Time for advertisers to fast-track agency contract compliance audits

The wake of COVID-19 is the essential time for industry retrospection in order to prosper, writes Matt Braid, managing director Australia & New Zealand for FirmDecisions.

The advertising industry has a spring in its step as we approach the end of Q1 2021. All agency groups, most industry associations and analysts, and many advertisers are predicting a strong rebound one year on from the unwelcome arrival of COVID-19. 2020 will always be remembered as the most turbulent and disrupted year in living memory, with more campaigns cancelled, suspended, and postponed than commentators could have predicted in the worst doomsday scenario.

Media investment in Australia declined by 20% and by 14% in New Zealand in the year ending September 2020. These were two of the biggest falls in major English-speaking markets, more even than the UK (-13%) and the US (-9%), even though the pandemic affected those countries more severely. One of the major causes of shrinkage included the postponement and cancellation of many of the year’s major sporting – and so media – events. These included races in the lucrative Formula 1 series and the Tokyo Olympics, whose rescheduling for this year remains under threat.

Looking back to look forward

The impact of all this disruption on the commercial relationships between advertisers and their agency partners will only be fully understood once the chaos of 2020 has been subjected to a full forensic analysis of agency performance against contractual obligations. After talking to marketers since early this year, their concerns revolve around many of clauses included in contracts that they’ve never needed consider or bring into play before.

As advertisers and their contract compliance auditors pick through 2020, they should consider the following issues in detail:

  • Cancellation terms with media vendors
  • Whether the significant unspent funds – the unused balances already prebilled to clients before the pandemic – are held on account by agencies or media vendors
  • How fees are reconciled against actual personnel and resourcing provided

Let’s consider agency staffing levels as a case in point. Understandably, in 2020 agencies prioritised clients who continued to spend. Under the pandemic, this included FMCG, e-commerce, and some media companies – particularly video streaming services. The flip side is that those advertisers who paused, suspended, or cancelled activity – from travel and tourism to entertainment and automotive – agency staff allocated to their accounts found themselves no longer working on them. The lucky ones were moved to other clients either within the agency or the holding group, while others were asked to take an ongoing leave of absence until restrictions were lifted and advertising spend returned. In either case, where contracted levels of staffing were not delivered, many contracts will require forensic investigation and reconciliation.

Contract compliance across the media supply chain

Clearly, it’s not just staffing levels and FTE personnel allocated to their accounts that advertisers will need to scrutinise. Assessing spend in 2020 will require keener-eyed analysis and reconciliation than ever before, right across the board. This is particularly true of the increasingly-complex, digital-first media ecosystem that encompasses ever-more specialist vendors across the supply chain. The pressure of the pandemic means that these businesses, too, have been forced to reorganise their own structures and operating models to survive and to continue to service those advertisers still active in the market. As a result, compliance to contractual terms with second-, third-, and fourth-party vendors should be reviewed like never before.

By their very nature, audits are retrospective. Pre-pandemic, audits were often undertaken two or three years after advertising dollars were actually invested. So, if there is a silver lining to COVID in the media and marketing space, it is that auditing and reconciliation processes will be fast-tracked. With many advertisers less active during 2020, paradoxically the pandemic has given brands the chance to play catch-up at a time when close scrutiny has never been more necessary.

The overnight jump to working from home last February and March has helped here, too, with all businesses embracing remote working and technology expediting quicker data sharing. As a result, many of our clients have started their audits for 2020 early, in part because they can and in part to understand the impact of and learnings from COVID-19 as early as possible.

To prosper and return to active growth on the other side of the pandemic, we’re actively encouraging those brands that haven’t started this process of retrospective audits already to do so as soon as possible. The agility and partnership developed by many advertisers and their agency partners at the height of the coronavirus restrictions last year was admirable. As we head to calmer waters, this fleetness of foot may well need to be captured and reflected in rewritten or updated contracts.


This article was featured in Mumbrella.