In light of a Department of Justice (DOJ) investigation into video production and postproduction bidding practices–specifically to determine whether ad agencies have been unfairly directing business to their in-house production and post departments over outside vendors–the Association of Independent Commercial Producers has updated its Mutual Non-Disclosure Agreement (NDA), issuing it to member companies with the recommendation that they use it (or a similarly worded document) before submitting bids to any entities (agencies and/or cost consultants) on behalf of marketers.
Through the industry grapevine SHOOT obtained an AICP memo which was sent to its membership on Dec. 19. Addressing the bidding process, the memo contained links to a couple of documents, including AICP’s revised Mutual NDA which now contains provisions that take into account DOJ and Federal Trade Commission guidelines for the exchange of competitively sensitive information. The modified AICP document offers a measure of protection for production cost information, ONLY permitting exchanges of “aggregated information” among affiliated agencies–and NOT affiliated entities that operate as a production or postproduction entity, or act in an in-house cost consulting capacity.
The AICP recommends that the NDA be executed prior to bidding, confirming up front that costs and related info submitted for any project will be handled in the most aboveboard manner. The document also continues to cover all customary non-disclosure assurances that production companies normally provide to the agency and marketer.
SHOOT sought out Matt Miller, AICP president and CEO, for comment on the new Mutual NDA. He said that the document is in the best interest of all concerned–production companies, ad agencies and clients–and is designed to balance the interests of all these parties, protecting the legal competitive environment.
Rigged system?
The DOJ is looking to ascertain whether that competitive environment has been compromised by agencies allegedly rigging the bidding process through practices such as urging or pressuring independent companies to inflate their prices so that contracts could be awarded to the agencies’ own production and post operations. Such “dummy” or “complementary” bids from indie houses help falsely satisfy client demands for competitive multiple bids. Federal antitrust law prohibits bid rigging and price fixing (through requiring bids to come in at a certain level or above a specified cost).
Reportedly the DOJ probe has entailed the issuing of subpoenas to certain subsidiaries within ad agency holding companies IPG, Omnicom Group, WPP PLC and Publicis Groupe. The investigation is ongoing.
Miller said the DOJ will determine if there are illegalities. Meanwhile the AICP priority, he affirmed, is coming up with ways “to safeguard our members from potentially illegal practices that are counter to the benefit of the entire process [of how jobs are awarded].”
Besides unveiling the revised Mutual NDA, the AICP memo recommended that production companies gain assurances that safeguards are in place to protect their bidding info from being misused on prospective projects which are put through systems such as the Omnicom Production Network (OPN) Supplier Portal. This portal is designed to share info with undisclosed divisions, subsidiaries and units of the Omnicom network. The AICP memo read that in these situations it needs to be determined “that the use of your company’s confidential information cannot be used to violate antitrust laws, rules or regulations, and is only used by the bidding agency and the marketer for purposes of consideration on a project.”
Ahead of the curve
The AICP memo dated Dec. 19 also included a link to a document containing Suggested Best Practices for Bidding, which the group rolled out in November–prior to any news of the DOJ probe.
A prime catalyst for the AICP outlining such Best Practices was an ANA (Association of National Advertisers)-commissioned study by K2 Intelligence that found non-transparent business practices were pervasive in a sample of the U.S. media ad-buying ecosystem. Released in June 2016, the K2 Intelligence research, conducted from October 2015 through May 2016, revealed “evidence of a fundamental disconnect in the advertising industry about the advertiser-agency relationship.” In general, advertisers expressed a belief that their agencies were duty-bound to act in their best interests. Meanwhile, many agency executives interviewed said their relationship to advertisers was solely defined by the contract between the two parties. In addition, as alluded to earlier, K2 Intelligence found evidence of potentially problematic agency conduct concealed by principal transactions; as a principal, an agency (or its holding company or associated company) purchases media on its own behalf and later resells it to a client after a markup. The K2 study thus resulted in ANA formulating a set of recommendations designed to foster transparency in order to elevate trust and restore confidence in the client/agency partnership.
Given marketers’ concerns about transparency, Miller said the AICP felt it would be “a good time to remind our members about fair bidding practices and obligations” for the benefit of the overall industry. Hence the development of the Suggested Best Practices rundown, which includes a section on bidding transparency.
Excerpts of that section read: “If an agency requests that a production company provide a bid merely as a cover or as a way to enable an agency to fulfill an advertiser’s multiple bid requirement, the production company may feel under pressure to accede. The U.S. Department of Justice, however, has issued legal warnings about such behavior. If, by way of example, the agency were to provide target numbers in order to better position other bids, the request may–by itself, and particularly if acted upon by the production company–raise legal questions about whether it has the potential to undermine competition in a bidding process that the advertiser may expect to be competitive.”
The Best Practices section went on to outline the DOJ’s take on the legal caveats posed by so-called complementary bidding, aka “cover” or “courtesy” bidding, which occurs when some competitors agree to submit bids that are either too high to be accepted or contain special terms that will not be acceptable to the buyer. Such bids are not intended to secure the buyer’s acceptance, but, are merely designed to give the appearance of genuine competitive bidding. Complementary bidding schemes are the most frequently occurring forms of bid rigging, and they defraud purchasers by creating the appearance of competition to conceal secretly inflated prices. In short, such activity would not be considered best practices and, worse, might be deemed anti-competitive or in violation of the law.
These passages from the Best Practices document take on a deeper meaning and relevance with the subsequent news of the DOJ investigation. During the course of that investigation, the DOJ has thus far not contacted the AICP, according to Miller.
