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.