Area Development
Editor's Note: Taxes play a significant role in comparing location options, but their effect on a company’s bottom line can be reduced through negotiating for incentives. However, the location team should keep in mind that an offer’s quantitative dollar value is just one aspect of a properly negotiated incentive package. Additionally, the work required in actually capturing the negotiated incentives is just as important as any other step in the process.

The administration work associated with capturing negotiated incentives, as noted in the prior article, “Negotiating for Incentives,” is as important as any other step in the process. You would think that with all the analytics, site visits, negotiations, and contract reviews that the majority of the work is done, but that is often not the case. Some of the biggest complexities lie in the administration details.

{{RELATEDLINKS}}As anyone who has negotiated an incentive will tell you, an incentive only has value when it is realized. Often, when a project’s budget is approved, that budget includes the value of the incentives, whether cost avoidance, reimbursement or reduction, and the facility’s financial performance can be negatively impacted if the negotiated incentives are not realized. This is not only true for financial incentives. There are those incentives that reduce project time, whether it is obtaining permits, acquiring land or installing infrastructure. Achieving the “time” incentives can be equally as critical to a project’s success and require the same attention during the incentive administration process.

Let’s Start at the Beginning

The administration process begins as far back as the start of the incentive negotiation. The way a project is framed during the negotiations will impact how the incentives are administered. The best way to ensure the incentives are received is to make sure they are negotiated properly.

Some deal points that impact incentive administration success include:Identifying the Team
Once the site location decision has been made, often the team that led the site selection and incentive negotiation efforts is now focused on getting the facility up and running, presenting a challenge in capturing the negotiated incentives. Therefore, it is critical to establish a team and an administration lead early in the site selection process.

Some of the more creative and valuable incentives have a more complex process and often involve external entities. A recurring issue that we see in incentive administration is a lack of consistency in the administration team. The administration period could last for more than 10 years so it is important that a team is constructed that can ensure a smooth transition as changes in the team occur. Another factor to assembling the right team is to identify points of contact — both within and outside of the organization — who will be responsible for providing the required reporting data. This could be headcount, payroll, taxes, construction spend, utility usage, and port activities to name a few.

Understand the External Parties
There are some universal performance and measuring requirements when it comes to incentives such as headcount, payroll, and investment among other things, and companies tend to understand how to gather and manage that data internally. However, as incentive programs continue to evolve, the methods for receipt of benefits, parties to incentive agreements, and filing requirements will continue to evolve as well. Some of the more creative and valuable incentives have a more complex process to realize the incentives and often involve external entities. When this is the case, it is important to educate these external entities, as early in the process as possible, about their role in the incentives and what data will be required from them in order to ensure successful administration of the respective incentive.

Some examples where these external entities will play a key role in the administration of the incentives may include:Implementation Plan
Incentive administration is a combination of project activity monitoring, regularly scheduled performance reporting, and filings and claims to realize the incentives. It is critical to remember that a missed deadline or commitment can create a clawback and potentially put a project in default. With so many moving pieces and partners, an implementation plan and action calendar are effective tools to manage the administration.

There are a vast number of items that should be included in a complete implementation plan; some of these items should include:As the saying goes, “Nothing worthwhile is ever easy.” The same can be true for capturing incentives, but if a well-structured team is identified early in the site selection process, there is an understanding of all external parties, and time is taken to prepare a structured implementation plan and calendar, the company should successfully realize 100 percent of the negotiated incentives.