21 January 2010 | Business travel TMC fees, Amon Cohen 

Getting a realistic quote from a TMC is as reliant on you providing accurate information about your company as it is on the TMC’s pricing structures

When buyers issue an RFP for the services of a travel management company, strange things can happen. Three TMCs may respond with a price in the region of £20 per transaction, whereas a fourth will offer £10. Is the £10 bid the one to go for?

Experienced buyers would instantly be suspicious. The cheaper TMC could be cross-subsidising its fees with hidden incentives from suppliers, which might distort its service. Alternatively, it could be that the TMC has misunderstood what is required and priced up the job inappropriately. Or it may have understood very well what is required but intends to claw back the lost income through hidden charges, relying on the fact that changing TMCs is extremely disruptive and hoping to wear the client down through attrition.

Chris Reynolds, senior partner of travel consultancy 3Sixty Global and a former travel manager and TMC executive, wouldn’t go that far in conspiracy theorising. However, he certainly sees many corporations racking up much larger TMC bills than they anticipated. “When I do audits to show businesses what they are really paying, the cost per transaction often works out double the core fee,” he says. “On some long contracts, hidden charges have been found to run into millions of pounds.”

Reynolds says the problem is particularly prevalent for management fees, which bundle together many TMC services into a total price based on the TMC’s costs and an agreed profit margin. “There is often double charging, such as a ‘technology fee’ and a ‘management information fee’,” says Reynolds.

“If you ask what these are for, there is often some head-scratching. Some TMCs are very creative, and the biggest TMCs are often the most creative.”

Not surprisingly, TMCs reject this view. Portman Travel and HRG, two of the UK’s largest, say they price with integrity and believe their competitors act likewise. “There is no point in misleading customers,” says Ian Windsor, managing director at HRG UK. “How would you get the trust back?”

Mike Hare, chief executive of Portman, says: “If we were to over-sell, the pain in redressing it would be so immense that we would only pay for it later.” He adds that when TMCs revise their pricing after a contract starts, it is often because the data clients gave them at the RFP stage needs adjustment. “There are often problems because purchasers are unaware of the complexity of the operation,” he says.

He is supported by Simone Buckley, director of travel programme optimisation for Bouda, a consultancy that helps companies contract with travel suppliers. She cites the example of a client that thought it was giving TMCs its hotel transaction numbers in an RFP when in fact the data was for room nights – more than double the correct amount.

Buckley also says that if pricing looks odd, it could indicate inefficiencies in the client’s processes. A former TMC boss herself, she was once astonished to find a rival TMC assigning 100 staff to a single account. “When we got the data through, we thought the account only needed 50 and that the other TMC was ripping off the customer,” says Buckley. “Then we found out the client was making double the standard amount of phone calls because it allowed employees to book three flights and cancel two. The TMC was doing the appropriate amount of work.”

All this explains why, according to Jo Lloyd, travel sourcing director for the hotel company IHG, buyers must do their homework. “Data is key,” she says. “In addition to the data, though, it is essential the buyer scopes out the culture of their business and expectations of service to allow TMCs to provide the right guidance.  It is not just about numbers.”

Once the buyer is providing accurate information, it can expect the same in return. Reynolds recommends refusing to score an RFP until the TMC has removed all the extra charges. However, it may not be as simple as that. Providing watertight definitions of what is included in a fee is difficult. As a result, says Windsor, a period of adjustment after a contract starts is inevitable. This will include some redefinitions and repricing, but also advising clients where they can create efficiencies by, for example, moving simple bookings online.

If one accepts this argument, buyers may need to build a pricing review stage into their RFP strategy, because, says Windsor, “sometimes procurement moves on to the next job and the travel manager doesn’t know what has been negotiated.”

AT A GLANCE

Understanding bids and fees

How to get the pricing right

Check you are providing accurate information in the RFP, for example, the number of hotel reservations, not number of room nights.

Are your processes streamlined? If a TMC’s bid seems high, it may reveal inefficiencies in your company.

Understand the transaction price; fulfilment price (for example, the fee for the work that goes into issuing a ticket); and additional costs: these three elements should cover the entire fee.

Give clear definitions of potentially ambiguous terminology such as “low-touch” or “touchless” transactions. These terms refer to reservations made by travellers through corporate online booking tools. A touchless online booking means that no human intervention is required in the fulfilment process after the booking is made. Low-touch is if some minor tasks are required of the TMC staff, such as making a quality control check of the booking.

Insist on paying an online fee for reservations that cannot be made through the corporate booking tool, not the higher offline fee.

Disclose up front if you wish the TMC to use a different global distribution system (GDS) from its normal partner. Lost incentive payments from its preferred GDS may force it to raise its price.

Be very clear about which additional post-reservation services you require, such as carbon emissions tracking.

Don’t include non-transactional services, such as account management, in the transaction fee. Keeping them separate makes both the transaction fee definition and account management pricing much clearer.

Don’t buy account management by the day. It should be based on agreed performance measurements, such as achieved savings or levels of policy compliance.

Clarify everything agreed verbally in writing and communicate it to bookers within your organisation.

Source: Bouda

FURTHER INFO

Service level agreements

Making them meaningful

Attractive pricing from a TMC will be a good deal only if the agreed service is delivered. A service level agreement (SLA) is the answer, but Chris Reynolds of 3Sixty Global says SLAs are often long on quantity and short on quality.

“Keep the SLAs to fewer than 10 that relate to business objectives and are measurable,” he says. “Try to build in a risk/reward element.”

Portman Travel’s Mike Hare adds that incentives regarding savings must define what the measurement is. In addition, flexibility is required for customer service SLAs. For example, there should be exceptions to minimum waiting times for telephone calls, such as during major travel emergencies.

SLAs also need to be acted upon meaningfully, according to Simone Buckley of Bouda. “Make sure you monitor it monthly, not after 180 days,” she says.

The good news, she adds, is that “if you manage the SLA proactively, it builds good data for the next RFP.”