Meet the site consultants

By Philip Newswanger
Inside Business – The Hampton Roads Business Journal

There are two key players in the economic development field.

There's the quasi-public or public official who remains in the public eye.

And then there's the site consultant, a shadowy player who shuns publicity, yet who is a powerful influence on where a company will relocate its business and how much incentive money it will receive.

Site consultants can't be ignored by the economic development community.

Darryl Gosnell, president and CEO of the region's marketer, the Hampton Roads Economic Development Alliance, said he and his staff spend 30 to 40 percent of their time with site consultants.

"We have marketing missions throughout the year and one of the focuses of the marketing mission is the site consultant," Gosnell said.

The alliance will spend a week with site consultants, most of whom are situated in New York, Los Angeles, Chicago and Dallas.

Gosnell said the use of site consultants began in the 1980s when many Japanese and European firms, unfamiliar with local customs and laws, hired stateside companies as their liaison with local governments.

"Many companies got out of the selection process in the 1980s," Gosnell said.

Instead, they hired outside firms to handle their real estate operations and selection process.

In a paper titled "The Business of Business Relocation," John Lombard, director of the E.V. Williams Center for Real Estate and Economic Development at Old Dominion University, calls site consultants "relocation consultants."

The explosion of site consultants is due to the outsourcing of corporate real estate departments to third parties, in many cases real estate providers, and the flow of information via the Internet, Lombard said, citing Jack Tomasik of the Economic Strategies Group, who has been tracking the industry since 1997.

More so, there has been an explosion of incentives, which corporations considering relocation have come to expect, Lombard said.

In essence, relocation has become in many respects a money game, and this has attracted a lot of consulting specialists, Lombard said.

Incentives range from grants and training subsidies to free land and tax credits.

Real estate consulting and site selection account for the largest share of industry specialization in business relocation, Lombard said.

The private sector environment is driven by the profit motive and the work is toward billable hours, Lombard said.

The search for an optimal solution to a particular consulting problem is a rare occurrence, Lombard said. Rather, much of relocation consulting is produced to satisfy the client for a given situation.

But here is where public policy and the private sector diverge.

Unlike economic development practitioners, who typically operate with transparency, the private sector relocation consultant is geared toward confidentiality.

On one side is the site consultant, who represents the client, a company.

On the other side are the economic developer and state and local governments as stewards of tax dollars.

"I give them their due for delivering value but I have ethical issues with them when they also work for the public sector and/or on commission," said Greg LeRoy, founder of GoodJobsFirst, an advocacy group, and author of the "Great American Jobs Scam," in an email.

"Because site consultants remain wholly unregistered and unregulated, and very adverse to publicity, we cannot offer any kinds of statistics about their compensation practices," LeRoy said.

How site consultants are compensated is controversial, although examples are hard to come by.

Many in the economic development community say they believe site consultants are paid fees based on the size of the incentives they negotiate.

LeRoy said only a few consultants work on commission or on a mix of fee and commission, and commissions normally only apply to discretionary subsidies, such as a land grant or a training subsidy, based on his research.

LeRoy said in his book that cities are living a "prisoner's dilemma" game, whereby cities are played against each for the best deal.

Given how the system is rigged, LeRoy said, all the power rests with the site location consultants and their corporate clients.

No wonder there have been recurring grumbles that consultants sometimes exaggerate the subsidy bids from one place to coax higher sums from another, LeRoy said.

LeRoy said he has heard rumors of consultants seeking consulting fees from local governments of cities where they are steering their corporate client - a sort of double-dip/two sides of the same deal issue.

"I assume this would mainly happen at the low end of the market," LeRoy said.

"We assume commissions and other problematic practices are less common among Fortune 500 companies and their site consultants."

philip.newswanger@insidebiz.com