Say you’re deep in the selection process for hiring a new agency partner. You have dug into this agency deeply and know it has the capability and domain experience, and you like the team, but it’s important that it conducts business the same way as you do.
So now that you have the agency proposal in front of you, and you’re at the point of making that big, momentous decision, what’s left to decide?
Why do we need a contract in the first place?
At this point, the realization that there’s a good fit between you two has already been established, but both parties need to agree on a contract that aligns aspirations and expectations as well as protects everyone if something doesn’t work out.
An agency proposal is made up of smaller parts that come together to form a happy union. An effective Master Services Agreement (MSA) and the accompanying Statement(s) of Work (SOW) clearly define your business situation—plans, challenges, goals and timeline.
These two documents form a contract—the codification of the new union between two partners. This contract is what the agency needs to formalize a relationship with you, the client.
When considering an agency proposal, these are the questions you need to ask:
- Have we had a good discovery process with the agency and from within the business about what we’re trying to achieve and how we’re going to achieve it?
- Have we adequately described our business situation in a proposal or briefing document internally, and does it match the agency’s proposal?
- Does the agency proposal outline a plan that solves for our business objectives?
- Does the agency MSA and SOW define the relationship and set it up for success?
It’s vital that your agency selection process be holistic from the very beginning. It’s easy to look at just the nitty-gritty of the contract itself, but it’s important to look at it within this larger context.
What should a contract look like?
We at Austin Lawrence believe the MSA should exist separately from the Statement(s) of Work that define specific projects or ongoing campaigns. Our contract confers no real obligation to our client, but rather defines our overarching relationship. At the very top, the contract (MSA) defines who is agreeing and in what way this agreement is reached.
The MSA governs the relationship, and the SOW defines the campaign or project. This allows you, the client, to architect the relationship effectively under multiple statements of work. It’s a flexible way for an organization to acquire additional services from the agency.
The MSA allows you to establish the “rules of the road” once, so that a new SOW is easy to create and implement. For example, a new project to redesign a website has its own SOW that follows the rules set in place by the MSA that was established at the onset of the client-agency relationship. This way, there’s no worry about the terms of service. This contract architecture makes the future of the relationship easy to administer.
What should a MSA include?
I. Creative & Planning
This section outlines the rules of engagement around SOWs. One important rule is every budget needs to be approved with a signature, so you’ll never be billed for something you didn’t buy. There are no surprises from us because our contract states that any time you’re spending money, you need to affix your signature, whether in person or by email. It’s something to look out for, since some agencies and design studios do not include this rule.
Our confidentiality statement states that we’ll “handle all client information in confidence” and issue regular activity reports to let you know what we’ve been doing and what’s been accomplished. It also allows for possibility that additional confidentiality statements or NDAs might be asked in the future.
This section also states that the agency cannot poach your employees or suppliers and vice versa. This agreement protects the agency as a valuable resource to its clients.
The next paragraph defines copyright ownership. Once our client pays the bill for creative, they own it. This is an important right we confer to our clients. Note there are design firms and other agencies that seek licensing in the future for the creative products they produce, an obvious detriment to the client. An agency should act in your best interests. Make sure the MSA includes this section.
Furthermore, this document states that when we buy artwork, which could be flat art, video, music or any other type of media, we secure the rights and confer the rights to you. Those rights can vary. For example, some higher quality art like stock photography is not available royalty-free. So if your business is operating at a high level—for example, if you’re doing something for a national advertising campaign or annual report— you might want to be the only one able to use that art for a certain period of time, a licensing construct known as “Rights Managed.” Since copyright is an area that can create risk for a client, we are very careful to secure rights properly.
Regarding arbitration, our agreement states that if we can’t solve a dispute between us, then we’re going to arbitrate, not litigate—ultimately saving everybody time and money.
And lastly, this section establishes payment terms, including what happens if you don't pay your bills.
III. Mutual indemnification
Standing alone, this important section states that the client will receive an indemnity from us in the event that we misbehave. So if we distribute something that’s inaccurate or willfully misrepresents the client or causes business harm, then we will be held responsible. Likewise, this section requires clients to give us accurate information. If they misrepresent themselves, then they’re going to be held responsible.
IV. Duration of Agreement
This section explains what happens during a cancellation period. Importantly, the client or agency cannot terminate the agreement on no notice; this isn’t good for anyone’s business.
V. Compensation for Services
This section is a great example of how the MSA defines the overarching way in which the relationship operates. In our case, the payment for compensation discusses how larger projects will be invoiced. For example, large projects might be invoiced in multiple segments. Also, it states that a budget/estimate is not necessarily exact—since it’s based on imperfect predictions—and might vary 5-10 percent without requiring authorization from the client.
VI. Initial Payment
The section refers to the accompanying SOW, which details how the agency will get paid.
VII. Thank you!
Always nice to see. And it’s lucky section seven!
Do I need anything else?
Our MSA covers most agency services. However, there might be additions needed for specific lines of business. For example, if you’re spending millions of dollars on media buying, your SOW needs to carry important language specific to the media buying business because you commit earlier, and there are different and more complex considerations about performance than with other marketing services. Also, organizations like large direct mail houses that buy a lot of postage probably require language specific to that line of business. There are obligations that mailing houses and media buyers have that aren’t anticipated in our MSA. Still, this MSA is a great starting point for these circumstances—it just might need some modification for those specific lines of business.
Why should I use your MSA?
Our MSA has been refined over the past 25 years and has executed tens of millions of dollars in revenues. It’s been very successful in securing business for us and other agencies (yes, we’ve shared it before) because it’s fair and designed to foster a relationship.
An MSA should be structured in such a way that makes it easy to form and formalize the relationship. It needs to be clear and flexible in order to define a future unknown. That’s also why the SOW is needed in conjunction with the MSA.
Remember that the ‘A’ in MSA stands for agreement—this document is designed to be agreeable to both parties. It is written in clear English, so that an executive can sign it in confidence without need to hire expensive legal advice. That being said, it’s still a legal contract, and you should absolutely still get it looked at if you feel you need advice. But ours rarely has to go through tortuous review.
If you have any questions about the contract or the process of hiring an agency, please book a time on my calendar!