Contract Hit?

PR Firms Confident Despite Flap Over Armstrong Williams

Posted February 11, 2005 at 5:39pm

While the controversy still simmers over media pundit Armstrong Williams accepting lucrative payments from the Education Department, public relations firms that have spent the past few years aggressively courting federal contracts say they don’t expect the scandal to dent their business.

According to a Congressional committee report, the federal market for public relations work has exploded, growing from $39 million in 2000 to $88.2 million last year, with several firms eagerly stepping into the fray to grab contracts.

But the practice of hiring private PR firms to tout government efforts has received unprecedented scrutiny in the weeks since it was revealed that Williams, a conservative commentator, accepted federal money, paid through the PR firm Ketchum, to promote President Bush’s No Child Left Behind Act.

Now, even with the specter of Congressional hearings looming, PR professionals who rely on government work are undeterred about the propriety of such contracts, which have come to be known under the umbrella term “social marketing.” They say their efforts represent a public service, and they express confidence that departments will continue to seek them out for promotional help.

“Whether it’s drinking and driving, or Smoky the Bear, or the food pyramid, these are some of the most significant social marketing programs ever created,” said Richard Mintz, chairman of global affairs at Burson-Marsteller, which is halfway through a five-year contract with the Treasury Department to help roll out redesigned currency.

“Am I watching it?” he said of the Williams imbroglio. “Yes. But I think once everyone calms down and understands public education is an essential government function and a lot of protections are in place, cooler heads will prevail.”

Ketchum, to cite the most prominent player in the Williams drama, has collected $97 million in federal money since 2001 — roughly a third of all federal government spending on PR during that time. Officials with the New York and Washington offices of the firm did not return calls seeking comment.

But Mark Schannon, a longtime director of the firm’s Washington office who left two years ago to establish his own shop, said he didn’t think the Williams affair was likely to affect Ketchum’s other government work.

“I would bet the business impact will be zero,” he said. However, since the Education Department already cancelled its contract with Ketchum, Schannon conceded, it’s possible that other departments for whom the firm is working could decide to cut ties as well.

Several executives at firms with big government contracts were sanguine, however, and denied that they were having to give serious thought internally to adjusting their revenue-growth plans if the work dries up.

“We’re basically continuing to do business as we’ve always done it,” said Molly Matthews, president and CEO of Matthews Media Group, which raked in $51.6 million worth of government work over the past three years, ranking it second only to Ketchum in volume, according to a recent report by the Democratic staff of the House Government Reform Committee.

For one thing, several PR executives said, the contracts aren’t profitable enough to sink firms that lose them. That’s because government contracts set profit margins at about 8 percent — significantly lower than the margins available in private-sector work.

Schannon, who was with Ketchum when the firm first began seeking government contracts, said the profit caps actually made such contracts potentially dangerous to the firm’s financial health.

“If you bring in too much money without a great profit margin, you can go bankrupt,” he said. “People throw around revenue numbers like they mean something. At the end of the day, it’s how much you’re handing back to the mother ship.”

Mintz, whose firm takes in about 10 percent of its revenue from federal contracts, said that despite the lower profit margins, government work has benefits that are not as easy to quantify; such contracts are large, typically stable over a number of years and often good for morale.

“For our people, they like it because it has a higher purpose to it,” he said. “It’s not moving toothpaste. They get really motivated because they’re emotionally committed to the work.”

Widmeyer Communications pulls in about a quarter of its revenue from federal contracts. The firm has worked on projects to promote, among other things, a literacy program for the National Institute for Literacy and a program sponsored by the Health and Human Services Department that is aimed at stopping bullying among 9 to 12-year-old “tweens.”

Firm CEO Scott Widmeyer said “there’s always concern” of backlash in the industry when a scandal like the one involving Ketchum breaks.

Responding to that concern, the New York-based Council of Public Relations Firms has formed a task force to do what the industry does best — namely, a bit of public relations on behalf of the industry, to try to head off wider calls to stop outsourcing the government’s promotional efforts, according to PR Week.

And while executives at larger firms denied refiguring their business plan in the wake of the scandal, Dave Fuscus, founder of the boutique lobby-and-PR shop Xenophon Strategies, said they should.

“I would think the first thing they would do is a review, to make sure this isn’t going on in their shop, and then study the impact,” he said. “That’s what I would do.”