In the context of this article Due Diligence is the careful examination of a company / solution and the evaluation of all associated risk before becoming involved in a contract or business arrangement.
Why Due Diligence?
Choosing a new IT solution or Service Provider is fraught with danger and committing to a lengthy contract solidifies and extends the risks.
People avoid Due Diligence for many reasons, below are some of them:
- They are excited about a new purchase and want to get on with it.
- The focus is on the enhancement or problem resolution that a purchase can bring and not on what can go wrong.
- They know other companies who have gone down the same road.
- They know people who work at the supplier so trust is higher than in other circumstances.
- The supplier ticked all the boxes in the requirements document.
- The product presentation was slick and impressive.
- The supplier made “all the right noises” in the selection cycle.
- It is just too much effort.
But what if the vendor hasn’t been honest or there is no substance behind the fluff? Also, what works for others may not be right for you. All purchases cost money and the necessary organisational change probably costs more, but a “wrong” purchase and the associated costs of undoing it will cost significantly more. For these reasons you need to put in the effort!
What should I do?
Below are some of the activities you might want to undertake:
- Confirm the strength of the company – consider financial accounts, credit checks, length of time in business and staff turnover amongst others.
- If possible, get your hands on the solution instead of relying on tender documents and product demonstrations – try to obtain the solution for a trial period or ask the supplier if they offer a ‘proof of concept’.
- Remember its more than just the technology – can they help you implement, can they provide training, can they provide adequate support?
- Ask for references and speak to more than one. For big decisions you should speak to them in person, preferably at their site.
- If possible, ask to see their client list, pick your own reference sites and choose references most aligned to your own firm.
- Prepare a set of questions for the reference sites focusing on aspects such as implementation, after sales support, account management and fulfilment of promises.
- Visit the company’s site to see the quality of their organisation. Speak to their staff.
- Make sure you can work with the people involved – good relationships are at the heart of all successful long-term major purchases.
- Have a strong, equitable contract which ensures you have the correct levers to achieve service delivery and a painless exist should it be needed – more on this later!
The impact of not doing Due Diligence
Below are some costs and consequences you are likely to face:-
- A service that fails to match your needs and expectations.
- Contractual disputes due to unclear or biased contracts.
- Extensive use of your firm’s management time to sort out issues post-implementation.
- Unhappy users leading to unhappy management.
- The need to use consultants to provide additional assistance.
Can’t we just sue or bail out later?
Some of us who have worked in the legal sector have heard people say; “I have a fleet of solicitors behind me who will sort it out later”.
True, perhaps, but it will cost you in many ways. There will be costs involved in getting out of your current agreement such as negotiation costs, legal costs and associated costs such as extracting data to move it to a new solution. There will also be the time required to find a new solution, to implement it, to train and to undertake all the necessary organisational change.
What if, despite everything, it all unravels?
Remember the suggestion above to have a strong contract? This is when this comes into play. A good contract (good for the buyer rather than the seller) should incorporate the following:
- The contract should be very clear regarding how the supplier will be measured and who will do the measuring.
- It should clearly state which supplier failures will allow you, the buyer, to terminate the contract. What constitutes a breach of contract should be clearly defined.
- The contract should make clear that the supplier must rectify any breaches within a reasonable amount of time.
- Repeat breaches and multiple breaches should be treated more severely, either with penalties or the option to terminate the contract.
- The SLA’s should be written to have ‘teeth’. We have seen contracts where SLA failure could never happen because of the way the contract was written.
- Systemic failure to achieve service levels should be recognised as a breach of contract, as should disruption which results in a substantial loss of staff time or which impacts on your clients.
- It should be relatively easy to terminate a contract based on poor performance or failure to meet your stated requirements, especially in the early stages of the contract.
- If possible, the contract should include break clauses to cover any breakdown in client confidence and/or the client-supplier relationship.
- It should be written by someone who specialises in this type of contract. Most law firms pride themselves in doing all their own contracts. In some, the Partner responsible for IT, regardless of their specialism, is expected to deal with all IT contracts. In others, internal contracts are given to trainees or junior staff members. As a result, some of the worst contracts we have seen in terms of the management of service providers have been within law firms. Like a builder who never finishes their own house, some professionals don’t look after themselves as well as their clients. Sometimes the best solution is to have your contracts written by a specialist in the field or to let the solicitor who is doing the work charge the firm at their normal charge out rate to ensure the task gets the same focus that an external client would receive.
As with any activity, preparation is key. Due Diligence should be an integral part of any IT solution selection project. Failure to undertake this activity will bring serious risk to your business.
