‘Sorry, our contract says you can’t see that.’

If there are more words governing audit rights than in the rest of the commercial agreement, it’s worth asking why.

We were approached by a global retailer who wanted reassurance that its multi-million pound annual contract with its lead creative agency in the UK had been implemented as written.

Following our initial review of the contract, we identified a number of concerns — not least because the document containing the brand’s audit rights (i.e. what the agency would and would not allow an independent auditor to review) actually ran to more pages than the commercial agreement! Normally audit rights are set out in a section of the contract, taking up no more than one side of A4 paper, and are general in scope.

Whilst there was an acceptable level of transparency around third-party costs, our review raised concerns in the following areas:

  • more than 100 agency staff were charging time to the account each year
  • there could be long delays in staff submitting time sheets, causing their accuracy to be called into question
  • the progression of production quotes generally appeared to be on an upward trajectory, despite a cost controller being engaged
  • the contract stated that there should be a neutral working capital position between the parties. In fact it appeared that the agency was enjoying a £250,000 cash benefit on an ongoing basis
  • there was a lack of transparency of global deals with key suppliers used on the account
  • there was a marked difference between the brand’s travel policy for the use of taxis and the policy employed by the agency, to the extent that a dedicated chauffeur would have been as cost effective

As a result of our work, the brand was able to provide an evidence-based reasons for retainer fees to remain flat year-on-year, along with a list of practical recommendations to bring more balance to the commercial relationship with the agency.

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