History Repeats Itself: Ogilvy Boss Admits IBM Was Overbilled for Ads

Ogilvy & Mather chairman John Siefert confirmed in an email to his staff last week that his agency did overbill IBM for digital media purchases, as alleged in a federal lawsuit first reported by BNET. Although Seifert says the matter is now "closed" and IBM believes there was no wrongdoing, this is the third recent occasion on which Ogilvy has been accused in court of overcharging its clients.

In 2009, the agency settled with an executive producer at Ogilvy who alleged that the agency fraudulently overbilled Avon in order to cover the costs of a lawsuit it had lost.

More famously, Seifert's wife and five other Ogilvy executives were convicted of defrauding the White House Office of National Drug Control Policy by overbilling its billion-dollar "say no to drugs" campaign. Shona Seifert served 18 months in federal prison for her role in the scam and was required by the court to write a code of ethics for the ad business.

Seifert's email is worth examining closely. Addressed to all North America employees, it says:

In the case of IBM, in September 2009, we learned of some pricing discrepancies that we believed resulted from misunderstanding of contract rates for specialty creative units in various digital media sites.

OK, so Ogilvy -- a unit of WPP (WPPGY) -- did overbill IBM. Confirmed.

We conducted a comprehensive audit of all activity that ran in 2009 and through January 2010. We determined that there were some mistakes in pricing for which IBM should receive credit;

Interesting that this involves "credit." The holding of media credits, and whether those credits -- which are as good as cash in terms of money saved for ad buyers -- belongs to the agency or the client whose money earned them is a perennial problem in advertising.

We approached all appropriate media partners where credit was due, and each of them issued full credit to IBM;

So this issue was a repeated issue with more than one media vendor. Note that the email doesn't describe the scale of the overbilling or the total dollar amount. The lawsuit, brought by Audrey Gladitsch, an executive in digital agency Neo@Ogilvy's operations group, claims there was a 200 percent discrepancy that led to "millions" in overcharges.

With IBM's help, we have clarified any ambiguity in contract language to avoid possible confusion or misinterpretation of pricing terms going forward.

If you agree that the credits were a mistake and they belonged to IBM all along, how is this the fault of "confusion" in the contract?

All of the billing related to these media costs are paid by IBM without agency commission or mark-up of any kind. So, at no point did Neo@Ogilvy or Ogilvy & Mather benefit or profit in any way from these pricing discrepancies. IBM has told us they don't believe they were intentionally overcharged in this situation, and they consider the matter closed.

This statement is directly at odds with Gladitsch's lawsuit. If no one benefited from such a mistake, why would IBM now receive credit?

... We rigorously investigate all ethical inquiries, concerns, and allegations. This is not simply about compliance, but about doing the right thing.

That's good to know, but Gladitsch claims she made "ethical inquiries" back in 2009. Only now is Ogilvy admitting to its staff that IBM was overbilled, and that this was wrong.

The only remaining factual disagreement between Gladitsch and Seifert is whether the overbilling was deliberately concealed from IBM and whether Gladitsch was punished for complaining about it.

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