I have read that the
Department of Transportation is proposing to limit the length of
GDS contracts to three years and to do away with productivity
pricing, damages based on lost bookings and even segment
bonuses.
Is this true? Will it really happen? If so, will it affect
my current five-year deal?
A: It is true the DOT is leaning toward
outlawing GDS contracts in excess of three years. This is the
current rule in the European Union and Canada, and the DOT always
has felt that longer contracts restrict use of multiple systems,
which could give consumers a better choice.
The DOT is going even further and thinking about adopting the
E.U. rule that lets travel agencies terminate contracts on 90 days'
notice after the first year.
The DOT does not like the "lost booking fee" damages that some
GDS vendors claim when a travel agency breaches its contract by
early termination, so it tentatively also is proposing to outlaw
those damage claims.
All that is good news for travel agencies that have hated long
contracts with no escape clauses.
On the other hand, for productive, corporate-oriented agencies
that depend on large segment bonuses, there is bad news indeed: The
DOT is proposing to outlaw all productivity pricing, apparently
including quotas for free service as well as segment bonuses.
Clearly, corporate agencies need to try to get the DOT to
maintain the status quo on productivity pricing. As a fallback
position, agencies might wish to urge the DOT to scrap all of its
GDS rules, leaving contract terms entirely to the market.
I predict the DOT will adopt almost all these proposals, unless
agencies present cogent arguments against them. In any event, it
may be another year before we know the final rules.
However, I predict that whatever the final rules are, they will
apply to all existing GDS contracts. After all, there is ample
precedent.
In 1985, existing contracts longer than five years were simply
shortened to the five-year maximum allowed by the new rules.
Again, in 1992, so-called "minimum-use" clauses in existing GDS
contracts became null and void.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the TravelWeekly.com
Legal Ease forum. To contact Mark directly, e-mail him at
[email protected].