Guide To Drafting Agency Contracts
| DESCRIPTION OF TERM / PROVISION | LEGAL / COMMERCIAL ISSUE | APPROACH FOR LEGAL / COMMERCIAL BALANCE |
|---|---|---|
| Best Practice for all Agency / Client Contracts – Any Communications Services | ||
| Provisions that should be included in all Agency / Client contracts for best practice | Necessary to ensure a clear and concise contract for a fair commercial relationship that is legally certain. Transparency should also be addressed because as a matter of principle, transparency in respect of spend and benefits received (if any) should be encouraged and addressed in an open and commercial manner. | Modern Approach: Part 1: Party Details, signatures. Part 2 (Bespoke): Agreement Details, Commencement Date, Initial Term, Expiry Date, Further Term, Rollover, Exclusivity, Territory, Services List, Remuneration List, Insurance, Guarantee, Transparency, Standard Forms. Part 3 (Standard Terms): appointment, term, services, obligations, remuneration, approvals, cancellations or alterations, tax, third parties, IP, confidentiality, warranties, indemnities, data, privacy, termination, dispute resolution, insurance, non-solicitation ,general provisions. |
| Key Transparency Provisions – Note it is not ‘illegal’ in Australia for an agency to obtain and keep rebates and incentives unless there is an ‘agency’ relationship in law, it would be misleading or deceptive under the Consumer Law to obtain and keep or the contract provides otherwise – hence the perceived need for AANA Contract | ||
| Nature of Relationship | The AANA Contract seeks to establish an “agency” relationship between Advertiser and Agency rather than an independent contractor relationship. The usual manner of contracting in Australia between an Agency and Media Owners and other third party Vendors is as an independent contractor, This is particularly in the case of accreditation with Media Owners where the commercial relationship is deliberately cast in this way (media looks to payment by agency and agency looks to its client). Media Vendors in particular are unlikely to agree to the legal effect of this provision where the Advertiser becomes the responsible party for payment of media placements. | It is unacceptable for an ‘agency’ relationship to be created and the resultant fiduciary obligations on the Agency that will arise. Should be an independent contractor relationship and the agreement must state this. |
| Rebates and Incentives | The AANA Contract provides that the Advertiser is to receive in full all “Rebates and Incentives” received by the agency directly or indirectly related to media spend or even where there is no media spend. ‘Rebates and Incentives’ mean any and all third party payments (including cash rebates, non-cash rebates or other incentives); agency volume bonifications or “AVBs” (an agency's receipt of a volume discount or compensation from media buys); discounted or unpaid media space or inventory; volume, early payment or other discounts; commissions; compensation, refunds or bonuses; bonus inventory, free or discounted media, sponsorship or promotional space; Barter inventory; Services Provided at a Premium; consulting or research agreements, service level agreements or any other source of financial or other benefit receivable directly or indirectly by Agency or Holding Company Members from third parties, including Media Owner Group Members or Vendors”. | The notion of an Advertiser receiving a pro-rata share of “Rebates and Incentives” requires the parties to consider their commercial viewpoints and value propositions: 1. The Agency is likely to receive Rebates and Incentives from media owners and other vendor suppliers due to the success of its business – the volume it is able to push through due to success in gaining numerous clients through to the very personal relationships employee media traders develop with their counterparts in the media and other suppliers – all enabled by years of trading, training and business development investment. 2. Are the Fees that an Advertiser is willing to pay an Agency for its Services sufficient or reasonable to cover cost of service and a fair margin if the Rebates and Incentives were returned in full as contemplated? 3. A frank discussion is required - service Fee increases, only a percentage of Rebates and Incentives returned to a client (say 50%) or no, the existence of Rebates and Incentives are fully disclosed for transparency but the Advertiser does not share in the benefit. 4. The actual entitlement of an Agency to Rebates and Incentives from a Media Owner or other Vendor is often uncertain – is it in a contract, is it given on an ex-gratia basis, is it able to be forecast, is it dependent on economic factors or does it rely heavily on personal relationships that generally displace over time? Rebates and Incentives should only be brought into the disclosure equation if actually received by an Agency. |
| Conflicts of Interest | The AANA Contract relies heavily on ensuring that the Agency is not is not in a ‘conflict of interest’ situation across all services provided including the booking of media and using other service providers that may be related entities to the agency. As drafted, it is the Advertiser that decides what is a ‘conflict of interest’. | The existence from time to time of any situation, arrangement, understanding, association, or agreement between an agency and its related entities should NOT, in and of itself, give rise to any inference that the Agency, a Holding Company Member or any Associates have a ‘conflict of interest’ in respect of the Advertiser. What is a ‘conflict of interest’ depends on the context of the relationship and it should not be up to the Advertiser alone to decree a conflict of interest generally or because of the simple existence of trading practices of an Agency. All should be disclosed and agreed. |
| Records & Audit Rights | The AANA Contract audit rights are extensive and enable a full audit of ALL records (including sensitive commercial information, third party information and other client information) for 7 years after the agreement ends. The audit rights capture Holding Company records and the records of media and other vendors. | If the Agency is to agree to this regime of Advertiser audit and access to Records, Agency must ensure that the Fees and Third Party Costs outlined in a given Scope of Work adequately compensate agency for the cost of compliance. The Agency would need to obtain permission from Holding Company Members for access to and maintenance of Records (where applicable) and secure permission from Media Owners and other third party Vendors to disclose their contracts, data and information to the Advertiser. This may not be possible. |
| Holding Companies Tie In | The AANA Contract ties in Holding Companies and related entities into many of its contractual provisions. | The Agency must determine if this is something a holding company is prepared to accept and exclude holding companies and related entities if applicable. |
| Media Owner & Third Party Vendor Tie In | The AANA Contract also ties in all media and other vendor suppliers to the agency into many of its provisions. | Third party consents and corresponding contractual obligations will need to be obtained to comply with the contract. On a case by case basis the parties should agree to removal of such tie-ins where permission cannot reasonably be obtained by agency. |