No need to disclose hotel markups or commission to clients

Mark Pestronk

Q: We handle meetings and incentive business for some of our corporate clients. For any meeting, typically, we get a net price from the hotel and then mark it up. Our marked-up price covers not only the hotel but also our on-site personnel to help with registration and any issues that arise. Sometimes we get a commissionable price from the hotel instead, and we still mark it up. We also charge a transaction fee for each airline ticket. I have never told the client about our markups or commissions, as the subject has never arisen. I have always felt a bit guilty about this nondisclosure, but I understand that our practices may be standard in the industry. Do we owe a legal duty to disclose the markups or commissions? What if the client specifically asks?

A: I know of no law, regulation, or court precedent requiring such disclosure, either at the time of contracting or at the time the client asks for the information. So, you are entitled to keep your markup and commission confidential, and, of course, you are entitled to charge transaction fees.

The only exception would be if you have a contract with the client that requires such disclosure, but I have never seen such a contract. Even complex “master services agreements” (MSAs), which are now so prevalent in corporate procurement, do not require such disclosure.

A typical MSA clause reads, “Supplier further agrees to promptly furnish, when requested by Company, such books, documents and records of Supplier as are necessary to verify the accuracy of the amounts invoiced to Company against any past or current goods and services provided by Supplier. If any audit discloses an overpayment by Company or a discrepancy in the amount invoiced by Supplier against the goods and services actually provided by Supplier, Supplier will promptly reimburse Company within 30 days of Company’s notification to Supplier of any such overpayment and further pay Company a fee equal to 25% of the amount of any overpayment.”

I interpret these clauses to mean that the client has the right to compare your invoices to the client with the services the client received and the payments the client made. As long as you haven’t presented fake invoices for services not provided, then you have nothing to worry about.

These clauses do not provide the client with right to examine what you paid suppliers or what your commissions are.

I realize that some TMCs provide full disclosure of all markups, commissions and overrides. However, they do so as a selling point, not as a legal obligation. I also realize that you may want to comply with the client’s request for such information as a matter of good client relations.

Finally, I notice that you haven’t said that you mark up the airline tickets. Just FYI, there is no law against that practice, either, but the American Airlines addendum to the ARC agreement prohibits that markup unless you disclose the carrier’s fare, and other carriers may have similar rules. 

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