Tag Archives: LOA

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.

The 3 Keys to Successful Agency Relationships

4 Sep

There are a lot of very capable advertising agencies and no shortage of experienced, intelligent marketing professionals on the client-side.  So what distinguishes successful client-agency relationships from those that fail to yield the desired results?  Based upon my experience it comes down to three key elements: People, Process and Perspective.

Other than scale and talent, often there is little that distinguishes one advertising agency’s service offering from the next.  They offer a comparable array of resources delivered through professionals representing a consistent range of agency functions.  Yet some client-agency relationships withstand the test of time, producing memorable work and significant in-market results, while others struggle to synchronize their efforts that result in failure to produce the desired results.    As a rule, individuals and business entities enter into relationships committed to the notion of success.  However, in a people business such as professional services, achieving success requires more than commitment and good intentions.

Constructing an effective team begins with assembling the right people with the cumulative experience and skills necessary to address the client organization’s market challenges and opportunities.  Assigning roles and responsibilities to each team member will assist in improving the group’s efficiency and productivity while minimizing conflict.  Over time, it is important to hold a team together to leverage the group’s shared learning, brand knowledge and market insights to achieve incremental gains year-over-year.  As we all know, in an industry marked by high employee turnover, this is often easier said than done.

Implementing a sound process to guide both the team’s efforts and resource investment decisions is a critical component to a successful relationship.  The process plays an important role in assisting the team in executing their tasks in an efficient manner, maintaining a goal orientation and providing feedback on the team’s progress to key agency and client-side stakeholders.  In the end, an effective process will mitigate risks (i.e. legal, financial, in-market performance) and improve transparency for all members of the team while enhancing the cumulative contributions of each team member.

“A bad system will beat a good person every time.”  – W. Edwards Deming

Having a shared perspective is a necessary component of all successful relationships.  This does not mean that the client and agency must agree on everything.  Differing opinions and the ability to discuss the merits of disparate points-of-view is an essential element of producing break-through work.   Undoubtedly, a shared perspective involves clarity around a brand’s position, its target audience and an understanding of what moves the needle when it comes to demand generation.  However, it also involves a knowledge of and respect for each organization’s culture and values.  These crucial insights help drive team interactions and assist in resolving conflict when disputes inevitably arise.

Of note, client-agency agreements represent the ideal venue for establishing the “rules of the road” for aligning people, process and perspective.  A well-constructed letter-of-agreement (LOA) will clearly define an agency’s roles and responsibilities, identify key deliverables and layout the criteria for assessing performance.  Additionally, LOAs should incorporate an agency staffing plan which identifies agency personnel by name and title with their utilization levels.  This is a pre-requisite for assembling and “locking-in” a team and, in conjunction with the scope-of-work, forms the basis for the agency remuneration agreement.  The LOA should also establish the processes and controls that will govern all aspects of the relationship thus providing both parties with clarity around the advertiser’s expectations, particularly when it comes to accountability and transparency.

Finally, it is important to remember that the LOA is a living document which must be socialized among key constituents within the client and agency organizations and must be reviewed and reconciled on a regular basis to insure that both parties are conducting themselves in an appropriate manner.  Many advertisers consider it astute to engage an independent consultant to conduct a contract compliance audit to assess agency performance and gain valuable insights that  improve both the return on advertising investment and the relationship.

Interested in learning more about the “3 P’s” and their role in “Building a High-Performance Agency Network?”  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com to schedule a complimentary consultation.

Marketers; “Are your agency contracts relevant?”

20 Aug

client agency contractsThe world of marketing is evolving at a rapid pace and the notion of change is a constant.  Technology advancements, media consolidation, agency mergers & acquisitions and evolving regulatory considerations ranging from consumer privacy issues to intellectual property concerns are but a few examples of events that can have a meaningful impact on client-agency agreements. 

Unfortunately, client-agency letters of agreement are not the “living” documents that they are professed or intended to be.  Too often they are outdated, invalid and or untraceable.  Further, seldom are they shared and understood by key internal stakeholders at the advertiser who are responsible for managing agency relationships… including key marketing team members.   

So, how can you assess the relevancy of your organization’s agency contracts?  Start by answering the following questions: 

  1. Can you locate an executed copy of your agency contract(s)?
  2. Are the terms of the agreement and the accompanying exhibits current?
  3. Are the scope of work and staffing plan detail incorporated into the original agreement reflective of the agency’s role and responsibilities today?
  4. Do your contracts contain a “Right to Audit” clause?
  5. Is there specific language defining a fee reconciliation process and agency time reporting requirements?
  6. Does your contract extend coverage, control and transparency to both the agency brand you work with along with its affiliates and holding company?
  7. Are there clear definitions in and around intellectual property ownership and licensing arrangements? 

If you answered “No” or “I’m not sure” to any of the aforementioned questions, then your agency contract may not be providing your organization with the level of risk mitigation, financial and legal control that is consistent with your supplier governance standards.    

In our agency contract compliance auditing practice it is not uncommon to discover that the client-agency letters of agreement (LOA) have either expired and or are simply out-of-date.  Since the LOA is the document which governs these important relationships, why are client organizations so lax when it comes to maintaining this legal instrument?  Below are a few “reasons” and observations that we have identified across 100+ contract compliance engagements: 

  • The “Master Agreement” or contract was negotiated as an “evergreen” document with the core terms and conditions remaining in place unless either the advertiser or the agency terminates the agreement.  In this scenario, it is typical that the scope of work, staffing plan and remuneration program are to be updated and reviewed annually.  Unfortunately, sometimes these important legal exhibits are not updated on a timely basis or in a manner consistent with the terms of the Master Agreement or actual current practices.
  • Turnover within the client-side procurement and or marketing departments often leads to a knowledge gap when it comes to marketing agency LOAs and the attendant “rules of the road” that were arduously poured over at one time and put in place to guide the company’s agency relationships.
  • Many client organizations simply do not have standardized marketing services contract templates/ terms and conditions nor do they have a central repository for maintaining any and all LOAs, addendums and statements of work pertaining to their agency network… let alone a process for periodic review/updating. 

The legal and financial issues that can arise from an outdated, expired or inadequate client-agency contract are significant and can create a number of risks for advertiser and agency alike.  If you have identified issues, we would urge you to take action immediately by working in conjunction with your agency partners to update and evolve these agreements.  If you’re looking for guidance on industry “Best Practices” in this area you can contact the Association of National Advertisers to access relevant articles and guidelines on this topic. 

As another consideration, if you would like to gain the benefit of what we’ve learned through first-hand experiences and would like to schedule a complimentary consultation on “Client-Agency Contract Trends,” please contact Don Parsons, Principal at Advertising Audit & Risk Management at dparsons@aarmusa.com.

 

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