Due diligence investigation of partners/contractors

Systematic collection and analysis of information on potential partner or contractor

DESCRIPTION

Due diligence refers to the care a reasonable and prudent person or organization should take before entering into an agreement or transaction with another party. It involves a systematic collection and analysis of information on how a particular company does business (e.g. data on the history, finances, performance, clients, etc.).^1,2

PURPOSE & LINK TO INTEGRITY

A due diligence investigation reveals whether a potential partner commits to proven and recognized business practices, and uncovers the risks and opportunities involved in a potential alliance. By conducting such investigations, organizations can reduce the chance of unpleasant surprises – in both financial and non-financial terms.^3,4

Due diligence has special relevance in procurement, particularly in general and in public procurement. Specific rules and regulations related to due diligence investigations are often laid down in national Public Procurement Acts.

By conducting due diligence investigations, organizations can assess the multiple dimensions of integrity (accountability, transparency, rule of law, etc.) of their partners. This contributes to the organization’s own integrity, as the risk of getting involved in dubious affairs with collaborators in the water sector can be reduced.

KEY REQUIREMENTS

• Do you have a clear picture on what basis you are assessing potential partners and suppliers?
• Does your organization have integrity policies in place to apply during a due diligence investigation? (Also check tools Anti-corruption policy, Anti-corruption commitments and Code of conduct)

HOW TO

A due diligence investigation usually includes five areas, namely: the corporate image (e.g. positive representation in the media), social responsibility (e.g. towards users, customers, and/or local communities), environmental accountability (e.g. enhancement of water quality), financial soundness (e.g. transparency) and policy compatibility (e.g. compatibility with national laws and policies).

The assessment and analysis of these themes should be woven into a five-step outline:⁴

1. Planning
2. Gathering available information (websites, annual reports, references, further available data)
3. Analysing the information gathered
4. Drafting a memo that details the results of the analysis of the above-mentioned areas for the attention of operational decision makers
5. Continuing due diligence investigations beyond the formation of partnerships in order to identify new issues

KEY GUIDING DOCUMENTS

PI now, no year, Due Diligence Investigations, PInow.com, http://www.pinow.com/investigations/due-diligence, accessed 28.10.2015

TAFE Queensland International, 2011, Queensland VET Sector Partnership Due Diligence. A Best Practice Guide for Partnership Due Diligence, TAFE Queensland International, Australia

USAID, no year, Due Diligence Step-by-Step Guide, United States Agency for International Development (USAID), USA

FURTHER  READINGS

DFID, no year, Due Diligence Frequently Asked Questions, Department for International Development (DFID), UK

Miller Thomson LLP, no year, Exercising due diligence in municipal water systems, Miller Thomson LLP, Canada

Taylor, Zandvliet and Forouhar, 2009, Due diligence for human rights, Harvard University, USA

FULL REFERENCES

1. PI now, no year, Due Diligence Investigations,PInow.com, http://www.pinow.com/investigations/due-diligence, accessed 28.10.2015
2. Investopedia, no year, Definition of “Due Diligence”, Investopedia, http://www.investopedia.com/terms/d/duediligence.asp, accessed 28.10.2015
3. TAFE Queensland International, 2011, Queensland VET Sector Partnership Due Diligence. A Best Practice Guide for Partnership Due Diligence, TAFE Queensland International, Australia,
4. USAID, no year, Due Diligence Step-by-Step Guide, United States Agency for International Development (USAID), USA, , accessed March 2013