The Association of Independent Commercial Producers (AICP) is slated to release its study of ad agency production contracts within the next couple of months. But some of the concerns being uncovered in that analysis surfaced during a panel discussion at last week’s Producers Conference 2001 in San Francisco.
Simply put, a significant number of individual agency contracts contain provisions that can carry inequitable legal liabilities for production houses, according to the AICP. And many production company executives aren’t fully aware of the risk—or degree of potential risk—they assume if they sign certain contracts.
As earlier reported (SHOOT, 1/5, p. 1), the AICP commissioned a study of contracts from a dozen major agencies. The AICP hired freelance producer Andrea Ruskin to spearhead the project. By sifting through these agency production agreements, the AICP intends to pinpoint areas of concern, making its membership aware of clauses to look out for before consenting to sign on the dotted line. The study will not only identify problematic provisions but will also make recommendations on how to deal with them. Such recommendations could include production companies striking out objectionable language, replacing it with revised wording, and/or simply initiating a dialogue with agencies about legal issues and concerns. Contract issues range from receiving payment on a timely basis to postponement/cancellation contingencies, legal liabilities and proper indemnification. Another concern is the advertiser/agency contractual obligation, or lack thereof, to pay production companies for services rendered if a client goes out of business without paying its bills—a prevalent scenario in the dot-com sector.
Ruskin was one of several panelists participating in the Producers Conference session, which was moderated by AICP president Matt Miller. Also on hand were Richard O’Neill, director of broadcast production at TBWA/Chiat/Day, Los Angeles; Ben Grylewicz, head of production at Wieden+Kennedy, Portland, Ore.; attorney Jeff Greenbaum of Frankfurt, Garbus, Kurnit, Klein & Selz, New York; AICP national chairman Alex Blum, partner/executive producer of bicoastal Headquarters; and ex-officio AICP chairman Frank Scherma, co-proprietor of bicoastal/international @radical. media.
Greenbaum, whose clients include ad agencies and production companies, stated that a number of agency contracts are inequitable in terms of placing certain liabilities on production houses. Blum agreed, prefacing his contention with the fact that "not all agency contracts are unfair." And often, he said, unfair provisions stem from "neglect" as old clauses haven’t been updated to reflect current practices. For example, Blum said he recently ran across an agency contract with a morals clause that no one bothered to omit. He opined that there’s "no conspiracy" to make contracts unfair, adding that part of the problem is that the agency legal and production departments don’t talk to one another. Blum contended that if the legal departments knew more about the production process, contract language might be adjusted to better reflect current practice.
WRAP-UP COVERAGE
The question of risk is central to those jobs that involve wrap-up or blanket insurance (in which coverage for the production is carried by the advertiser or agency rather than by the production house). SHOOT has heard of instances in which agency contract indemnification language hasn’t been revised to account for wrap-up coverage. In these cases, the contract still requires the production company to indemnify the agency and client—even though the production company isn’t carrying the prime insurance policy. Legally, in a blanket policy situation, the indemnification should be provided to the production company by the entity carrying the insurance coverage, namely the agency and/or advertiser.
And even for some wrap-up insurance jobs in which indemnification is provided to production companies, the hold-harmless language doesn’t provide proper protection, according to the AICP. Many production companies assume that the indemnification in agency contracts for projects with wrap-up insurance is in line with the standard that was originally agreed upon between the AICP and blanket policy-holding advertisers. But Blum noted that some agencies, clients and insurance carriers like Aon have unilaterally made changes in that indemnification language. It’s incumbent upon production company executives to read the agency contract to see if their businesses are being properly indemnified. According to Ruskin, production companies often find themselves having to buy additional insurance for comprehensive protection on wrap-up jobs.
Ruskin noted that she’s also come across instances in which production companies had to buy costly errors-and-omissions (E&O) insurance on projects covered by wrap-up policies. "E&O coverage is not provided by the agency in many of these cases," said Ruskin. "The production company is obligated to provide it but not charge for it."
E&O coverage has become critical in that litigation has escalated in such areas as legal clearance to use certain props on shoots. "That’s become a big issue that’s hurting our industry and the motion picture business," related O’Neill.
"Most people think that if an item comes from a big props house, it’s cleared, but that’s not necessarily true," said Blum. Background murals, teapots and other items have fueled litigation or threats of litigation, some of which has resulted in significant payments being made to copyright holders.
However, O’Neill said that he’s never had a production company bring up E&O as an issue in contract negotiations. Ruskin and Blum conjectured that TBWA/Chiat/Day’s wrap-up policy may carry such coverage, but some other agencies’ insurance policies don’t.
O’Neill contended, though, that "one of the reasons" some advertisers turned to wrap-up coverage in the first place was that production companies were marking up insurance. Blum found irony in the fact that some clients opted for wrap-up coverage—and not protection afforded by production company insurance policies—due to potential cost savings. Blum contended that when wrap-up insurance started to be offered some six years ago, there was no client experience for insurance rates to be based on. As compared to production companies that had a detailed experience index on which to determine rates, clients could get a lower premium since there was no experience to track.
"But as they [clients and agencies] build that experience on high-risk work with expensive claims, rates are going up," continued Blum. "Their experience is not spread across a production company…General Motors does nothing but car advertising…and as a realistic picture of liabilities in that field is being built, its insurance rates are going up….Clients made a bad decision [to go with wrap-up insurance]."
Scherma noted that some insurance companies decided not to write wrap-up policies because they would be put in the position of having to insure production companies they didn’t want to cover. Scherma added that he’s had a 20-plus-year relationship with his insurance company, which translates into a cooperative, production–savvy perspective that is better equipped than wrap-up to deal fairly with vendors, and with situations that arise during any job.
Blum contended that when production companies carry the insurance and indemnify advertisers and agencies, the client is ultimately afforded a buffer in the event of possible litigation. "Our insurance company pays the legal fees and handles lawsuits," related Blum. However, O’Neill dismissed the "buffer" theory, saying that ultimately litigation seeks out the parties with the deepest pockets, meaning advertisers and agencies rather than production houses.
O’Neill and Grylewicz related that they are open to negotiate what’s fair with production companies and to act in a spirit of cooperation when a problem occurs on a job. At the same time, O’Neill acknowledged that producers at some agencies need to know their shop’s production contracts more thoroughly rather than just considering it the province of the agency broadcast business affairs manager. He said that without such knowledge of the contract, an agency producer has "no clue" as to how to negotiate with the production com-pany on location in the event a situation arises.
Miller observed that perhaps the U.S. could learn a valuable lesson from the U.K., where the producers’, agencies’ and advertisers’ trade associations got together and developed what all parties deemed to be an equitable, standard production contract. Such a contract in the U.S., said Miller, would go a long way towards enabling stateside production company executive producers to focus fully on production rather than having to serve as "risk managers." Miller contended that the contract "standardization" in the U.K. was done with the idea of freeing the industry "to move forward in quality of production."
But the present-day reality is that the U.S. spotmaking community has to deal with a maze of individual agency production contracts. Scherma conjectured that once the AICP analysis of contracts is published, it will help the situation, including enabling more production company executives to make informed decisions about whether or not to sign an agency production agreement. Greenbaum said he is looking forward to the AICP book of agency contracts being released, hoping that it might serve as a catalyst for a "reasonable division of risk" in the commercialmaking process.
Editor’s Note: Next week, SHOOT will report on other developments at the third annual Producers Conference. The confab is designed to facilitate networking and to give agency heads of production and producers, as well as freelance agency producers, a forum to learn about relevant issues that affect the advertising industry.
