Digital & Social Media

Don’t Give Away the Keys on Contract Negotiations


Okay, I will put it on the table from the beginning: I am about to argue in favor of something that would be beneficial to FleishmanHillard, so it’s a bit self-serving. That doesn’t make it wrong.

To be successful, partnerships, deals and contracts must be mutually beneficial to both sides. Yet, when it comes to procurement’s negotiations with agencies on behalf of their companies, it’s getting to the point where hard-nosed tactics are providing increasingly less benefit for the agency and working against the long-term interest of the clients—CCOs and CMOs whose careers rise and fall on the basis of the work outside agencies do for companies. So it’s good to remember that while procurement will get a pat on the back for significantly lower fees, it won’t be procurement on the carpet when something goes wrong.

From my seat at the head of the Council of Public Relations Firms and as a CEO of a major global communications agency, I think 2013 is going to be remembered as the year when procurement reached a tipping point our clients will ultimately regret. Radical fee cuts, without a reduction in the scope of work, is becoming an acceptable outcome of negotiations and is actually being celebrated by some as a sign of great management. But is it really?

Our clients are unanimous when they demand the very best talent, and quite rightly.  Superior talent is the best predictor of superior client service. Yet, as they know from their own businesses, experienced talent comes at great cost. Yet, in the current outbreak of cost-plus reviews, the elements of a great firm— product innovation, leading-edge thinking, and well-trained, fairly compensated and insightful counselors—don’t qualify on the “cost” line or are grossly under-represented. It may be a technique procurement uses to level the playing field, since every agency makes its own unique investments in talent and a great workplace. In the end, however, it undervalues the very reasons why most clients are drawn to certain partners.

Cost-plus as a methodology is still new, despite claims from some search consultants that “everyone is doing it.” (Of FleishmanHillard’s 1600 clients, we have exactly two cost-plus contracts.) And so far, it employs a few questionable and certainly out of step techniques. For instance, there is no transparency—in a period of must-have transparency. Where and how do procurement officers assemble their so-called “benchmark” salary data, which are rarely within a zip code of reality? Few procurement officials feel the need to actually show their math. But, as we all have learned many times over in business, it’s the quality, not the quantity of data, which actually leads to smart insights.

Well-intentioned procurement also tries to impose, onto PR, models used in the advertising world; it doesn’t work that way. While typically a handful of fully dedicated people are assigned to any large account as it is in advertising, the beauty of a PR firm is its ability to bring “just in time” talent to the client on a periodic basis.  The full-time equivalency, or FTE, models that procurement sometimes employs discount this natural advantage the best PR firms have and hence discourage the periodic use of specialists. Again, this isn’t a plus for clients even if it saves them a buck short-term—just ask any client who has had to ride out a crisis without a war-hardened veteran specialist at their side.

Perhaps the most discouraging part of the procurement negotiation process is the frequent absence of the actual client. From experience, these CCOs and CMOs often have invaluable knowledge about the minimums required for a thriving agency/client relationship. They also understand that great work is iterative, and the importance of the chemistry between the client and agency cannot be overstated.

So these are dark times for PR firms, but also for clients who will be forced to endure increasingly more short-lived and less satisfying relationships with agency after agency if they continue to allow procurement to unilaterally control negotiations. But there is an alternative.

Finding and keeping a blissful company/agency relationship is based on a simple, seminal “contract:” As an agency, we will do great work for you, kill ourselves for you, sacrifice our personal lives for you—if you will only treat us like you care about the health and welfare of our company and people.

It’s time to cure procurement, not replace it. Procurement should be used to facilitate the market, not distort it.  In what has become a truly competitive market with multiple candidates for each RFP, clients should be the ones to narrow the field to two or three finalists and then bring in procurement to help those agencies with their “BAFO,” or “Best and Final Offer.”  This is where the science of procurement can be most effectively applied, even welcome, to ensure there is a level playing field and clients can make apples-to-apples comparisons.

Now that’s a winner.