Due Diligence: Assessing Technical Competence and Contractual Practices in Construction
Description of project
The Consultant's scope of work involves generating questions for inclusion in IFC's due diligence questionnaire, reviewing provided information, and conducting an assessment of the selected Engineering, Procurement, and Construction ("EPC") and Engineering, Procurement, Construction, and Financing model ("EPCF") contracts. The aim is to evaluate the technical capabilities and contractual practices, comparing them to industry best practices, and considering regional factors influencing performance and risk.
Services provided
- Conducting due diligence on the construction business to form an opinion on the current and prospective status of ongoing projects.
- Actively reviewing the entire backlog, including project margins, and assessing the feasibility of these margins.
- Analyzing the business plan for the next 3 to 5 years in the markets where operations are planned, evaluating its achievability in line with technical capacity and historical performance. Assessing budgeting and forecasting quality through a review of historical project budgeted margins compared to actual.
- Evaluating the quality and effectiveness of the management team, including proper incentivization of project managers. Assessing the management systems linking project data to cumulative results.
- Identifying how profits and revenues are recorded, considering the use of the percentage of completion method, and examining the relationship to financial performance volatility.
- Assessing selected key contractual terms, including performance and payment bonds, letters of credit, scope, schedule, cost and payment, damages, changes, warranties, and performance guarantees, comparing them to industry norms and identifying actual risks.
- Providing commentary on existing construction equipment, its utilization rates, and remaining lifespan.
- Evaluating the company’s approach to procurement and providing commentary on project management tools for controlling costs and schedules.
- Commenting on the quality control and safety procedures employed on projects.
- Evaluating the company’s organizational structure and its relevance to working as a major contractor/subcontractor/concessionaire, analyzing different verticals and assessing effectiveness compared to peers.
- Providing commentary on the relevance and risk of maintaining a workforce of 2,500 employees, including a review of the manual to non-manual workforce ratio and the quality of provided training.
- Offering an overview of the markets in which operations occur, commenting on general competitiveness and margin trends, and benchmarking technical capabilities to comparable companies.
- Benchmarking cost base, gross margins, nature and level of contingent liabilities, fixed assets, and outsourcing activity against other comparable construction companies globally, providing rationale for any divergences.
- Identifying main factors that may impact the company’s margins.
- Providing a view on the company’s business potential in Africa and other markets where operations occur.
- Offering a general assessment of business lines beyond construction, including investments in hotels and shopping malls, assessing location, key revenue drivers, profitability, competition, and potential risks linked to operations.
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