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Winning Agency Would Have to Pay Legal Costs of Any Lawsuits

By Published on .

SAN FRANCISCO (AdAge.com) -- The tumultuous review for the four-year, $100 million California Lottery may not end up a jackpot for the eventual winner after all. A clause in its proposed contract could make the agency that picks up the account responsible for legal costs incurred by the state if a losing shop protests the Lottery's decision or sues the state.

"It's hard for me to understand why, with

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that clause, any agency would want to participate in or seek the Lottery business," said John Anderson, chairman of the advertising practice at law firm Heller, Ehrman, White & McAuliffe.

Scuttled twice
The review has already been scuttled twice after formal protests and threats of lawsuits.

The Lottery late Nov. 7 issued a letter outlining some of the changes that will be made in the final request for proposals, but the language relating to the legal liability clause was not mentioned.

The draft of the RFP, posted on the Lottery's Web site, calottery.com, contains a number of common stipulations found in advertising contracts, such as requirements for liability insurance and workers' compensation.

Also among the changes in the document was a new requirement that any consultants "used in preparing the response to this RFP" must be disclosed to the Lottery. Other sections will require the disclosure of other clients assigned to agency executives working on the Lottery account.

But one section of the proposed RFP stands out: It states that the winning agency will finance the defense of the state and the lottery commission against "any protest filed by a third party following announcement of Contractor as the proposed successful agency of the contract. ... Contractor's obligations hereunder shall include any and all losses, damages, liabilities, settlements, judgments, fines, costs, fees and expenses of any nature whatsoever, including but not limited to fees of attorneys and other professionals at trial and on appeal."

The proposed RFP also states that if the Lottery decides the winning agency is legally unable to defend the Lottery, or is not adequately representing the Lottery, the Lottery can take over its own defense at the winning agency's expense.

Agency feedback
A Lottery spokeswoman late Friday said she could not comment on the clause because she could not locate an executive from the legal department. A second spokeswoman said the Lottery heard feedback on the RFP from about a dozen agencies, but she declined to discuss details of the suggestions.

The new review marks the lottery's third attempt to find a new ad agency. Grey Worldwide, Los Angeles, won the account in 1997 and remains the incumbent. Two years ago, the state began a mandatory review for the business, valued at about $25 million a year, and as much as $100 million over the four years of the contract.

In 2001, the Lottery named Omnicom Group's DDB Worldwide, Los Angeles, as the winner, but Grey protested on the grounds that DDB failed to disclose ownership of OMD, its media-buying arm. The decision was voided. A second review was seemingly won by Interpublic Group of Cos.' Foote Cone & Belding, San Francisco. But DDB protested FCB's media bid, and the Lottery asked it to submit a new bid. FCB was disqualified for sending in its documentation by fax, after which sibling agency McCann-Erickson Worldwide, Los Angeles, was named the winner.

An unusual step
In April, the Lottery decided to conduct another review from scratch. This time, the Lottery consulted with the American Association of Advertising Agencies and took the unusual step of issuing the draft RFP.

Despite the clause in the draft, some in the hard-hit western region said they were still interested in the Lottery business. Rick Colby, president and executive creative director of Dentsu's Colby & Partners, Santa Monica, Calif., said his agency is considering entering the competition. Ian McGregor, general manager of McCann-Erickson, Los Angeles, said he doesn't anticipate problems if the disclosure process is handled correctly.

But Harold Sogard, partner and general manager at Omnicom's Goodby, Silverstein & Partners, San Francisco, said his shop won't pitch: "Last time I checked, we were still sane."

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