Q: When a prospective corporate account recently asked for our sample contract, I had to admit that we don't have one, as we have never used written contracts. In the very same week, a possible buyer of our agency asked for copies of our corporate-account contracts and appeared to be chagrined when we admitted we had none. Is there some trend in corporate travel to have written contracts in place? Why would we need such contracts?
A: There is definitely a trend in the corporate world toward written contracts, not only in corporate travel services but also in all services in the supply chain. The trend is part of the professionalization of corporate purchasing and procurement that has been going on for some time.
You certainly don't need a written contract with every corporate account. Some accounts are so small that it doesn't pay to spend your time trying to get one signed, and some accounts will refuse to sign. However, you probably need a signed contract with every account doing over about $200,000 in airline tickets per year.
There are at least seven reasons why you should have written contracts, and your question covers two of them: first, you should have written contracts because some clients expect you to have them; and second, prospective buyers of your agency will think that your agency is more valuable if you have such contracts in place.
Third, you must have a written contract if your online booking vendor requires you to have one that contains clauses required by your vendor. If you don't, then your vendor can terminate your agency's online booking system agreement due to your breach, leaving you at a loss to explain to the client why you can no longer provide the system.
Of course, the clauses required by your system vendor are written to protect the vendor, not your agency, from your clients' claims. In fact, the existence of those protections makes it more likely that the client will sue your agency if the client suffers a major loss due to a system malfunction, since the vendor is protected but you are not. Therefore, you need to be sure that your contract protects you from such claims, as well.
Fourth, you need a written contract if you are going to allow client employees to use your GDS and issue tickets, as they would at an on-site office staffed by employees of the account. Without a contract, you would have no way to get reimbursed for debit memos due to reservation-rule violations such as back-to-back and hidden-city ticketing.
Fifth, written contracts are the only way to enforce the account's promise to use your agency for multiple years. Under the law of every state, contracts that cannot be performed in one year or less must be in writing and signed by the buyer.
Sixth, if you want to reserve the right to raise your fees under some conditions, those conditions must be in a written contract. Otherwise, each fee increase will entail a new negotiation.
Seventh, a written contract helps avoid misunderstanding about when your transaction fees apply and when they don't. For example, if a ticket is exchanged for a new ticket, and if you charge a fee for the new ticket, you need to make that perfectly clear.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].