THE RISKS AND REWARDS OF PCO BUSINESS MODELS

Analysing the risks and rewards of engaging a professional conference organiser is an essential element of planning an event.

And deciding exactly what role the PCO will play is the key to a happy relationship between the client and the successful tender for the conference organising business.

Companies and organisations who sign up a PCO to manage their event without fully understanding the contract are risking an unhappy ending – with equally unhappy ramifications for the whole PCO industry, according to Francis Child, managing director of Sydney-based PCO Conference Action.

“One of the concerns that the Professional Conference Organisers Association has is that when clients sign up with organisers without understanding what they are signing up to, they are getting badly burned at the end,” says Child.

“The end result is not good for the industry as a whole, as next time that event will take their organising in-house and the industry has lost that piece of business. Unethical practices are messing up the whole market.”

There are three business models which are followed when appointing a PCO. Clients should consider whether the organiser will provide services as a consultant (providing advice but not getting involved), an agent (engaging suppliers such as venue, audio-visual, catering, talent etc) or as a principal (engaging the suppliers in its own name and requiring you to reimburse the costs).

Different legal and financial outcomes arise from each “model”, says Child.

Clients should carefully consider the model offered by the PCO, and check that the written contract deals with at least the following issues:

  • Who enters into (and is liable for) contracts with suppliers;
  • What is the budget for the event and what is the procedure for varying it if circumstances change?
  • What powers to direct the event manager (and powers of veto) do you retain?
  • What cancellation arrangements apply?
  • How are the funds managed, and what are the banking arrangements? Many PCOs will want to control the funds, but that can mean a loss of control for the client. Controlling the purse strings can be an important means of quality control and maintaining bargaining power.
  • What happens to any surplus of revenue over costs?
  • How is GST paid and managed? If you are reimbursing supplier costs paid by the organiser, the organiser would be entitled to a tax credit for the GST paid, so you shouldn’t have to pay it too.
  • What fee is payable to the event manager?

Child cites a case where, at the end of an event, the client believed the PCO had charged them $200,000 more than they were expecting.

“Legally, the PCO charged what they had said, but what the client had effectively done was taken the PCO on as principal and lost control of their event. The problem was the association instead of making $130,000, lost $30,000 on their event and subsequently took the work in-house next time.

“Make sure you see contracts before making the decision on the tender, and be sure you understand the risks and rewards to what you are signing up for,” he says.

“This helps safeguard the industry as a whole.”

Potential clients should also ask the PCO whether it accepts commissions from suppliers, either as “reverse payments” or other “in-kind” benefits such as complimentary services or discounted goods.

If commissions are not disclosed to the client, the PCO has a conflict of interest. Supplier selection should ideally be on merit alone. If the fee quoted is substantially lower than others, commissions may be involved. Clients should insist that commissions or inducements are disclosed in writing and reserve the right to discuss such matters directly with the suppliers.

In some cases, undisclosed commissions can be a breach of the law. Clients can retain the right to contact suppliers and obtain quotes independently.

Contract terms and conditions should be settled and agreed (and contracts signed) before the supplier commences work.

Some issues that should be considered in relation to supplier contracts are:

  • What will the supply cost and what scope is there for variation of cost? Are there circumstances in which the supplier can increase the costs?
  • What is included for the fee? Is the fee all-inclusive or are there extras or costs that will be charged in addition to the agreed fee?
  • Cash-flow – when is the supplier to be paid? You should avoid paying too much in advance. Payment should be linked to the achievement of milestones wherever possible.
  • Description of the goods or services should be as accurate as possible and where buying services describe the outcomes you want, not the work, wherever possible.
  • Cancellation – how is this managed? It is often overlooked. A supplier may be entitled to charge some of its fee if the event is cancelled, but unless the event is cancelled at very short notice, the supplier should not be entitled to the whole fee. Cancellation needs to be considered from the perspective of the delegates and needs to be considered when preparing the terms and conditions of attendance.
  • Programme change – unforeseen circumstances can prevent a speaker or supplier from turning up on the day. Your contract with delegates should reserve the right to make programme changes where necessary.
  • Intellectual property ownership – if the supplier is performing creative work, such as creating a website, ideally you should own the intellectual property, or at least obtain an exclusive licence of the material as a compilation of inputs.
  • Trade Practices Act – you should not be required to purchase products from other suppliers (third line forcing) or to on-sell products to your delegates at agreed prices (resale price maintenance). There are many other possible risks under that legislation.
  • Avoid agreeing to indemnity clauses wherever possible. These clauses expose you to liability that can be much higher than your ordinary liability under the law. Liability under such clauses will, in many cases, not be covered by insurance.
  • Ask for the contact to be signed by directors of the company. If that is impracticable, the CEO or general manager is next best. Be sure the person signing has authority to sign.

Why on earth work with associations?

Simon Pryor FSAE FAIM

About Simon Pryor

Simon Pryor has been Chief Executive Officer of the Mathematical Association of Victoria for the past ten years, part of a continuing thirty-plus year career in the not-for-profit sector. A committed professional, he has served as a volunteer director of the peak body in the association sector for four years and, as a result, now serves as the inaugural President of the Australasian Society of Association Executives (AuSAE), formed from Associations New Zealand Incorporated and the previous Australian Society of Association Executives. He has experience as a small business and economic developer and as a strategic planner for local government. He is on the board of the NFP responsible for the celebrated Brunswick Music Festival and has served as Mayor of his local city. He takes pride in his past as a Melbourne tram conductor.

Why would you (work with an association as a PCO)? The list of good reasons not to is considerable. Volunteer committees that take an eon to make the simplest of decisions. The uncertain finances of a not-for-profit trade, industry, professional or sporting body. Folk who know no boundaries and insist they know your profession of meetings and events management better than you. The perils of the international bid. The vagaries of politics in a small organisation. A drawn out business cycle to plan around. Managers whose key priority is to reign in costs. Committees who want it all, but for a song. Traditions that stand in the path of progress.

This is just the beginning of a list of negatives that could so readily be added to.

But consider this: Throughout the global financial downturn, the impact on tourism of Aussie dollar highs and business naysayers criticising the value of face-to-face meetings, New Zealand and Australian trade, industry and professional associations have continued to hold education events, plan trade exhibitions and conduct meetings of members. Sure, the number of participants attending each event may have been down, but in the main the frequency of these association meetings and events have held up over the last three years. Now, can a PCO say that about the meetings and events held in the other two big sectors of the New Zealand and Australian economies; government or the corporates? Probably not.

Associations can be the great constant for a stable PCO business. Never the most lucrative of clients, but less likely to cancel their business at the slightest economic tremor.

The question arises, though, as to whether there is enough of this association business to go around. To which the rejoinder is; are you kidding? A typical European, North American and Australasian economy is made up of a public (or government) sector, business (For-profits as big as Apple and BHP-Billiton and as small as the local family-run foodcart) and a large NFP sector (Charities, community agencies and trade, industry and professional associations). Generally, this overall NFP sector can be as large as a nation’s entire retail sector. This means that, within the overall NFP sector, there will be many thousands of trade and professional associations in each and every nation. All of them arrange meetings; from small Board meetings through regional and national meetings all the way to huge international meetings.

Australia’s Productivity Commission reports that the total  NFP sector consists of at least 700,000 organisations with over 59,000 being ‘economically significant’ entities, employing over 890,000 staff and involving the services of 4.6 million volunteers with a gross value added (GVA) contribution to Australia’s economy of at least $AUD 55.6 billion. Flowing from the work of the Productivity Commission, AuSAE calculates that there are over 16,500 trade, industry and professional associations in New Zealand and Australia for PCOs to work with. Now, for PCOs on both sides of the Tasman, that is a bag load of potential business.

Convinced that your PCO enterprise needs to capture some of the meetings and events business that must inevitably flow from these 16,500 associations? Keen to start identifying just who these bodies are? Interested in developing the knowledge and expertise that will ensure your business knows how to engage with the association sector? Well, now that we have your attention, these are questions for another day.

*The PCO Association has invited Simon Pryor to contribute irregularly to the PCO column in CIM. In future editions he will delve further into the important relationship between the meetings and events industry and the world of associations.

Managing Change in the Mice Sector

What would you do in your business, if, in 12 months time, your product or service was irrelevant?

That was the challenging question posed to delegates at the PCO Association’s annual conference in Auckland by Lynne Schinella, chief executive of training company Ripe Learning.

Schinella said the conference theme “Adapt, Improvise, Overcome” was very apt, as she predicted that 2012/13 would be a “fairly stagnant” market.

“I don’t think that’s ever been more relevant as we teeter on the brink of another GFC, at best in Australia and New Zealand we can expect a market with little growth and plenty of turbulent times ahead,” she said.

“I hear a lot about innovation but don’t really see much evidence of it.”

Emerging trends included cost-cutting, small events merging with larger ones, intense competition for attention, and delegates looking for more connection.

She said studies showed that a high percentage of respondents took part in virtual conferencing, and that tweeting was a growing trend in both online and live events. Free internet would soon become a staple requirement at conferences as delegates increasingly used the high tech tools available to them.

But many people – especially those in the SOHO sector – were still looking for human contact.

“Networking, business leads and education – these are the three reasons people attend conferences,” she said.

“The cornerstone of education is the speakers – they should be relevant, on-topic, and authorities in their field.”

As change was inevitable, it was important to learn how to manage it, she said.

“Desire and belief are not enough. Focus and commitment are needed.

“Don’t just wait for change to happen. Create change – if you are an innovator, you are ahead of your competition and you are the one making the rules. Use the strengths of people in your organisation who love change.

“In healthy economic times, you can get away with one size fits all. But when it’s time to adapt, innovate and grow, we need diversity. Differences in people bring fresh perspective, different ideas, robust debate and innovation. If your team is full of one type of person growth will be stifled, because everyone is too busy validating each other’s ideas.

“It is not the smartest or most talented people who get the best results, it is those who take massive action towards their goal.”

Useful websites recommended by Lynne Schinella for managing change:

www.fastfuture.com
www.shapingtomorrow.com
www.futuretrendsgroup.com
www.slideshare.net
www.nigelcollin.com.au
www.tedtalks.com