Sacha Wilson and Josey Bright: in-housing and restructuring agency-client relationships in coronavirus

Major economic crises always have significant implications for service provider relationships and the ad industry is no different. The current coronavirus pandemic has presented some unprecedented economic challenges for brands and agencies operating across nearly every sector. “In-housing” is certainly not a new phenomenon and has been a hot topic in the ad industry for a while with brands exploring the options for taking certain elements of agency work in-house. However, it has become an increasingly hot topic given the current coronavirus pandemic where agency-client relationships have been put under closer scrutiny than ever before.

In-housing will mean different things to different brands and agencies, and could cover a range of activities including in-house content creation, engaging influencers, or programmatic media buying. An important motivation for brands to in-house is to squeeze out more value from marketing budgets by utilising resources more effectively, as well as better control/management of data. This is particularly the case when faced with a potential economic downturn caused by the coronavirus pandemic.

The trend for in-housing requires adapting business models in the agency world as well. Progressive agencies see it as an opportunity potentially to develop the advertiser-agency partnerships more closely, away from discrete project based or time limited retainers to establishing dedicated in-housing support/consultancy teams. Specialist “digital transformation” agencies are also emerging to assist brands through their in-housing journey.

Commercial issues

Gaining organisational buy-in and commitment may be one of the biggest hurdles for marketing departments looking to in-house. Management support backed up by a plan to justify in-housing time and resources is needed, as well as being able to convey to management the complexity of the advertising ecosystem and the infrastructure required.

The other key commercial hurdles are time and resources/talent. In-housing does not happen overnight. Sustaining the process can be very challenging and puts pressure on a company’s infrastructure. Likewise, it may take a while to find the talent with the right expertise, or the brand may need to pay for additional training to upskill existing staff.

Legal issues

As well as general commercial considerations, brands looking to in-house or agencies dealing with clients who are attempting to in-house certain activity, need to consider a number of legal issues:

Employment Law

Where an agency has previously provided a dedicated account team to a brand and that service will be transitioned in-house, there may well be TUPE issues to consider. Broadly speaking, the main effect of TUPE would be to transfer the contracts of employment of agency staff involved in the brand’s account to the brand on termination of the relevant service.

However, many questions arise during the process as a result of TUPE. These include which staff would be in scope, what happens to those who choose not to transfer, and what liabilities are actually transferred and when. Depending on the size/scale of the account and services being in-housed, specialist employment law advice may be needed to manage the process.

Third party contracts

As part of their services to brands, agencies typically manage a range of third party relationships with various partners, including production companies, talent, ad tech intermediaries and media owners. In most cases, in the UK, an ad agency will contract with these third parties as ‘principal’ (not as the brand’s ‘agent’). Consequently, there will be no direct relationship between the brand and the relevant third party.

If an in-housing model results in a brand contracting directly with these types of third parties, there may well be key existing contracts which the brand will wish to take over from the agency (e.g. a contract with a DSP (Demand Side Platform) in the context of in-housed programmatic media buying.) The brand will therefore need to discuss with the agency and the relevant third party whether and when the relevant contracts can be replaced with a new one with the brand (or ‘novated.’)

In an adtech environment, a brand may still want (or need, depending on the brand’s in-house expertise) the agency to log-in to the relevant platform on the brand’s behalf depending on the in-housing model. In this case, brands will need to ensure the vendor contract permits this activity and that they have appropriate contractual cover in the event the agency puts the brand in breach of the vendor’s terms. Likewise, where an agency uses a third party platform on a brand’s behalf, the agency should ensure it has appropriate contractual cover to ensure it will be permitted by the applicable vendor to do so and to protect the agency against claims from the vendor if not.

The client-agency contract

Depending on the scope of the in-housing model, a brand’s existing agency contract or SOW (statement of work) may need to be varied or amended, partially terminated or even terminated in full. The brand may incur early termination costs as a result and should ensure it has sufficient visibility from the agency regarding the financial implications of any such actions. Likewise, agencies will need to ensure that any third party costs which have been incurred or to which the agency is contractually committed on the brand’s behalf will be covered by the brand in the event of termination.

In the event of termination, brands will also want to consider the extent to which they have contractual commitments from their agency to provide transition assistance or have in place an agreed form exit plan. Likewise, agencies should ensure that they are appropriately remunerated for any transition services provided, especially when any such activity goes beyond the agreed contractual scope.

Most agency contracts will have a ‘consequences of termination’ clause which provides for the transfer of deliverables and certain IP as well as the return/ deletion of confidential information. Well drafted agency contracts should also address how data is handled in the event of termination – this will of course be particularly relevant for agencies engaging in digital activity for brands. For media agency appointments, it will also be particularly relevant to consider how areas such as rebates/incentives and unbilled media will be handled on termination of the contract.

Sacha Wilson and Josey Bright are partner and associate at leading law firm Harbottle & Lewis’ Technology, Media and Entertainment (TME) team. Recent experience includes advising a leading FMCG brand on its direct contracts with DSPs, an automotive manufacturer on its part in-housed global media buying model, and a luxury retail brand on in-housing the management of its influencer relationships.

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