Supporting Service for Making a Basic Contract with Your Agency

Recently, concern over the non-existence of a basic contract with advertising agencies has risen in the background of the 2005 proposal from the Fair Trade Commission, as well as of pressure to create in-house management systems like the compliance activity or the operating audit. The research (the Fair Trade Commission Japan: 2005) for advertising agencies indicates that under 30% of all agencies could report that “We have a basic contract with almost all of our clients E

[The Basic Contract with Clients: The Fair Trade Commission Japan(2005)]
 

In addition to the above, the Japan Advertisers Association explains in their research report of 2006 that two of the reasons why advertisers do not a basic contract with their agency that they “Do not know how to draft the content E or say ‘It’s difficult to understand the cost system (fees, commissions, rewards) E These reasons show the difficulty in defining the content rather than techniques in negotiation with agencies. Also, ownership problem of copyrights or the discloser problems with media net costs are thought of as making it hard to create consensus with agencies.

On the other hand, some advertisers and agencies make contracts regarding celebrity appearance or usage of illustration even though they have no basic contract; it seems that the advertising industry is not in touch with contractors.

Considering the above situation, when an advertiser drafts an inclusive basic contract with their agency, SPI recommends the following flow:

[Basic contract developing process]

1. Agency’s scope of work definition
2. Design of reward payment system: Fees, commissions, sliding commissions, etc.
3. Pros/Cons of consideration
4. Design of assessment system: Evaluation method of agency service quality
5. Design of contract: Terms, scope, and style
6. Design of ownership: Copyrights of advertisement, Inspection authority of media net cost, etc.
7. Design of compensation and cancellation articles

Step 3 above means that it is possible to halt the creation of the basic contract with an agency when an advertiser provide evidence that the agency’s scope of work and reward payment system has the potential to cause to some demerits for the advertiser. In this case, one example of a demerit would be an expense increase on the part of the advertiser. Because some advertisers ask agencies for additional consulting work or advice service regarding gross commission, when they try to clarify the scope and reward system they may end up seeing a cost increase.

Step 6 above means that it is realistic to discuss whether or not to include copy rights and inspection authority when considering the needs contracting and the possibility for consensus because these problems are very controversial in Japan.

SPI has a lot of experiences regarding advertising contract because SPI works for clients who hold clear contracts. Also, SPI utilizes some original frameworks for daily consulting services which are useful for discussing steps. SPI provides the support services for making basic contracts which are fair for both advertisers and agencies, based on our experience and reputation.

Author: SPI

Please contact us with questions or for more detailed information.
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