This article has been written by Pratibha Chauhan, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. It has been edited by Ruchika Mohapatra (Associate, LawSikho).
An advertising agreement is a document stating a contract between an advertising agency and a company or person who wants to avail of their services. The agreement normally defines and directs the rights and responsibilities of the parties entering into the contract. It contains specific descriptions of the services which are mutually agreed and what advertising agency is supposed to be delivering to the company. The agreement consists of both standard clauses and opportunities and scope for customization, including crucial milestones and several other provisions.
In other words, an advertising contract is a written document obtained by obtaining the consent of two parties i.e., an advertising agency and a person or company who is willing to place an ad for their services on the advertising space of the advertising agency. This article seeks to explore the importance as well as important terms to be included in advertising contracts.
Importance of an advertising contract
Although at present, a general tendency of having verbal advertising contracts is found, an agreement is crucial as it protects both parties from various legal disputes and possible misunderstandings like, “This had been promised but hasn’t been delivered, while we complied with the terms of an agreement”. So, it is better to create an advertising contract rather than leaving everything to chance.
While it is certainly easy to work without bothering to enter into a contract, there is an indispensable need to have a more formal approach towards these situations to avoid any potential issues. You may be the most promising advertising company or client ever but there exists no surety of your partner responding the same way. Many people conclude agreements on handshakes and work accordingly, however, in order to have a reasonable resolution of possible disputes, it’s better to have a detailed and written arrangement citing services to be rendered and conditions to be adhered on the part of both the parties as opposed to providing deliverables based on promises alone.
Besides this, advertising is the main force currently driving the promotion of any brand which is responsible for a company concluding several agreements every month. So, it is simply not possible to keep in mind all the terms and conditions, and also the deadlines as all these are arranged in a verbal manner. Verbal agreements tend to enhance the scope and possibility of human mistakes and therefore, there is a need for detailed written contracts.
Therefore, initiating an advertising contract allows both parties to refer to the provisions of the contract at any point in time, look through the demands and expectations, and most importantly ensure positive cooperation between the parties. It not only benefits the advertising agency but also ensures for the client that they receive what they expect.
So, now after understanding what an advertising contract is and why it is so important, we should know what are the essential components of an advertising contract.
The content of an advertising contract may differ according to the format of the advertising job and the parties involved in the agreement and the requirements of the party. Still, there are a few common aspects which are necessary to be included in an advertising contract:
- Official Names and Vital Information of Parties: The first and the most important thing to be included is the name of the advertising agency and the client. But, what advertising contracts usually don’t include is the information of both parties. What the contract should include is what the advertising agency is all about, what kind of services it offers and other features related to the brand and identity of the agency. In the case of the client, the contract should include information about the business of the client along with the location and the contact details.
- Duration of the Agreement: Contracts have a specific starting and ending date which needs to be emphasized in the document. This seems easy but actually it is not that simple. The duration of the contract has a significant effect on the deal. The duration can cause a set of impacts that might be unseen at the time of the beginning of the contract. Therefore, it should be ensured by both the parties that the starting and ending date is clearly given in the contract as it would be helpful in meeting every objective.
- The Project’s Scope: The reason for which an advertising agreement would be sealed between two parties is to work on an advertising project. Hence, it becomes vital to include details of the scope of the project in the contract. These details may include the purpose, the dos and don’ts, the size of the project, how much manpower is needed, and several other variables required for the accomplishment of the project. The project scope should be included in the agreement with the idea of measuring how much time is needed to complete the project.
- Agreed Budget and Schedule of Payments: Any commercial contract involves money, and advertising deals between advertising agency and client involves a promise of payment according to the schedule set before beginning the work on dethe al. Therefore, the advertising contract must involve the details about the budget of the project. For this, a comprehensive and precise quotation is to be prepared by studying the project’s scope because the budget will be based on that only. The budget details should be emphasizing the amount of money put on the stake in the contract and there should be specific marking on how the client would pay money to the agency. Also, mentioning the schedule of the payments is important as the payments would be monthly or after the completion of the project.
- Overdue Payment Conditions: Maximizing the profit is always a priority and obviously the ultimate goal of any commercial deal. But, it becomes a concern when the payment is not done on time. For this, you need to include overdue payment conditions in the contract. These could be penalties in the form of late fees or interest rates. This obviously enhances the profit but the primary purpose of this is to encourage the client or consumer to pay on time or to pay early and not to get more money from him.
- Data Privacy: In every contract, during operations, plenty of data related to the ad project gets exchanged between the advertising agency and the client. These data may be confidential and must be protected from getting leaked or stolen. The data must remain private all the time. And, to ensure this the agreement must be having data privacy and confidentiality clauses guided by certain rules and regulations. Both parties should ensure not to disclose important information to unauthorized users and elements.
- Sanctions for Contract Breach: Without involving consequences when one party breaches the contract, the document is completely powerless. An effective advertising contract should involve implementing sanctions for contract breach by either party. Sanctions ensure the fulfillment of the responsibilities given to both parties. These consequences may include hefty fines, lawsuits, and termination of the contract also.
- Indemnity Clause: Indemnity clause ensures the obligation of one party to mitigate and compensate for whatever loss the party causes towards the other. This clause is crucial and important as this protects advertising agencies from the possible losses that may occur due to the shady actions of the clients. The same applies to the advertising agency also if they are the ones causing damage. An indemnity clause drives the security of interests for both parties.
- Dispute Resolution Steps: There should be clear provisions in the agreement about the way of resolving disputes between the parties in the contract, in case a dispute occurs. In the long run, this is helpful in preventing legal proceedings and saves a lot of money. The contract must include that in case of legal proceedings, who handles attorney fees and many other things related to dispute resolution.
- Copyright: There should be a copyright-related clause in the advertising agreement. Everything about the identification and registering of the intellectual property must be specifically included in the contract itself and any specific processes and innovations should be surely identified as intellectual property. Also, if any elements owned by a third party are being utilized, the indication should be given that those properties belong to a particular third party.
Mentioned above are the most important elements which are to be included in an advertising agreement without missing even a single of them. The items listed above are not exhaustive, but these are the few ones that one cannot afford to miss while drafting an advertising contract. These items may seem simple but these will save you a lot of stress while dealing with the other party. All these inclusions not only prevent the disputes between the parties but also help in saving a lot of money too.
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