Due diligence

What due diligence is

Due diligence is a process whereby a counterparty seeks comfort from its contractual counterparts as to the robustness of its operational setup: to ensure that, notwithstanding the skillfully negotiated indemnities covenants, representations and warranties extracted from that entity by your counsel in the legal verbiage, your counterparty nonetheless is factually capable of carrying out its obligations.

Due diligence thereby gives practical comfort that the legal obligations are worth the paper they’re written on.

What due diligence is not

Due diligence is not:

• An exercise in asking your counterparty to explain your legal contract to you. You can read that for yourself, or appoint a lawyer to advise you. Your counterparty is not your legal adviser, and in most cases will specifically not be regulated to advise you on your contract (and, being the person on the other side of it, inherently conflicted in giving you that advice).
• A way of extracting commercially sensitive confidential information from your counterparty. Don't expect them to hand over all their legal contracts with suppliers.