Agreements for Advertising Agency Services

In my last post I discussed some of the issues that arise when negotiating a contract for public relations services.  Another important partner in the marketing area is an advertising agency and that relationship will also require some form of services contract.  Since the advertising agency is chosen to become a key partner in any company’s efforts to develop and distribute information regarding its products and service through various media channels the agreement should address how the agency will assist the company in planning, preparing and placing advertising for the company’s products and services.  The scope of the services to be provided by the agency should be based on an analysis of the company’s current and proposed products and services and the markets in which those products and services will be promoted and sold.  The agency will be responsible for dealing with the parties that control the platforms on which the advertising will appear (e.g., newspapers, magazines, radio and television stations, and online advertisers).  Compensation to be paid to the agency will generally be a mix of commission and fixed hourly charges as specified in the agreement.  The agreement should also address billing procedures, rights of ownership and use in intellectual property created by the parties while developing the advertising materials, the rights of the agency to work for competitors, and the term of the agreement and events that might trigger early termination of the agreement (and the consequences of early termination).


In general, advertising agencies are compensated on a commission basis, at a percentage agreed upon in advance by the parties, for placing advertising with the media and for arranging for procurement from third parties services or properties necessary for the conduct of the advertiser’s marketing campaign.  The advertiser maintains control over the compensation by virtue of the fact that it must authorize advertising placements and the procurement activities enumerated in the agreement.  Activities not compensated on a commission basis will be compensated at an hourly rate negotiated by the parties; provided, however, that the agency has agreed in advance to a cap on the hourly rate.  Before proceeding with any special projects that would be covered by the hourly rate arrangement the agency will normally be required to provide the advertiser with an estimate of the cost and a schedule. 


In general, advertising agency relationships are reviewed no less frequently than annually and performance should be measured against objective metrics mutually agreed upon by the parties before the relationship begins.  Typically each party is allowed to terminate the agreement by providing advance written notice to the other, assuming that the agreement has not been breached.  In the event either party defaults under any material obligation owed to the other party the defaulting party will have the specified cure period to remedy the situation and if this does not occur the non-defaulting party would have the right to terminate the agreement.  In most cases the parties will be prohibited from terminating the agreement until a minimum period of time has passed absent a material default during the initial period.  The contract should describes the steps that need to be taken upon termination of the agreement, for any reason, and require that the agency transfer, assign and make available to advertisers all property and materials in agency’s possession to which advertiser is entitled provided that advertiser has made all required payments under the agreement.  Since termination often occurs because the advertiser decides to employ another agency the agency should be required to cooperate with the transfer of contracts and agreements with media, suppliers and talent that may be necessary in order for the advertiser to continue forward with its marketing campaign.

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