Tag Archives: client-agency agreements

Outdated Client-Agency Agreements Pose Risks to Advertisers

21 Aug

ExpiredWARNING: If the contract between your organization and its advertising agency(s) has an effective date prior to January 1, 2017, you may be at risk.

Not unlike fresh produce, dairy products, meat, medicine or even beer, contract language is perishable. 

Seems far-fetched you say. Consider that the ad industry is a dynamic, fast-paced business sector. One only need recall the breadth and rapidity of change brought on by technology advances and increasing levels of regulation in just the last four years:

  • April of 2016 – Europe enacts The General Data Protection Regulation (GDPR) governing how companies handle consumer data, forcing advertisers, agencies, publishers and intermediaries to implement business rules and guidelines to safeguard personal data and privacy.
  • June of 2016 – The Association of National Advertisers (ANA) publishes its North American Media Transparency study, leading to wholesale changes in contractual controls. As a result, nearly 2/3 of ANA members indicated that they would update their media agency agreements.
  • December of 2016 – The industry’s four largest agency holding companies involved in a Federal bid-rigging probe following allegations by post-production houses on the misleading use of rates they provided to agencies.
  • September of 2018 – The California Consumer Privacy Act (CCPA) goes into effect giving consumers more control over the personal information that businesses, including advertisers, agencies and publishers collect about them.
  • October of 2018 – The Federal Government informs the ANA and its members that the Federal Bureau of Investigation would be investigating potential misleading conduct and or deception between media holding companies and advertisers.
  • June of 2019 – Cybersecurity company, Cheq reports that advertisers will lose over $23 billion to ad fraud in 2019 alone.
  • July of 2020 – Year-to-date the European Union has issued over 300 fines to advertisers and publishers totaling more than $171 million for violating GDPR guidelines.

Each of these occurrences and numerous others has led to the need for advertisers to rethink their contractual controls in order to safeguard their organizations both legally and financially. In turn, this requires language enhancements and the addition of terms and conditions dealing with a range of topics such as privacy protection, data security, intellectual property ownership, transparency, audit rights and indemnification.

All too often, the contracts governing client/ agency relationships are slow to evolve, posing serious risks to advertisers. This in spite of trends such as the growth in the number of intermediaries, agency use of affiliates, expanding agency rosters, murky supply chains, brand safety concerns and the prevalence of ad fraud that pose risks to advertisers.

The thinking on items that were once considered “standard” within the industry, and therefore thought to be sufficiently covered in the context of agreement language can no longer be assumed. Advertiser expectations on topics such as; establishing principal-agent relationships, client-centric audit rights, requirement for full-disclosure in all dealings by the agency with affiliates and third-party vendors and limiting agency revenue to the remuneration described in the agreement and or appropriate SOWs must be reviewed and explicitly defined.

In our contract compliance practice, we have identified 3 key “triggers,” which if present, should incent advertisers to review and revise their agency agreements:

  1. The “effective date” of the current Client/ Agency agreement is more than 2 years old.
  2. If the parties utilized the Agency’s contract template as the basis for the agreement. These documents contain language that reflect the agency’s interest, not necessarily those of the advertiser.
  3. If an advertiser has “evergreen” agreements in place, but updates Statements of Work annually. Too often, while clients update the SOW, reviewing the contract for necessary updates is forgone.

The good news is that both the ANA and the ISBA have issued solid guidance in the form of framework agreements for use as a starting place to construct media and creative agency contracts. It’s important to note that while these broad-based agreements are an excellent resource, every relationship has nuances with new evolving risks that should be weaved into new advertising agreements.

Current, comprehensive supplier agreements leads to solid controls, improved transparency and stronger agency relationships. Integrate periodic contract compliance and financial management auditing and advertisers can rest easier knowing that they have successfully extended their governance and risk management framework to this important area.

“The essence of risk management lies in maximizing the areas where we have some control of the outcome, while minimizing the areas where we have absolutely no control of the outcome.” ~ Peter Bernstein

Why Are Media Agencies Forgoing Objectivity?

24 Jul

dreamstime_m_35343815Consumer media consumption behavior is ever evolving. And advertisers must select from an expansive array of content venue choices to communicate their messaging. Balancing these two dynamics is the key to optimizing media investment decisions.

Time was when agencies based their media resource allocation recommendations on insights gained from an exhaustive, objective review of media performance and audience delivery data. 

In traditional principal-agent relationships, agencies have a fiduciary responsibility to act in the best interest of their clients. This includes providing advertisers with informed recommendations, free of bias or conflicts of interest, that are advantageous to the advertiser. Most advertisers understand that in the twenty-first century, unless the principal-agent relationship is firmly established in the Client/ Agency agreement, all bets are off when it comes to their agency being bound to adhere to principal-agent guidelines.

Over the course of the last decade or so, practices such as “principal-based media buys” and ABVs (rebates) came into vogue. This is where an agency takes ownership of the media inventory and resells that inventory to the advertiser at a non-disclosed mark-up, making a profit on the spread and or receives an incentive based upon its total spend with a media seller. Good Client/ Agency agreements require the agency to secure the client’s written authorization before employing these type of practice and in the case of rebates to remit the advertisers pro-rata share of such rebates.  

Fair enough. Buyer beware. Trust but verify. Got it.

There is another practice that seems to be gathering steam between media sellers and media buyers that raises questions about the objectivity of an agency’s media planning and buying recommendations. Simply stated, media owners, seeking to lock-in a revenue stream from a given agency holding company, are offering to reserve inventory in bulk for that agency to allocate to its client base at some point in the future.

One recent example of this is Omnicom Media Group’s (OMG) commitment earlier this month to spend $20 million of its clients’ media funds to advertise in podcasts distributed by Spotify. Given the nature of the advertisers represented by OMG (McDonalds, AT&T, P&G, PepsiCo, etc.), their total media spend and the fact that 2020 media plans have been completed and buying commitments presumably made perhaps there is little risk of such a deal influencing whether or not an advertiser should commit dollars to Spotify podcasts.

Separately, it was recently reported by Digiday that TV networks and agencies, in an effort to jump-start the annual upfront marketplace, were considering share of spend deals to “address advertiser commitment issues.”  In this scenario, an agency holding company would commit to spend a percentage of its clients’ aggregate upfront budgets with select network groups. However, client budgets are in flux and there are multiple questions surrounding the traditional upfront marketplace. Thus, the commitments being made by agencies are being done in advance of any client media authorization process. It would be natural for one to ask; “What incentives are being offered by the network groups to facilitate such deals? And How are such benefits distributed to an agency’s clients?”

The primary concern with this type of approach is the potential for these buying commitments to bias an agencies recommendations to its client base. As the author of the Digiday article points out if aggregate spend projections come up short, the holding company may find itself in a position where it may “need to push clients to spend their money” with a given network group.

Practices such as these are fraught with risks. When an agency has already committed to a pool of inventory on a network group based upon hypothetical aggregate spend levels across its client base objectivity is lost.

We are simply not fans of this practice, believing that agencies have a fiduciary responsibility to their clients to make media recommendations, based upon an unbiased fact base, that are in the best interest of the advertiser.

 

 

Adjusting Marketing Budgets is Multi-Dimensional

5 May

budget cutAs we began 2020 no one could have predicted the level of upheaval the economy would experience as a result of the COVID-19 pandemic. The changes forced on businesses as a result of government mandated shelter in-place policies, while critical for curtailing the spread of the virus, have been devastating. According to consulting firm, Brand Finance “America’s Top 500 Brands could lose up to $400 billion” due to COVID-19’s impact on the economy.  

Organizations have sprung into action, many slashing advertising spend, along with other expenses as they seek to offset dramatic reductions in revenue and to deal with mounting cash flow challenges.

As marketers approach the mid-point of the second quarter it is clear that the changes to their fiscal budgets will be significant and potentially lasting. In a recent poll of marketing and advertising executives, by Advertiser Perceptions, 77% of those surveyed expect ad spend to be soft through the first-quarter of 2021.

Thus far, many companies have taken a wait and see attitude with some of their advertising and marketing commitments as they rightly weigh options related to modifying, rescheduling or cancelling advertising commitments. Moving forward, decisive action will be required to safeguard and recall funds pre-paid to agencies, production resources, events management companies and media sellers for creative that will never come to fruition, media that will never run and sponsorships that will be postponed or cancelled.

Equally as important is the need to review and likely revise annual agency scopes of work, staffing plans and remuneration programs that have been impacted by the reduction in marketing spend.

These can be challenging and complex conversations to have with your agency partners and in turn, with third-party vendors, particularly because their organizations are dealing with comparable business and financial issues. For the purposes of this article, we want to focus on the client/ agency portion of the ledger, rather than external commitment and resource reallocation reviews that are likely currently underway.

A disciplined approach, focused on contractual terms and current financial facts, will yield the greatest return as you seek to right size your marketing budget in a fair, responsible and expeditious manner. This approach also recognizes that in addition to the goal of reducing costs, companies are seeking to improve financial flexibility and limit risks and exposures. Stephen Covey wisely suggested, it is best to; “Begin with the end in mind.” Same applies now, it is best to begin with a review of current governing documents between advertiser and agency, and any year to date agency financial reporting, in order to answer this handful of straightforward questions:

  1. Does the Agency Agreement afford you the right to modify your Scope of Work and or retainer fee? If so, what is the notification requirement in your agreement?
  2. What Scope deliverables have been completed to date?
  3. Where is the Agency on their Staffing Plan commitments?
  4. What P.O.s have been issued to the agency? For open P.O.’s what is the open balance on each P.O.?
  5. Do you have a detailed Job History Report, that provides financial details for all jobs, open or closed? Can you identify which jobs have been completed? Of those that remain open what are your options to postpone, modify or cancel any of them?

Answers to questions such as these will assist in facilitating productive interactions with all stakeholders, across multiple fronts ranging from informing budget reduction and reallocation decisions to the potential impact of internal or agency-side staff reductions on financial management processes and controls and the corresponding risks.

One area that must be addressed is agency remuneration. Reductions in overall spend, scaled back Scopes of Work and revised agency Staffing Plans necessarily impact agency compensation, whether commission or fee based.

For their part, agencies have rightly taken steps to address the impact of client ad spend reductions. To date, each of the major holding companies have announced plans to reduce expenses. These reductions include; employees being furloughed or laid-off, involuntary salary reductions, the waiver of bonuses and 401k contributions, executive management taking massive pay reductions and a freeze on non-billable expenses… all designed to lower their cost base.

If your agency is on a direct labor-based remuneration program, the reduction in the agency’s direct labor and overhead costs means that the fees which you pay should be reduced accordingly. With this compensation schema, even a modest change in an agency’s cost structure can have a meaningful impact on the fee calculation.

It should be noted that the goal of the compensation review is not to wring out savings at the expense of the agency, but to adjust the fees to reflect the reality of the revised 2020 marketing and advertising budget and corresponding changes to the Scope of Work.

Marketers have a fiduciary obligation to their organizations to account for, safeguard and recall funds targeted for reduction. This can best be done working in collaboration with their agency partners, while affording those partners a high level of respect and empathy. Once the budget right sizing process has been successfully completed, all stakeholders can refocus their attention on the future, perhaps drawing motivation from retired 4-star U.S. Army General, Colin Powell who once said: “Always focus on the front windshield and not the review mirror.” 

 

 

4 Appropriate Limitations On Agency Remuneration

12 May

fourIt is our belief that agencies, consulting firms, contractors, employees and yes, even auditors, are entitled to earn as much money as they can in return for services rendered. Further, we are agnostic when it comes to the mode of remuneration, whether those fees are predicated on a resource based, outcome-based or value-based pricing model.

We also recognize that client organizations have the intelligence and wherewithal to negotiate professional services agreements that satisfactorily address both their needs and their budgets.

That said, experience has taught us that sound Client/Agency agreements should also place limitations on the revenue earned by an advertiser’s agency partners. In short, agency revenue should be limited explicitly to those forms and amounts of revenue that are intended and accordingly defined within the agreement, or otherwise agreed to in writing by the client. Period. The end.

Unfortunately, in our contract compliance audit practice, it is too often that we find agreements which don’t effectively restrict agency revenue to that which has been negotiated and memorialized in the contract between the parties. This can lead to misunderstandings and in rare cases bad behavior on the part of professional services providers seeking to unjustly optimize their revenue yield.

Below are four examples of appropriate contract limitations for advertisers to place on agency revenue, once the remuneration program has been negotiated:

  1. An agency should not be allowed to earn money on the handling or holding of client funds. Examples of this could include the earning of interest or “float” income and rebates or bonuses earned from the use of corporate credit or purchase cards to pay third-party vendors for purchases made on behalf of a client.
  2. All expenses, including those for third-party commitments and out-of-pocket expenses, should be billed on a net basis, at the agency’s cost, with no mark-up allowed.
  3. Discounts, rebates or any other benefits earned by the agency, its holding company and or related parties tied to the investment of client funds and or prompt payment to third-party vendors should be remitted back to the client upon receipt of such benefit.
  4. For direct labor based fees, the agency should not be allowed to charge for employee hours in excess of the full-time equivalent (FTE) standard (e.g. 1,800 hours per annum). Quite simply, once the FTE threshold has been met, the agency has fully recouped employee direct labor and overhead costs and realized the agreed upon profit margin.

One further measure of protection for advertisers is the addition of contract language requiring the agency to be transparent, to fully disclose all transactions and the flow of client funds along with the presence of any rebates or incentives received by the agency directly or indirectly.

Please note, that the “limitations” listed above are not meant to restrict an agency’s ability to earn a fee that is reflective of their delivered value. The intent is simply to limit agency revenue to those sources agreed to by both parties, thus providing the requisite protection to the advertiser.

“Confidence… thrives on honesty, on honor, on the sacredness of obligations, on faithful protection and on unselfish performance.” ~ Franklin D. Roosevelt

Never a Wrong Time to Do the Right Thing

27 Sep

DoTheRightThingDoing right by others is certainly a core value and one that many of us subscribe to. For me personally, as a former ad agency account director, I have always been fond of the quote by Victor Hugo, the nineteenth-century French author: “Initiative is doing the right thing, without being told.

In the professional services business sector this credo was once considered “cost of entry.” Today, however, having one’s advertising agency and or intermediaries “do the right thing” isn’t a given and, in the current environment, very likely will come at a cost.

As an example, Forrester recently interviewed thirty-four media agency clients and found that “transparency” was a key priority for marketers. However, many of the media agencies that they spoke with indicated that they “are only transparent if clients require it in their contracts.” Nice to know.

Perhaps you’ve been following the trend among influencer marketing agencies and their vendors who are now charging clients incremental fees for conducting content reviews or brand-safety checks to safeguard advertisers’ placements. For years, influencers have been paid largely based upon the number of followers that they had. Sadly, many influencers had engaged in buying followers to boost their appeal to advertisers and, in turn, their revenue. Now that advertisers are savvy to this practice and are looking for assurances on the influencers utilized and the nature of their followers, influencer agencies want to incorporate an upcharge to advertisers.

What about those instances where trading desks and DSPs are now charging premiums to access content from exchanges that will ensure proper placement, safeguarding brands and minimizing the incidence of media fraud? Whoever said that it was okay to purchase high-risk, low return inventory to begin with?

Maybe you’ve experienced abnormal delays with regard to your ad agency partners closing and reconciling projects to actual costs or in receiving post-campaign media performance recaps. Or perhaps you were expecting your agency to competitively bid your production work, only to find out that they were relying on the same vendor(s) that they’ve always used (maybe even an agency affiliate). Or, you were of the belief that your media campaigns were being monitored and that audience delivery guarantees were being negotiated in-flight, only to find out that there was no such stewardship of your media investment.

What is going on? What happened to doing the right thing? When you query your agency partners they suggest that the Scope of Work (SOW) didn’t specifically call for those activities nor did the agency Staffing Plan allow for providing that support at the frequency or within the time frame that you had come to expect. This obviously begs the question, “When did the agency stop providing the level of service and oversight support that it once did?”

The message is clear, advertisers can take nothing for granted and certainly cannot assume that their agency, adtech, production and media vendors have their back. Simply stated, we are operating in an era when advertisers must incorporate legal terms and conditions, which provide the requisite safeguards and controls that govern the behavior and service levels that they expect, into their agency agreements in order to have each vendor in the advertising supply-chain do the right thing.

As importantly, having solid contract language and tightly written scopes of work in and of themselves does not guarantee that agents and intermediaries will fall in line and comply with advertiser expectations. Experience suggests that adherence will typically only be achieved through performance and accountability monitoring. As the old adage goes; “What is inspected is respected.”

Please note, that we are not suggesting that an advertisers shouldn’t pay for the level of coverage and service that they expect to receive. That said, advertisers can no longer take it for granted that certain service standards, which historically have been part and parcel of agency standard operating procedures and hadn’t been necessary to be called out in an agreement or an SOW, are still being followed. If a service provider drops or alters the nature of a service being provided, it should be incumbent to at least communicate those decisions to the advertiser and engage in discussions to ascertain if the changes are acceptable or negotiate additional fees to cover the desired level of support.

In the end, successfully aligning advertiser expectations and supply-chain member service delivery standards comes down to all parties committing to a policy of open, honest, two-way dialog to ensure that there are no surprises and to incent an environment of initiative taking.

 

 

Is Your Contract Worth the Paper It’s Written On?

25 May

partnershipThe Association of National Advertisers (ANA) recently released its study on programmatic media. The study was conducted in conjunction with the Association of Canadian Advertisers (ACA), Ebiquity and AD/FIN.

While the study provided fascinating insights into programmatic media performance and costs at the transactional level, there was one particular item that stood out:

88% of the advertisers that were interested in and 75% of the advertisers that signed up to participate in the study could not or had to opt out.

Why was this? According to the study’s authors, “because of a myriad of legal, technical and process roadblocks put up by players in the ecosystem.” Long story short, those advertisers did not have contractual language providing them with clear data ownership or usage rights with their agency, trading desk and or ad tech partners.

The obvious question to be asked is, How can an advertiser’s programmatic media transactional data not belong to the advertiser? After all, it was their media investment that funded the buys. It was their agency partners who invested those funds on their behalf (or not). So, who could possibly own that data if not the advertiser?

What would you do if your agency partner denied your organization access to programmatic performance data that you had requested. Data that would shed light on your programmatic media performance and costs (i.e. third-party costs, agency fees, tech fees, data fees). It certainly seems short-sighted that an agency would deny their clients access to this data, both in the context of the ANA study and for providing transparency into how their programmatic investment is being stewarded to disclose what their true working media percentage is.

Sadly, this is but one example of Client/ Agency contract language omissions that create disclosure and accountability gaps, which can lead to legal and financial risks for advertisers. Other examples include:

  • No requirement for an Agency to disclose or competitively bid in-house production resources or affiliate companies.
  • Media arbitrage deals in which the Agency is marking-up media by an undisclosed amount on inventory that it owns stemming from principal-based buys it has made.
  • Agencies acting as principals, rather than agents, when investing the Client’s creative production funds. One example might be the Agency or its production studio filing for and retaining incentives offered by states and municipalities for shooting or post-production work completed in their geography.

Marketing spend is on the rise and is certainly considered a material expenditure, which can represent 12%+ of a marketer’s revenue base (source: 2015 CMO survey).

And yet too often, an advertiser’s contractual audit rights are not broad enough to ensure unmitigated access to the data files, records and reporting necessary to evaluate an agency’s compliance with the agreement and or their financial management performance. This can and should include:

  • An advertiser’s right to select an internal or external auditor of its choice (i.e. contract compliance, media performance, financial management).
  • The right to audit the agency and its related parties (i.e. holding company, affiliates, related entities, etc.).
  • Assertion of the advertiser’s right to limit or eliminate an agency’s non-transparent revenue (i.e. AVB’s, rebates, non-disclosed fees, mark-ups, float income).
  • The right to audit principal inventory and or mark-ups.

Contracts are also a great vehicle for communicating performance guidelines for items ranging from brand safety and viewability policies to fraud monitoring requirements and an advertiser’s policy on not paying for bot traffic, all of which are designed to safeguard an advertiser’s investment.

From our perspective, it makes sense for advertisers to engage in dialog with their agency partners to talk through contract terms and conditions, such as these, to secure their perspective and ultimately their buy-in. After all, the contract is a document that will govern most aspects of the Client/Agency relationship. Thus, open dialog that leads to a transparent relationship can form the basis for a trusting partnership that will last for many years to come.

As Stan Musial, the legendary baseball hall of fame member of the St. Louis Cardinals once said:

The first principle of contract negotiations is don’t remind them of what you did in the past – tell them what you’re going to do in the future.”

Big Data. Big Deal. You Bet.

5 Dec

digital trading deskThe evolution of media channels, ad targeting and the role of ad tech have significantly reshaped the media marketplace, allowing advertisers to select inventory and direct their messaging with an incredible level of precision. These developments have long been hoped for and yet, now that they are here, there is much that advertisers don’t understand about one important bi-product of the ad tech revolution… the disposition of the data gleaned from their investment at all levels of the media investment cycle.

In our contract compliance auditing practice, it is not uncommon that we find contract language gaps relating to issues such as:

  • Who owns the data?
  • Where is the data stored?
  • For how long?
  • How secure is the data?
  • Is the data kept separate from that of other advertisers?
  • Is your data being used to aid other advertisers?

These are important questions that heretofore have yet to be addressed by many advertisers within their agency agreements. “Big data” represents a potential treasure trove of information that can drive marketing strategy for advertisers by leveraging the insights gleaned from media transactional and customer behavioral data. That is, if and only if they are in receipt of the layers of data available to them and that they have the rights to use the data.

Rights to use their data? As odd as that may seem, data ownership is not automatically ceded to an advertiser. In spite of the fact that without an advertiser’s investment there would be no media buy and no corresponding data stream. Yet, many within the media chain have taken aggressive actions to claim that data as their own. Ad agencies, trading desks, publishers, demand side platforms (DSPs) and third party ad servers to name some of the entities that desire to own, or at a minimum, have unrestricted access to that data.

This jockeying for data ownership and access carries additional risks for advertisers in and around the topic of data privacy and security. Particularly as it relates to first-party data that may be utilized in the planning and placement of programmatic digital and addressable TV buys. Why? Because the unregulated, unsupervised use of an advertiser’s first-party data could be in violation of their users’ privacy rights.

Ownership and access rights to third-party data, which is often accessed on the advertiser’s behalf by its agency and or ad tech providers such as data management platform (DMP) and ad platform providers are generally clear and typically spelled out in licensing agreements between the various stakeholders. Then there is second-party data, which can best be described as information that users didn’t give you directly but was acquired through an advertiser’s relationship with another entity, such as an SEO platform or that was acquired via feedback from a behaviorally targeted digital display ad campaign. Advertisers must ensure that the use of and or sharing of second-party data is done in a privacy compliant manner to safeguard the interests of the user.

Complicated. Yes, and often little understood by those crafting client/agency agreements. It would certainly be appropriate for advertisers to revisit their agency agreements, with the goal of ensuring that their data ownership rights, privacy considerations and third-party access rights are clear and consistent in this emerging area. It is important to note that industry best practice templated language is still evolving and should not be relied on as an advertiser’s sole source for securing ownership/access rights and protections for agency agreements.

When it comes to advertiser data ownership, we share the beliefs of American businessman and politician Jim Oberweis, who stated:

“I am a strong believer that intellectual property rights need to be protected.”

Want to learn more about evolving your organization’s agency contract language? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com.

“Our Agency Contract has Expired…”

22 Jul

ExpiredThis along with feedback such as; “We can’t find a copy of the agreement,” “We don’t have an executed copy of the contract” and “Hadn’t seen that version before” are common responses from advertisers when asked for copies of their Client/ Agency agreements when undertaking an inaugural agency contract compliance audit.

While alarming at a certain level, perhaps no more concerning than the dated, evergreen and largely inadequate agency-centric contractual instruments that represent a majority of the agreements that many advertisers have entered into.

Concerning? To be sure. Perhaps these organizations aren’t familiar with the words of legendary investor, Warren Buffett, who once said:

Risk comes from not knowing what you’re doing.

In an industry grappling with issues such as fraud, transparency, relationship stability, trust and the fairness of agency compensation systems the risks posed by non-existent or inadequate contracts are significant and include, legal, financial and intellectual property exposure.

The reasons for this dilemma are many and common across many client organizations:

  1. No central contract repository within the organization
  2. Limited cross-functional agency relationship oversight
  3. No strategic supplier management system
  4. Contracts negotiated by one function, not shared with relationship owners
  5. No enterprise wide accountability initiative

By now, most are aware of the Association of National Advertisers (ANA) study on “Media Transparency” that was prepared in conjunction with K2 and released in June of this year. If there is one takeaway from the findings of that study, which all advertisers should pay heed to its the fact that a solid Client/ Agency contract is an advertisers best defense when it comes to protecting their advertising investment.

One side benefit of the ANA/ K2 study is that C-Suite members within many advertiser organizations are asking the questions; “How susceptible is our firm?” and “What level of control and transparency do we currently have when it comes to our marketing investment?”

Addressing these questions is an excellent place to begin, because it necessarily involves securing and reviewing current copies of the contractual agreements that are in place with each of the organization’s marketing vendors. Perhaps the next best place to turn is to engage either outside counsel or an independent agency contract compliance specialists, with deep knowledge of the marketing/ advertising industry and some of the advancements and best practices which are in place to safeguard an advertisers investment.

Once an updated agreement is put in place, the easiest way to manage these contracts, amendments and ongoing statement’s of work is to schedule (and contractually mandate) annual reviews of the agreement and all legal documents governing your agencies staffing plans and compensation.

For those seeking an added layer of protection, engaging an agency contract compliance specialist to monitor each agencies adherence to the terms and conditions of the agreements that govern these important relationships is an excellent idea.

Interested in assessing your organization’s legal and financial risks? Contact us for a complimentary agency contract risk assessment by emailing Cliff Campeau, Principal, Advertising Audit & Risk Management at ccampeau@aarmusa.com today.

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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