Operator selection is undertaken by developers and business owners for the appointment of the hotel management operator. The process involves candidate identification, screening, and contract negotiations, generally together with the owner's legal counsel.
When selecting an operator, hotel owners seek:
- The most suitable candidate to operate the property;
- The decision on the operating model, the basic terms, and the incentive;
- A documented and structured model for candidate evaluation, to ensure objectivity and an audit trail;
- A specialist with industry knowledge and expertise to identify and select the most appropriate operator;
- Expertise for the negotiation of the operating agreement, to ensure fair partnership conditions and optimized financial returns; and
- The specialist's recommendation for the final selection.
To initiate the process, the owner’s objectives must be ascertained and fully understood. Then suitable management companies are identified and listed, bidding documents are prepared, and expressions of interest (EOI) are solicited and collected.
Thereafter, the most suitable candidates are shortlisted, the commercial terms collected, the key provisions and performance criteria negotiated, and the MOU finalized. The memorandum of understanding (MOU) sets out the basic commercial terms by the operator, including operator fees, on which the hotel management agreement package will later be drafted – it can be thought of as the contract price.
The operator selection process concludes with the preparation of the draft hotel management agreement (HMA) together with the technical services agreement (TSA) and the pre-opening agreement (POA), their negotiation, and the closing.
The technical services agreement (TSA) governs the construction phase of a development project and details the plans and specifications for the new hotel. It is submitted by the owner to the operator for approval and sets forth the deadlines for construction milestones.
The pre-opening agreement (POA) is the part of the TSA that governs a given period prior to hotel opening. It sets forth forth the actions that the manager will take (at owner’s expense) to get the hotel operationally ready for opening, such as property snagging, hiring staff, preselling rooms, etc.