Analysis: Will MSF's unorthodox 5% performance-based fee hold back incentivise agencies?

Towards the end of January 2021, Ministry of Social and Family Development (MSF) called for a digital content pitch aiming to hire an agency to develop a range of family-centric content for Families for Life. Families for Life is a people-sector council which promotes strong and resilient families by creating platforms to bring people together for family bonding.

In the tender document, MSF said it was looking to hire an agency to help propose and develop a detailed monthly content calendar and the agency will also be required to submit new and original copy written content on a monthly basis for 12 months.

Interestingly, in the pitch document, it is stated:

The appointed agency will be paid 95% of the monthly cost at the end of each month. The remaining 5% is a performance-based payment, and will be paid at the end of the 6th and 12th month from the contract date.

This means that if the supplier successfully achieves the KPI set for the first six-month period, it will be paid the cumulative 30% of the monthly cost for the six months, in addition to the monthly 95% payment.  The KPI is measured every half yearly, based on the average amount of time users spent across all the content pieces developed during each six-month period. The agency must meet the criteria of average of at least one minute of time users spent on each content piece, across all content pieces developed during each six-month period.

While this payment structure isn’t new to MSF, having been implemented by Families for Life since 2016, agencies MARKETING-INTERACTIVE spoke to said it isn’t a common clause they have seen in government tender documents. In a statement to MARKETING-INTERACTIVE, a spokesperson from MSF said, “This approach has been implemented by FFL since 2016 as part of our procurement performance management system, to help ensure the quality of content produced by the appointed vendor” and the remuneration model was set up as a key performance indicator for the appointed vendor to achieve.

The spokesperson added, “The transparency enables open and fair competition so that we get the best value from the procurement process that is based on competitive pricing. Pricing is a major evaluation criteria. Vendors that offer competitive prices will fare better in the price weightage evaluation component.”

In a conversation with MARKETING-INTERACTIVE, pitch consultant Goh Shufen,co-founder and principal of R3 Worldwide said incentivisation is certainly a positive trend on the rise with more marketers seeking greater accountability. When designed and executed fairly, a performance based remuneration model is effective at driving the right behavior and outcome, and that is win-win for both parties.

With a stake in the outcome, such as in this instance, agencies reassure clients of the shared desired results, rebalancing the relationship to one that is a long term partner, and less transactional vendor, explained Goh. She added that a performance based remuneration structure has been proven to work across different sectors and markets to effectively sustain high performance and greater accountability to results.

“However, it requires a longer term vision to agency partnerships beyond just one campaign. This is often the barrier facing some government agencies,” she added. Commenting on the 5% hold back, Goh said that depending on “the size of the prize”, 5% may not be a significant quantum to motivate real change.

“What we have observed as best practice, is a carrot and stick approach, involving not just disincentives, but incentives as well,” Goh said. “Any purchaser of service needs to look at total value, and not just price. This is where third party benchmarks can be very useful in helping clients discern value. Lowest bidder may not be best value, especially in services related procurement.”

Agency POV

Meanwhile, speaking under anonymity, one network agency CEO commented that while he is not aware of such stipulated compensation structures being the norm, it is probably done to ensure that the agencies chosen have their “skin in the game” and deliver performance, and not just deliver on the scope of work.

Moreover, he added that 5% isn’t an amount that would drastically impact the numbers as all quotations would naturally have some margin built in. “It’s good to see government agencies try a small component of performance based compensation as MNC’s have long offered remuneration for going above the target,” he said.

When asked if this would result in agencies jacking up the pricing, even if ever so slightly, he said while there is such a possibility, the government agencies can themselves do a historical and current price comparison/benchmarking to ensure that they are being quoted fairly.

Fiona Bartholomeusz, founder of ad agency Formul8 which has worked with government clients such as HDB, LTA, MSF and MTI said, “The payment structure doesn’t seem to be the norm (thankfully) for most clients but it is definitely a payment programme I don’t think most agencies should agree to.”

She added that with the impact COVID-19 has had on the economy and local businesses, keeping a healthy cash flow is vital and clients also need to be aware of the challenges most businesses and agencies face today.

“I’m all for incentivisation, but it has to work both ways and not only through a back-ended deferred payment scheme - only if the agency has met all KPIs. On the flip side, what if the agency surpasses the KPIs? Would the agency then be not entitled to a bonus over and above full payment?”

Sharing a past experience, Bartholomeusz said the agency has had “unsavoury experiences” in the past where a client set KPIs on the back of an agreed media spend, but had to cut the spend midway through. Unfortunately, in that instance, the agency was still expected to meet the same KPIs and factor in “unforeseen circumstances” for their future planning. Calling it a one off experience, Bartholomeusz added, “Thankfully, we’ve generally been lucky to work with supportive clients who understand that now, more than ever, appreciation and respect for good work results in an agency team that is even more committed to pulling out all the stops for them.”

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(Photo courtesy: 123RF)

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