Tag Archives: Master Services Agreements

Don’t Start There

25 Jul

contract complianceMost 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 isnt worth the paper its 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.

 

 

 

 

4 Questions That Can Impact Your Digital Buys

15 Nov

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According to eMarketer, in 2017 advertisers will spend 38.3% of their ad budgets on digital media – in excess of $223 billion on a worldwide basis. Yet, in spite of the significant share-of-wallet represented by digital media, there is generally little introspection on the part of the advertiser.

Looking beyond the “Big 3” [ad fraud, safe brand environment and viewability concerns], the lack of introspection begins much closer to home. Simply, in our experience, client-agency Agreements do not adequately address digital media planning / placement roles, responsibilities, accountability or remuneration details.

Standard media Agreement language does not adequately cover digital media needs – specific rules and financial models need to be included in Agreement language that covering each potential intermediary involved in the buy process and to guarantee transparent reporting is provided to the advertiser. It is our experience that Agreement language gaps related to “controls” can be much costlier to advertisers than the aggregate negative impact of the Big 3.

And, regardless of Agreement language completeness, a compounding factor is that too few advertisers monitor their agencies compliance to these very important Agreement requirements.

To assess whether or not your organization is at risk, consider the following four questions:

  1. Can you identify each related parties or affiliate that your ad agency has deployed on your business to manage your digital spend?
  2. Does your Agreement include comprehensive compensation terms pertaining to related parties, affiliates and third-party intermediaries, that handle your digital ad spend?
  3. Is your agency acting as a Principal when buying any of your digital media?
  4. What line of sight do you have into your ACTUAL media placements and costs?

If you answered “No” to any of the questions, then there is a high likelihood that your digital media budget is not even close to being optimized. Why? Because the percentage of your digital media spend that pays for actual media is likely much lower than it should be, which is detrimental to the goal of effectively using media to drive brand growth.

Dollars that marketers are investing to drive demand are simply not making their way to the marketplace. Often a high percentage of an advertiser’s digital media spend is stripped off by agencies, in-house trading desks and intermediaries who have been entrusted to manage those media buys. A recent study conducted by AD/FIN and Ebiquity on behalf of the Association of National Advertisers (ANA) estimated that fees claimed by digital agencies and ad tech intermediaries, which it dubbed the programmatic “technology tax” could exceed 60% of an advertiser’s media budget. This suggests that less than 40 cents of an advertiser’s investment is actually spent on consumer media.

A good place to begin is to ask your agency to identify any and all related parties that play a role when it comes to the planning, placement and distribution of your digital media investment. This includes trading desk operations, affiliates specializing in certain types of digital media (i.e. social, mobile) and third-party intermediaries being utilized by the agency (i.e. DSPs, Exchanges, Ad Networks, etc.). The goal is to then assess whether or not the agency and or its holding company has a financial interest in these organizations or are earning financial incentives for media activity booked through those entities.

Why should an advertiser care whether or not their agency is tapping affiliates or focusing on select intermediaries to handle their digital media? Because each of those parties are charging fees, commissions or mark-ups for services provided, most of which are not readily detectable. This raises the question of whether or not the advertiser is even aware charges are being levied against data, technology, campaign management fees, bid management fees and other transactional activities. Are such fees appropriate? Duplicative? Competitive? All good questions to be addressed.

When it comes to how an agency may have structured an advertiser’s digital media buys, there is ample room for concern. Is the affiliate is engaged in Principal-based buying (media arbitrage)?  Is digital media being placed on a non-disclosed basis, versus a “cost-disclosed” basis where the advertiser has knowledge of the actual media costs being charged by the digital media owner?

Evaluating your organization’s “risk” when it comes to digital media is important, particularly in light of the findings of the Association of National Advertiser’s (ANA) “Media Transparency” study released in 2016, which identified agency practices regarding non-transparent revenue generation that reduces an advertiser’s working media investment.

The best place to start is a review of your current client-agency Agreements, to ensure that the appropriate language safeguards are incorporated into the agreement in a clear, non-ambivalent manner. Once in place, monitoring your agency and its affiliates compliance to those contract terms and financial management standards is imperative if you want to assure compliance, while significantly boosting performance.  

“Today, knowledge has power. It controls access to opportunity and advancement.” ~ Peter Drucker                                                                                                                    

Interested in learning more about safeguarding your digital media investment? Contact Cliff Campeau, Principal, AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

 

Advertiser Audit Rights: Omnipresent but Seldom Enacted

11 Apr

transparencyVirtually every contract that exists between advertiser and agency partner provides the advertiser with the “right to audit” agency books, records and accounting practices related to services rendered. However, oddly enough, advertisers seldom act upon these negotiated, protective contract provisions in spite of the significant dollars being spent in this area. This is unfortunate for both advertiser and agency alike.

Why? At a time when many client / agency relationships are strained, largely as a result of diminishing levels of trust and transparency concerns, contract compliance work represent an excellent tool for building clarity around and confidence in agency financial management practices, resource investments, and actual performance.

Contract compliance work identifies gaps in understanding that can be negatively impacting client perceptions and agency margins. Whether related to the project briefing, the approval process, rework levels, mushrooming custom reporting requests, and or payment timing issues, independent testing work provides a prescriptive for positive change to benefit all stakeholders.

In our contract compliance practice, it is common to identify process and behavioral breakdowns that have crept into day-to-day activities between client and agency and that can be directly attributed to lack of oversight. Unchecked, bad habits whether accidental or intentional create financial risks that can be very costly to both parties. Periodic compliance work and ongoing performance monitoring can greatly provide new learnings that assist the advertiser to mitigate risks, optimize process, and eliminate unnecessary costs.

Independent audit work absolutely provides assurance and marketing spend governance. It drives in-market performance in a manner that improves the advertisers return-on-marketing-investment. An additional dynamic, born of a consistent marketing accountability program and contract compliance work, is a very real incentive for the parties to reform behaviors that are distracting an otherwise solid client / agency relationships predicated on trust and confidence.

A wise risk management practitioner once shared a somewhat comedic perspective on this dynamic by citing the following question and answer:

“What happens when you lock a wild hyena in a room with an Internal auditor? The hyena stops laughing.”

 Audits can be sobering and should be approached with a healthy and serious level of respect. However, they are not intended to intimidate or strike fear in the hearts of marketing team members or agency personnel. Further, sound audit methodologies should not interrupt client/ agency workflows, nor should they come with an onerous cost in terms of advertiser or agency resource investment required to participate in the process. The goal is to identify opportunities for improved transparency, controls, risk mitigation practices and financial management stewardship, and build long-term relationships.

We see relationships flourish and be strengthened when both parties embrace the process for what it was intended. That is why “Right to Audit” clauses exist and why they are so broadly represented in client / agency agreements in the U.S. and around the globe.

 

 

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