Last year Matt Robbins, president of the Event Team in San Diego, booked a harbor cruise for a financial services client and put down a $2,000 deposit. A month before the event, Robbins found out the company, hobbled by the death of its owner and a failed vessel inspection, had shut its doors, taking the deposit with it.
“They just stopped answering their phones,” Robbins says. He initially learned why through the grapevine. “I think after six million phone calls somebody confirmed that the company had closed.” Robbins only had a couple of weeks to go before the event.
He raced to find a backup boat. The only available vessel was smaller and pricier, and he paid the $1,000 difference. “It was a mad scramble to keep our clients happy, and we just had to absorb the extra cost,” he says.
It’s a sad fact for the industry, but the cruise provider is one of many vendors that have gone out of business in the past year, and many more are likely to go under as companies cut back their budgets and events due to the recession. In a recent Meeting Professionals International survey, planners predicted a 9 percent decrease in the number of meetings held this year. As a result, some planners are taking a shrewd look at the financial health of vendors they hire to avoid losing money—or having to find last-minute replacements—if a firm goes out of business.
“I think now we’re a little smarter about trying to make sure a company is doing well,” Robbins says. “Now we’re much more thorough when it comes to checking them out, including asking about insurance and inspections.”
References are important, but not just any references will give you the intel you need. “I don’t necessarily want the references to come from them,” says Susan Gray, president of MAC Meetings and Events in St. Louis, who had to rebook an event for 50 in Anaheim after a restaurant closed without warning. “The No. 1 thing I rely on is references they don’t give me.” Gray reaches out to planners in the area by asking her colleagues for contacts or asks a local hotel convention services manager. People who have worked with the vendor within the past six to 12 months—especially repeat customers—should have a better sense of the company than an older client.
It’s not easy to determine if a vendor is busy or nearly broke, says Debbie Baker, director of sales for Extras, an event and destination management firm in Las Vegas. “People cover their tracks very well.” A Google search can turn up changes in management or ownership—which could be a sign of trouble—as well as feedback from clients. The Better Business Bureau can let you know if a company has any unresolved complaints. If the company has changed its name, search under the old one, too. (For six warning signs that a vendor may be on the verge of collapse, click here.)
Contracts are certainly important but, unfortunately, even a well-written one isn’t an insurance policy. The best bet is to have a contract that doesn’t call for pre-payment of services rendered.
If a company closes after the deposit has already been paid, that money is probably a lost cause. “For many small companies, a Chapter 11 or restructuring bankruptcy is the functional equivalent of Chapter 7, which is a shutdown,” says James Goldberg, a Washington, D.C.-based attorney who specializes in event contracts. Suing often isn’t worth it; legal fees are likely to cancel out the 10 to 50 cents on the dollar a creditor can expect to receive, if there’s even any money left after the bankruptcy court finishes doling out what remains of the company’s assets to secured creditors like the bank that holds the mortgage on its offices.
One way to protect a deposit is to put it in escrow, but in the case of a bankruptcy, money in an escrow account owned by the vendor gets counted as part of its assets. Instead, you can pay a third party—a lawyer or CPA—to administer it, and draw up a contract that spells out when that money can be transferred to the vendor. According to John Foster, a meetings-industry attorney in Atlanta, expect to pay around 2 percent of the deposit for this service.
Even if there’s no deposit to wrangle over, there are still the issues of time and resources required to find a replacement for the insolvent vendor. Susan Gray of MAC Meetings and Events got lucky. When the restaurant she’d booked abruptly shut its doors, the staff did most of the legwork for her. “They gave me the name and number of another restaurant that had the date open and would match our menu and our price.” While this level of solicitousness is exceptional, it’s definitely worth asking insolvent vendors for a hand. Can they recommend a competitor? Will they ask the competitor to match the planned date, time, and price?
Likewise, if you find a substitute on your own, ask if they’ll honor the terms of your original contract. Sandra Freeman, chair for a regional call-center industry association in Ottowa, Canada, found out in April the site she’d booked for a 150-guest award banquet in June had shut its doors.
“I wanted to talk to my contact there about the menu so I decided to drop by,” Freeman says. The venue was locked and a man outside told her it was undergoing renovations and would reopen in a week. When her return visit yielded no change, she hit the phones, only to get an unfamiliar voice mail system on which she couldn’t even leave a message.
When she looked at alternatives, one venue offered to match her original menu and the price quoted by the defunct facility. Even though Freeman still had to contact guests by email and phone to alert them to the switch, locking in a new contract with the same terms was an unexpected silver lining.
