Most would agree that the days of conducting business on a handshake are long gone. Make no mistake, honesty, forthrightness, trust and respectability are still qualities that we look for in our professional relationships. However, when it comes to transacting business the protection afforded to all parties is greatly enhanced with the use of a contract versus a verbal agreement marked by a handshake.
“A verbal contract isn’t worth the paper it’s written on.” ~ Samuel Goldwyn
The good news when it comes to the advertising industry, most client-agency relationships are governed by a contractual agreement. That said, there is one common mistake made by many advertisers when it comes to contracting with their agency partners… they start with the agency’s base contract.
Unfortunately, this creates a handful of challenges beginning with the fact that by its nature, agency contract templates are not client-centric. Then, when the advertiser turns the draft agreement over to counsel for review the document will likely require major modifications or, depending on counsel’s degree of advertising industry knowledge, there is a risk that key terms and conditions, which safeguard the advertiser’s interest will not be included in the agreement.
For advertisers, getting the contract “right” is important for two reasons. Firstly, the client-agency agreement establishes the legal nature of the relationship (e.g. principal-agent), while clearly articulating both stakeholders’ roles, responsibilities and rights. Secondly, the agreement establishes expectations and guidelines related to key aspects of the relationship, including; agency performance, staffing, remuneration, reporting, audit and record retention and intellectual property and data rights.
Over the course of the last several years the nature of client-agency relationships has certainly evolved with the advent of emerging technologies, changes in the regulatory environment and a move away from principal-agency relationships, which once held agencies to a much higher fiduciary standard. Thus it comes as no surprise that the complexity of the legal agreements that govern these relationships has increased dramatically.
Larger advertisers certainly benefit from working with marketing procurement departments and in-house counsel that are adept at contracting with a myriad of marketing vendors. Many organizations have developed standardized marketing vendor Master Services Agreements (MSAs) that can be used across their agency network, with some modification. These are typically “evergreen” agreements that don’t need to be renegotiated on an annual basis. Complimentary annual Statements of Work (SOW), which include key deliverables, agency staffing plans and remuneration program details are designed to be reviewed every year.
Additionally, the Association of National Advertisers (ANA) and The Incorporated Society of British Advertisers (ISBA) have both developed comprehensive, client-agency contract templates for use by their members that reflect industry “Best Practice” trends in this area. For small advertisers, or relationships with smaller, independent agency partners, the ANA and ISBA contract templates may not be wholly appropriate, but will provide a worthwhile guide for key terms and conditions that will certainly be applicable.
In our experience, advertisers will be much better served by taking this approach as opposed to accepting or attempting to retro-fit an agency’s base contract.
Of course, once the contract has been executed, marketing and advertising team personnel have an obligation to their organizations… monitoring contract compliance and financial management across each of their agency partners. The first step in this process, one which is often overlooked, is to socialize the agreement. Since an agreement is intended to serve as the basis for the client-agency relationship, it is important to share a summation of this agreement with those client-side individuals responsible for managing these important relationships.
As it relates to ongoing contract compliance monitoring tactics, these can include the tracking and reviewing agency time-of-staff commitments, retainer fee “burn” rates, budget control and project status reports and annual fee reconciliations. Progressive advertisers compliment these efforts with periodic business review meetings (i.e. quarterly or semi-annually) and by conducting independent agency contract compliance audits every year or two.
Good contracts can be the building block for great relationships. The time and effort invested in fashioning them and insuring compliance to them will yield dividends and across an advertiser’s agency network.