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, there is no right answer but, rather, a best answer.

The trick is to figure out that best answer. With advances in database and 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 makes sense only 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 where 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.

Incentives add to the deal but don't make it

Depending on how close the decision choices are, an influential decision-making factor can be the "incentive package," or 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.

The incentive package is not "the deal"; the company's capital investment is. And this deal ranges from corporate mergers or acquisitions, to buying/selling/leasing an existing facility, to developing a greenfield project.

The underlying purpose of the project is to develop, acquire, expand, downsize, consolidate, locate, relocate, or close a business operation or operating facility. 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 - makes business sense in the short- 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, work force, and/or infrastructure factors in the competing transactions or jurisdictions under consideration.

Incentives in a nutshell

All strong incentive packages (i.e., 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 job growth, tax base, and flow of commerce.

To prepare for negotiations, determine the differences among the choices regarding a company's relative start-up and operating costs and each candidate location's attributes. This will help the company understand how incentives will affect particular sets of project requirements and business projections.

Next, understand the type, structure, application, and availability of a location's incentives. Both steps are necessary to determine the true value of incentives.

If done correctly, the parties will more accurately evaluate the choices with and without incentives. How can 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?

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.

Some do's and don'ts of the process

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

Do:

 Manage time, leverage (power), information, and their changes before negotiations and throughout the process.

 Minimize pressure on your side. All parties are under pressure to make a deal. Generally, the side under the most pressure does the worst.

 Remember that the location and method of negotiating (where and how) can make a big difference in the process and outcome of the negotiations.

 "Keep your eye on the ball" - keep track of the project's objectives, while maintaining the ability to walk away from negotiations.

 Keep track of concessions. The movement of concessions equals negotiation progress. Pay attention to progress made, not just the remaining differences.

 Know the facts and issues. Assemble a team with professionals who can address the project's business, operational, financial, tax, and real estate/construction facets.

 Stay alert to new or changed information and adapt to it.

 Conclude negotiations in a way that both sides would want to deal with each other again. This is critical if the company is contemplating a future expansion in that community.

Don't:

 Gloat about results or what the other side's results could have been. You have nothing to gain.

 Assume all parties want the same thing. Help the other side get what it really wants.

 Disclose your time constraints, deadlines, or pressures, unless there is a compelling reason.

 Unnecessarily narrow your company's negotiating range or flexibility.

 Narrow the negotiation to one issue. If you do, then there will be at least one loser and at least one winner.

Successful capital investment in a business operation or facility requires an understanding of all the issues involved, from operational costs, to work force, to infrastructure. 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.

Rhett Weiss is chairman of DEALTEK, Ltd., which provides technology-driven solutions for domestic and cross-border capital investment projects involving the development, expansion, consolidation, location, or relocation of a company's facilities and operations. For more information on DEALTEK(tm), please call either Rhett Weiss or Chuck MacCary, president, at (703) 361-3899, or check out the company's Web site at www.dealtek.com.