WHITE HOUSE CUTS OFF OGILVY CONTRACT

Action Follows Criminal, Civil Probe Into Anti-Drug Account

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WASHINGTON (AdAge.com) -- The government billing issues that have resulted in a civil and criminal probe of WPP Group's Ogilvy & Mather
White House pulls Ogilvy account.
appear to have cost the ad agency its White House drug office account.

The White House Office of National Drug Control Policy said today it will rebid the contract for media planning and buying for the nation's anti-drug advertising campaign. Ogilvy is in the third year of a contract that could have been extended annually for two more years.

Ogilvy wouldn't comment on whether it will participate in the rebidding.

The drug office said Acting Director Edward Jurith directed the contract be rebid based on "federal acquisition regulations, market research and a desire to reaffirm the integrity of the procurement process and shore up confidence in this important public health campaign."

Welcome to rebid
The office said Ogilvy's participation in the rebid process would be "welcome."

Ogilvy doesn't do creative for the $160 million a year campaign. That comes from the Partnership for Drug Free America. Instead, Ogilvy handles the job of media planning and buying and also has the job of negotiating with media companies to get the required free spot or one of similar value for every ad bought.

Ogilvy today issued a statement saying it had delivered "important and successful ... measurable and undisputed results."

"While we recognize that intense pressure brought by Congress has caused [the drug office] to re-bid the contract, we are proud that our work has saved lives and helped to improve the quality of life in communities across America," the agency said.

Congressional pressure
The White House had been under some congressional pressure not to extend the contract. U.S. Rep. Bob Barr, R-Ga., among others, had questioned why, in the face of the probe, the government hadn't canceled the contract immediately, let alone consider an extension.

Some congressional critics praised the decision. U. S. Rep. Mark Souder, R-Ind., who chaired a Government Reform Committee panel's look into the contract, said the hearing showed "we had grave concerns."

"I don't know whether this is fraud or confusion, but ... [we] don't want to take the risk [of] this endangering the anti-drug efforts," he said.

Ogilvy got into trouble on the contract from its first bills to the government in early 1999. While its advertising work and its work ethic were winning high praise from drug office officials, its billing turned into a nightmare.

The drug office account was Ogilvy's first with the government, and Ogilvy didn't meet government standards for needed documentation, for what could be billed and, in some cases, for allocating costs between overhead and day-to-day work.

Time sheet misdeeds?
Initially the government refused to pay $7.6 million, but Ogilvy's problems worsened when General Accounting Office investigators who had been looking into the billing heard an accusation that time sheet hours had been increased under pressure from company officials.

At a recent congressional hearing, GAO investigators said evidence was being turned over to the FBI and the U.S. Attorney's office in New York that indicated that in some cases the hours Ogilvy employees said they worked on the project were increased without their awareness after they handed in their time sheets; in other cases, employees changed hours at a company official's direction.

At considerable cost, Ogilvy successfully revamped its accounting system to meet government standards, but that took nearly two years and wasn't completed until three weeks ago. Meanwhile, the initial billings went largely unresolved, angering congressional critics. Of the original $7.6 million billed in early 1999, $6.1 million is still unresolved.

Trying to document $850,000
Ogilvy also found that it could not adequately document $850,000 in billings, which includes $361,000 in hours worked. The rest of the money is overhead based on the hours worked. Ogilvy reported the figure itself to the Justice Department, and it delayed billing the government for its own non-media costs for nearly a year while redoing the accounting system, assuring the government it owed Ogilvy more money than Ogilvy might owe the government.

Still, that fact didn't quiet the controversy.

The drug office decision may raise questions about Ogilvy's immediate future as a government contractor. At the least, Ogilvy may face the prospect of needing to settle the unresolved claims in the drug office probe before pursuing more government work.

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