Mark Pestronk
Q: In last week's Legal Briefs column, you covered some red flags that prospective ICs should look for in host agency contracts. What about green flags; i.e., clauses that indicate that the agreement is clear, comprehensive and fair?
A: What is fair, like beauty, is in the eye of the beholder, so let me concentrate on what should be clear and comprehensive. The best host agency contracts provide for the following:
• A revenue split that expressly includes or excludes all forms of travel agency revenue. Too often, host contracts mention only "commissions," but they omit the other forms of travel agency revenue such as service fees, markups and overrides. If they are not included, the agreement needs to so specify.
• In the case of groups, how compensation gets calculated. It can be figured before or after the host's direct expenses for the group and before or after the group accounting closes.
• A list of what has to occur before the compensation accrues. For example, the IC must have personally solicited and secured the client and entered the required data into the agency's accounting or CRM system, and the supplier must have paid the commission.
• Fixed deadlines by which the host must pay the accrued compensation. The deadlines should be spelled out and not kept vague. Ideally, it should be a number of days after the month (or other time period), not a date after the host's accounting is finished.
• A list of any costs that the IC must pay -- such as a monthly fee or desk rental -- as well as the method of payment, and no provision for increasing the costs or adding new ones.
• A right to audit the host's books in case the IC disputes the host's payment. Revenue accounting is always more complicated than it sounds in theory, so you may want the right to have a CPA do the auditing.
• Either the host's duty to try to collect unpaid commissions or the IC's right to try to do so. If the contract prohibits the IC from trying to chase commissions, then the contract should obligate the host to do so on your behalf.
• Exactly what happens to commissions received by the host after the contract terminates. Such provisions go all the way from stating that the host keeps all such commissions to providing that the IC will get paid no matter how far in the future commissions arrive, and they sometimes depend on whether the contract terminates due to the IC's breach.
• The exact terms and conditions by which the IC may move bookings to another host agency, if such actions are allowed. Many hosts prohibit such movement, while others allow it as long as the IC compensates the host for the lost revenue.
Not every well-drafted host contract has all of these clauses, but they all have most of them.