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Agencies Duck Liability for Clients' Production Costs

As Marketers Look More Precarious, Omnicom Doesn't Want Their Unpaid Bills

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CHICAGO (AdAge.com) -- As the worsening economy puts more and more marketers in precarious positions, agencies are maneuvering to ensure they don't get stuck with their clients' unpaid production bills.

Omnicom Group, for instance, has been pushing its agencies to insist on sequential-liability protections in their dealings with production crews in recent months, meaning they want the crews to sign documents saying they'll sue the marketer, and not the agency, if they don't get paid.

An Omnicom spokeswoman said the company wasn't setting new policy; it was merely reminding its shops about a "long-standing" rule.

But production-industry types -- skittish about getting paid for work for on-the-brink automakers and retailers -- say they worry the liability clauses could be used to override contractually agreed-upon payment schedules, and that they expect the issue to generate some conflict this year.

'Self-preservation and panic'
"The agencies are acting out of self-preservation and panic," said Matt Miller, president of the Association of Independent Commercial Producers, who added that the trend is by no means limited to Omnicom shops. "They're saying, 'We don't know if we can extend credit for our clients anymore.'"

Sequential liability as a policy isn't new to the ad business. It originally surfaced during the 1980s as a means of insuring media outlays on behalf of clients. But as media departments unbundled from creative agencies during the decades that followed, some left those protections in place for production as well.

What was once an afterthought is now a potentially contentious issue, thanks to recent moves by the likes of cash-strapped Chrysler and General Motors -- and even the comparably healthy Anheuser-Busch and some government entities -- to make shops wait for payments. Then there are all manner of advertisers, such as big banks and retailers, going through tough times.

"What seems to be developing is that it's now part and parcel to the payment process," said Blair Stribley, executive producer at Venice, Calif.-based Backyard Productions, who said his firm recently walked away from a project over this issue. "Clients are saying they won't pay us until they physically get paid, and the risk if that payment never comes is on us, not them."

No guarantee from clients
That would be perfectly reasonable, both Mr. Stribley and Mr. Miller said, if agencies were willing to get their clients to sign documents acknowledging that they were ultimately responsible for the payments, and also indicating whom to call at the marketer in the event of a payment problem. But he said agencies have resisted.

"I don't think these forms ever even get to the clients, who a lot of the time have no idea who we are," Mr. Miller said. "If something happens, what are the odds these guys are going to be able to just call the switchboard at GM and collect?"

While most production firms won't start work without getting 50% upfront, Mr. Miller said the trend among clients has been to postpone paying the post-shoot balance for longer and longer, putting some production companies -- which are required by labor law to pay their workers within 10 days of a job -- in a cash-flow crunch.

"These contracts have [payment] schedules," Mr. Miller said. "The issue here is that the agencies say that, 'We know we agreed to terms, but in paragraph two it says "sequential liability," and that overrides anything else.'"

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