Nondisclosure Agreements Best Practices When Negotiating Incentives

Nondisclosure agreements (NDAs) or confidentiality agreements are commonplace in commercial transactions, especially in deals that are negotiated privately before any public disclosure, or if parties need to share proprietary information. In the context of economic development transactions, NDAs are sometimes used, but their limitations are often misunderstood.

Incentives transactions generally involve a private-sector entity applying for financial or other incentives from one or more governmental or quasi-governmental entities. Incentive transactions can involve critical information that the company needs to keep confidential until the incentives negotiations are complete. For instance, a company considering relocating to a new state may not want its competitors, employees or potential sellers of property to know what locations are being considered. However, the desired confidentiality runs squarely against public records laws, which require the governmental entity to provide transparency that is incongruous with confidential business transactions.

In light of this inherent conflict, the first step in negotiating NDAs in the context of incentives is to know your counterparty. Second, review the appropriate state law to determine if there is room to negotiate any protective provisions limiting disclosures. Third, try to negotiate effective protections, recognizing that broad and one-sided protections may be unenforceable. Finally, consider strategies to minimize disclosures.

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