Due Diligence

Friday, September 28th, 2012

Due Diligence

This is a term more usually associated with financial transactions, such as business acquisitions. It is unthinkable that anyone would purchase a business without conducting due diligence. Due diligence may be defined as: Due diligence serves to confirm all the material facts with regard to a tender for the provision of goods or services. This definition places due diligence in the procurement arena and requires that they conduct appropriate due diligence according to the value and risk of a specific purchase.

We will highlight issues arising from due diligence we have conducted for a range of clients in the public and private sectors.

i)                    Availability of resources.

It is not uncommon at the time of tendering for a potential supplier to claim that they have the necessary resources available and that, in this respect, they will not have any problem mobilising resources. What will not be said, in some circumstances, is that the resources will have to be ‘bought in’ using self-employed people or acquiring them through some agency. In one notorious case we found a supplier, after contract award, advertising in the local press for urgent resources. It may be recognised that if within a tender claims are being made that are incorrect there is a possible case of misrepresentation.

ii)                   Technology capability.

For some goods and services technology is the absolute key to contract performance. In some cases the potential supplier will have to purchase technology to undertake the work. In other cases they may have recently acquired new equipment but it is unproven. In other cases they will have to sub-contract to others with that technical capability. For each of these possible situations, there is a ‘need to know’ by the procurement team. In order to fully understand the situation detailed questions will have to be asked and possible audits will have to be undertaken. This immediately raises the time and cost required to conduct this level of due diligence. Not to do it, leaves the buying organisation open to unacceptable risk in the future, with possible claims from the customer.

iii)                 Litigious nature of the potential supplier.

This is not an easy issue to resolve but access to the BAILII website enables a search to be done by ‘Supplier Name’ for the English & Wales, Ireland and Scottish Courts. Obviously, if a potential supplier has court appearances they may have been the Plaintiff or Defendant. In our experience little or no effort is put into ascertaining the possible litigious character of the potential supplier. The procurement team, may, of course, use the resources of their in-house legal team to make the necessary enquiries.

iv)                 Insurance claims made against the potential supplier.

This is, in our experience, a contentious issue. When, at the PQQ, phase the insurances carried by the supplier are requested, there is no problem obtaining the relevant information. The problem arises when details of claims made against the insurances are requested. The most common response is that ‘the insurers will not permit release of this information on account of its confidentiality’.  This is an unacceptable response. Take the situation of an architect, quantity surveyor, designer who has had major claims against them and this detail is ‘hidden’ from the buyer, the fact that they have had major claims against them is a material fact and should be disclosed. We advise persistence in probing this facet of due diligence.

v)                  Key Personnel.

Serious due diligence should be carried out on the proposed Key Personnel that are intended to be used on a contract. CV’s are useful but only a starting point. Those who remember the BSKYB case will recall that a key person had created qualifications. It is essential that the key personnel are interviewed and their details independently verified. In situations where ‘security’ is an issue, procurement will need to ensure that they comply with the ‘security’ requirements of the customer. This would apply where CRB checks are required.

We trust that this introduction to due diligence will have whetted the appetite of the procurement profession and persuade some that more due diligence is not only necessary but is a crucial safeguard against later potential contract default. It is a massive consideration in managing risk and a clear statement should be visible at tender evaluation reports that appropriate due diligence has been carried out.



New EU Procurement Thresholds : Next Steps

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Why people with procurement and proposals issues want to work with the people at Brian Farrington.

There are three themes that clients tell us over and over again.

First, they tell us they believe they are making a smarter investment working with Brian Farrington — bringing a thorough understanding of their procurement and proposals issues and a proven track record of enabling excellent returns on their investment.

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About Brian Farrington Ltd

Brian Farrington Ltd is one of the world’s longest established procurement and supply chain consultancy and executive training specialists. 33 of the current FTSE100 have retained our services, as well as leading organisations in the UK, North America, southern Africa and Asia.

Established in 1978, we have proven expertise and experience in strategic procurement, sustainability and risk management.

Brian Farrington Ltd solutions and services are formed through consultancy, training & development, coaching, interim resource and recruitment.

Our four core areas of strategic procurement, sustainability and risk management capability are:

  • Strategic review and commercial governance
  • Performance delivery and transition
  • Major project support including managing contractual risk
  • Learning & development in support of organisational aims.

For more information go to www.brianfarrington.com services