With the Benefit of Hindsight: Understanding the True Value of Due Diligence

You’ve completed your due diligence. You’ve taken up references, visited past development schemes, spoken to past clients and completed satisfactory financial checks. Despite this the scheme ran into difficulties. Surely this can’t have been foreseen. Right?

Last year, Altair were approached by a long-standing valued client, asking that we audit a distressed development scheme, to capture and invest the lessons learnt.

The selection of the preferred construction partner had followed a tender process and had involved extensive pre-contract due diligence activities prior to appointment. So, what went wrong?

In this short article, we consider the individual factors and missed warning signals.

Financial and credit worthiness checks

The numbers are telling but they provide so much more insight when read in conjunction with the accompanying commentary. A single business credit report provides insight at a point in time however, a series of consecutive reports, provide greater understanding, including trend. The available reports showed decline over time and a Contractor holding very limited financial assets, while liabilities had increased.

Contractor’s track record and experience

There is no substitute for a completed project that can be visited. The promise of a future project is very different from one that has been successfully completed. While the appointed construction partner had a wealth of new-build and some refurbishment experience, they had no experience of MMC delivery or conservation work on listed buildings. The scheme in question involved all four elements, with a significant conservation and refurbishment component.

Client capability

As important as Contractor capability is the competence and proficiency of the Client and the Client’s wider team. Do they have the knowledge and experience to execute the project or are they overly reliant on the Contractor and their supply-chain and therefore exposed?  In this case, the Client had a wealth of experience gained from s106 schemes and design & build new -build projects, however, their experience of projects involving MMC and listed building conservation was not as strong. Despite this, they pressed ahead with the project.

References

The value from speaking with past customers is invaluable. The lived experience that they can share is immeasurable and provides real insight. On projects involving multiple aspects – listed buildings, MMC, refurbishment and new-build – it is essential to gain a full appreciation of the Contractors performance and customer service. Speaking to a limited number of past clients, about new-build and refurbishment projects, does not provide the necessary level of assurance required on a multi-phased project, involving multiple elements and specialist supply-chain partners, including a MMC manufacturer.

Construction phase tell tales

Typically, declining resource and productivity levels on site, out of sequence working, working outside of consents, requests for advance payments and additional monies, plus a clear disconnect between progress reported in the Contractor’s Monthly Site reports versus what’s actually happening out on site, are clear tell tales that the project is in difficulty and requires urgent intervention.

They say that everyone is clever with the benefit of hindsight however in some cases the warning signals are there but aren’t necessarily fully understood, in the excitement of embarking on a new project.

The reality is that missed signals can prove costly corporately.

It is therefore essential that due-diligence is not rushed, it’s thorough and tailored, and the results and risk profile are fully understood.

At Altair, our Development & Assets and Governance & Regulation teams have a wealth of first-hand experience and are here to help. Get in touch if we can assist.