We were approached by a well-known FMCG company to quote for an exit audit in case it decided to move away from the incumbent agency during an upcoming pitch process. We were more than happy to do so and, having signed the obligatory non-disclosure agreement, asked if we could get an understanding of what was in the contract so we could accurately scope out the work.
The conversation soon moved on to the pitch process.
The brand had considered the contract as part of its initial round of engagement with potential agencies. It intended to put in front of them its preferred contract at the outset and ask each agency to highlight any clauses and/or wording which it could not accept. By flushing out any major contractual issues before the award of business was made, this approach made it extremely likely that the brand would only end up with an agency with whom it could also agree satisfactory commercial terms. In other words, it was taking a best-practice, low-risk approach.
Experience has taught us that contracts which have not been reviewed from a financial or contract compliance perspective are more likely to run into problems during an audit process.
We asked who was working on the contract. Procurement, Legal and a Media Expert came the reply. At this point we offered our services to review the latest draft of the contract. Experience has taught us that contracts which have not been reviewed from a financial or contract compliance perspective are more likely to run into problems during an audit process.
Our review of the contract highlighted:
- a single signature was required to commit expenditure, contrary to the delegated authorities operated by the brand (which required two authorised signatures)
- the brand would not have any audit rights over other agencies in the group, which were used to deliver some of the services
- the policy for out-of-pocket, travel and subsistence expenses incurred by the agency was not clearly defined
- the process proposed for foreign currency transactions was likely to give rise to operational issues for both parties
- there were inconsistencies between the confidentiality, audit and rebate clauses which meant that the brand would not be able to verify certain types of rebate
- provisions covering IT security and disaster recovery at the agency were absent
- regular reporting processes were not clearly defined
Happily, there was sufficient time for the brand to address the points raised with Legal, Procurement and the Media Expert before the proposed contract was sent out with the RFP.
When we enquired at the end of the pitch process how contractual negotiations had gone, it transpired that all contract negotiations were done during the RFP process, so that when the business was awarded there was nothing left to negotiate! The client also commented on the value of having four subject matter experts reviewing the document at the same time — it made for a far more robust contract from the brand’s perspective. Since then, the brand has asked us to review its other agency contracts.