A good part of the project evaluation is done in the project development stage and summarized in the feasibility study. As a project moves along the assessment process, new data and information is obtained, additional analyses and evaluations are performed, and when the decision to move forward is made, the due diligence takes place. The due diligence is paid by the sponsor(s) and done primarily for the benefit of lenders, but sponsor(s) and other project stakeholders benefit from it and may be involved to some degree to ensure that the proposed project structure meets their objectives.

The intent of the feasibility study is to provide a common understanding of project particulars to participants and specify items they are committed to after financial close. The project due diligence is a thorough investigation to confirm data, information, and representations made before entering into project agreements leading to financial close. It is an extension of the feasibility study and its focus is on identifying missing information, validating analyses and evaluations performed, and establishing that the risk management and security package are complete and adequate to ensure project bankability.

The due diligence is performed to give the funding sources a critical, independent, and objective assessment of the project's viability and provide a reasonable comfort level concerning risk assessment and mitigation effectiveness. To do that, the due diligence first reassesses each stakeholder's ability to deliver on current and future requirements and, by extension, their qualification to share in the project benefits. The due diligence is thought of as a form of project risk management validation because it:

1. Confirms the accuracy of technical and financial data provided and the credibility of the engineering, technical, and economic aspects of the project
2. Validates the processes, analyses, methods, tools, and techniques used to evaluate the technical and financial project feasibility and project value creation
3. Tests and validates the assumptions and the baseline scenario underlying the cost and revenue projections and the project financial viability
4. Substantiates that a thorough and complete risk identification and mitigation are performed on a fair, reasonable, and the best‐equipped party to bear remainder risks basis
5. Confirms that negotiated contracts adequately address all areas of concern to stakeholders and are enforceable in the host country
6. Validates and verifies that the project financial model is well structured and its inputs and outputs tested and found acceptable

The project due diligence is crucial to determine project funding needs and project viability and financeability. Its approach, depth, and requirements vary by project size, scope, and potential risk impacts; the nature of project finance due diligence is exhibited in Figure 11.1. It shows the many sides of due diligence and the functions it serves, which are discussed in ensuing sections. Section 11.1 tallies the main costs of project due diligence, which are fully justified by the many benefits derived from it. The first part is due diligence on the host country and industry to determine whether conditions are adequate to undertake a project. This is the subject of Section 11.2. Section 11.3 is a brief introduction to the technical due diligence that confirms if the engineering and design aspects meet project specifications and requirements.

Environmental due diligence is the topic of Section 11.4 to confirm that no adverse environmental and social effects are produced by the project, while Section 11.5 discusses the project's commercial aspect of due diligence. The validation of the adequacy of project contracts and agreements is the legal due diligence—an important part to confirm that project financing can reasonably be expected to develop—and this is dealt with in Section 11.6. The various financial considerations are enumerated in Section 11.7 and discussed in more detail in Chapters 13 and 14.

Operational aspects are verified and validated in the operational due diligence part, which is presented in Section 11.8 in order to provide assurances of continuity of operations. The crux of the project due diligence, however, is the risk management part that is discussed in Section 11.9. If its findings are unduly negative, the project is subject to restructure, additional support, or even termination. Other due diligence considerations that do not fit well in the above categories are presented in Section 11.10. Lastly, Section 11.11 discusses the due diligence report, its assessment, and quality characteristics.

11.1 DUE DILIGENCE COSTS AND BENEFITS

Project finance due diligence is usually performed by the lenders' advisors in cooperation with the sponsor's project team and is paid by the sponsor company. However, in companies possessing or wishing to get competitive advantage, project due diligence is undertaken by the project team starting at the concept stage and prefeasibility study to the end of the project development stage and completion of the project economic evaluation. It continues to the construction stage and then a different orientation for due diligence takes place in the operations and maintenance stage of the project.

When a good part of the due diligence is done by the sponsor's project team, the lender's advisor involvement and costs are reduced and its effectiveness is unquestionably superior. The upfront internal costs of the due diligence include the development of systems and training for the project team on the due diligence process and associated activities. The external due diligence costs are recurring costs and consist of lender advisors' fees and expenses. Recurring sponsor costs are the cost of sponsor‐project team members involved in the due diligence. The due diligence is a form of and an extension of risk management and despite all the effort that is expanded, it can be subject to errors due to misrepresentations, wrong impact estimates, and misinformed decisions whose costs cannot be estimated beforehand.

The benefits of a thorough project due diligence far outweigh its costs and limitations and includes the following paybacks:

1. Results in a better understanding of the sponsor company's operations and reduces exposure to high costs of damage control and remediation activities
2. Helps to set more realistic timeframes for project activities and processes as well as better stakeholder expectations
3. Enhances prospects for achieving better project outcomes and it is more effective when integrated with strategic and financial planning and new business development functions
4. Provides higher levels of comfort by focusing on the critical threats to sponsor, customer, construction contractor, and debt and equity investor concerns
5. Addresses project performance, economic viability, financeability and delivery issues, and communicates findings to participants from a common platform
6. Optimizes project scope evaluation and planning before decisions are made when all stakeholders are involved early in the process
7. Identifies and helps mitigate potential project threats to the stakeholders' satisfaction and minimizes cost, delivery time deviations, and unexpected problems
8. Uses a risk register and implements a risk‐monitor system to create a better stakeholder communication, cooperation, coordination, and collaboration platform
9. Results in improved transparency of project economics, enhanced image and reputation of the sponsor company, and higher industry analyst recommendations and decreased capital costs (OECD, June 2016)
10. Improves project financeability efficiency and effectiveness and enhances chances of project success
11. Contributes to creation of competitive advantage in project development and financing for the sponsor company

11.2 HOST COUNTRY AND INDUSTRY DUE DILIGENCE

The first and early part of due diligence is the validation of findings about the host country's political, legal, economic, and investment environment evaluation because of the critical role the host government and ceding agency play in the structure, regulation, and support of the project. Hence, it is important that the due diligence provides sufficient comfort to decision makers concerning the following considerations:

1. The host country's macroeconomic environment assessment does not signal potential threat due to gross domestic product (GDP), inflation, income distribution concerns, and trade and foreign‐exchange restrictions beyond those addressed by insurance coverage
2. The central and local host government's political environment is sufficiently stable and if there are outstanding threats, they are handled by political risk insurance
3. Local partners are vetted and have been determined to have the means to facilitate the bid submission properly and expeditiously
4. The host government and ceding authority have the ability to deliver on current financial and other commitments and future obligations
5. The transparency and fairness of the bid process and selection have sufficient political support in the host government agencies
6. Regulatory authority posture on the current industry structure, competition, pricing and regime flexibility is confirmed as not posing threats to project company operations
7. Megatrend and subtrend impacts on the industry and the project prospects are taken into account and included in the evaluation of the demand for project company's output
8. There are no reservations about the scope of the project as defined and that it meets host government and customer or user needs and fills the existing capacity gap in its industry
9. Political, economic, social, technological, legal, educational, and demographic (PESTLED) analyses and evaluations are correct and have been incorporated in the design, capacity, and performance requirements and the cost and demand and revenue forecasts
10. Key host government and sponsor interests and objectives are mostly harmonized and lesser, outstanding issues are identified to become part of negotiations
11. The likelihood that a host country's economic risk turns into a political risk is determined to be low, and how to deal with that outcome is addressed in legal documents
12. The relationship of the host country with export credit agencies (ECAs), multilaterals, and other funding sources is found to be acceptable based on past project history

11.3 TECHNICAL DUE DILIGENCE

Technical due diligence deals with issues starting from the request for a proposal to the project operations stage having to do with design, engineering, technology, and equipment used. Thus, it is intended to validate that risks originating in this area are identified and mitigated to the project stakeholders' satisfaction. Technical innovation and productivity enhancement considerations drive the introduction of new engineering, technology, and equipment as well as construction and operation processes. For that, it is important that the due diligence ensures the absence of problems, issues, and expensive fixes in this area by:

1. Confirming that contracts specify that proven technologies and well‐tested equipment and engineering processes are used in the project
2. Validating that the design, technology, and engineering specifications of the project proposal meet the requirements of the project implementation or concession agreement
3. Confirming that the technical area processes and deliverables are fully integrated with the main project management processes
4. Validating projected capital expenditures and their reasonableness and ensuring project‐company operating costs are included in the financial model evaluations
5. Ensuring that technical aspects of the engineering, procurement, and construction (EPC) contract are fully addressed and construction progress monitoring systems are in place
6. Verifying the project experience and competence as well as the financial strength of the EPC contractor are respectable
7. Ensuring the reasonableness and feasibility of the construction schedule and budget estimates and allowances for minor deviations and slippages
8. Making sure that the technical and engineering aspects of all project company agreements and contracts are reviewed and approved by the project stakeholders
9. Determining that there are no engineering, technical, or equipment issues foreseen in the construction and operations stages that may become risks
10. Validating the reasonableness of the project company's operating assumptions included in its business plan, such as input and output requirements, performance standards, etc.
11. Substantiating the operations and management (O&M) company's experience and reputation and validating the accuracy of the O&M cost estimates
12. Verifying that independent engineering and technical experts have approved the design, engineering, and equipment specifications and performance requirements

11.4 ENVIRONMENTAL DUE DILIGENCE

Major environmental pollution problems and the health, economic, and social effects associated with large industrial and infrastructure projects have increased public awareness that measures should be in place to ensure that they do not repeat themselves in new projects. Hence, the environmental due diligence is usually performed by specialized consultants in environmental issues, although some tasks are performed by the sponsor's technical and legal teams. To ensure that the project does not have adverse environmental impacts, the due diligence in this area must:

1. Verify that all permits have been issued and ownership rights and obligations are assigned to project sponsors and other equity providers according to their contributions
2. Confirm that visits to the project site have determined the suitability of the site, the terrain, and other pertinent factors
3. Ascertain that there is passable road access to the site and uninterrupted availability of power, communications, and other utilities
4. Show that environmental investigations by external experts found no adverse issues, defects, or wrong use by the site's previous occupants
5. Substantiate that every aspect of the project is in compliance with host country laws and Equator Principles
6. Ensure that the project location is not a historical site and that there are no indications of archeological findings that could cause construction delays
7. Determine that there are no emissions, noise, and project company discharges affecting employees, polluting the environment, or impacting adversely the local economy
8. Confirm that environmental studies show that there are no adverse effects on the local population and neighboring communities' health and safety or other concerns
9. Ensure that stakeholders have reviewed, approved, and recognized as valid the findings of the independent expert's environmental assessment
10. Substantiate that there are host government processes to address future potential financial dislocation impacts due to construction of project facilities and its operations

11.5 COMMERCIAL DUE DILIGENCE

Commercial due diligence provides confirmation of the evidence produced concerning project economic viability and additional indications of bankability. It entails verification and validation of thorough analyses and evaluations of the project company's market, customer or user needs, industry structure and competition, rate and tariff regulation, and government subsidies. The purpose of the commercial due diligence is to:

1. Confirm the accuracy of the host government's identification and quantification of customer and user needs and that they are consistent with findings of the sponsor's market research
2. Validate the market research and industry studies' findings that there is a sufficiently large market and a growing need for the project company's output
3. Establish that the project investment in the host country enjoys sufficient political support in all agencies involved based on the project meeting their needs and value for money
4. Verify that the current industry and regulatory structures are favorable and do not adversely impact the project company's operations and prospects
5. Substantiate that, overall, contemplated industry and regulatory body changes and trends are advantageous to the project's success
6. Provide evidence of the existence of a substantial gap between current and needed capacity in the project's industry
7. Ensure that the issue of the operating license is on an exclusive basis and guarantees that if a second license needs to be issued, the project company will have first right of refusal
8. Confirm that past regulatory pricing rulings indicate a positive attitude of regulatory bodies towards price adjustments to ensure profitable project company operations
9. Establish that data, information, and assumptions used in demand and revenue projections are validated, are reasonable, and have passed stress and sanity checks
10. Demonstrate that the baseline and plausible scenarios entertained are realistic and convincing of their likelihood to occur, with black‐swan events also considered
11. Ensure that influences of driving factors are well understood and project value realization plans are in place in the event assumptions and demand do not fully materialize
12. Establish that a reasonable project value realization plan is included in the project company's business plan

11.6 LEGAL DUE DILIGENCE

The legal due diligence is a collaborative effort among project stakeholders that helps establish validity of the big picture and processes of preparing and negotiating project documents. Its scope overlaps that of other due diligence areas, but it leads the process and provides solutions and suggestions to resolve stalemates and pending negotiation issues. The legal due diligence presents its findings, approvals, and disapprovals in relation to:

1. Protecting intellectual property rights concerning project design, engineering, operational processes and procedures, and information confidentiality of proprietary bid contents
2. Demonstrating that the project definition and specifications meet the terms and conditions of operating licenses and permits
3. Confirming that host government agencies are authorized by law and have the financial means to issue guarantees to sponsors and other private parties
4. Ensuring that project development, financing, and bid submission are in compliance with the Foreign Corrupt Practices Act and local laws, rules, and regulations
5. Identifying agencies involved and verifying the transparency and fairness of the host government's bidding, procurement, and selection process used in the contract award
6. Confirming that the project company's concession or license is issued on an exclusive basis for the duration of the project company's economic life
7. Ensuring that the scope of the license and permits issued provide adequate protection from unfavorable future regulatory rulings
8. Ascertaining that the terms and conditions of the license or concession provide host government guarantees of support for a profitable operating environment
9. Making sure that the no/limited recourse to the sponsors' condition is protected by the project contracts and agreements for the entire project life
10. Substantiating that government in‐kind contributions are fairly valued and their delivery‐timing commitments are included in project agreements
11. Verifying that sponsor and other participant debt or equity contribution commitments are backed by adequate guarantees
12. Ensuring that performance and price guarantees in project company contracts provide sufficient protection for future cash flows and return to investors
13. Demonstrating the suitability and adequacy of cost overrun, completion, and performance guarantees by the EPC contractor
14. Confirming that all environmental, technical, commercial, and operating risks have been identified and properly mitigated and contingent liabilities identified and recorded
15. Verifying the completeness of all contracts and the development of an insurance package powerful enough to ensure project profitability
16. Attesting to the balance and fairness of the project risk allocation to relevant project stakeholders on the best able to manage basis
17. Ensuring that the project company structure maximizes tax benefits and the optimized financing structure maximizes project value.

11.7 FINANCIAL DUE DILIGENCE

The focus of the project financial due diligence is primarily on the validation of the project economics, the evaluation and the project financial model and its output, and the adequacy of the security package and project support. Thus, the aim of the financial due diligence is to establish a solid factual foundation and determine whether the financial data and information coming out of the feasibility study and subsequent updates are true and consistent to use for project cost estimates and revenue forecasts. Because of the importance of financial due diligence, issues related to validation of financial data, analyses, and evaluations are further discussed in Chapters 13 and 14.

Project financial due diligence is generally based on four basic principles: Independence, prudence in using a professionally skeptical approach, comprehensiveness, and materiality according to levels of risk. Thus, the scope of the financial due diligence is to show adherence to those principles along the following areas of investigation:

1. Confirming the ability of project stakeholders to deliver on debt and equity requirements, guarantees, and other agreed to contributions
2. Ensuring that tax efficiencies are maximized and that the structure of the deal, based on the financial model parameters, is optimized
3. Verifying that the sponsor and other project participant equity contributions and contingency equity commitments are properly documented in contractual agreements
4. Double‐checking the market size and industry growth estimates and validating the methods and techniques used to come up with project costs and revenue forecasts
5. Investigating, checking, testing, and validating data and assumptions for reasonableness, reliability, and consistency with industry norms, benchmarked practices, and earlier sponsor or competitor experiences
6. Validating, stress testing, and substantiating the reasonableness of results and scenarios used to forecast the project company's product or service demand and revenue
7. Confirming that sufficient and growing physical and cyberspace security protection asset and technology costs are included in the project company's business plan
8. Corroborating the adequacy of the project company's business plan and the implements needed to execute it successfully
9. Demonstrating the validity and accuracy of the project company's financial management and reporting systems and adherence of its financial statements to sponsor and host country accounting standards
10. Confirming the validity and inclusion of sufficient physical and cyberspace security expenses in the total project cost estimates
11. Ensuring thoroughness and completeness of the project risk identification, assessment, allocation, and mitigation
12. Determining the availability of options and adequacy of insurance packages to cover the entire spectrum of project risks
13. Showing how changes in factors driving project value affect the project's economic viability and financeability, and ways to affect positive changes through these factors
14. Demonstrating robust project company economics and that its prospects are not materially affected by less favorable scenarios materializing than the baseline scenario
15. Providing evidence that areas of synergies and improved project company performance have been investigated and included in its business plan
16. Demonstrating how well the project company's borrowing capacity is supported by the debt‐cover ratios and other financial model measures
17. Ensuring that there are no omitted or improperly recorded contingent liabilities in the project company's business plan
18. Confirming that there are adequate internal project company controls to ensure sustainable operations for the duration of its license
19. Providing convincing evidence that the project's expected value creation is well within the conservative and achievable range of revenue simulations

11.8 OPERATIONAL DUE DILIGENCE

Operational due diligence includes review of a wide range of operational areas across the project company, including regulatory compliance, O&M company experience and qualifications. It is a complementary, detail‐oriented effort to uncover unexpected weaknesses in the project company's business plan using personal interviews and sponsor company internal communications. Sponsors also look at this part of due diligence to uncover potential synergies not included in project financials, but which could be exploited with commencement of operations.

The operational due diligence requires that the following activities are performed in accordance of project processes and participant needs:

1. Confirming no risks are embedded in the project company's business plan and that opportunities for operational performance target enhancement are addressed
2. Showing the effectiveness of the sponsor's management control over the project company's operation and financial reporting systems
3. Validating the reasonableness and consistency of the project company business plan's components and financial performance targets from both the sponsor's and the project company's management perspective
4. Substantiating the presence of appropriate project company management skills and qualifications and adequately trained labor
5. Verifying that operational skills and capabilities are included in the human resource part of the business plan and adequate funding allocated to training
6. Establishing that key personnel contracts are prepared with market place remuneration packages for the duration of the contracts
7. Verifying that secondments and managerial talent infusion from the sponsor(s) takes place when needed are documented in the shareholder agreement
8. Ascertaining the O&M company's good past record and reputation and performance quality in earlier projects
9. Providing assurances that the project company's policies are in compliance with the Foreign Corrupt Practices Acts and with local health, labor, and safety laws
10. Confirming that sufficient and growing physical and cyberspace security protection asset and technology costs are included in the project company's business plan
11. Establishing evidence of ongoing sponsor support to the project company in terms of ability to deliver on debt and equity contributions obligations
12. Demonstrating that the project company's cash flow management plan satisfies stakeholder requirements, excess cash distributions, and reporting needs
13. Confirming the availability, delivery, and quality of project company production inputs and supplies are documented in the supply agreement
14. Verifying the strength of the offtake agreement under different operating, economic, and regulatory environments
15. Ensuring the adequacy of the project company's reporting requirements concerning operating performance measures, human resources, and financial data
16. Determining the project company's ability to course correct in the event business plan projections do not materialize as expected
17. Identifying potential synergies between the project company's operations and other project stakeholder operations in the host country or region
18. Verifying that O&M company processes and procedures are in place and that the project company retains adequate internal controls over key operational decisions
19. Ensuring proper alignment of the project company with equity contributor interests and creation of a conflict resolution process
20. Ensuring the adequacy of the project company relationship management plan with the ceding and regulatory agencies, the sponsor group, and the funding sources

11.9 RISK MANAGEMENT DUE DILIGENCE

The risk management due diligence refers to the effort of ensuring that all risk elements are identified, and their relationships defined, occurrence probabilities are estimated, and consequences critically assessed. It also refers to how risk events are prioritized using the project risk matrix technique and how risk mitigation is planned and implemented. It involves a review of the other due diligence parts and guaranteeing that there are no apparent omissions, miscalculations, and threats left uncovered. The risk management due diligence components involve the following confirmations:

1. Confirming that all identifiable project risks are assessed, ranked, and mitigated and risks that are identifiable but not measurable can be assumed with minor impacts
2. Ensuring that the project risk management stage had the benefit of input from all functional area experts, the project team, and external advisors
3. Showing which project threats require what collective action, when, and from which project stakeholder
4. Validating the findings of the risk matrix analysis and showing which risks are covered by contracts and insurance and which are not and their impact on project value
5. Demonstrating the effectiveness of decisions and response plans to adverse events and the response strategies to be used
6. Confirming how well the web of project contracts and agreements covers risks, provides enough assurances, and ensures project financeability
7. Confirming that independent external advisors and experts have reviewed and approved the risk management package for the project
8. Attesting to the validity of the due diligence findings included in its final report by a third, independent, and objective party
9. Establishing that the project company's employees integrity risks are recognized and insured against
10. Verifying the compliance of partners, intermediaries, agents, and counterparties to the Foreign Corruptions Practices Act and OECD and World Bank guidelines dealing with corruption and fraud issues

11.10 GENERAL AREAS OF DUE DILIGENCE

This is an area of due diligence where risk factors that do not fit well in other categories are included and may contain elements such as:

1. Establishing the objectivity and thoroughness of the sponsor and the project company SWOT analysis and ensuring project team ability to execute the project successfully
2. Ascertaining that the project is well positioned externally and the political support it has gathered in the host government and the local community is acceptable
3. Confirming the project's strong internal support and management commitment vis‐à‐vis the sponsor company's risk tolerance
4. Demonstrating that cyberspace threats are well understood and likely threats assessed as part of the security program delivery and crisis response
5. Verifying that cyberspace response plans are in place to detect and recognize a crisis, manage it effectively, and remediate cyberspace threats
6. Ensuring that a mature, risk‐based information security program that mitigates unique project security risks is build, tested, and certified functioning as planned
7. Substantiating that training costs are included in the project company's operating costs for security management to crisis and kidnap response in addition to physical security costs
8. Validating the assessment of project participant skills and competencies in project development and project finance
9. Establishing participation and multilateral institution project support through contact facilitation and guidance of independent project finance advisors
10. Confirming that the project due diligence has included occurrence of black swans in the scenario simulation analysis and adequate thought has been given to managing occurrence of risks outside the risk matrix analysis with appropriate contingency planning

11.11 REPORT, ASSESSMENT, AND QUALITY CHARACTERISTICS

The information gathering and verifying aspect of due diligence is half of the work needed in order to benefit by it. The other half is evaluating its findings and developing recommendations on whether to proceed and do required changes to make the project company a better structured, run, and sustainable operation. This is a unique contribution of the due diligence effort and the more that is invested in it, the greater the ability to implement the project successfully, harness performance improvements, and create possible future synergies.

To be effectively communicated, the information and findings of the due diligence is organized by due diligence category. A good presentation approach to all project stakeholders is the due diligence report and assessment matrix of Table 11.1. For each due diligence area, the principal factors listed are: new data and information obtained, items verified and referenced, unusual transactions or events, positive and negative findings, guarantees and insurance, and action items. An important feature of the due diligence report and assessment matrix is that responsibilities are clearly delineated and assigned to associates with experience in the different functional areas.

The analysis of information, materials, and input obtained takes place in order for the due diligence to validate the project company's prospects in its entirety. Once the analysis is completed, the evaluation of impacts is summarized in the due diligence report, which brings together findings, analysis, and the implications of findings and provides a set of recommendations for decision makers. The due diligence report must be concise and show the assessment of findings and their impact on the project and all affected stakeholders and its recommendations should be specific and clearly articulated to the project team. Once the lender and project teams have digested the report and its recommendations, a briefing of other project stakeholders takes pace. At that point, the project team and the lender draw their own conclusions on how to proceed with the project based on their assessment of the findings. Reconciliation of views may be achieved through changes in project structuring and support required from different stakeholders.

The items included in the due diligence report vary according to project particulars, but should at least include the following items:

1. Summary listing of the due diligence findings concerning the project's technical feasibility, economic viability, and credit worthiness and security agreements
2. Show the lenders' review of the due diligence report and their assessment of the project's economic viability
3. Outline areas of additional analyses and evaluations needed to uncover more information and identify risks heretofore not identifiable
4. Recommend actions the project team needs to address and obtain additional support and insurance coverage
5. Make suggestions on changes needed to optimize the project financing structure and the project company's profitability
6. Raise questions and suggest additional plausible scenarios for project team members to investigate and prepare plans to address adverse eventualities
7. Opine on the project financial model architecture, assumptions, inputs, and outputs, and the validity of their evaluations

The due diligence phase is crucial in creating a sound basis for the decision to proceed with a project and contributes to project success. Experienced project teams begin the due diligence effort in the prefeasibility stage before full‐blown project assessment begins, and use external experts and lenders to finalize it as negotiations are coming to an end. On the other hand, inexperienced project teams leave the due diligence effort until the negotiations stage. By that point, there is insufficient time to do a thorough investigation of project's risks or verify the representations of other stakeholders and generate the information needed to make right decisions.

Objectivity in analysis and interpretation of findings is another key quality characteristic of an effective due diligence, which requires experience and industry knowledge to assess issues properly. In acquisition and joint‐venture projects, the due diligence covers many other elements, but any effective due diligence must be speedy and bring issues to conclusion rapidly. The due diligence report should also include recommendations concerning the ability to manage risks when they materialize and how to obtain potential synergies.

The last two elements of project due diligence quality are completeness of due diligence and effective communications during and after the report is issued. The due diligence recommendations must be supported by facts and communicated in such terms that the meaning is conveyed clearly and its language does not create overly negative impressions. That is, the basis of recommendations is included in a minimum‐impact phrasing developed for the information memorandum and other external purposes. The internal communications are done by the project manager and the lead lender, while externally they are handled by experienced public affairs or investor relations personnel and external advisors (at appropriate times).