DUE DILIGENCE: Keeping the Project on Track
By Kristian Nielsen
Due Diligence – The investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care. (Wikipedia)
Due diligence is usually required by third parties that are interested in either financing a project or investing in a project, i.e., the Client. Due diligence of a Cable System is typically accomplished by a person or team of people, often called “Technical Advisors”. The primary role of the Technical Advisors should be to review and analyze the business case for the project. This can also include monitoring the implementation of a Cable System and associated System Supplier activities in compliance with the requirements of the project’s Scope of Work.
The following article describes the typical Technical Advisor’s approach to Due Diligence Reporting and Implementation Monitoring of a proposed submarine cable system.
Client Due Diligence Needs
Technical Advisory support should place specific emphasis on issues surrounding the technical suitability of the network, construction of the system, the maintenance of the infrastructure, and the assessment of potential areas of risk. The Technical Advisor should assess the potential impact of hazards on the long-term maintenance of the cable system. These potential risks to the cable’s operations should influence recommendations for the design, construction and maintenance activities associated with the project. The Technical Advisor should perform duties that meet these objectives.
Due diligence Clients typically require two distinct work streams of Due Diligence support for a Cable System, detailed as follows:
- Technical Due Diligence and Report – Review and evaluation of the available technical details of the Project as proposed by the System Developer, and the adequacy of the designs and specifications, as well as other contractual and technical considerations.
- Construction Monitoring – Review and reporting of the execution and implementation of the construction works, including progress reports on design, procurement, construction, implementation, and commissioning.
The Technical Advisor should apply formal project management principles and rigor to the advisory effort. They should be expected to bring their experience to the advisory effort and utilize the lessons learned from previous projects, subject always to previous client confidentiality constraints.
Technical Due Diligence Reporting
The Technical Advisor’s support incorporates the associated activities necessary to evaluate the Cable System and provide the Client with the confidence to move ahead with the project, including effectively managing both technical and commercial risk, and successfully operating the system to meet or exceed revenue targets.
The Technical Advisor is guided by the Client’s Scope of Work. To provide a comprehensive analysis, the Technical Advisor will require, where available, the following documentation and information be made available in a timely manner:
- Feasibility Study and/or Business Case for Cable System (including CapEx and OpEx budgets)
- Desktop Study and Route Survey Report for the system
- Environmental Impact Assessments and details of permitting activities for the system
- Intent to Tender (or Request for Proposal) for System Supply and copy(ies) of executed Supply Contract(s) for the system
- Staffing Plan by Project Phase and CV’s of Principal Staff Members
- Capacity Purchase Agreements
- Operations and Maintenance Plan, Disaster Recovery Plan, and Intent to Tender for Marine Maintenance Services
- Details of the cable landing stations and other infrastructure.
The Technical Advisor needs to monitor Project progress usually by means of discussions, meetings, and project reports. They should for team leadership, status monitoring and reporting, managing schedule, managing change, attending review meetings, and managing the delivery and approval of reports to the Client.
The Technical Advisor understands that the Client typically requires a thorough and detailed review of the Cable System design, technical specifications, construction contract, implementation schedule, internal and external risks (including social and environmental issues), the ability of the system to support the planned Capacity Purchase agreements, the suitability of the Operations and Maintenance plan to support the system, and any technical input and assumptions to the Financial model. The Technical Advisor should review the topics listed in the Client’s Scope of Work and confirm that all topics are addressed.