This is the third post in our blog series, “Lifting the Burden” for due diligence analysts. In our first blog post, we defined the burden facing due diligence analysts: the process of information gathering can be so uncertain, inefficient and time-consuming that the analyst is left with few resources to devote to actual analysis. In our second post, we described the challenge of determining what information is available and how to obtain it. In this post, we focus on the slew of administrative challenges that come with working with subcontractors, and ask: How do I contract and manage the local subcontractors?
Negotiating a price is often the first source of frustration. Price points between subcontractors can vary widely, even for work in the same jurisdiction. Sometimes, the subcontractor is using a ‘sub’ of his own to do the work, so his price will reflect a middle-man markup. And the back-and-forth of price negotiation, sometimes across time zones, can take time, so the due diligence analyst must either delay her proposal or commit to a price for the work that may not fully reflect subcontractor costs.
Once the terms are agreed, the contracting and onboarding process can be extensive. Compliance with anti-corruption regulations – including the Foreign Corrupt Practices Act (FCPA) in the US; the Bribery Act in the UK; and the AML directives in the EU (with each EU country implementing AMLD differently) – can be particularly onerous. There will be various documents to be signed and reviewed, and the analyst may have to check the subcontractor against a number of due diligence databases. Onboarding each subcontractor can take several hours of effort.
Perhaps the analyst has used a particular subcontractor before, so the onboarding has already been done. But KYC and other compliance requirements change and team members are replaced, so subcontractors ought to have their credentials periodically reviewed. That is a tedious and time-consuming process, and can be a significant administrative burden for an advisory with a worldwide network of subcontractors. But the risk of not refreshing credentials is that subcontractors fall out of compliance.
The credentials process is intended to build trust between the analyst and her subcontractors. That trust can also be built on a personal level, and so the due diligence analyst may meet up with her subcontractors on a regular basis. These meetings – over lunch or a few drinks – can be very enjoyable. But it is also time-consuming and expensive.
When work begins, the due diligence analyst has to hope that her subcontractors are getting their work done on time. She may send reminders and ask for progress updates, but on the day that their work is due, she will often be nervously eyeing her inbox, hoping the materials arrive. All manner of unexpected events can and do interrupt the investigative process – i.e. the subcontractor gets COVID, has a car accident, or goes on holiday. Subcontractor capacity constraints occur frequently, and it may prove impossible to transfer the work to other subcontractors at an acceptable price and timeframe.
And after she receives the work product, there is still the matter of payment. Wiring money to bank accounts around the world is tedious and time-consuming, especially on projects that require a small amount of work from a large number of subcontractors: trying to pay 50 teams $200 each for basic corporate records checks across 50 jurisdictions can be a huge hassle and very expensive. With bank fees of $25 or $50 per transfer, the expense adds up quickly.
Finally, many subcontractors consider their work to be complete when they submit their work product. But clients sometimes come back with additional questions after the project has been submitted. If the subcontractor is unavailable or unwilling to do further work under the original terms, it will complicate wrapping up the assignment.
The GTI due diligence platform radically simplifies the challenge of managing subcontractors across the entire project lifecycle. We offer price transparency and ease-of-payment, a network of fully-vetted investigative partners, and active partner management during the period of work.
Finding a local team that can gather information on-time, on-budget and reliably is essential to a successful due diligence project. In our fourth blog post, we will look at the challenges of finding the right subcontractors for an assignment, asking the question: Who can find the information?