The business travel world seems divided between those that operate by reference to clear and up-to-date commercial agreements, and those who do not believe contracts do anything other than feed their lawyers. Many travel management companies (TMCs) with a simple business model of transaction fees and lodge cards seem happy to operate in an unwritten and unregulated world.
So what are the benefits of a detailed contract? The relationship between corporate and TMC often starts with a request for proposal (RFP) procedure, usually requiring a draft agreement to be submitted as part of the tender. Bigger corporates will usually want lawyers involved, and the new TMC will be expected to produce an agreement that incorporates all of the benefits and pricing that form the basis of the RFP, as well as covering all of their obligations.
The modern travel management services agreement is likely to include the following provisions:
• Commercial terms. There should be a clear understanding of how payment is made for bookings as well as the TMC’s fees, the frequency of payment and what happens to third-party commission. The scope of the TMC’s services needs to be set out so it is clear what is included and what will result in additional fees.
• The Bribery Act. Most larger corporates will have a policy for this, and will want their TMC to adopt the same policy in their procedures with third parties.
• Data Protection Act. This has been a hot potato recently following the declaration by the European Court of Justice that US Safe Harbour is invalid. The replacement ‘Privacy Shield’ is yet to be finalised and so any export of data will require the standard contract clauses to be included.
• IATA and ATOL. Bookings under these licences have changed. Billing and Settlement Plan payments are now more frequent, and there are new ATOL regulations requiring compliance.
• Quality. The corporate is likely to ask for a full service-level agreement (SLA) reflecting the quality of the service to be provided. This may be linked to grounds of termination for breach.
• Term and renewal. The TMC needs to include whether its appointment is exclusive, and how long the agreement is to last. Provisions should be made about whether renewal on expiry of the original term is automatic or if there are any notice and other procedures that should be followed.
• Transfer of Undertakings (Protection of Employment) (TUPE) compliance on termination. The TMC’s employees engaged mainly in running the corporate’s account may automatically transfer to any new TMC on expiry of the term.
• Termination. The usual provisions justifying immediate termination include material breach or insolvency. Other
popular triggers for termination include any change of control in the ownership of the other party, or frequent breaches of the SLA.
So what are the benefits of having an up-to-date commercial agreement? It gives certainty to the parties about the nature of their relationship and how long it will last; it reinforces what has been promised in terms of volume of bookings and price; it allows the parties to plan if they are expecting to expand; and it binds the parties together.
These are important factors if the TMC was ever to be offered for sale and form part of legal due diligence, so the buyer can establish the strength of regular income streams and the security of the relationship with the corporate.
Without a written contract, if things go wrong, there may be endless correspondence about what rights the parties have. The absence of contracts may also influence a buyer against a purchase.
Ian Skuse is a partner in Blake Morgan’s Aviation team and is based in their London office. Ian was a partner with Piper Smith Watton LLP, which merged with Blake Morgan LLP in August 2015.