The following article was prepared by Mike Taylor, C.P.M. for distribution to NAPM affiliate newsletters. 
updated December 2002


 

Due Diligence

Due Diligence: A measure of prudence that is to be ordinarily expected from a reasonable person under particular circumstances depending on the relative facts.

Purchasing people spend thousands of company dollars every day. Many buyers exercise a considerable amount of authority on behalf of their company. In return for granting that responsibility, the company expects buyers to write legal contracts and get the right products from reputable contractors. [Otherwise the company would just let the engineers buy what they want and wouldn't need buyers] 

When signing a contract, a buyer is essentially making several important determinations. Among them: 

These are all reasonable actions expected from a person in a "buyer" position. They could collectively be referred to as exercising "Due Diligence".  

Let's consider the first bullet. How do you determine a new contractor is responsible and reputable before entering into a contract? How do you select an export agent you can trust? How do you evaluate a contractor you've never met? In our global economy, a new contractor or partner could be thousands of miles away.  Warning - flashy web site is not a good reason to trust a new contractor. Read more..

If it's a critical purchase, high value or high risk, it pays to get help. That's the service provided by companies like the National Fraud Center (NFC; www.nationalfraud.com). 

According to NFC's Due Diligence Administrator, Renée Carlson, customers will contract with the NFC for one or more Due Diligence searches. Representatives from the NFC will conduct an investigation and provide a background report on subjects in the US and abroad. 

Prices start at $75 and up and investigations take from a few days to several weeks. It depends on the depth of research requested, and is more expensive in some foreign countries. However, when very valuable or sensitive contracts are under consideration, this seems like inexpensive insurance. 

NFC carefully confirms its customers to be legitimate before beginning an investigation. Customers use a secure log in when requesting a quotation and submitting a case for investigation. Reports are held strictly confidential. 

Ask for a copy of the PowerPoint presentation that explains more about the NFC and its services (National Fraud Center, Inc. 888-391-1155). 

I haven't used the NFC, and I'm sure competing services are available. However, if you need a place to start…this sounds like a resource that each buyer should have in their Toolbox.


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