Run two separate comparisons: contractual economics on a common budget, and operating capability against each bidder’s proposed budget. Otherwise, a bidder can appear cheaper simply because it forecasts more revenue or leaves a cost elsewhere in the accounts.
What should a hotel operator RFP require?
The following is our proposed Operator Proposal Equaliser specification. It is a procurement framework, not a statement that every contract contains every charge.
| Comparison item | Require the same treatment from every bidder |
|---|---|
| Revenue | Monthly room nights, ADR, rooms revenue, food and beverage, other income and tax treatment |
| Management-fee base | Exact definition of eligible revenue, including mandatory guest fees, cancellation income and business-interruption proceeds where applicable |
| Incentive fee | Profit definition, deductions, owner priority, calculation sequence, caps, carryforwards and payment timing |
| Central services | Line-item scope, allocation basis, minimums, annual increases and third-party pass-throughs |
| Staffing | Positions, hours, wages, benefits, outsourced labour, vacancies and shared resources |
| Commercial expenditure | Commissions, paid media, loyalty charges, reservation fees, sales resources and revenue-management costs |
| Owner costs | Property tax, insurance, rent if applicable, owner oversight and other costs outside the operating budget |
| Capital and working cash | Replacement funding, immediate works, transition costs, cash deposits and the maximum projected cash deficit |
| Exit | Termination payments, notice, transition obligations, systems access and treatment on sale or refinancing |
Pass one—same hotel, same forecast: apply each proposed fee arrangement to the owner-approved operating case.
Pass two—different execution plans: evaluate each bidder’s staffing, commercial and operating changes. Attribute every proposed improvement to a named action, cost, responsible person and evidence source.
Can a higher base management fee leave the owner with more cash?
Yes—in an explicitly defined example, lower central charges can more than offset a higher base fee. The following figures are entirely illustrative and are not quotes from the named providers.
Assume an 80-room hotel with $4.8 million rooms revenue and $1.2 million other revenue. Operating costs of $4.2 million include property payroll and distribution costs, but exclude the operator charges and owner costs shown below.
Both hypothetical proposals charge a 10% incentive on positive profit remaining above a $1.2 million owner-priority threshold after base and central fees. This simplified threshold is not a definition of distributable cash.
| Annual item | Proposal A | Proposal B |
|---|---|---|
| Total hotel revenue | $6,000,000 | $6,000,000 |
| Operating costs before separately stated charges | ($4,200,000) | ($4,200,000) |
| Profit before operator charges | $1,800,000 | $1,800,000 |
| Base fee | 2.5%: ($150,000) | 3.0%: ($180,000) |
| Central-service charges | ($90,000) | ($30,000) |
| Profit after base and central charges | $1,560,000 | $1,590,000 |
| Incentive fee | ($36,000) | ($39,000) |
| Total operator charges | ($276,000) | ($249,000) |
| Property tax, insurance and other specified owner costs | ($350,000) | ($350,000) |
| Cash before debt service and replacement funding | $1,174,000 | $1,201,000 |
| Debt service | ($650,000) | ($650,000) |
| Replacement-reserve contribution | ($180,000) | ($180,000) |
| Cash remaining before owner income tax and unmodelled items | $344,000 | $371,000 |
Result: Proposal B’s higher base fee leaves $27,000 more annual cash under these assumptions. Total operator charges equal 4.60% of revenue for A and 4.15% for B; neither percentage is an industry benchmark.
The reserve contribution is a transfer into restricted replacement funding in this example. Do not deduct the same reserve-funded expenditure again when calculating unrestricted owner cash; reconcile contributions, withdrawals, actual works and unfunded capital separately.
The next question is not simply whether B is cheaper. It is whether A has credible evidence that its additional resources will generate more than the $27,000 difference in owner-level contribution, after all consequential costs.
Which management-agreement terms can overturn the fee comparison?
Treat exit and control rights as decision gates, not footnotes. Public disclosures demonstrate that performance-related termination can be conditional on the manager declining to make a cure payment. A performance shortfall therefore does not necessarily produce an immediate, cost-free exit. (sec.gov)
Ask hotel counsel to compare:
- Whether performance tests use market share, profit, both or another measure.
- Testing dates, consecutive-period requirements, exclusions and cure rights.
- Owner approval of budgets, senior appointments and material contracts.
- Related-party purchasing, rebates and central-cost allocation.
- Rights on sale, refinancing, insolvency and material ownership changes.
- Termination payments and any repayment of key money or other incentives.
- Ownership and portability of operational records, permitted customer data and digital assets.
- The transition plan and responsibility for employment-related obligations.
Our recommended rule: do not allow a strong numerical score to compensate for an unacceptable termination obligation or an unfunded transition.