A well crafted approach to drafting and negotiation of contracts is key to successful client relationships. Creating agreements that are clear, commercially balanced, and legally sound is not merely an exercise in paper pushing; it’s an art form that sets the tone for successful collaborations between agencies and their clients. 

Knowing the market, and the commercial realities at play on both sides is important for reaching acceptable compromises that can move your negotiation forward. If you can see the position from the client’s perspective, understand what is going to be a deal breaker for them, and see what their real concern is, this opens up the way to finding alternative solutions that achieve an acceptable outcome and ‘get to yes’. 

The reality is with agency / client contracts, as we all know, the end result of this negotiation is the agency winning business and sets the scene for a rewarding, amicable commercial relationship. Hardball tactics, threats and demands, have no real place in your arsenal when it comes to these agency/client contract negotiations. To get the best results, you are best placed if you can advance your position reasonably and firmly, know your limits and your priorities from the outset. Setting up an environment of mutual confidence and collaborative intent during contract negotiations, strengthens the relationship and drives towards successful outcomes.

Know your leverage! What can you lean on to help smooth the tracks? Is it the strength of your reputation, or your competitive pricing or your unique offering that you know the client wants? Are you able to lean on corporate policies, or global policies or directives, to push back on certain clauses with a solid grounding for your requests? Or is it the knowledge that certain things are industry standard? In other words, what can you rely on to help the client get through faster by agreeing to work with you? In our experience it will definitely give you a stronger bargaining position if you can say that, eg “our group / corporate policy stance is that we must have … X” or “we have amended this clause to reflect industry standard practice” or “we do not agree to X as a matter of standard policy across our client base”. 

Negotiation is the road to  contract formation and you want your team well equipped and prepared, your roadmap laid out and your strategies honed for success. Effective negotiation strategies are essential for crafting terms that align with the agency’s goals while protecting its interests. It’s a delicate dance of give and take, requiring a keen understanding of what can be offered and what must be safeguarded. Successful negotiation is not about winning at all costs; it’s about finding a harmonious balance where the competing interests and commercial objectives of both parties protected, and recognised, so that each party can commit to the relationship with confidence.

Negotiation in contract formation hinges on strategies that align commercial goals with safeguarding interests, which can only be achieved with a true understanding of both the agency’s key risks and  commercial objectives and the overall playing field, (and your playing field here is the advertising market, and the dynamics, trends and commercial realities within in). A deep understanding of all of these elements allows for tailoring your language to directly address client needs, promoting a collaborative negotiation atmosphere. 

At the heart of every robust agency contract lies the principle of clarity. Clear language is the cornerstone of mutual understanding, setting the stage for a harmonious and productive relationship. It’s crucial to articulate terms in a clear way that preempts misunderstandings and future disputes. Clear communication during the negotiations is therefore pivotal, making certain that proposals are both understood and appreciated, minimising potential for misunderstandings. 

Prioritising these elements— true understanding, and clear communication—lays a strong foundation for negotiations. This approach leads to balanced agreements where all parties feel valued and committed, fostering successful and lasting partnerships.

There is no point asking for things you know the other side will never agree to, or things that are well outside of market expectations, as these things create combative and protracted negotiations. Agree to the reasonable things, and quickly. If you do ask for changes, ask for them in a clear way, with a clear rationale, ideally by way of pre-prepared language that can be understood and agreed more readily. Tearing out large tracts of a client’s contract is not going to bode well for the negotiation or the relationship generally.

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One misconception is that the lawyers can get on a call by themselves and ‘nut out the issues’. Occasionally that is appropriate, such as where the sticking point is one of semantic language or reaching agreement on how to achieve a certain result best in the contract. However for the most part it is imperative that the agency leads and the client leads are at the table with the contract negotiations as they are the ones who can move the deal forward. The client’s lawyer if working alone will hardly ever back down on an issue, they will ultimately need to run the decisions by their commercial leads in any case. We have seen many negotiations hit an issue that looks like a stalemate, where the client’s lawyers are firmly entrenched in their position, and the agency lead explains the commercial concerns and realities in an earnest and positive way, discussion ensues, the ‘a-ha’ moment takes place, and the client marketing lead says ‘what about…?’ Before you know it the parties are agreeing to something that 5 minutes ago was not on the table. 

It also hardly ever plays out well to set up a contract negotiation meeting before seeing the latest version of the contract. A client pressuring you to do this is almost always aiming to pressure the agency into a position, and preventing them from a properly considered approach. Always get the contract first, run it by your lawyer and then set up the contract meeting.   

Never get on a call with the client and their lawyers, unless your lawyer is also present. If one side is legally represented, both sides should be. If you do this even inadvertently, this triggers a huge ethical problem that can call into question the professionalism on both sides. 

Another crucial aspect of contract negotiation is maintaining both a commercial and a legal focus. The legal terms and the commercial terms must be negotiated in tandem, as they both interplay closely together. While you are setting up the legal terms you must also be looking to establish clear and well documented  fee structures and payment terms. This is key to maintaining a healthy cash flow, avoiding misunderstandings, and ensuring that the relationship is valuable and profitable for the agency. 

A well-defined scope of work is not just a component of a contract; it’s the very blueprint that guides the relationship. Defining the scope involves a meticulous articulation of the project’s objectives, deliverables, timelines, and success criteria. When drafting the scope, it’s crucial to consider the specific outcomes the client expects, the resources the agency will allocate, and the timeline over which the project will unfold. It should clearly outline the services to be provided, any milestones or checkpoints, and the standards by which the work will be evaluated.

It is important to be able to rank your low priority issues, with high priority or critical issues and know which ones you may be able to trade off or compromise on, and which ones you want to insist on. Knowing your deal breaker points, help you frame your position on these clearly so there is no doubt, and you avoid wasting valuable time going back and forth. It also gives you space on these more flexible points, to achieve compromises and move forward. Starting out by making something a deal breaker “this is a deal breaker for us’, or ‘we will never agree to this’, and then having to capitulate to get the deal done later, is a move that can lose integrity and trust on both sides. It is best to keep your language clear and on point with your priorities from the outset. Then if you do bring out the hard-line language, your words carry weight and you maintain good faith through the process.  

Liability caps and exclusions are going to fall into your high priority category every time. Knowing what limitations to ask for, and how to advance your position clearly and effectively, is key to achieving a good outcome that is going to preserve the respective interests of the parties. 

Intellectual property rights are at the core of the creative industry, and their protection is crucial in agency contracts. It’s essential to clearly define the ownership rights of creative work, ensuring that the agency’s intellectual capital is protected while also respecting the client’s rights and expectations. Often contracts can gloss over the commercial complexities of the different types of intellectual property involved in the communications industry, especially if drafted by lawyers that do not have a working knowledge of those intricacies. The client will typically expect to own the intellectual property rights in material that the agency creates specifically for them in the course of the services, often referred to as “service material”. However there are very different considerations for proprietary agency intellectual property, such as agency tools, dashboards, software and applications, which it uses across its business. These proprietary agency materials should stay owned by the agency but the client may be given limited licence rights for them, to use in connection with the service materials.  There are different considerations again for third party intellectual property, such as original photography, artworks, stock images, music, and software. With these works, they may come with limitations on use that depend on the commercial negotiations between the agency and the third party owner and may vary case by case. For instance the rights (and the fees) for a Taylor Swift song are going to be different to an original composition created for a campaign by a lesser known artist.   Having a strong understanding of the different sorts of work used by an agency in advertising, will help you explain your position during contract negotiations. Rather than simply digging in and pressing for a position, and butting heads with the client, you can gain commercial understanding on both sides and achieve a workable treatment of IP in the contract.  Navigating the intricacies of intellectual property rights requires a careful balance of protecting the agency’s interests and fostering a collaborative environment where creative ideas can flourish.

Termination clauses are an aspect of contracts that, while often overlooked, are critical for outlining how and when a contract can come to an end. These clauses provide a clear roadmap for ending the partnership respectfully, detailing the notice periods, and obligations upon termination including fundamentally, what the agency is paid. It is imperative for an agency to seek termination rights for a client agreement, as the agency should have an exit option if it becomes unworkable, or unprofitable, particularly where there is agency exclusivity. This is on top of the usual termination rights to terminate for breach or insolvency. Well considered termination clauses ensure that even when partnerships come to an end, they do so in a manner that is orderly and respectful of both parties’ interests and contributions.

Warranties and obligations are another critical component of a well-crafted contract. Defining the obligations of the parties is pivotal, and it is important to maintain a strategic and well informed approach to these clauses. If you simply strike out a raft of industry standard obligations on your side, this can lose the client’s confidence and can play against you, particularly if there are others competing for the business.   

There will of course be clauses that are overly onerous and unreasonable or unworkable for the agency or that present an unworkable level of exposure for the agency, and these should be your clear areas of focus. Effective communication of the agency’s concerns, and a reasonable approach to the treatment of the agency’s obligations, ensures that the focus remains on  finding solutions and risk management rather than being seen as trying to shirk responsibility. If you try for example to remove a simple clause asking the agency to exercise due care and skill in the services, or to indemnify for the agency’s gross negligence, this is only going to weaken confidence in your ability to stand by your work. However being able to clearly and confidently articulate why a certain obligation is unreasonable, sets you up for a successful result. 

Understanding the best practices for agency contracts and negotiations is not just about legal compliance; it’s about crafting relationships that are built on the pillars of clarity, true understanding, and mutual respect. It’s about setting the stage for relationships that are not only legally sound but also successful and enduring. As agencies navigate the complexities of contract drafting and negotiation, they not only safeguard their interests but also foster an environment where creativity, collaboration, integrity and profitability go hand in hand.

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