The agency new business process is, for most agencies, exciting and stressful at the same time.
While your team is focused on the thrill of a potential “win,” and what that could mean for the agency’s fortunes, it’s probably equally under stress about meeting deadlines, putting forth your best efforts for the prospect, and keeping other clients happy too.
Jody Sutter of Sutter Company and I recently addressed the challenges of new business and negotiations in a web clinic for agencies organized by Filament: “Don’t Leave Money on the Table – Negotiating Client Contracts From a Position of Strength.”
While you’re navigating this process at warp speed, it’s easy to make an oversight or misstep that could cause bad legal consequences or financial loss for the agency. Don’t let this happen – be aware of the most common legal mistakes agencies make during their new business efforts, and how to fix (or avoid) them.
5 Legal Mistakes In Agency New Business and How to Fix Them
Mistake #1: You don’t protect the Agency’s intellectual property during a pitch or discovery session, or in your proposal.
Fix It: Sometimes it’s a valid business decision to allow the Client to own IP in pitch materials, spec creative or proposals – either because the Agency negotiated payment for it, or because it’s a required “ticket” to participate in the opportunity. But make it an intentional decision.
Unless you’ve agreed with a prospective Client that it will own the Agency’s pre-engagement IP, use a Nondisclosure Agreement that protects the Agency’s ownership position. Absent that, at a minimum include IP ownership clauses in your proposal and pitch assets, and use copyright ownership notices on these materials and any spec creative produced.
Mistake #2: You accept the Client’s services contract without a legal review, or without pushing back on terms that are unattractive for the Agency (OR WORSE: You start work without a signed contract).
Fix It: First things first – starting a client project without a written agreement? Please, just don’t. Next, remember that a proposed contract form is a suggestion, not a requirement. Make sure you fully review the Client’s contract (and related documents, like a Nondisclosure Agreement) and, if needed, have it vetted by legal counsel.
Also, be aware of the legally “unattractive” provisions that are most likely to be in the Client’s form and, of course, drafted in favor of the Client, such as: immediate IP ownership, restrictive covenants on the Agency, extended work acceptance processes, or unreasonable invoicing timelines. You can, and should, push back on the provisions that are unfair or don’t work for your Agency – you’ll never have better leverage than at the beginning of the engagement. You can also learn a lot about the Client by the way they respond to your concerns.
Mistake #3: Your Agency recreates the legal paper trail every time it engages a new client.
Fix It: The main reason many Agencies create a “fire drill-style” experience every time they sign a new client and need to legally document the relationship is a lack of process – either having no consistent forms or language to use, or the absence of a lead person or department to handle the contract issues. Avoid having inconsistent Client service contracts, legal terms and conditions, nondisclosure agreements, IP ownership legends, and the like, by having a standard set of Agency-approved contract documents and, where possible, a central person, department or procedure dedicated to the process. Then use those documents, and follow that process, consistently.
Mistake #4: Your Agency transfers its intellectual property rights in the work to the Client too soon, or gives away too much of its intellectual property to the Client.
Fix It: In many situations, everyone agrees that the Client will own intellectual property in the Agency’s work, at some point – the question is when.
The common point of difference is that the Client will want to own it immediately upon creation, while it’s in the Agency’s best interest not to transfer those rights until it has been paid. Additionally, the Agency may have pre-existing assets (creative, technology, process) that end up incorporated in to the Client’s work, but to which the Agency intends to retain ownership and only license to the Client.
The place to resolve these issues is in the Client’s Agency Services Contract or Legal Terms and Conditions (see Mistake #3). First, make sure your agreements provide that the intellectual property the Agency creates for the Client does not transfer to the Client until the Agency is paid in full. Second, make sure your agreements clarify that the Agency’s pre-existing assets remain its IP, and that the Client is only being provided a license to use the assets.
Mistake #5: You’re insufficiently protected from contingencies like late payments, non-payment, or legal liability for claims such as false advertising, IP infringement, or ad regulation compliance.
Fix It: If the Agency is operating without Errors & Omissions insurance coverage, reconsider. The enhanced liability protection is easy to underrate until you have an issue or claim. Additionally, give careful thought to the liability and indemnification language in your contracts to make sure that the Agency’s liability is limited to the things actually within its control (for example, not for a product feature or claim provided by the Client).
Finally, review the payment terms in your contracts, making sure they properly incentivize the Client to pay in a reasonable amount of time. Remedies like late fees, interest, and attorney fee or collection cost recovery will not be available to you unless they are in a written agreement signed by both parties.
New business is challenging enough for agencies, without having to worry about the potential legal pitfalls that it creates.
Implement these tactics today in your new business pursuits, and sleep a little easier in between.
