CLOSE-UP: Live Issue - New Standard Contract. Avoiding the lawyers in a relationship breakdown

New set of guidelines gives agencies more protection in law.

Although not the most romantic of wedding arrangements, a priority for many rich couples is to sign a pre-nuptial agreement. Translate this into the advertising industry, and you come to the thorny issue of client/agency contracts.

With the backing of the IPA, ISBA and the Chartered Institute of Purchasing & Supply, agencies and clients have agreed a new standard contract aimed at avoiding unnecessary legal wranglings should the relationship go sour. The updated guidelines not only allow agencies to protect their rights and limit their liability for insurance purposes, but they also give advice to clients on what they should do to keep control of copyrighted material.

According to Brinsley Dresden, a Lewis Silkin partner, its head of advertising law and the author of the new contracts, legislative change meant that contracts needed to be updated. The current recession is a major factor in encouraging agencies to think carefully about their obligations and rights - especially when those relationships are placed under strain by slashed marketing budgets.

"There's nothing like a recession to demonstrate the benefits of a clearly drafted contract," he says. "Switching accounts can be a headache for both sides, which is exacerbated by uncertainty about respective rights and obligations."

He says too often agencies come unstuck when a client pulls out of a relationship which was not formally sealed with a contract. "You'd be amazed how many accounts sail through without anything more than a two-page letter detailing the requirements from both parties. Sometimes there's no legal binding whatsoever. At a time when many agencies are being served notice by clients, it's essential."

The CIPS director of communications and marketing, Carolyn Munton, says: "Marketing often remains the only high-spending department to lie outside the sourcing strategies applied to other areas of an organisation. These new contracts will enable both the organisational buyer and the agencies with which marketing departments work to benefit from increased transparency and greater ability to prove value for money."

While Dresden accepts that he may be doing Lewis Silkin and its rivals out of some fees by drawing up an easily understood and practical set of guidelines, he says the fact that few agencies now employ full-time legal specialists means transparency and ease are important. He claims most agencies will be able to decipher and adapt the contracts themselves, although they should be checked for watertightness by a lawyer. He also stresses that agencies are not obliged to use the template contracts, and says the association with two of the industry's primary trade bodies will act as a "seal of approval" for anyone in doubt.

One of the most significant parts of the contract is the incorporation of wording for the upfront assignment of copyright, which means agencies and clients will thrash out ownership issues before they become an issue.

Mother, currently embroiled in a legal row over the ownership and copyright of the Monkey character it created for ITV Digital, welcomes the revamping of the contracts and the level of recognition being raised over contractual issues.

The Mother partner Andy Medd declined to comment on the case, but said agencies need to be more careful about ownership from the start. "As we've seen, it's crucial to ensure that contractual issues over anything from fees to copyright are thrashed out at the start of a client/agency relationship."

FIVE KEY CHANGES TO THE CLIENT/AGENCY CONTRACT

1. The most obvious change is the introduction of three separate versions of the suggested terms. As well as replacing and updating the contract, we have also published versions for creative and media-only appointments. This will save a great deal of time and energy in removing superfluous provisions and reformatting.

2. The contract now includes the wording for a "present assignment of present and future copyright". Under this arrangement, the agency transfers ownership of copyright to the client at the start of its appointment. Originally it was felt reasonable for the agency to retain ownership until it had been paid for the relevant work. Experience has shown, however, that some contracts have been concluded on this basis, but without being drafted to allow for custom and practice in the advertising industry. It therefore seemed sensible to include the wording for this arrangement, even though a contractual obligation to assign copyright upon payment is still seen as the fairest compromise.

3. A clause limiting the agency's liability has been included to reflect what is found in most contracts for the provision of services. The clause excludes liability for indirect or consequential loss, and places a limit on the agency's liability for direct loss. The level of that limit should be negotiated by the parties and reflect the level of the agency's remuneration. It will also be relevant for the amount of any professional indemnity insurance which the agency is obliged to obtain.

4. Changes have been made to make the contract more user-friendly. The guidance notes and instructions which are to be deleted before signature are now in grey boxes. Defined terms are arranged alphabetically in schedule 1 of the contract.

5. Finally, changes have been made to reflect changes to the law since 1998, such as the Data Protection Act 1998, the Contracts (Rights of Third Parties) Act 1999 and the Financial Services and Markets Act 2000. Some of the other "boiler-plate" provisions have been amended to reflect recent case law and the force majeure provisions have been expanded to provide more certainty about their practical application.

Brinsley Dresden is the head of advertising law at Lewis Silkin.

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