Marketing Agency Network

Relationship Risk: When Actual Practice Deviates from Contract Terms

By Client Agency Relationship Management, Contract Compliance Auditing, Marketing Agency Network No Comments

RiskContract: A formal, legally binding agreement between parties defining what each party will do and the terms that will govern the relationship.

Virtually all advertisers have formal contracts in place with their advertising agency partners.  Most of these organizations have reviewed industry association contract templates and engaged outside legal counsel to review and customize agreement terms and conditions to satisfy their expectations.

All well and good, and while having a solid agreement in place is an important safeguard in any business relationship it doesn’t eliminate risk. As relationships evolve and personnel on both sides turn over, knowledge of the terms of the contract and their intent often wane.

This dynamic can result in agency relationship managers with little knowledge of the binding agreement that adopt practices which deviate from contractual guidelines, opening the door for potential legal and financial risks.

The good news is that these risks can be easily addressed by adopting the following three processes:

Regularly Review & Update Client-Agency Agreements:  Schedule annual contract review sessions for each agency contract.  These sessions, involving authorized representatives from marketing, procurement, and legal should be scheduled 2 to 3 months prior to the start of the new fiscal year. Reviews should include discussions surrounding client-agency relationship changes, regulatory, and or industry related issues that may pose legal, financial, or operational risks. Proposed contract language enhancements, addendums, and annual Statements of Work should be shared with each agency partner at a time and in a manner that allows for dialog and the execution of the updated agreements prior to the end of the current term.

Periodically Audit Agency Contract Compliance: It is an industry standard that advertising agencies must be able to support their billings to clients. This includes fees, out-of-pocket costs, and third-party expenses. Fortunately, most client-agency agreements incorporate “Record Retention and Audit” language that further clarify an advertiser’s rights in this area. However, few advertisers act upon these audit rights to review agency compliance to contract terms and financial management performance. Conducted at two-to-three-year intervals, with each agency partners, these audits can provide valuable feedback to both parties and help to ensure alignment between contractual intent and relationship management practices.

Implement a Cross-Functional Agency Oversight Model: An organization’s agency network is a corporate resource consisting of multiple marketing services agencies that provide valued support to the profitable growth and advancement of a company’s brands. Developing and nurturing these strategic relationships requires a commitment to involve representatives from across the client and agency organization. Securing the involvement of client-side procurement, finance, and internal audit personnel along with agency financial representatives in addition to marketing and account management personnel brings diverse perspectives that contribute to meaningful ongoing dialog around relationship management and performance dynamics. Through a combination of monthly budget and performance discussions and quarterly business reviews both parties and their resulting relationship will benefit from such meaningful interactions.

Experience suggests that such steps require less time and money to advance client-agency partnerships than is necessary to repair deteriorating relationships or to replace a marketing services agency that has fallen out of favor. As Hugh McKay, the Australian scientist once said: “Nothing is perfect. Life is messy. Relationships are complex. Outcomes are uncertain. People are irrational.” Aligning relationship management practices with contractual terms can address these realities.