How to Break the Bad News: Navigating the Conversation When a Company Doesn’t Meet Expectations
When a company cannot meet the original parameters set by its project, communication is critical to identifying potential solutions.
Economic credits and incentives are inherently a “best guess” for the future. If we all had the magic crystal ball for predicting the future, we would likely use it for financial gains in Vegas! However, as we are trying to forecast the growth and success of projects five, 10, or even 20 years into the future, there is a risk that things don’t go quite as planned.
In fact, the best-laid plans never go the way they look on paper. As with most business ventures, flexibility is key in these circumstances. However, many incentive programs don’t have the necessary flexibility to adapt to project changes, for better or worse.
A Lot Can Happen
Site and facility planning projects are years in the making. Many projects start the planning process for site selection one to two years before any RFPs are sent out. Then, there is the scramble to complete and compete for the project. Once a project location has been decided and the economic incentives secured, the project is just “getting started.” In some circumstances, even small to medium-sized investments can take four to five years before the project sees its ribbon-cutting, first products going out the door, or first employees moving into their new offices.
Economic credits and incentives are inherently a "best guess" for the future. A lot can happen in that amount of time. Regular communication with community stakeholders is required to overcome any hurdles along the way. Four years is the typical time for most political positions to encounter another election, from the national presidential race down to the local town council seat. Personalities, preferences, and policies can all change, imposing risk on a company and its project. Risk is the chief enemy of most location projects. Experienced location advisory consultants stay in close contact with their clients throughout the development process to help navigate and mitigate risk and any challenges that arise from inevitable change.
But what happens when “changes” are insurmountable? Economies shift; buyers alter their practices; workforce becomes depleted; lead times extend; construction costs go to all-time highs — all these difficulties are recent realities in the post-pandemic world. If a company encounters the unexpected and needs to alter the project, it is the role of the location advisor to help navigate potential fiscal impacts on the project. Location advisors should work closely with community stakeholders to communicate changes and anticipate potential pitfalls for reporting and compliance.
Regular communication with community stakeholders is required to overcome any hurdles along the way. Most economic incentives have a legal agreement between the taxing authority and the company. How flexible are these agreements? Often, contracts are fairly iron-clad. If the company meets the measures outlined early in the process, then it gets the benefit. But what happens when a company falls just short of the mark? Economic development officials should consider the levels of rigidity of their program agreements. Some flexibility may be appropriate to anticipate the time required to make a project happen. Performance-based incentives can allow for this needed flexibility, but the delicate balance between the community’s interests and the company’s interests can be a tricky circumstance, especially when legal documents are years in advance of the project being completed.
Communication Is Key
When a company cannot meet the original parameters set by its project, communication is critical to identifying potential solutions. Early contact with economic development decision-makers is the best first step. Logical, clear explanations of the current circumstances are typically met with understanding, though there is likely to be disappointment. Remember, many incentives are offered due to the excitement generated by the potential project years before. The dreams of the project that “were to be” can be demoralizing for a community. Ideally, the project itself can still move forward, but in a different capacity. Again, flexibility within the economic incentive programs may help soften or lessen dramatic changes to project plans.
Flexibility within the economic incentive programs may help soften or lessen dramatic changes to project plans. When projects consider an area, clawbacks are heavily weighted in the site selection process. Performance-based incentives can vastly reduce a community’s risk in a project. However, those incentives shift that risk to the company. Certainly, non-performance should not be rewarded; however, careful review and reasonable extension of deadlines and compliance reporting could further considerations toward advancing a reduced project.
Working in economic development is like walking a tightrope between strict agreements and unforeseen challenges. Contracts offer stability, but all involved parties need to be flexible when projects take unexpected turns. Project advisors and stakeholders must communicate clearly and consistently to achieve practical solutions when things go awry. It’s all about finding that sweet spot between sticking to agreements and being adaptable. This approach can rescue projects, keeping the impact low and the original vision intact, even when the economic landscape throws us a curveball.
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