Due diligence, in the context of public concessions and Public-Private Partnerships (PPPs), goes beyond a simple review of documents. It involves a thorough assessment of the legal, tax, financial, and operational aspects of the project. This process is critical to ensure that the company has the necessary capacity to undertake and fulfill commitments with the public sector, minimizing risks during contract execution. Conducting robust due diligence is not just a best practice—it is a key strategy for long-term success.

The Importance of Due Diligence in the Early Stages

Before initiating the bidding process, due diligence should be carried out comprehensively, covering all elements that may affect the contract’s feasibility and compliance. This phase must be conducted by a multidisciplinary team—lawyers, accountants, auditors, and consultants—to ensure an accurate and complete evaluation.

• Identification of Hidden Liabilities: Companies that fail to perform proper due diligence may encounter hidden liabilities, such as outstanding tax, labor, or environmental issues. These liabilities can compromise the project during execution, leading to financial losses and reputational damage. Early identification allows for mitigation strategies, such as setting up provisions or negotiating with the relevant authorities.

• Assessment of Financial Viability: A key component of due diligence is evaluating the financial health of the company and its capacity to meet obligations throughout the project’s duration. This includes detailed cash flow analysis, financial projections, and the ability to generate consistent profits. Strong financial viability ensures the company is prepared to take on a large-scale public project.

• Document Compliance: Reviewing and verifying all documentation required for bidding is essential. Any errors or irregularities can lead to immediate disqualification. Due diligence should include checks on all necessary licenses and permits, as well as compliance with applicable tax and environmental laws.

• Guarantee Structuring: Contractual guarantee requirements should also be addressed in due diligence. Companies must assess their capacity to provide the required financial guarantees and how this affects their capital structure. In some cases, external financing sources or project restructuring may be needed.

Ongoing Monitoring During Contract Execution

Contrary to common belief, due diligence doesn’t end with the signing of the contract—it should be a continuous practice throughout the contract’s execution. Constant compliance monitoring is vital to prevent deviations and ensure the project is completed according to the agreed terms. Implementing internal controls, conducting regular audits, and leveraging technology are effective tools to ensure all requirements are met.

• Strict Internal Controls: Developing internal controls to monitor compliance with contractual and tax obligations is fundamental. These may include regular internal audits, compliance checks, and alert systems to flag any non-conformity.

• Technology for Compliance: The use of technological tools to continuously monitor the company’s finances, contracts, and tax activities facilitates compliance. Compliance management systems can automate processes and generate real-time reports, helping identify potential risks and improvement opportunities.

• Regular Audits: Conducting both internal and external audits is crucial to ensure operations remain within established compliance standards. Independent auditors provide an impartial and expert perspective, identifying gaps that internal teams might overlook.

Legal Security and Specialized Support

Due diligence is a fundamental step to ensure legal and financial security in concessions and PPP projects. BNS Law offers a meticulous and tailored approach, delivered by a team specialized in compliance and auditing, to ensure that every legal, tax, and financial aspect is thoroughly evaluated.

With the support of our experts, companies can identify risks, maximize opportunities, and ensure that all requirements are met—preventing future litigation and challenges. Count on our experience to ensure your company operates safely and efficiently in the public sector.