Contract Compliance Matters

3 Jun

contract compliance auditingAs an agency contract compliance auditor too often we see client-agency agreements that are one-sided, lack the requisite terms and conditions and generally fail to provide the advertiser with the controls, reporting and transparency necessary to effectively monitor their advertising investment.  Surprisingly, in many instances the agreements are not even executed by both parties. 

Ironically, when we do come across well written agreements which contain the detail, clarity and exhibits required for both the client and agency to protect their legal and financial interests and to promote a health relationship it is rare that those rights and controls are enforced.  There are many reasons for this oversight, none of which are valid and each can create risks for the advertiser. 

In our experience, the chief barrier for advertisers in negotiating a letter-of-agreement (LOA) that integrates the language, terms and conditions that ultimately protect their interests is that an advertiser’s in-house counsel and or procurement team often does not have deep experience in or knowledge of the marketing services space and industry “Best Practices.” 

On the contract compliance front, once an LOA has been executed it is not atypical for that agreement to find its way to an obscure “Legal” file in “someone’s” office without the instrument having been properly socialized with representatives from Marketing, Finance and Internal Audit.  Layer in employee turnover, transfers and office moves and the LOA and its relationship governance framework are often lost and or forgotten about.  As a result, the reporting, controls and behaviors required as part of the LOA go unmonitored and, in the worst case, aren’t complied with. 

A structured marketing services agency contract compliance program can assist clients in addressing these issues, mitigating the potential risks to their organizations and in optimizing the performance of their agency networks.  The benefits of such a program to an advertiser begin with the contract formulation stage of engaging an agency partner and can encompass a range of activities including: 

  1. Implementation of contract and agency remuneration system “Best Practices” 
  2. Standardization of a Marketing Services agency LOA template
  3. Transparency enhancing control, reporting and reconciliation clauses in LOA
  4. Periodic independent agency contract compliance audits
  5. Ongoing contract compliance monitoring and performance assessments
  6. Financial reconciliations (i.e. agency fee, agency billing, 3rd party vendor billing)
  7. Agency transition audit support

Given the number of agencies which often comprise an advertiser’s marketing services supplier network, and the level of the marketing investment being managed by those agencies, “contract compliance” should be considered an essential element of an advertiser’s strategic relationship management effort. 

“Knowledge is the true organ of sight, not the eyes.” ~ Panchatantra 

Timely, thorough contract compliance and performance monitoring is an excellent means of incenting positive behavior both within an advertiser’s organization and across its agency partners.  The net result can be stronger client-agency relationships built on a foundation of trust and aligned expectations.  In turn, an engaged and motivated supplier network can help client organizations increase their return-on-marketing-investment.     

Do you know where your agency LOA’s are?  If you would like to discuss the potential benefits of agency contract compliance, feel free to contact Cliff Campeau, Principal of Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

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