Introduction
The key to successful project negotiations, and the best use of incentives in those negotiations, is to establish the interface of "what is best" for the company and for the community. For any company or community, there is no right answer, but, rather, a best answer. The trick is to figure out that best answer. With advances in database, decision support software, and communication technology, this has become much easier.

Every day, companies make and implement capital investment decisions concerning their operations and facilities. Based on our experience over the years, negotiating or just considering incentives only really makes sense after two preconditions are met. First, the company needs to understand its strategic alternatives with the project, its start-up and ongoing operating costs under multiple business projection scenarios, and the competitive advantages and disadvantages of different locations in which it can make the capital investment. Second, the community needs to understand both its competitive strengths and weaknesses, and also the economic and demographic impact of the proposed project (including retention of an existing business) on the community.

The Real Deal
Depending on how close the decision choices are, an influential decision-making factor can be the "incentive package," the set of incentives, assistance, and other benefits from the government parties and/or utility companies to help make the deal happen in their jurisdiction. But the incentives package is not "the deal"; the company's capital investment is the real deal. And this deal ranges from corporate M&A to buying/selling/leasing an existing facility, to developing a "Greenfield" project. The purpose of the underlying project is to develop, acquire, expand, downsize, consolidate, locate, relocate, or close a business operation or operating facility in the U.S. or elsewhere. Its purpose is not to go get an incentive package per se. So, incentives should not drive the decision-making.

A company's most important decision consideration should be whether the project and a location in which it can occur make business sense in the short-term and long-term. No? Then don't pursue the project, regardless of the incentives. Yes? Then incentives can help optimize the combination of various regulatory, cost, workforce, and/or infrastructure factors in the competing transactions or jurisdictions under consideration. Specifically, incentives can improve the company's costs, and workforce availability and reliability, and business environment stability. They even can even improve the chance that the particular business operation or facility really gets from the short term to the long term. But, incentives won't change the fundamental, strategic business advantages or disadvantages of that decision choice. We all have heard the old cliché: incentives cannot make a bad deal good, but they can make a good deal better.

Types of Incentives
Typical general categories of incentives that could affect a project decision include:

The types and true definition of incentives vary greatly from nation to nation, state to state, and locality to locality:

The Negotiation Process in a Nutshell
All strong incentive packages (mutually beneficial for all sides) result from a well-designed and well-executed project negotiation process, involving the company, government parties, and other stakeholders such as property owners, citizens groups, utility companies, and finance sources. If pursued properly, the process provides the optimal start-up and operating environment for the facility, and a stable long-term corporate citizen for the community to enhance jobs availability, tax base, and flow of commerce. The optimal environment allows the best possible combination of costs of doing business, qualified workforce availability, infrastructure adequacy, access to suppliers and customers, and quality of life. The "ideal" business environment doesn't exist; the optimal may exist but probably will need to be created.

The parties are better off addressing incentives as an integral, not isolated, part of a three-stage project negotiation process. The stages are not always clearly delineated, and are often revisited:

To prepare for negotiations, determine the differences among the decision choices regarding a company's relative start-up and operating costs and each candidate location's attributes. This will help the company understand whether or how incentives will affect particular sets of project requirements and business projections. Then, understand the type, structure, application, and availability of a location's incentives. Both steps are necessary to determine the true value of incentives.

Proper preparation focuses the second stage on those items that can most positively impact a company's and community's bottom lines. In making the deal, the parties should model multiple business projection and project requirement scenarios, and the affect of different incentive possibilities on these scenarios. If done correctly, the parties will more accurately evaluate the decision choices with and without incentives. So how do a company and community do all this? And how do they adapt to new information or deal point offers when trying to make a deal?

The project team can go through many unwieldy and iterative steps of information gathering, comparisons, and financial calculations, or it can use Internet technology and decision support software, such as that developed by DEALTEK®, to handle this huge undertaking very quickly and efficiently. Technology will never replace effective communication, negotiation, and interpersonal relationships in making the project come together. But, using technology properly can get the parties to the negotiation table, through the negotiations, and then to the closing table faster than without it.

One way or the other, both the company and community need to get their respective analyses together as to whether the community already provides or, if not, with incentives can provide the optimal business environment necessary for project success.

Once the parties have a meeting of the minds regarding project economics (i.e., short and long term financial considerations), location attributes, incentive packages, and their interrelationships, they can proceed efficiently with closing the deal. Again, the goal in project negotiations should be to establish and agree on the interface between what is best for the company and what is best for the community. By following this process, the parties more likely will achieve this goal, and to do so will be less retracing and retrading, than otherwise would have been the case.

Some Do's and Don'ts
As you progress through the negotiations, consider these "do's and don'ts":

Do's:

Conclusion
Successful capital investment in a business operation or facility requires an understanding of the transaction and location choices, the differences in those choices, and the substantive issues: operational; financial; workforce; location and site suitability; infrastructure and utilities; community attitude toward business; community development plans, patterns, and trends; start-up and operating costs; and taxes (whether imposed on the capital investment itself or the ongoing operations). Within that context and not treated as a separate deal, incentives can help resolve those issues and optimize the return on that investment to the company and community. Remember, the only valuable incentives are useful incentives, as determined in the context of the project's start-up and business operations.

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