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Unfair contract clauses are more prevalent than ever, leading to strained relationships between smaller agencies and their clients. What can be done to level the playing field and return a semblance of partnership to the client-agency relationship?
Running a small agency is never easy. Resources are limited, competition is fierce, and the pressure to deliver measurable results is constant. So why are clients making life more difficult for their agency partners by including unfair clauses in their contracts? Clauses that grant clients irrevocable and unrestricted rights to all content, impose one-sided termination terms, or withhold payment without clear performance criteria. Clauses that violate the rights of smaller agencies and are symptomatic of a wider imbalance of power.
The answers are not always clear, but the repercussions are. If boutique agencies want to survive, they have to bite the bullet and accept less favourable terms. Terms that sometimes state that an agency “irrevocably, unconditionally, and absolutely assigns to the client with full title guarantee and without restrictions all the rights and interest in the content it produces”, regardless of whether there are any rights restrictions related to photographers or other content owners. Or that “only the client can terminate the agreement for convenience or breach”, or that the client has “the right to retain 10 per cent of the invoice amount as a guarantee of the ‘correct performance to the full satisfaction of the client’.” Whether the latter is based on specific deliverables, timelines or KPIs appears irrelevant.
In any other industry, these practices would be considered unfair and unethical and promptly rejected. So why do some agencies agree to them? For several reasons, beginning with the aforementioned imbalance of power. “Clients with dominant market positions can leave agencies with little bargaining power, compelling them to accept unfavourable terms to avoid losing business opportunities,” explains Manoj Ammanath, brand partner at Dubai-based Rain Creative. “The highly competitive nature of the market and financial pressures can also push agencies to accept unfavourable terms to secure business and maintain stability.”
Clients can, after all, simply walk away if an agency refuses to sign. “If you don’t want to work on their terms you won’t work with them at all,” says Iain Balfour, operations director at LightBlue. “The past few years have seen numerous examples of the power that big business has over small agencies. We live in a part of the world that doesn’t talk about the number of businesses that go under. However, privately we hear on a weekly basis of agencies letting people go, or deciding that they can’t financially carry on. I believe clients get away with it because they know that there will always be another agency to do the work.”
“From personal experience, I can vouch for the importance of seeking legal advice to fully comprehend the implications of the clauses being agreed upon.”--Manoj Ammanath, brand partner, Rain Creative, Dubai
There is a level of rigidity on the part of clients, too, with big brands operating on templated legal contracts, says Fadi Khater, founder and managing partner of Netizency. Complex compliance requirements cause a certain level of fear and aversion to risk, he notes, making it difficult for large organisations to adapt or change contracts without jumping through hoops. Some multinationals also display, on occasion, an attitude of superiority, adds Balfour. “They automatically assume that their terms and conditions will take precedence and their one-way NDA will also apply,” he explains. Indemnity clauses are frequently one-way too.
This is arguably part of a much wider issue related to doing business with larger companies. “It’s very easy as a small agency to be seduced by the idea that the bigger the client, the better an agency you will be and the more money you will make,” says Balfour. “However, it’s not that easy. We found as we grew as an agency, the bigger the client, the more layers of bureaucracy there are. All of a sudden we are dealing with procurement departments, more layers of management and less access to the decision makers. Budgets are more tightly controlled and creatively they are more risk averse than your niche clients were… It seems that the more large scale projects we work on, the clients all have additional conditions that have to be met. It’s happening all the time now. I spend more and more of my time reading contracts than I have ever done.”
How prevalent is the issue? Khater estimates that seven out of 10 clients include unpalatable clauses in their contracts. Others cite similar numbers. “Whatever the reasons may be, these harsh terms in contracts don’t benefit anyone in the long run,” believes Ammanath. “At our agency, we have been fortunate to work with some remarkably professional clients who treat us fairly in all aspects of the relationship. We have also respectfully declined engagement with some clients whose terms we felt did not respect us as professionals.”
“We can’t be seen to be weak and let the client think they have the upper hand.”--Iain Balfour, operations director, LightBlue, Dubai
How agencies respond is up to them, but as Balfour states, “as a small, niche, independent agency, we are fighting for ourselves. Legally we are weaker, we don’t have the financial muscle to fight in court. So, we have certain standards that we insist on with all of our clients. I will push as much as possible for mutual NDAs and terms and conditions that are fair to both parties. I will also insist on payment plans/upfront payments with clients. We can’t be seen to be weak and let the client think they have the upper hand. We like our clients to think that we are working in partnership with them and to move away from a master/servant relationship. I believe that we have a standard of service, creatively and otherwise, that they won’t get elsewhere so that puts us in a position of strength.”
What’s needed to ensure such an imbalance of power does not continue? It’s a difficult question to answer, replies Balfour. “Financially there will always be an imbalance of power,” he says. “So, as agencies we need a different approach. We need to think about the ‘why’. Why are clients coming to us, what do we have that they need? Our knowledge and creativity and service put us in a position of strength. What they get from us they won’t get from other agencies. However, these things come at a cost for the client, and it should be a privilege for them to work with us. We need to be bold, without being blasé.”
“We have respectfully declined engagement with some clients whose terms we felt did not respect us as professionals.” --Fadi Khater, founder and managing partner, Netizency, Dubai
Apart from declining to work with clients who include obnoxious clauses in their contracts, Khater suggests three possible solutions. The first is the creation of an industry body with some level of legal authority that protects small players. The second is the addition of small agency protection to compliance requirements. The third is the relaxation of general compliance requirements, which would make it easier for large companies to make minor changes to their terms/processes for smaller projects.
“I believe that not all smaller agencies have access to legal expertise to scrutinise the terms offered,” says Ammanath. “From personal experience, I can vouch for the importance of seeking legal advice to fully comprehend the implications of the clauses being agreed upon. Moreover, I believe there is a role for industry advocacy to standardise the terms within the advertising industry. This advocacy should proactively establish ethical standards for client-agency relationships, focusing not on pricing, which can vary depending on the agency’s structure, reputation and nature, but on the clauses themselves.
“Having worked in large global networks and now in an independent agency, I firmly believe that fairness, respect and professionalism should be the cornerstones of any agency-client relationship, regardless of size. By being proactive and advocating for positive change, agencies big and small can build lasting partnerships and thrive in the competitive market.”
