still decide to prolong their 2020 rates. In theory this does seem to free up everyone’s time. In reality, this strategy and logic does not take into account the effort and potential impacts to “just prolonging rates.”

Effort in prolonging Rates

Rate Collection

  • Collection of hotel extension agreement & Official T&C agreement
  • Check Rate / Tax / Amenities compliance with Previous Year. Several countries are lightening the VAT tax for a specified period of time
  • Collection of updated Seasons, Trade Fairs and Black Out Days. Holidays and trade fairs will shift from year to year, and are especially hard to project as the impact of the pandemic extends into 2021.
  • Missing Official T&C agreement for Rate Extension

Non-compliant hotels

  • Duty of care: security & hygiene norms not respected
  • Ensure hotels and hotel referent are available
  • Chase manually the hotels to agree on same rate
  • If refusal: find an alternative to cover the need and negotiate a rate not to impact ADR

Closed Hotels

  • Find an alternative to cover the need
  • Negotiate a rate not to impact ADR
  • What will be the negotiation process?

Rate Loading

  • Heavy work to ensure format & client’s specific request compliancy
  • Offline rate management

Reporting

  • Impossibility to update Directory & OBE reports

Audits

  • Misalignment between previous year rate and activated rate in CRS/GDS

Impacts

Economics

  • Missed Savings
  • Potential ADR increase
  • On site costs for additional amenities

Time

  • Extended time to negotiate & replace hotels afterwards
  • Long cycle to collect, verify & chase hotels on various metrics
  • 2021: time consuming to manage dissatisfaction of higher rates, to renegotiate better rates or new hotels to get better offers, potential contaminations

Quality

  • Leakage on both program & tools due to higher rates than market
  • Risk of uncovered destinations
  • Risk of inconsistent rate conditions
  • Lack of transparency on hotel level
  • Duty of care risk: extending hotels non COVID compliant
  • Cancellation policy flexibility
  • Traveler experience worsened with amenities you might not benefit from without negotiation
  • Rate Activation delay due to closed hotels

Moreover there are straightforward reasons based on the new market conditions why negotiating is advisable instead of prolonging rates.

Why negotiate instead of prolonging rates?

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Safety, Hygiene & Duty of Care

Corporate now have a strong desire for a unified standard hygiene protocol within their lodging programs next to enhancements of duty of care protocols. Chains are developing different safety protocols while HRS is trying to harmonize on this.

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Travel Buyer Role in a Buyer Market

It is part of the travel buyer role to renegotiate the rates to meet the actual corporate demand pressure for cost savings.

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Savings Opportunity

After 10+ years of rates increases we will now face a period of heavily decreased demand while supply is anticipated to still grow.

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Product Bundles

It is important to revise on-property traveler options because the world has changed after COVID-19 and those negotiated in 2019 will not cover new travelers’ needs.

To learn more, download the HRS White Paper “Procurement Strategies In Covid-19 Times