Learn about the mistakes that advertisers make when starting selection and hiring processes for advertising agencies and media centers. Take them into account when choosing these strategic allies for your business.

The Colombian Union of Advertising Companies -UCEP-, for several years has monitored the terms of reference, specifications, invitations and, in general, the conditions of the calls, used by both private advertisers and public entities, for the selection of advertising agencies and media centers and has repeatedly found serious flaws in the selection and contracting processes of these services, such as:

DEADLY SIN

I. Inadequate agency selection processes due to ignorance of the objective sought when hiring the agency, what type of agency is and the expertise they need Few advertisers establish pre-contractual processes to select an agency in a way that guarantees fairness, healthy competition and, even more, the selection of the agency that is most convenient for the purposes of the advertiser.

DEADLY SIN II. Summon an indiscriminate and exaggerated number of agencies In Colombia, according to studies, up to 20 advertising companies are summoned to select an agency. This turns out to be higher than the average for other countries, close to 5 companies, as indicated by Agency Scope.

DEADLY SIN III. Request the agencies to present as a proposal the object itself to be contracted Many advertisers, in order to be able to compare the proposals presented by the agencies, make the mistake of asking them to develop strategies and advertising campaigns or strategies and media plans, depending on the case, which constitutes the very object of the contract, situation that does not occur in any other service activity. In this regard, it is necessary to consider that with this methodology undesirable effects are obtained for the advertiser and for the market, such as: • Choose campaign and not agency: Through this selection methodology, creativity or strategy and media planning are evaluated on a specific topic (sometimes hypothetical, sometimes real of the advertiser's product or service) but it does not necessarily choose the best or most suitable agency for your needs. • Risks in the confidentiality of the information: For the purposes of complying with the requirements of the terms of the call or invitations, the agencies are forced to make use of market information from the calling companies that are exposed to being known or misused by those who compete and are not selected and even by the competition. • Risk of violation of rules that protect intellectual property. It does not merit any discussion that works such as those that emanate from the design of a communication strategy and a media plan, as well as advertising works, are protected by the Copyright Law. The requirement of presentation of strategy and creativity that most of the terms of selection processes carry out clearly puts copyrights at risk given the possibility that ideas embodied in protected advertising works that are not selected are used by the convening company, by the contracted agency or by third parties to the detriment of the rights of its author. When proposals are submitted in a process to select an agency, the fact of using a creation contained in a proposal that was not selected, can be considered a violation of the principle of good faith in the pre-contractual period and therefore can generate pre-contractual liability. This idea is enshrined in article 859 of the Commercial Code, which provides that “The offeror may not use the works carried out by persons excluded from the service offered. If he did, he must in any case indemnify her.”

DEADLY SIN IV. Do not pay the cost of submitting proposals The requirements for the presentation of proposals even go so far as to claim the delivery of produced advertising pieces and/or media plans, which generates very high costs for advertising agencies, which obviously exceed the assumption of normal risk in the presentation of proposals of any kind. activity or service of another nature.

According to our affiliates, presenting a proposal that has these requirements can generate costs of 3 million pesos, for minor campaigns and in the cases of large-scale campaigns, between $50 million between direct costs (materials, research, production of pieces, recordings , impressions), plus man hours, which depending on the structure of the agency can reach $40million. In most countries of the world with awareness of the value of the advertising idea, when trying to select from a multiple number of companies the one that will develop the campaign for the advertiser, the risk of submitting offers that may not be be selected. According to an Agency Scoop study, these compensatory figures reach the following levels:

CAPITAL SIN V. Make contracts that are not consistent with the advertising service

The contract entered into by advertising and media agencies with advertisers is what the jurisprudence of the Supreme Court of Justice calls a twin contract, insofar as it involves benefits typical of several contracts: mandate and provision of services. Additionally, in the case of contracts intended to be executed successively through a series of periodic or continuous services, that is, a series of advertising campaigns, it will correspond to a supply contract whose regime will be additionally integrated with the rules of the mandate and the provision of services. In any case, the relationship established between an advertising and media agency and the advertiser, and between those and the media, is not that of a commercial agency. However, the inadequate structuring of the contracts or relationships established between the advertiser, advertising agency (creative agency) and media agency; As a consequence, the true essence of the relationships established between the parties is unknown and, consequently, conflicts are generated that could be avoided if the obligations between the parties are clearly designed.

DEADLY SIN VI. Establish forms of remuneration that do not correspond to the contracted service or do not adequately remunerate it The requirement of negative remuneration, caps, refunds or any modality that prevents remuneration from being freely determined by market rules, evidently constitutes a lack of knowledge of the principles of free and fair competition. Pretending that serious and effective work does not have remuneration is a utopia and a clear incidence of public entities in the principles that regulate competitive markets. In accordance with these market rules, it is legitimate to present alternatives such as: commissions (with fixed percentages on media investment, in production or in any other service provided by the agency) by variable percentages (for different levels of investment and for the number of products handled by the agencies); for variable commissions plus fixed charges; for fixed or variable fees (according to dedication –over head). Additionally, it is worth considering that in the work of investing in the media, the agencies assume some services and costs in their provision that must legitimately and transparently recognize the media such as portfolio management, financial risk, etc., which they must remunerate under penalty of to become an additional cost for the advertiser. Consequently, the requirement to return all the income, commissions and discounts obtained, with the claim that the compensation for this return is not reflected in the price of the service to the contracting company, may prevent the market rules from operating. and the right of agencies to remunerate their services and cover the costs associated with them is curtailed. The foregoing can lead to the process conducive to the following situations: • Lack of transparency in prices: Both for the advertiser and for the agency, it is essential to have certainty and clarity in relation to the cost of the services they contract or provide. Therefore, the transparent and free presentation of the conditions that advertisers use against the value of the services that are offered, constitutes the best practice so that this long-awaited transparency is fully complied with. • Violation of the norms of healthy competition: In the case of a competitive market, it is this that freely determines the price of its services. Establishing commission caps, maximum percentages and any other condition that does not comply with the behavior of the market, can lead to undesirable interference and contrary to the law of free supply and demand. • Market distortion and loss of value of the professional work of agencies: Duly consolidated and professional agencies have highly valuable human talent, valuable information and analysis tools, expensive administrative and customer service structures that must find a healthy and fair compensation under pain of deteriorating the quality of services and resources. • Risks of breaking the economic balance of the contract in the medium and long term: Any additional service required by the advertiser –a situation that is clearly foreseeable in this type of service- can lead to a situation of loss for your agency or center that would break the financial balance of the contract. contract, with the inconveniences that this can generate in its execution. On the other hand, do not forget that if remuneration has not been agreed, the usual remuneration is due or, failing that, the one determined by experts. When a percentage of the investment made in advertising by advertisers is agreed as a form of remuneration, but the dissemination of advertising is not contracted, it would be convenient to establish that the agency is paid a sum for its creative work. It is also possible to agree on a remuneration based on the success of the advertising campaign.

DEADLY SIN VII: Failure to agree on clear rules for the Advertiser-Advertising Agency- Media Agency relationship Although legally it is perfectly legal to dispense with a written contract, in practice there is always the risk that this will lead to difficulties when disputes arise about the content and scope of the contractual relationship. Consequently, it is advisable to previously sign a contract in which the relationships, rights and obligations are clearly agreed, in which the relationships between the parties are executed and that clearly develop aspects such as:

• The agency does not guarantee the success of the advertising campaign. But you are responsible for the design of the campaign if you have not acted diligently.

• When the agency contracts for the advertiser, it must seek the best contracting conditions for its client. If the advertiser provides resources to the agency, it must use them exclusively for the intended purpose. The agency must keep the advertiser informed.

• At the end of the contract, the agency must render accounts, this is to send a report of the accounting movement.

• The agency must act carefully so as not to harm the rights of third parties, in the publicity it proposes. Likewise, the doctrine indicates that the agency will respond if it produces an advertisement that is clearly contrary to the rules of healthy competition.

• Clauses should be established to regulate the liability of agencies and advertisers for third party claims. Said clauses must establish the events in which the responsibility corresponds to each one of them and the obligations to indemnify that each one must assume. The foregoing does not prevent the third party from suing whoever he considers responsible.

• The form of early termination of contracts should be clarified. It is normal for it to be agreed that the contract can be terminated by the will of one of the parties, but it must be established which are the payments that must be made in this case.

• To solve disputes that may arise, it would be convenient to include an arbitration clause.

• The contract must specify the treatment of copyright and the copyright situation of those who have produced the materials, specifying the payments to which they are entitled, which must be reflected in the contracts with them.

• If from the negotiation with the client-advertiser it is agreed that the agency has to carry out the storyboard, sketch, jingle, advertising text, and in general the creative part of the ad or campaign, (which appears more accurate) the first headline derived from patrimonial rights of the author is the agency and it will be appropriate, as negotiated, to proceed with the transfer of these rights in favor of the client-advertiser, as the second owner derived from said patrimonial rights

• If the creative aspects of the advertisement or campaign (storyboard, sketch, jingle, advertising text, etc.) are carried out by personnel employed by the Agency through an employment contract, the respective contract must include the clause that stipulates the transfer of the rights of the employee- creator in favor of the Agency and in relevant cases it will proceed to sign a specific addendum for the work in question and register said documents before the National Directorate of Copyright.

• If the creative aspects of the ad or campaign (storyboard, sketch, jingle, advertising text, etc.) are carried out by independent personnel hired for this purpose (free-lance), the agency-author contract containing the appropriate assignment clause must be used. of copyright in favor of the contracting company, that is, the agency, or the advertiser, as the case may be.

• Whenever a pre-existing piece of music (lyrics or music) is to be used, the proper execution authorization must first be obtained from the corresponding copyright and related rights collective management society (Sayco/Acodem) that represents the author's rights. and/or related to the work in question. If what is to be used is a phonogram (commercial record, cassette) the negotiation must involve the corresponding company that has produced said record (phonographic producer).

• When negotiating the interpretation of musical works and the assignment of the corresponding related rights, with an orchestra, band or musical group, the respective contract must be signed by the director/legal representative of the same so that it is effective and valid before all the members. .

• When drafting and entering into all contracts involving copyright, it must be taken into account that the different forms of use of the work are independent of each other and that therefore the author's authorization for one form of use does not extend to the others. .

• Being that by legal mandate, the interpretation of copyright contracts is restrictive, and that therefore it is not possible to recognize broader rights than those expressly granted by the author in the respective contract, the wording of the clauses that involve the actions or uses to be carried out with the work or the performances, must be broad and complete enough so that it is not necessary to proceed to new negotiations and additional payments afterwards.

• In all cases in which a contract is entered into by which a third party is entrusted with the creation or execution of a work, the plan and technical and artistic instructions that the contractor must adhere to for the development and execution of the contract must be included or attached.

• The assignment of economic rights must be extended to the country and abroad (or to the entire world), anticipating future uses abroad.

• The effects of effectiveness against third parties of any assignment of copyright or related rights only arise from the registration of the respective document before the DNDA, so it is highly recommended that at least those of significant amounts or repercussions be duly registered with said entity. anticipating eventual conflicts with third parties.

• All contracts whose development or execution involves the disclosure of confidential information and of some economic value must include confidentiality clauses to duly protect the secrecy of said information.

• The remuneration must be clearly agreed and consider the different services and contractual relationships that are involved in the advertising services, be they strategy, creation of advertising pieces, media plan designs and ordering and follow-up of guidelines.

And not to forget! ….By hiring an advertising agency or a media agency, you are hiring a strategic ally for the growth of your business.