How community benefits agreements can reduce project delivery risk

Local opposition can make or break the best business plan. In June 2024, developers shelved plans for a $1.3 billion data center in Indiana after facing significant local opposition over environmental concerns. This isn’t just a one-off. A recent industry survey found an estimated one-third of wind and solar siting applications were canceled in the last five years, and community opposition ranked as a leading cause.

Companies that want to build large capital projects — from a factory, to a data center, to a solar farm — need to find ways to prudently manage execution risk. When issues inevitably arise around permitting, labor shortages, or local opposition they interject costly delays and can even kill projects.

One strategy to de-risk project delivery is a Community Benefits Agreement. CBAs help increase a company’s social license to operate through an enforceable agreement negotiated between a company and local stakeholders. They often address workforce, environmental and infrastructure related concerns of local stakeholders in exchange for stakeholder support for a project. This includes an agreement to not oppose the project or file lawsuits against the project. The result is a project delivered on time and on budget with a strong foundation of local support that helps ensure the long term success of a project.

CBAs help a company get ahead of potential problems in three ways:

Stillwater Mining Co. faced years of opposition when they expanded a mine in rural Montana in the late 1990s. After negotiating a type of CBA known as a Good Neighbor Agreement, they have seen decades long support instead. The agreement included water quality and traffic reduction safeguards for the community and conservation easements for the company. As a Stillwater executive noted, the “permitting has really been simplified by the time it gets to the agencies, because we’ve worked out issues that would otherwise be objected to.” That has led to reduced permitting times, and no subsequent environmental litigation, which is a remarkable achievement in the mining industry.

CBAs can not just help you avoid an ugly public hearing or protracted legal battle. It can also lead to vocal and visible support for your company from trusted leaders, strengthening your corporate brand.

Lithium Americas decided to build a lithium mine and processing plant in Nevada. The company and its contractor Bechtel developed a Project Labor Agreement, or PLA, with the North America’s Building Trades Union, which, in the words of the company’s president, “will be critical to attracting the qualified craft professionals we will need to complete this project safely and with quality.” In addition to a PLA with labor unions, Lithium Americas also developed an agreement with neighboring tribes, which prioritized local hiring and training for tribal members.

Research shows PLAs are a particularly helpful tool to minimize disruptions and work stoppages and streamline work schedules between crews. CBAs offer a companies a framework to tap into local talent pipelines, which can be especially helpful to companies who are new to a region.

In Pittsburgh, the professional hockey team needed public subsidies and regulatory approvals to build a new hockey arena. Signing a CBA with over 100 local organizations helped them get those approvals. The agreement created a community investment fund, which is still in operation a decade later, to support community-led projects including affordable housing, small business and job training.

Local residents rarely believe the lofty “projected jobs” touted in press releases. CBAs give state or local officials the political license they need to invest taxpayer dollars in or provide timely regulatory approvals to your company’s project. A number of state and local governments even require renewable energy developers to enter into community benefit agreements as a condition for siting approval, land swaps, or receiving tax incentives, including Maine and Connecticut.

CBAs can go by many different names based on the issues covered, the stakeholders engaged and the enforcement mechanism. That said, not all CBAs are created equal. To be most effective, a CBA should be enforceable, with measurable goals and timelines; inclusive, reaching out to a wide range of stakeholders beyond just elected officials; and tailored, to the context, focusing on concerns and priorities local residents have with your firm’s project.

There are no silver bullets for the uncertainty and complexity of building and operating large physical projects in today’s landscape. Smart companies, however, can leverage CBAs to preempt conflict, achieve their business objectives, and unlock strategic advantages in an unpredictable political and investment environment.