Last edited 04 Nov 2016

Due diligence

Contents

[edit] Introduction

In its broadest sense, the term 'due diligence' simply refers to taking reasonable steps or exercising reasonable care in relation to a particular course of action.

In relation to the construction industry, it can have a number of more specific meanings.

[edit] Business assessment

Due diligence can refer to the steps taken to thoroughly investigate a business or person prior to signing a contract with them.

[edit] Technical investigations

Technical due diligence refers to the process of investigating a site to assess its suitability for a particular project and the risks involved before proceeding with that project.

For more information, see Technical due diligence.

[edit] Contractor's obligation

Due diligence may be referred to in a construction contract, placing an obligation on the contractor to complete the works with care and the ‘requisite effort’. A similar term may refer to ‘ordinary care’, that is, the care that a reasonable person would take to avoid harm to other persons or property.

In the case of Sabic UK Petrochemicals Limited v Punj Lloyd Limited, the Technology and Construction Court (TCC) had to examine whether a contractor was in breach of this obligation with regard to the delivery of a petrochemical plant.

The contractor maintained that due diligence required them to maintain an appropriate rate of progress, with regard to the contract requirements, and the completion date that was realistic at the time their rate of progress was being assessed. They claimed that due diligence did not extend to them being obliged to achieve the impossible, and they were not required to accelerate the works to claw back delays.

The TCC disagreed with the contractor and ruled that just because compliance with one or more of the absolute contractual obligations has become unachievable does not mean or imply that these obligations are objectively incapable of achievement. It would be necessary for the contractor to prove the impossibility of complying with the absolute contractual obligation.

They also held that the contractual terms did not suggest that the due diligence obligation should be ‘emptied of content’ as a result of the completion date becoming unachievable. Circumstances may arise, the court found, where the exercising of due diligence may require taking measures not originally contemplated, such as acceleration measures in the case of a delay, if that is what is required.

As a result, it was held that contractual requirement to proceed with ‘due diligence’ imposed strict obligations on the contractor that must be adhered to.

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