For many of our clients involved in ad production, a key issue since the start of the Covid-19 pandemic has been how to manage the risks and associated costs of disruption or cancellation due to Covid-19 events when such events are uninsurable.
Back in the summer last year, one of the steps the industry took to help keep productions moving was to develop a ‘Commercial Production Coronavirus Tripartite Addendum’ (Covid Addendum) which was developed jointly by the three key industry bodies representing the main stakeholders in ad production: the Incorporated Society of British Advertisers (ISBA) representing advertisers; the Institute of Practitioners in Advertising (IPA) representing agencies; and the Advertising Producers Association (APA) representing production companies.
The original Covid Addendum developed in June 2020 and subsequently updated in September 2020 sought to set out a fair and reasonable allocation of the risks and responsibilities between the parties concerned in the production of an ad. Ultimately, it places responsibility for the costs arising from Covid-19 disruption or cancellation on the advertiser. However, it also places obligations on the agency and the production company to manage and mitigate the risk of disruption/cancellation when planning the production and during the shoot.
Trials with tripartites
Whilst the aims of the Covid Addendum are certainly commendable, for those of us who have been negotiating it on the ground for the past nine months or so, it has not been without its challenges. Although the Covid Addendum is a variation of the ‘PIBS’ (the commonly used industry template agreement between agencies and production companies for ad productions), the Covid Addendum joins the advertiser as a party. The purpose of this was not to create any direct relationship between the advertiser and the production company, but rather to amend the client-agency agreement and the PIBS at the same time through one addendum in a move to (theoretically) ensure consensus is achieved quickly. That said, we’ve seen many advertisers push back on a tripartite arrangement, for example because they consider any dealings with the production company as something the agency should be doing on the client’s behalf.
Although approved by the industry trade associations, like most of the ad industry templates, there is no obligation for businesses to use the Covid Addendum – they can of course negotiate their own terms. We’ve set out below some perspectives and issues that can arise between advertisers, agencies and production companies.
In practice, production companies often resist agreeing to terms which are not at least substantially modelled on the Covid Addendum. Production companies generally consider themselves to be at greatest risk of being ‘out of pocket’ due to Covid-19 disruption or cancellation of a shoot. In particular, depending on when the disruption or cancellation occurs, they may need to pay some or all of the agreed fees for a director, producer and crew etc.
There is also the risk of unknown costs which may arise for example, if a production company needs to take immediate action to comply with mandatory Covid-19 protection measures, or if a production company needs to book a new location suddenly and the additional travel costs and expenses required to get crew and equipment to the new location.
Unsurprisingly, many advertisers are wary of unknown and potentially uncapped ‘unavoidable costs.’ Whilst a cap is imposed on cancellation costs under the Covid Addendum, caps on postponement are resisted due to variable circumstances that may result in postponement, delay or relocation. As drafted, the solution proposed under the Covid Addendum, was that a postponement entitles the production company to the original production company budget plus agreed discounted rates for the director, producer and production fees for the new shoot dates. However, in addition, there may be other unknowns mentioned earlier which can make agreeing a cap on postponement costs tricky.
One solution being increasingly agreed is to add an additional schedule which sets out the known costs for postponement/cancellation at varying stages in the production. This, combined with the obligations on the production company and agency to plan productions in such a way so as to reduce the prospect of the advertiser having to make a payment for unknown costs under the Addendum (for example, the production company must comply with the APA Shooting Guidelines), may help give advertisers greater visibility over the potential costs involved. The production company and agency are also required to keep the advertiser informed of all potential costs as far as reasonably practical.
Of course any substantial amount of negotiation takes time and will often be carried out under pressure with little time ahead of the scheduled shoot date. Agencies involved in these negotiations can often find themselves in a difficult position, seeking to address the advertiser’s concerns, whilst being reluctant (sensibly) to agree to any changes that can’t be backed-off with the production company. It’s important therefore that the parties engage with the Covid Addendum as early as possible and where feasible not to leave it too close to the shoot date to engage their legal teams. Agencies should also consider preparing their clients’ expectations in advance about the key elements of the Covid Addendum and its aims, and take steps to ensure early on that the client has had visibility of the risks and potential costs (including as far as possible examples of the potential ‘unavoidable costs’ which may arising in the context of the particular production).