Legal issues lurk in plant projects

Recruiting auto companies to new plant sites is traditionally a task for government officials, chambers of commerce, utility companies, railroads or possibly even real estate firms. Sam Moses represents a new trend in the activity.

Moses is an attorney, a partner in the Columbia, S.C., office of law firm Parker Poe. He spends his time recruiting automotive manufacturers — mostly European companies — to invest in operations in North America. Moses is a former economic development representative for South Carolina. But as an attorney, his allegiances are not to any particular state or location, but rather to his clients' unique business issues and concerns. He spoke with News Editor Lindsay Chappell about why attorneys might play an increasing role in wooing investment.

Q: Why is a law firm in the business of recruiting automotive manufacturers?

A: Engineers, lawyers and accountants have gotten into the business. But law firms have been late to the game. Clients have always needed site selection services, but we typically partnered with brokers or site consultants for that. This is a way to offer the services directly.

What role would you play?

The transactional work includes incentive documentation, state and local. Putting together the real estate transaction. Dealing with environmental issues, air permitting and wastewater emissions. Then you have operational issues, like employment. An automotive company from Michigan, for example, setting up a plant in the Southeast is typically going to have American managers who know what the U.S. laws are. But when you are an overseas company, this might be the first U.S. plant they've ever done, and they need guidance. Tax issues can also be complex for an international company.

They might be setting up a new plant to serve Mercedes, and it doesn't require machining. But then two years later, they've picked up additional customers, and the volume warrants bringing over the machining operations. That's a complex arrangement involving how to structure the project and how to plan the timeline for incentives, for environmental, employment and regulatory.

Is there recognition that industrial recruiting and job creation, which are generally perceived as a big win-win, can also have an adversarial element? Or at least a potential problem where the manufacturer's interests and the local government's interests are not in line?

Absolutely. We're definitely seeing a changing attitude. Look at the recent deal between Amazon and New York that fell apart. There's a honeymoon period where people are shaking hands and holding ceremonies. But then things happen.

One of the emerging issues is in increased taxpayer transparency, which is putting much greater scrutiny on state and local incentive deals. In the past, sometimes communities were not really enforcing deals that were not really meeting up to their contractual obligations. A company said it would create 100 jobs, but it's only created 90 — in the past, the community might say, "Well, even though it says 100 in the contract, our state has historically been pro-business. So we're going to work with the company to help them." They don't want to be in the business of going after the companies and clawing back incentives.

We see that attitude changing. We're seeing a more stringent enforcement of the contracts. A company gets a $500,000 grant, but they don't make it and have to close. The state's probably going to go after them to get the $500,000 back.

How does that involve you?

It's putting pressure on new companies coming in, on their upfront negotiations. States are looking closer at suppliers' business contracts, and sometimes their OEM customers don't even use written contracts. So we're advising clients to be very realistic in what they shoot for and what they promise. They can always go back later if they need to expand to have a separate conversation about incentives.