I was chagrined to read the recent indictment on meetings, the Inspector General’s investigation into the GSA Western Region Conference in Las Vegas. ($823,000 and 6 planning meetings spent on a 300 +/- person training conference). You may have seen the story in the news these past few weeks, a scandal unfolding as the new poster child of wasteful government spending.
It’s situations like this that give meeting professionals a black eye, and the behavior of a number of individuals involved here offends me on so many levels. (SIX PLANNING MEETINGS!?! Unconscionable.) I could devote a full month of blogging to the varying and egregious ethical issues raised in this report. But the one that I’d like to focus on today (my addition to the conversation that the wise Liz Zielinski opened up here) is the question of commissionable third parties.
A few quick definitions, for those of you not in the industry:
- Third Party: a commonly used term for a meetings professional (individual or firm) who is not on the full time staff of an organization and who is subcontracted or otherwise hired to assist an organization with their events. Third party services may include: site selection, contract negotiation, housing management, full meeting logistics, event production, etc. Third parties are remunerated either on a fee-for-service basis, or by a commission received based on the size of the event that they are booking.
- Client/Group: the group or organization who hosts the meeting, who may hire a third party to supplement their full time staff’s capabilities.
I disagree with the Inspector General’s assessment that, “since the GSA already employs several full-time event planners, the use of the third party seems redundant and wasteful.” There are certainly full time teams out there that are completely overloaded with work. The raison d’être of an effective third party is to plug in and provide services to supplement the skills of the core team. Use of third parties is increasing in the meetings industry as many staff teams have been reduced to a minimum or outsourced completely. Third parties don’t carry the same overhead as ‘full time staff’ and can be added or subtracted to scale an organization’s capabilities quickly as needed. Without knowing the workload on the full-time staff, there’s no way for me (or the IG for that matter) to really evaluate whether bringing in a third party was “redundant and wasteful.” That being said, however, I am fundamentally concerned if our government policies even allow for the use of commissionable third parties rather than fee-for-service third party assistance.
Every client wants to assure that their own best interests are primary when a third party is being utilized. Our government has not only the right (but I would argue the obligation) to ensure that parties negotiating on their behalf actually have their best interests in mind.
It’s a simple fact: a third party paid on commission is financially incented to keep rates high, and to choose properties that offer the best commission percentage (which can be 3% – 10+%, depending on the property.)
It is my long-held opinion that third parties who claim that their site selection & negotiation services are “free to the client” are stepping into a disturbingly grey ethical area.
None of us work for free (and when we do, it’s called ‘donating services to a worthy charity,’ or an unpaid internship , which is education-in-lieu-of-financial-compensation.)
My opinion is simple: when you accept money for performing a service, I believe that the definition of ‘client’ changes to be “the entity who pays you.” When a meeting services company receives $12,000+ from a hotel for placing a meeting, the client is the hotel, not the group who ‘allowed’ them to place the meeting.
This “It’s Free to You!” promotional language, saying that “the budget for commissions comes out of a different pocket at the hotel, so it doesn’t change your rate” is patently ridiculous. In the aggregate, any increase in expenses (taxes, cost of electricity, food prices, labor rates) WILL most certainly affect the rates that the hotel is able to offer. And thus, exorbitant commissions absolutely raise the rate tide, for everyone. Let’s not pretend that the added expense doesn’t exist.
Don’t get me wrong – I’m not opposed to the concept of commission in general. It’s a very effective motivational tool for salespeople, and as Liz points out, there are many industries that use commissions quite successfully. But “commissioned salespeople” are just that – salespeople incented by the seller to bring in business. It is logically impossible that a representative can be negotiating in the best interest of BOTH parties in a contract. When a services company is paid by the seller, they defacto work for the seller. Period. I buy products where the salesperson makes a commission all the time – many of us do, and we’re quite happy with them. But I don’t delude myself that the guy selling me that car is really “working for me.”
Groups who choose to work with commissionable third parties should do so transparently and clearly with the full understanding of the organization’s executive leadership. At a minimum, an annual review of service agreements should be conducted, with executive leadership having full awareness of commissions being made from the business being booked. Conversely, I suggest a regular auditing of all fee-based service contracts to ensure that there isn’t a “double dipping” going on. All hotel contracts booked by a fee-for-service agency should clearly identify rates as “net, non-commissionable.”
This all boils down to transparency and ethics: we should all be proud of how we do business, and prepared to disclose and defend the fees we are paid. This information should be available to the client organization’s leadership, to the attendee staying in the hotel room, to your ultimate ‘customer’ footing the bill for an event – in this case, the taxpayer. And as a taxpayer here, I’m uncomfortable.
You’re a taxpayer, too: what’s your opinion? Should US Government policy allow for the hiring of commissionable third party meeting services agencies? Would your group use one?
(FULL DISCLOSURE: MonkeyBar Management provides site selection & contract negotiation services to some of our clients. Clients pay us a fee for our services directly, we do not accept commissions.)