The hospitality industry is ever-changing, providing multifaceted legal challenges to a broad mix of small businesses, regional and national brands, and international corporations on a daily basis. One of the critical challenges that the sector faces is managing contracts, According to a survey by the Institute for Supply Management, written agreements control 60-80% of all business-to-business interactions, with a typical Fortune 1000 Company keeping 20,000 to 40,000 active contracts at any given time.¹ Fortune 1000 Companies include- Starwood Hotels & Resorts, Hilton Hotels, Trump Hotels & Casino Resorts, etc. - these are a few of the companies whose contracts we have included for this report.

A contract must be drafted, reviewed, negotiated, collaborated and authorised, and that is only the start. Signed contracts must then be managed for the length of their life, realising the value of the agreed-upon provisions, checking for compliance, and finally considering any renewal or amendment. Personnel from procurement, legal, and finance are all involved during the lifecycle of a contract and perform some routine/manual activities. In addition to being time-consuming and expensive, these repetitive activities are also prone to mistakes, which add to costs, cause deadlines to be missed, and make compliance difficult.

Interestingly, 25% of hospitality and leisure CEOs think AI will significantly impact the way they operate in the next five years. ²

Importance of Contract Intelligence in Hospitality sector

Hospitality enterprises manage a significant number of contracts of various forms. Apart from standard contracts typical for any business, Property/Hotel Agreements, Franchise Agreements, Lease & Operating Agreements, Service agreements, Management Agreements, Brand/IP license Agreement, Advertising Agreements, Net Lease Agreements, Trademark License Agreement, etc. are some of the specific types of agreements seen frequently in hospitality sector. Risk evaluation for various types of agreements is necessary to reduce a hospitality company's possible exposure from unfavourable contract clauses. It is also important to track various obligations under these agreements so their value is fully realised.

Contract Pain Points

All commercial partnerships are built on the foundation of contracts. However, when the number of contracts grows, it becomes more difficult to track the extent to which contracts are fulfilled.

In contrast to a single contract type, such as lease, where activities are mostly standardised, diverse/non-standard contract types can increase the effort involved in managing such contracts, especially when there are multiple instances of standard/diverse contracts. Without an automated, centralised solution, hospitality companies would have no easy way to have enterprise-wide insight over all of their contracts for each of their properties. This leads to some key problems including the following:

• No Visibility: resulting in lack of knowledge of the terms and conditions, rights and duties, and important dates, lack of awareness of the contract's risk profile and present level of obligation compliance.
• Volume: There is a continuous net growth in the contract inventory because new contracts are signed more often than current contracts are cancelled. Even when there are more contracts and there are signs of task overload, the number of people who must deal with contracts in some capacity tends to stay consistent.
• Legal hang time: People who are waiting for responses from the legal team may have significant repercussions from delays, of course, not all requests for information can be resolved on an urgent basis.
• Missing out on key data: All parties involved should be aware of their responsibilities and legal rights under all types of contracts they sign into, as well as the goals of those contracts but manually handling the contracts almost always leaves scope for error.
• Term: To track contracts with varied terms and for as many years is a difficult manual task and is time consuming for that matter as sometimes the duration of contracts exceeds the life span of people handling it.
• Tracking important dates: Hospitality businesses need to keep track of contract-related dates, commencement dates, end dates, maintenance dates or the end of a locked-in pricing period with a vendor which is not an easy task if done manually.

We reviewed 50 different publicly available hospitality sector contracts through our product Riverus Umbrella’s contract intelligence system. Just around the “Term” clause, we observed strong variations in contract provisions/stipulations.

The Revelations:

• The term or validity for such contracts can vary from as few as 30 days to as many as 100 years and many other variations of years, months and days in between, for example: 95 years & 9 months, 79 years & 7 months, 42 days, etc.
• Terms for renewals also varied from 30 days to 30 years
• Amongst these contracts, few had option based renewals and most were auto- renewals. Few auto-renewal clauses had a specific notice duration assigned to them which again varied from 30 days to 30 months. Unless notice was given prior to a specific date, the contract would either auto expire or auto renew.
• Some contracts have a specific end date. A set termination date might interrupt smooth flow of business if a company and its suppliers are functioning well together and it's difficult to have to deal with contract renewal all the time.
• A renewal term may have a dependency or correlation with other clauses or events. The following dependencies were observed: managerial default, continuing validity of regulatory licenses, management fee hike before each renewal, net rent changes before each renewal, performance metrics- revenue targets and ROC, monetary obligations, compliance of training requirements, submission of renewal application before deadline, quality assurance check, renewal years dependent on continuity of outstanding debt, renewal years dependent on initial term year, renewal termination notice according to notice duration, Opt in/ Opt out- notice term, etc.

Contract Intelligence: New Frontier of Contract Management

While Contract management helps to a great extent in managing the contracts, contract intelligence supplements the capabilities of contract management system by bringing in actionable intelligence from all the contracts. When just the “Term” clause is capable of so many variations, one can easily understand the number of different types of actionable data points that will surface when all other clauses of contracts are tracked simultaneously.

Contract intelligence is the process of automatically surfacing relevant contract data and building workflows such that parties to contracts fulfil their responsibilities in order to satisfy the contract's objectives.

Workflows Powered by Contract Intelligence

• Renewal data and related action should be put on auto-reminders so that they do not get missed.
• The opt-in/opt-out notice period need to be well marked so that the stakeholders know the exact steps to take
• Standard contract drafts to be prepared for contracts with shorter duration
• Better contract drafts/templates should be in one place where all termination rights are identified under one section and is not missed because the information is scattered.
• Ability to readily track fee schedules and other administrative activities while mapping them to different stakeholders

How Riverus Umbrella resolves these problems

Riverus Umbrella solution- is an AI powered contract data management solution that helps enterprises accelerate contracting lifecycles, plug revenue leaks, stay compliant and improve top line.

Never worry about missing something substantially important- set custom alerts and never miss expiration, renewal and deliverable due dates again. Riverus Umbrella controls risk in the contract portfolio by-

• Helping you flag important dates and provisions. Expedite risk identification using contract intelligence- 90% reduction in time in generating report.
• Contract data extraction- automated creation of reminders for key individuals
• Creating templates for easy drafting of routine/standard agreements
• Helping in routine production of reports
• Recording of all significant requirements that must be met
• Alerting the contract manager to bottlenecks and delays
• Automating a contract management workflow for audit and compliance matters

There is a wind of change blowing in major hospitality companies. One of the most important tools to manage this wind of change is a contract management solution.