NEW YORK In another sign of the times, Omnicom -- whose creatively driven agencies have always been favorites within production-company circles -- risks straining those relationships with strict new enforcement of sequential liability clauses in contracts.
That's the view in the eyes of many production houses now that Omnicom is standardizing the language in its contracts to emphasize that production companies will be paid when agencies are paid by marketers. More onerous to those smaller outfits, Omnicom agencies will no longer assume liability for a project if the client doesn't pay. Known as sequential liability, the practice was put into place 20 years ago to protect agencies from unpaid media bills of troubled clients.
An industry uproar about the practice in the U.K. resulted last week in Omnicom suspending the requirement after its senior agency managers met with the local trade group Advertising Producers Association.
Commercial production execs said Omnicom is the first to tighten contract terms; reps at Interpublic Group of Companies, WPP Group and Publicis Groupe said the holding companies have not yet demanded sequential liability clauses in commercial production contracts.
Production houses typically receive 50 percent payment up front from agencies and the rest upon completion of a project or within 30 days afterward. In preparing a shoot they pay for costs associated with locations, equipment rentals, and actors and crew. Production companies are subject to labor laws requiring them to pay crews usually within 10 days of film completion. (Click here for a PDF of AICP's "Economics of Production.")
"This is a paradigm shift. Sequential liability was created as a safeguard and now Omnicom is using it to evade and avoid payment terms," said Matt Miller, president of the Association of Independent Commercial Producers. "Production companies create a one-off execution and don't have an ongoing relationship with marketers as agencies do. We don't have the access or knowledge they have about their credit worthiness. Payments are coming in later and later now. Omnicom is saying we don't want to take the risk. You can bankroll our clients."
"People may have been reminded of the policy, [but] there's been no change in our policy," said Omnicom representative Pat Sloan. "Our agencies don't pay production houses until they get paid."
Production company sources said contracts within Omnicom vary and while they may have had sequential liability clauses in them, in the past they were often ignored or removed at the operating units. "It's always been the case that Omnicom agencies were never supposed to be laying out money on behalf of clients," said a source. "What has changed is that language has been made clearer, more explicit."
According to Miller, in late September, Omnicom shop BBDO Detroit issued a re-wording of sequential liability that was much stronger.
Omnicom agency insiders confirmed the change in language in all agency contracts.
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