Economic development incentives are, at heart, contracts: a government offers to provide certain benefits-tax credits, grants, abatements, etc.-in exchange for a business creating jobs and investing capital. Agreements are often long-term, lasting a decade or more. Naturally, economic and political circumstances can change during such a length of time.
Two recent cases, Owens-Brockway and VWS, illustrate the unfairness that occurs if a company ceases performance of its agreement near the end of the term of its agreement, only to have the government claw back the entire value of the award. Businesses entering into incentive agreements should carefully consider these risks.
Sometimes a retrospective clawback is required by law and must be accepted as a condition to the award, but in other instances it may be negotiable. Additionally, if a business is facing a 100% clawback after partial performance, it should consider potential claims to challenge the 100% clawback or to receive compensation for the jobs and investment that it did create.
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