13th May 2014
Disputes are a part of business, and the hospitality industry is certainly no exception. Owners and operators will come into conflict from time to time, and the Management Agreement and the dispute resolution process described within it will be tested. That’s why careful design of the dispute resolution process is a crucial part of any management agreement. A sensible, rational process that gives both parties the opportunity to resolve their conflict without the disastrous expense and chaos of litigation can be the difference between a hotel partnership that thrives and one that fails.
When designing dispute resolution procedures in a management agreement, many time people get lost in the woods trying to build a complex machine that can handle complicated disputes; however, they may lose sight of the simplest, most basic aspects of conflict resolution. The most basic is the High-Level Executive Phone Call. Most disputes will occur between line officers with boots on the ground, and often, a mandatory, high-level conference call between executives can resolve the issue simply and efficiently. Making this the first step of any dispute resolution process can be the most effective aspect of the design.
Another important aspect of a well-designed dispute process is making provisions for an expert to be on hand to resolve common disputes, like budget conflicts. Acting more or less as an on-call arbitrator with a narrow field of jurisdiction, an expert can render quick decisions that resolve issues with the weight of knowledge and experience behind them—before they can escalate into full-fledged disputes.
One of the most crucial aspects of a well-designed dispute resolution process is providing for pre-lawsuit mediation. Once litigation is initiated, everything changes – the dispute has gone from cold to hot, and the courts will be in charge. Even if the court orders mediation, it will be mediation on the court’s terms, not yours. Providing for a mandatory pre-suit mediation period can often resolve even the worst disagreements before that final, fatal step into litigation.
Finally, if all else fails, the management agreement should determine whether arbitration or litigation is the final road to be taken. Litigation is almost always the worst possible choice, as it is expensive, time-consuming, and often renders decisions neither side agree with – leaving no winners. Specifying binding arbitration as the last resort can spare everyone that misery.
Designing your dispute process carefully before the contracts are signed can save everyone trouble down the road – and keep your management agreement profitable for both sides.