Working in the advertising and marketing industry for as many years as we have, we have first hand knowledge of the importance of clear and comprehensive agreements in client-agency relationships. Agreements that are clear and detailed set the agency up for managing a relationship with success and integrity as there is confidence on both sides. Agreements that are vague, or have major gaps in coverage, can lead to dramas, unreasonable outcomes for the agency and cost the agency money. 

In this article we look at the key considerations for crafting effective agreements.

Crafting Agreements That Are Easy to Understand Yet Comprehensive in Scope

Use of Plain Language

You absolutely want agreements that are clear, and avoid legal jargon or complex language. When you present your agreement to the client, or changes that you want into their agreement, during a negotiation you want the wording and the impact to be clear and easily understood by the parties. This will help you get the agreement over the line during a negotiation but also mean the parties are able to easily navigate the meaning where an issue arises.

This applies also for the commercial terms. For example an agency and a client nut out the terms of a complex remuneration model, performance bonus, or media value model. The commercial leads understand the deal, but the language may not be clear to someone else. The agreement should be set up with the mindset that it should be clear not only to those negotiating the deal, but to newcomers who step in to manage a problem later (for example when an auditor is claiming the client has been short-changed, or the client is arguing that the agency is not entitled to the bonus this quarter, and the parties have to negotiate over how much money the agency is entitled to) and often in practice the individuals have changed. A clear agreement can lead to clear outcomes, avoid disputes, and have a direct impact on the bottom line.

Customisation for Specific Needs

A good agreement is tailored to the services offered and the workings of the relationship. 

Customisation of a contract to the commercial circumstances, minimises misunderstandings and ensures the contract is purpose built for managing the special sort of work performed under that relationship. 

A media services agreement has specific considerations, and agencies involved in media buying will want to ensure that the specific risks and commercial requirements are covered properly, for things ranging from media value, treatment of media expenses, dealing with media vendors, payment terms and insurance requirements. This helps to ensure clear cover on what matters to the agency and the client in this environment. 

A digital services agreement is going to have specific terms to do with digital deliverables, and will need to have clarity on the specifications for the deliverables, the remedies the client is entitled to for defects, the processes for acceptance and testing, and carveouts for third party works and any client responsibilities. 

An advertising services agreement has very different considerations. Intellectual property comes to the forefront, you need clear treatment of third party licence arrangements for photography and artwork, and clear delineation of responsibility for legal approval and compliance of advertising materials, and special payment terms for production houses and talent for instance. 

A one size fits all supplier agreement will not work for the special industry customs, and realities of the services, so it is important to customise your agreements to suit your business.

The Balance Between Protecting the Agency’s Interests and Maintaining a Positive Client Relationship

Mutual Benefits

A good agreement should protect the agency while reassuring the client.
Clear provisions around responsibilities, and expectations on what the agency is delivering and what the client can expect, builds trust and security in the relationship. Having an agency agreement that gives no assurances to the client over the services, or that leaves the client with no recourse when things go wrong, sets the wrong tone and leaves the client with little confidence. By the same token, the agency should not take on unreasonably harsh commitments that mean the work is too high risk to justify taking it on in the first place. For example clauses that allow the client to unilaterally reduce fees when it is not ‘satisfied’ with the work, or that require the agency to endlessly fix vague ‘problems’ with the work, or that enable the client to dictate specifications and time frames, expose the agency to unreasonable outcomes. 

Negotiation Process

The negotiation in pivotal to developing mutually agreeable terms.
it is important to have a good team for this process that understand the industry and the reasons behind the terms that you want, and are able to advocate as to why your terms are reasonable.  Rather than getting bogged down in unclear negotiations that drag on forever or undermining the relationship with combative arguments, you want a team that can have open dialogue about concerns and come up with solutions that get to a clear deal that balances those competing priorities, faster.

The Role of Terms and Conditions in the Event of a Dispute or Contract Termination

Dispute Resolution Mechanisms

It is important to look at the dispute resolution clauses as these set you up with a way to resolve a dispute before it gets to full scale litigation, like a combat free zone.  Having a process that allows the parties to work things through between the senior management counterparts and / mediation, are more suitable in the communications industry where the parties will often not want to go to court, and the disputes can be largely resolved by settlement. Arbitration can be an overly rigid mechanism and you want to avoid a hair trigger clause which allows say 5 days before either party can go to court.   You want to create space for effective conflict resolution.

Termination Clauses

Clear rights for contract termination are vital. The client will often have a list of rights to terminate but will often not allow the agency to terminate. Termination rights should be valid, for example unremedied breach, but they should not be overly vague or broad. A clause that gives the client the right to terminate for one breach of a service level for instance, can set the parties up for dispute and unnecessary fallout if there are minor performance issues that could be addressed in other more constructive ways. 

An agency will often have valuable resources committed to a client account, and an overnight termination can leave it with considerable expenses such as re-allocating personnel and other resources. So it is important to ensure that where a client terminates for convenience, it must give a reasonable notice period. Consider whether the client is required to pay fees during the notice period, and what should be paid on termination particularly where the agency has incurred third party costs such as media or production. What happens to third party contracts an agency has entered into for the client, such as talent or software licences? These are all important for a clear and well drafted agreement.

One would think that the agency would never need the right to terminate a paying client’s business and certainly it would not do so lightly, however it is important for the agency to look at termination rights, particularly for client non payment, or if it is locked into a competitive restraint but the client has lowered the volume of work, or the relationship becomes unworkable. It is important to set out a clear process for termination, notice periods, and each client’s responsibilities on termination.

Confidentiality, Privacy and Intellectual Property

Importance of Protection

A well drafted agreement in the advertising or media industry must set out clear provisions on safeguarding  personal information, confidential information and intellectual property rights. Parties on both sides will want reassurances that these are managed and protected effectively. 

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Crafting Effective Clauses

Clauses should clearly define what is considered confidential, and how it should be handled, with appropriate carveouts.  The different types of intellectual property should be clearly delineated and in the communications industry, there are different considerations for newly created intellectual property such as advertising content, and for third party work like music and art, and for pre-existing material such as agency software and tools that may be delivered to the client but with very different IP ownership considerations. Most standard supplier agreements do not clearly cover these different forms of IP well.  Many put forward treat these all with the same blunt instrument and expect the agency to be able to assign all IP ownership to the client, which is impossible and sets the agency up for failure. A good specialist lawyer who understands the creation and delivery of advertising material is crucial.  

Mutual Respect and Security

Well drafted clauses contribute to a secure and respectful relationship by setting clear expectations regarding privacy and creativity.

Payment Terms and Conditions

Establishing Clear Expectations

Payment terms are becoming increasingly important these days. It is necessary to specify clear payment schedules, invoicing procedures, and consequences of late payments to ensure both parties are on the same page. Varying payment terms for different types of invoices or costs, should be specified to avoid the agency being left having to carry the cost for the client. If upfront payment is required for certain things like production, clarity on this must be spelt out. Getting this right on both sides has significant cash flow implications and ensure the agency’s financial stability. 

Preventing Financial Disputes

Clear payment terms can prevent disputes over finances, aiding in smoother project execution and cash flow.

Scope of Work

Defining Project Boundaries

It is important to set out detailed scope of work to define the exact services to be provided, expected outcomes, and project boundaries. If you have a retainer arrangement, what is included and out of scope becomes very important.

Preventing Scope Creep and Managing Change

A clearly defined scope of work, is an important strategy to prevent scope creep. This ensures that the work remains within agreed parameters and the agency is paid fairly.

It is also important to recognise the dynamic nature of projects and changing client’s requirements over time. Changes to services and timelines have obvious implications for agency resources, but are also subject to third party commitments such as suppliers, media, venues or talent. Having clear processes for changes to scope or additional work requirements, pave the way for an agreement that can evolve with the relationship and ensure it remains commercially reasonable with those changing requirements . 

Clarity and Agreement

A well-defined scope contributes to clarity and agreement between parties, facilitating a smoother project flow and greater client satisfaction.

Legal Compliance and Liability

Compliance with Laws and Regulations

A good agreement should consider who is responsible for adherence to relevant legal and regulatory requirements. Clients will typically expect the agency to ensure its work is legally compliant, but when the client is delivering content (such as images, logos or copy) or product performance claims or sales data, that it wants the agency to include in the advertising material, there should be effective coverage of client responsibility for that content. 

When a client requires that its own legal team signs off on all advertising content, and does not want to pay for the agency to obtain its own legal advice, then that can lead to adverse unintended exposure for the agency when there is a legal drama but when you look at the agreement, the agency is fully liable for all material. Clear provisions on this are vital. 

Limiting Liability

It is crucial for the agency to have effective and reasonable liability limitations, including cover for situations beyond its control, including force majeure, exclusions of certain forms of loss such as lost client profits, and limitations on damages. Often agencies will take on business without knowing that under the contract its exposure to loss is totally uncapped. 

Protecting the Agency

Having a review process in place to check your compliance and liability clauses is an investment, as it protects the agency from over exposure to unforeseen legal challenges and financial risks.

Clear agreements are going to create a clear and equitable process for both parties to manage the relationship. A well drafted agreement covers the important elements of the relationship, is tailored to the commercial realities of the communications industry, and balanced to the competing priorities of the agency and the client, and can adapt to changing circumstances. Having these bases covered and the right people in your court, will set the parties up for success and avoid disputes.

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