• by David Kaplan , February 28, 2005

Last week, a jury found former Ogilvy & Mather executives Shona Seifert and Thomas Early guilty of scheming to overbill the government's $1 billion Office of National Drug Control Policy account to cover a $3 million revenue shortfall on the business.

The case hinged on executives padding time sheets to recoup the revenue shortfalls, and agencies are all said to be heavily scrutinizing the billing methods to ensure that they aren't the next target. Industry observers say that the guilty verdicts in the ONDCP case will spur agencies to enact strict reforms.

"I think that the time sheet system is out of date, and probably the only thing that this episode will do is accelerate the examination of how agencies charge clients for services," said Tom Rosenwald, managing director with Ray & Berndtson, an executive search firm. "The process needs to become more transparent, and I think clients need to get agreements on staffing upfront, as opposed to negotiating with agencies after--and that way, everyone knows what they're getting and what they're paying for."

The issue is going to become one of clients and agencies evaluating the scope of the work, which includes detailed staffing plans and charging accordingly, Rosenwald added. Once you map out the scope of the work, how many people are needed to complete it, and what the level of complexity is, you can then sit down if something changes and deal with it--as opposed to people simply counting minutes and hours. And that's how most consulting businesses, including law firms, tend to operate these days.

One company that provides such "scope of work planning" models is Farmer & Company, a New York-based consultancy that has worked with such agencies as J. Walter Thompson, Young & Rubicam, and Grey Global Group, among others. Farmer began doing this in 1992 when he opened the company in London. The company's first client, ironically, was Ogilvy Europe.

"The ONDCP arrangement with Ogilvy was unusual," Farmer said. "That contract literally had them being paid by the hour, and agencies are usually paid on a fee basis--and it's calculated at the start of the year, and a fixed number is settled on. But no one is generally paid hourly like that, and I feel bad for the people who made some bad decisions regarding the billing."

In most cases, clients and agencies don't agree on a rigorous scope of work plan. But the fear of irregularities or fraud will cause clients and agencies to think harder about doing so, Farmer said.

"I have a computer model that generates a scope of work and then creates a clear plan. The real value of this is that I force both sides to think about what the client really wants and what the agency can deliver in a clear way."