5 critical elements to review before signing a contract with an agency
Before signing a contract with your marketing agency, clients should pay attention to several critical elements to ensure a smooth and beneficial partnership. This includes both the Master Services Agreement (MSA), which governs the overall relationship, as well as the Scope of Work (SOW), which outlines all project-specific details.
Here are the top five things to watch out for:
1. Scope of Work (SOW)
Clarity and Specificity: Ensure the contract clearly defines the services to be provided, deliverables, timelines, and responsibilities of both parties. The more specific, the better. Agencies sometimes like to live in the gray zone, but ambiguities can lead to misunderstandings and unmet expectations.
Changes and Amendments: Look for provisions on how changes to the scope of work will be handled, including processes for approval and additional costs, what constitutes a “change” or “revision”, and how many “revisions” are included within the scope.
Example: A large retail company engaged a marketing agency to develop a comprehensive digital marketing strategy. The SOW vaguely described "digital marketing services" without specific deliverables or timelines. As a result, the agency focused on social media campaigns, while the client expected a complete website overhaul. This misalignment led to delays and additional costs as the scope had to be renegotiated.
2. Payment Terms and Conditions
Fee Structure: Understand the pricing model (hourly, retainer, project-based) and ensure it aligns with your budget and expectations.
Roles: Identifying what roles you are paying for within the scope and what specific rates are for those roles. If you are paying for more expensive senior level roles, understand the value of those roles and how the agency will ensure they stay involved during the course of the relationship.
Payment Schedule: Review the payment schedule, including due dates, milestones, and penalties for late payments.
Additional Costs: Be aware of any potential additional costs not included in the initial agreement, such as out-of-pocket expenses, third-party services, or overage fees.
Example: A tech startup hired a marketing agency with a payment schedule that required 50% upfront and 50% upon project completion. The startup assumed "project completion" meant the launch of their new app, but the agency defined it as the delivery of initial marketing materials. This discrepancy caused a cash flow issue for the startup, which had budgeted differently. Clear payment terms and milestones could have prevented this misunderstanding.
3. Intellectual Property (IP) Rights
Ownership of Work: Clarify who will own the work produced during the engagement. Ensure that the contract specifies that the client will own all final deliverables.
Usage Rights: If the agency retains any rights to the work, understand the extent of those rights and any limitations on your use of the deliverables.
Example: A fashion brand worked with an agency to create a new logo and branding materials. The MSA did not specify IP ownership, and after the project, the agency claimed ownership of the logo, restricting the brand's usage to certain channels unless additional fees were paid. This unexpected limitation forced the brand to either pay more or redesign their logo with another agency.
4. Termination Clauses
Conditions for Termination: Understand under what circumstances either party can terminate the agreement, including breach of contract, non-performance, or mutual agreement.
Notice Period: Check the required notice period for termination to ensure it is reasonable and allows enough time to transition.
Consequences of Termination: Review any penalties or financial implications of terminating the agreement, including payments for work completed or costs incurred up to the termination date.
Example: A healthcare provider entered into a long-term contract with a marketing agency. Midway through the engagement, the agency was acquired, and the client was unhappy with the new management. The MSA lacked clear termination clauses, resulting in a protracted and expensive legal battle to exit the agreement. Explicit termination conditions and a reasonable notice period could have facilitated a smoother transition.
5. Confidentiality and Data Security
Confidentiality Obligations: Ensure the MSA includes provisions for protecting confidential information shared during the engagement, including marketing strategies, customer data, and proprietary information.
Data Security Measures: Verify that the agency has appropriate data security measures in place to protect your sensitive information from breaches or unauthorized access. Understand what these measures are, as well as who specifically within the agency has access to client-owned data.
Compliance with Laws: Confirm that the agency complies with relevant data protection and privacy laws (e.g., GDPR, CCPA) to avoid potential legal issues.
Example: An e-commerce company partnered with a marketing agency to run targeted email campaigns. The MSA did not adequately address data security protocols. Subsequently, a data breach at the agency exposed sensitive customer information, leading to significant reputational damage and legal penalties for the e-commerce company. Comprehensive data security measures in the MSA could have mitigated this risk.
Additional Considerations
Dispute Resolution: Understand the process for resolving any disputes that may arise, including mediation, arbitration, or litigation.
Example: A financial services firm had a dispute with their marketing agency over performance metrics. The MSA included an arbitration clause, allowing both parties to resolve the issue quickly and cost-effectively without going to court.
Performance Metrics and Reporting: Ensure the contract includes clear metrics for measuring performance and outlines the frequency and format of progress reports.
Example: A global consumer goods company required regular performance reports from their marketing agency. The SOW specified monthly detailed reports on key performance indicators (KPIs). This clear expectation helped the company monitor progress and hold the agency accountable.
Agency Team: Know who will be working on your account and ensure their expertise and experience meet your needs.
Example: An automotive company selected a marketing agency based on the experience of specific team members. The MSA included a clause ensuring that those key individuals would work on their account. When the agency tried to switch the team to more junior team members, the company invoked the clause, ensuring continuity and expertise.
Conclusion
By understanding and negotiating these critical aspects of agency contracts, clients can safeguard their interests and establish a strong foundation for a successful partnership with their marketing agency.
At EKG, we believe in the protecting clients from the ambiguity that can come with agency contracts. We’ve been on the agency side for decades, so understand the areas to focus on early to avoid bumps in the relationship later.