A commonly used, but often misunderstood type of contract used throughout the entertainment industry is the Production Services Agreement. This short article will attempt to demystify and explain the use of such agreements, but shouldn't be treated as a substitute for real legal advice from a lawyer you've hired to help you determine the best overall deal structure for your project.
What is a Production Services Agreement?
A Production Services Agreement is a contract between a financier, distributor (sometimes), or a lead-producer who wishes to hire a production company to handle all of the boots-on-the-ground aspects of producing a film, television program, commercial or other media production (we'll call this the “Project”). The production company brings to bear all of its expertise, knowledge, personnel, and other resources to produce and deliver the Project according to the financier's specifications.
When would I use a Production Services Agreement?
Use a Production Services Agreement when you own or control the screenplay or other source material, and have obtained the full financing for a project, but don't have the resources (or inclination) to handle all of the payroll, accounting, casting, hiring crew, and other day-to-day aspects of production, and don't wish to share ownership or control of the disposition of the Project.
Sometimes a Production Services Contract is also used when the financier is not signatory to a Union Agreement, and desires the Project to be produced using union workers and thus hires a union signatory production company to handle things. A common example of this is when manufacturers or advertising agencies hire commercial production companies to produce commercials using union actors and crew. The manufacturer need not become signatory with SAG/AFTRA in order to benefit from the use of professional actors.
Common provisions included in a Production Services Agreement.
The typical Production Services Agreement will, of course identify the parties and the project(s) covered by the arrangement, as well as the following:
Production Services required
The agreement will designate the script or other material to be produced, and will likely include a detailed “Statement of Work” listing all of the specific services to be performed , often designating the specific person(s) who are to perform them.
Production Fee and Cash Flow Schedule
The Financier will be required to fund the production of the Project according to a specified cash-flow schedule. This schedule will include payments to the production company for its fees, which will have been included in the budget for the Project. Sometimes, the production company will be permitted to retain some or all of any funds left-over after production, as an incentive to control costs. Likewise, the production company may be held responsible for any over-budget amounts or overruns so long as they are not the fault of the financier (such as when late changes are made or approvals withheld).
Transfers of Rights
Typically, if the Financier controls a screenplay or any of the other rights required to produce the Picture, it will transfer those rights to the production company so it can produce the Project, and the production company will transfer them back to financier following delivery.
The financier in a Production Services Company typically has the right to designate and/or approve certain elements of the production. Among these, for example, might be the Director, writer, editor, lead cast members, changes to screenplay, etc.
The contrract will specify when, where, and in what form the completed work-producti shall be delivered, along with technical, commercial and other standards to which it must adhere.
Adherence to Schedule
The contract will specify the timeline for performance and deadline(s) for delivery of the completed work. It's common for a production and delivery schedule to be attached to the agreement as an exhibit
Adherence to Budget
The Budget will usually be attached to the contract as an exhibit, and will be of the essence of the agreement. The financier will, of course, expect that the production will not involve cost-overruns.
Adherence to Script
Obviously, the financier expects that the production will conform to the script. Minor changes are usually acceptable, given the exigencies of production, but most changes or variations from the screenplay will require the financier's approval.
The Production Services Agreement will require that all personnel and vendors agree that their work-product belongs to the production company, which can then assign those contracts to the financier. Similarly, the contract will provide that the work-product of the production company is a work-made-for-hire, and that therefore all copyrights belong to the financier.
The production company and its personnel will receive specified credit(s) on the film, provided they actually perform as expected.
Right of Financier to Distrbute
Usually, the agreement will articulate the right of the Financier to control the distribution, and specify that after satisfactory delivery, the production company will have no further rights in the material.
Insurance and indemnities
The contract will require the production company to carry appropriate insurance and to name the financier as additional insured, as well as to indemnify the financier for any claims or losses arising from the production company's errors or ommissions. The Financier will typically also be required to indemnify the production company for any claims relating to the underlying rights and screenplay.
The Financier will have the right to takeover the production under certain circumstances, such as budget overruns, scheduling overruns, or upon receipt of certain warnings from the completion bond company.
Common pitfalls and mistakes in the use of Production Services Agreements.
Among the most common problems that arises with Production Services Agreements is the failure to include proper controls to assure that the rights transfers occur as expected, and that finances are handled properly. Other problems arise when credit isn't properly accorded. Chain-of-title concerns often arise when the production company fails to obtain the proper contracts from cast, crew and other participants in the production. Finally, if payroll isn't handled properly or residuals not provided for, unions may attempt to collect from whomever is the softest target, whether that is the financier or production company… Regardless of who is contractually responsible.
Production Services Agreements are a common, but often misunderstood (and misused) form of contract in the film, television and advertising business. Understanding the operation of such deals is important, and the help of experienced entertainment lawyers and advisors is crucial.