A new version of the ISBA/CIPS/IPA suggested form of advertising services contract between a client and an advertising agency has recently been published. Six years on from the very first version’s launch at the end of an 18 month project in which marketinglaw’s editor and Osborne Clarke partner Stephen Groom played a lead role.
Topic: Contract
Who: The Incorporated Society of British Advertisers, The Institute of Practitioners in Advertising and The Chartered Institute of Purchasing and Supply
Where: London
When: May 2005
What happened:
Since marketinglaws’ editor Stephen Groom steered to completion and largely wrote its first iteration in 1998/9, the suggested form of contract between an advertising agency and its client for the provision of advertising services has become well used in the advertising industry.
In May 2005 the three trade bodies responsible for the project, The Incorporated Society of British Advertisers and The Chartered Institute of Purchasing and Supply representing advertisers and The Institute of Practitioners in Advertising representing ad agencies, published an updated version.
The appearance of the new version of the contract was greeted with a fair deal of quite misleading publicity. A main theme of reports published at the time suggested that the new document hailed a radical new departure in favour of agencies and their retaining intellectual property rights in their output instead of giving them to clients.
The reality was quite different.
Separate copyright Note
All that happened in the new document was that the provisions dealing with copyright were hived out into a separate note, with a few more smorgasbord style options to choose from. Like the previous version, one option had the Agency retaining copyright and licensing the Client to use the material during the term of the Agreement. However, there are at least two new options available in the new terms.
One of these allows for a situation where from time to time during the relationship between the Client and Agency, and at the end of discrete campaigns or projects, the IP rights in the work that has been done up to that time might be passed over to the Client subject to payment of fees and that’s just about it in terms of significant new departures in the area of intellectual property.
The other changes are little more than a few tweaks to update the document rather than any major departures, although it is interesting to speculate on the debates behind some of the changes that have been made.
In the “Term of appointment” clause for instance, the earlier version stated “This Agreement shall commence on [insert date]… and continue for the period of [12] months…”. In the new version, the number 12 has been deleted and the square brackets are blank. However, the accompanying note, which previously recorded “our combined experience is that 12 months is often regarded as appropriate”, remains unchanged in the note in the new version.
Another barely noticeable change is that the words “if at all” have been added to a note to the “Other appointments” clauses in the sentence “Clause 8.1 deals with exclusivity restrictions imposed on the agency to prevent it from acting for competing advertisers, if at all”, a very minor-blow in favour of the IPA here perhaps?
In the “remuneration” section, the previous reference to “an incentive element in the form of a bonus” has been changed to “a payment by results mechanism” and there is a rather fuller commentating note recording the need to define key performance indicators on which the agency’s performance will be measured as opposed to the previous more vague “structure for defining the targets will be needed”.
Media space/proof of appearance
In the “Media space and time charges” section a brand new sub-clause has popped up headed “Proof of Appearance”. This reads “[The Agency will make use of available industry systems which provide proof of appearance of advertising in various media]”. The accompanying note reads “A number of proof of appearance systems or vouchering schemes are available to check that advertising has appeared in the media it was booked in, and the new clause 13.3 refers to the Agency making use of these systems. Some of these systems are free to use, but some are commercial systems for which costs will be payable. If the Client wishes to use proof of appearance systems which are not free, the parties should discuss and agree the related costs in writing.
Discounts and rebates
In the “Discounts and rebates” section, square brackets have appeared round the clause “[all cash discounts quoted in media rate cards as available to all purchasers will be offered to the client provided the client pays the agency invoices on the appropriate due date]”. One can only assume from this that the negotiating bodies felt that this should no longer be regarded as a default provision.
Volume rebates charge
In the next sub-clause, “[The Client shall receive the benefit of all commissions, discounts and rebates [obtained by the Agency] [derived from the handling by the Agency of the Accounts under this Agreement]” has become…
“The Client shall receive the benefit of all commissions, discounts and rebates [derived from the handling by the Agency of the Accounts under this Agreement]”.
A suggestion here perhaps that the IPA won out in an argument that the default position should be that only rebates derived from the particular accounts in question should be passed to the client.
In the “Materials, services and disbursements” clause, a new sub-clause has popped up as follows.
“All costs incurred in taking legal or other advice and undertaking trade mark or other searches and enquiries, as agreed by the parties from time to time [should be invoiced by the Agency to the Client]”.
There is also a lengthy accompanying new note which says “There is a strong argument that the cost of legal clearance should be met by the Client rather than the Agency given that the Agency is appointed for its creative abilities, not for its legal expertise. This does not conflict”, the note continues, “with the usual warranties given by the Agency that the advertising is legal and does not infringe the right of third parties”.
This is something of a coup for the IPA and its agency members and we find it surprising that the client bodies ISBA and CIPS agreed to it. Contrary to the note’s assertion, we find it quite illogical that the client should be paying the cost of ensuring that the Agency does not breach its warranty. We will be surprised if many Clients go along with this line of reasoning and agree the inclusion of this new clause.
Audit
In the audit section, there is a fuller provision dealing with the Client’s right to audit the Agency’s records of third party expenditure. Included in the new drafting is a specific provision that the records to be audited “do not include confidential, financial, payroll, personnel or other confidential records of the Agency that do not relate directly to the Client”. Another new provision states “the purpose of such an audit.. is solely for the purpose of auditing contract compliance and not for the purpose of fee negotiation or the collation by any means of planning information.
Another new provision in the audit section allows the Client to conduct audits of the Agency’s records more frequently than the basic provision allows where “the client has reasonable grounds to suspect that fraudulent activity has occurred”.
Another related slight tweak is that if it turns out from the audit that the Client has been overcharged, then the Agency must reimburse the Client in not 14 days as before, but 7 days.
In a lengthy accompanying note to the audit section, there are some new passages.
This includes the reference to ISBA and IPA agreeing that it is preferable for auditors not to be appointed and remunerated by way of commission as a percentage of any financial irregularities that the auditors detect during the audit. This is regarded, the note continues, “as aggressive and potentially destructive to the client/agency relationship”. The note goes on to say that the audit clause currently covers any reimbursable expenditure. Should the parties want it to be extended further, for instance to time spent by agency staff in cases where this controls all or part of the remuneration, a modified clause will be needed.
Another additional note says that some Agencies seek a contribution towards their costs and management time spent in preparing for the audit and liaising with the auditors, as such time and costs can be significant for the Agency. On the other hand, the note continues, Clients may feel that any co-operation, assistance and time spent by the Agency during the audit has commercial advantage for both parties and as such should not be charged for.
Insurance
In the insurance section a sub-clause dealing with the obligation of the Agency to effect and maintain insurance against loss or damage to the Client’s property, the following new wording has appeared.
“except in the case of software and digital copies, where the obligation to insure shall cease after publication, broadcast or distribution”.
The accompanying note says that this reflects the reality when Agencies insure against digital copies of advertisements, where insurance of the digital copy stops after the advertising has been broadcast.
Confidential information
There is some new drafting in this clause dealing with the Freedom of Information Act, specifically relating to cases where the Client is a public authority as defined in that statute. The lengthy new accompanying note says that in order to take advantage of the carve out from the disclosure obligation available for “commercially sensitive information” (although the note states that commercially sensitive information may not necessarily cover information such as costs, fees and agency rate cards), the parties may consider listing confidential and sensitive information in a schedule rather than relying on the wide-ranging definition of confidential information in the contract as it stands.
Force majeure
In the force majeure clause, there is an amendment dealing with cases where a force majeure event continues for more than a specified number of consecutive days. In the previous version of the clause, in those circumstances either party had the right to terminate the agreement with immediate effect. In the new version, it is only the party which is not suffering from the force majeure event who can terminate. The relevant note states that this prevents a party from being able to profit from its own breach or delay in fulfilling its obligations under the contract.
This is odd since we thought the whole idea of a force majeure provision was to ensure that a party whose performance of the contract was impeded by an event over which it had no control would not be regarded or treated as if it were in breach.
Why this matters:
It is important that this useful advertising industry tool has been updated, although perhaps somewhat unfortunate that industry comments at the time rather distorted the impact and effect of the amendments. We also have difficulty with the logic of some of the changes, but as ever clients and agencies will take whichever bits of the suggested form they like and leave the rest.
