Strategic commercial interventions: due diligence guidance

2. Introduction

2.1 What is due diligence? Why is it required?

Due diligence is one of the key tools in SG’s overall risk management framework helping to identify and manage risks that could threaten the effective use of public funds. It is a mandatory control point in the project management cycle designed to provide additional information that will assist delivery of an intervention and inform related decision making in relation to any such intervention.

Due diligence is designed to obtain a sufficient level of assurance of a potential project prior to entering into a formal agreement. It allows SG policy teams, Accountable Officers and Scottish Ministers to develop a deep understanding of the potential intervention, to identify and understand the potential risks, liabilities and consequences of entering into the transaction and what controls may be needed to mitigate any risks. It also gives Ministers sufficient assurance that funds will be protected and used effectively and allows for informed decisions to be made.

There is a risk that without robust and timely due diligence, Scottish Ministers may not be presented with the full set of information to determine delivery and reputational risk. Undertaking approporiate due diligence early in a process provides a solid base for future decision making by highlighting risks which merit more detailed examination.

Due diligence is a crucial first stage assessment in any intervention process that a business case would then draw from. It should be seen as an information gathering exercise to ensure SG has all the necessary information at its disposal (financial, legal, commercial, technical etc) and that it has carried out all the necessary checks prior to a decision being made. Given the nature of these strategic interventions and the more pressing timescales (compared with other SG investments), a compressed business case process is undertaken intially. Detailed below is the three broad stages in the process:

Stage One – Due Diligence

• Undertaking appropriate due diligence includes gathering relevant information, understanding that data and outlining the possible impacts which will need to be considered.

Stage Two – Business Case

• The business case draws from this information using the HMT 5 case model (strategic, economic, commercial, financial and management) to set out options.

Stage Three – Decision Making

• The completed business case then forms part of the decision-making process between officials, the Accountable Officer and Scottish Ministers.