Difference between revisions of "Due Diligence - Checklist"

Revision as of 11:40, 3 November 2023

Overview

"Due diligence" is a term used for a number of concepts, involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for an acquisition[1]^[1].

The following items are common items found on a Due Diligence Checklist. These items are:

• Assigned to individuals who has responsibility to investigate or capture the information,
• Normally Prioritized, taking into consideration if an item is found that is determined to be a "show stopper", that the due diligence is terminated,
• Tracked by status to ensure the information is moving properly,
• Commented on - the person assigned a particular checklist item needs to provide comments back on the item being reviewed.

Corporate Records

• Articles of Incorporation, and all amendments thereto.
• Bylaws, and all amendments thereto.
• All minutes of meetings and resolutions or written consent actions of the Board of Directors, any Board Committees and the shareholders within the last four (4) years.
• Any shareholder and voting trust arrangements, pre-emptive rights agreements or restrictions on transfer of securities.
• Schedule of states in which the company conducts and business, a schedule of states in which the company is legally qualified to conduct business and a description of its activities in each such state.
• A description of the company’s capital structure, including, with respect to each class of stock authorized:
  • The number of shares issued.
  • The number of shares authorized.
  • A description of all stock transactions involving the company and any officer or director or any selling shareholder of the company.
  • A list of shareholders (with the number of shares owned by each and the numbers and dates of the stock certificates).
• A description of any limitations on the transfer of stock, together with copies of all documents and instruments relating thereto.
• Lists and descriptions of all options, warrants, convertible securities, pre-emptive rights or other rights to the company’s stock, whether issued or unissued, together with copies of all documents and instruments relating thereto.
• Lists and descriptions of classes, amounts and current holders of any debt securities, together with copies of all documents and instruments relating thereto.
• Lists and descriptions, together with copies of all documents and instruments relating to:
  • The company securities or offerings of the company securities now or previously registered with, or the subject of filing with the SEC, other securities commissions or any stock exchange.
  • All the company filings (8K, 10K and 10Q) with the Securities Exchange Commission (SEC) or other governmental equivalent.
  • Any of the company’s securities issued or issuable at less than fair market value, under option or otherwise.
  • Opinions of counsel issued in connection with prior company stock offerings or similar transactions.
• All applications for permits filed with agencies having blue-sky jurisdiction over the issuance of securities, and all registrations, permits or qualifications issued with respect thereto.
• Lists and descriptions of the Company’s subsidiaries and majority-owned affiliates, together with copies of all documents and instruments described in Section 1.1 through 1.11 relating thereto.

EMPLOYMENT MATTERS

• Schedule of all current full-time and part-time employees, containing for each employee (i) a brief summary of his or her job description and responsibilities, (ii) his or her annual salary and/or hourly rate, (iii) the employee date of hire, and (iv) any compensation or other benefits such employee is entitled to receive pursuant to any employee benefit plan or policy.
• Schedule of temporary employees, compensation rates and associated agency agreements.
• Schedule of all consultants and copies of associated consulting agreements.
• Descriptions of sick leave and vacation policies and current vacation and sick leave balances for each employee.
• Job descriptions for each employee and consultant.
• List and description of all the Company pension, profit sharing, salary deferral, bonus and other similar programs, policies and plans, together with all material employee benefit plan documents and related agreements, including without limitation:
  • IRS Forms 5500 for the three most recent plan years.
  • Audited Financial Statements for all the Company employee benefit plans.
  • Copies of the employee benefit plans and related trust agreements.
  • Summary Plan Descriptions for the Company employee benefit plans.
  • Most recent IRS Letter of Determination.
  • Results from most recent year’s nondiscrimination test — ADP/ACP 410(b) and 415 tests.
  • Agreements and contracts with plan investment providers.
  • Agreements and contracts with plan service providers.
  • Fidelity bonds of the plan and/or plan fiduciaries.
  • Sample of most recent employee statement for the plan.
• List and description of all medical, disability, dental insurance and other plans and programs providing benefits to officers or employees.
• All collective bargaining agreements and union contracts.
• Copies of any nondisclosure and assignment of inventions agreements or similar agreements between the Company and its employees.
• Copies of all employment agreements, severance agreements, retention agreements, change in control agreements or similar agreements between the Company and any of its employees.
• Employee handbooks and policy manuals.
• Corporate ethics and standards of conduct policies and procedures.
• Organizational chart by functional area, including employee names and titles.
• A brief summary of the circumstances surrounding the termination of employment of any officer or employee that occurred within the past four (4) years.
• A listing of all bonuses payments made to employees in each of the two most recent fiscal years.
• Labor charging and timekeeping policies and procedures.

Management and Employees

• Resumes of key management & employees at each location
• Summary of employment, Stay Pay, or other contractual agreements with any employee involved in the transaction.
• Description of severance arrangements.
• Union Contracts & Labor Disputes
• Brief description of any organized labor solicitation experienced by the company or any Subsidiary during the last five fiscal years.
• Details regarding any employee grievance proceedings or disciplinary proceedings in the last 3 years and a list of those that are ongoing.
• Affirmative action plans and programs, along with any reports, findings, and/or other documents arising from audits or complaints under any affirmative action law.

Employee Benefits

• Calculations of fund assets and liabilities under all employee benefit plans, Retirement Plans, Welfare Plans and Fringe Benefits
• Detail of any loans made to employees, directors, officers or related parties.
• Verification of sufficient accrual for all benefit liabilities and status of premium payments.

FINANCIAL INFORMATION

• Most recent quarterly and interim monthly financial statements available, along with a statement of the assumptions and accounting procedures and principles used in preparing such statements including the following:
  • Revenue recognition policies for all contract types (CPFF, CPAF, T&M, FFP etc.).
  • Fixed asset capitalization policy.
  • Software development capitalization and amortization policy.
  • Accounting for costs and recognition of any profit for work done on projects for which a contract has not been received or a current contract mod has not been executed.
  • Accounting for subcontractor cost and work performed which has not been invoiced.
  • Accounting for any differences between provisional and actual government contract billing rates both at the fiscal year end and at interim financial statement dates.
  • Policy for determining employer 401(k) contributions for the year and the accruing for such on interim financial statements.
  • Policy for accruing year-end bonuses on the interim financial statements.
• Copies of audited financial statements for the last three fiscal years.
• Copies of monthly financial statements for each of the last three fiscal years.
• All documents and agreements evidencing borrowings (including those to related parties), whether secured or unsecured, including loan and credit agreements, promissory notes and other instruments or evidence of indebtedness and all guarantees of the Company.
• All documents and agreements evidencing other material financing arrangements, including sale and leaseback agreements, installment purchases and similar transactions.
• Correspondence with creditors or lenders for the last three years, including all compliance reports submitted by either the Company or its independent public accountants.
• A description of the Company’s debts and liabilities, including the total amount of said debts and liabilities, a description of the Company’s outstanding notes and other indebtedness, the due dates of the major debts and liabilities and their respective rates of interest.
• A list of and detailed information regarding any employee loans.
• Detailed information on all overhead and burden rates including but not limited to overhead, customer site overhead, G&A, fringe and material handling rates used on government contracts, including historical rate information comparing provisional rates to actual rates for any rate years not closed out by the DCAA, base and pool input for the current year for each overhead rate and the current provisional bid rates.
  • Current Disclosure Statement. Current Cost Accounting Standards Board Disclosure Statement(s) DS-1, and Disclosure Statements in effect during the last 2 fiscal years if different from the current one. All reports and correspondence issues by federal government auditors or contracting officers within last 3 years pertaining to compliance with Cost Accounting Standards.
• Accounting policies and procedures.
• A current schedule of aged accounts receivable by invoice.
• Lists and descriptions of fixed assets.
• Schedule supporting any assets in the prepaid or other asset accounts.
• A subsidiary ledger supporting any balances in the Inventory account.
• A detailed description of the methodology for determining and the facts and circumstances considered in calculating the Company’s general or corporate, warranty, performance, bad debt, overhead rate, litigation or environmental reserves.
• A schedule of all reserve accounts including but not limited to any general or corporate, warranty, performance, bad debt, overhead rate, litigation or environmental reserves as of the most recent interim financial statement date and the most recent three fiscal years.
• Contract backlog as of the latest interim financial statement date classified by funded, unfunded and unexercised contract options.
• Schedule supporting the revenue and profit projections for the current year and the next two fiscal years by contract, with contract type (CPFF, T&M, FP) listed and classified by funding status: funded, unfunded, unexercised contract options or new work.
• A schedule of aged unbilled receivables and retentions.
• A schedule supporting capital expenditures and leasehold improvements, historically, for the current year and for the next two fiscal years.
• Description of the status of any DCMA audits, reviews or other interaction.
• All reports and correspondence issued by federal government auditors or contracting officers within the last 3 years pertaining to:
  • final direct and indirect costs;
  • proposals submitted in response to government solicitations and proposals to establish billing or bidding rates;
  • requests for equitable contract price adjustments or claims;
  • management systems, such as accounting system, cost estimating system, system of internal controls, billing system or property management system;
  • financial capability assessments; and
  • Any other reports issued by federal government auditors and correspondence to/from contracting officers.
• Internal audit reports issued during the current and prior 2 fiscal years.
• Policies and procedures pertaining to interorganizational transfers of cost for services performed by one corporate entity for another.
• Bank reconciliations for the most recent month end financial statements
• Details of cost of goods sold, SG&A and R&D expenses for each product line and division for last three years along with a description of accounting policies for depreciation, inventory, start-up costs and R&D costs.
• A description of old or obsolete inventory, if any, as well as the period of obsolescence used to determine write-downs.
• Details of any unusual, non-recurring and extraordinary revenues or expenses over the last 3 years. Include details of any deferred income items.
• Current backlog listing by major program/product and associated liquidation plan
• Provide a description of any related party transactions (employee, officer, director, etc.) with the company and the monetary value of such transaction.
• Correspondence with any Government Agency or Prime Contractor concerning "sensitive payments", suspension or debarment proceedings, defective pricing claims or other violation or investigation pursuant to FAR.
• Provide details of any undefinitized claims for equitable adjustments.
• Provide list of any current offset obligations.
• Copies of all documents purporting to create liens, mortgages, security interests, pledges, charges or other encumbrances on personal property in favor or against the assets of the company or its subsidiaries and copies of all Uniform Commercial Code ("UCC") financing statements filed with respect to the above.
• All professional appraisals of any material property of the company.
• Provide details for all troubled/delinquent programs/contracts.
• Please provide details outlining any Letter of Credit (LC) exposure in connection with any programs and the programmatic details for any delinquent programs connected to a LC.
• Details of any fixed price development contracts or contracts containing significant NRE.
• Overhead rate comparison over last 3 years versus negotiated rates. Current year's negotiated rates versus actual year to date performance, and as compared to rates used for revenue recognition.
• Does the company use actual or target rates for revenue recognition purposes? If the company uses targets, please provide under/over absorbed OH & G&A details.
• Overhead & G&A rate calculations including a detailed breakdown of expenses for each pool.
• DCAA overhead audit reports for the last 3 years and any special audits (i.e. defective pricing).
• List of Calendar Year Incurred Cost Submissions & Status.
• Leases (Capital & Operating) for applicable units.
• Copies of all documents purporting to create liens, mortgages, security interests, pledges, charges or other encumbrances on personal property in favor or against the assets of the company or its subsidiaries and copies of all Uniform Commercial Code ("UCC") financing statements filed with respect to the above.

TAX REGULATIONS AND FILINGS

• All relevant local, state and federal tax references, filings, reports and other information, including without limitation:
• Federal income tax returns filed during the last three calendar years.
• State and local income tax returns filed during the last three calendar years.
• Federal and state payroll tax returns filed during the last three calendar years.
• Property tax returns filed during the last three calendar years.
• All gross receipts, business license and/or business and occupation tax returns filed in the last three calendar years.
• State sales and use tax returns filed during the last three years.
• All other tax filings, including but not limited to, applications for change in accounting methods and IRS ruling requests.
• All IRS or other tax authorities’ audit reports issued in the last five years, including, but not limited to, income, franchise, payroll, sales, use, property and business license.
• All waivers of any statutes of limitations entered into for tax audits which are not yet obtained.
• Income tax provision work papers for the past two years.
• Tax return workpapers used to prepare tax returns filed during the last three calendar years.
• Material reports filed and significant correspondence with any state or federal regulatory agencies during the last three years.
• All material governmental permits, licenses, registrations and similar items.
• Supporting detail for the following tax balance sheet captions as of the most recent fiscal year end and the most recent interim financial statements: income tax receivable, deferred tax asset, accrued tax payable and deferred tax liability.
• Sales, Use, Property, and Business License Tax
• Need to understand the target’s AP procedures for paying invoices without sales tax; additionally, need to understand the overall tax accrual policy with respect to paying tax on purchases made for delivery on government contracts.
• Need a listing of jurisdictions in which the target is registered to file sales and use, property, and business license tax returns.
• Would like to get copies of the aforementioned sales and use, property, and business license tax returns for the last 3 years if applicable.
• Need to know whether the target has any open audits, has signed any statute waiver extensions, has any contested liabilities with respect to payment of sales tax to vendors, or has received any nexus questioners from any state or local jurisdiction.
• Other General Information
• Organizational chart showing each corporation, partnership, and joint venture involved in the transaction. The chart should reflect ownership percentage and, if possible, commercial domicile on a legal entity basis.
• All legal or accounting tax opinions relating to the Company’s tax reporting received by the Company from outside advisors during the last five calendar years.
• All agreements and undertakings, including indemnification agreements between the Company or any Subsidiary in connection with a sale of stock or assets relating to tax matters.
• Provide description of tax treatment of any material historical transactions.
• Schedule of open years including any outstanding extensions or waivers of the statute of limitations, on a legal entity basis.
• Brief description of transactions involving the Company or any Subsidiary outside of the ordinary course of business that occurred in all open tax years (such as internal restructurings, acquisitions and dispositions) and the reported tax treatment thereof (including allocation of purchase price).
• Copies of any agreements of any subject entity that, if a change of control of any subject entity were to occur, could give rise to disallowance of a deduction under Section 280G of the Internal Revenue Code (the "IRC").
• Information regarding any tax planning, strategies implemented.
• Provide any and all information regarding reportable and listed transactions required under IRC §6011 and related Treasury Regulations and Announcements.

Federal Income Tax

• Federal income tax returns (Consolidated, pro forma and K-1s, if applicable), and applications for extensions of time to file returns for all open years and evidence of proof of fling and proof of payment.
• Copies of any pending IRS correspondence including IRS examinations, Revenue Agents Reports, list of disputes/claims pending before IRS appeals, Tax Court, with amounts, status and issues, elections made or pending before the IRS, waiver of expiration of statute of limitations.
• Copies of any pending IRS correspondence including IRS examinations, Revenue Agents Reports, list of disputes/claims pending before IRS appeals, Tax Court, with amounts, status and issues, elections made or pending before the IRS, waiver of expiration of statute of limitations.
• All revenue ruling requests and any ruling received, or any correspondence received denying rulings requested by the Company relating to the tax consequences of its operations (post, present, or proposed)
• Schedule of deferred intercompany transactions and other significant deferred items of the Company and each Subsidiary

Tax Accounting

• List of methods of accounting for contracts and other peculiar items (i.e. installment sales) that differ from book accounting
• Details of Tax Basis of all subsidiaries, assets and liabilities
• Detail of deferred tax asset/liability account including schedule of unused loss and credit carryovers (including foreign tax credit and alternative minimum tax credit)
• Detail of taxes payable accounts. Please include any information regarding tax reserves (including a general “cushion”).
• Reconciliation of the Company's effective tax rate for the past three years
• Reconciliation of the Company's effective tax rate for the past three years.

Foreign Taxes

• List of foreign offices, subsidiaries, bank accounts, joint ventures or any other foreign investments
• List and description of any other foreign operations
• Tax returns, if any, filed in foreign countries or U.S. tax returns filed for foreign entities including any application for extension of time to file returns.
• Evidence of payment of any taxes due to any foreign country for the past three years.
• Description of foreign tax related concerns, including subpart F issues, engaged in business/permanent establishment issues, foreign currency transactions, transfer pricing issues, affiliate loans.

State and Local Income Taxes

• List of all states in which qualified to do business.
• List of all state tax returns for the most recent taxable period on a legal entity basis.
• Schedule of Payroll, Property and Sales by State for the most recent taxable year.
• Copy of all state and local income and franchise tax returns and applications for extensions of time to file return for all open years and evidence of proof of filing and proof of payment.
• Schedule of all open or pending state tax audits, protests, litigations or refund claims by category, tax period, and amount of tax liability in dispute, on a legal entity basis including any outstanding extensions or waivers of the statute of limitations.

Payroll Taxes

• Copies all federal and state payroll (including unemployment) tax returns for the last three years including proof of remittance and proof of filing.
• Copies of Federal W-3 and State withholding transmittals for the past three years.
• Copies of Form s 1096 and 1099 for the last three years

Property, Sales & Use and Other Local Taxes

• Copies of property tax bills paid for the most recent three years and proof of filing and remittance.
• Copies of Sales and Use tax returns for the most recent three years and proof of filing and remittance
• Copies of Personal & Intangible Tax returns for the most recent three years and proof of filing and remittance.
• Copies of Gross Receipts and other local tax returns for the most recent three years and proof of filing and remittance.

MATERIAL AGREEMENTS/AGREEMENTS WITH AFFILIATES

• All material sale, agency, distribution, dealer, supply, requirements or advertising contracts to which the Company is or was a party during the last five (5) years.
• All marketing or commission agreements relating to the sale of products or services entered into by the Company during the last five (5) years to which the Company has obligations to pay, or has rights to receive, a fee or other compensation, financial or otherwise, for introductions or any other efforts to obtain business or contracts or for the receipt of business or contracts.
• All joint venture agreements, partnership agreements, and operating agreements (for limited liability companies) to which the Company is a party.
• All strategic alliance and teaming agreements and all letters of interest or letters of intent describing any proposed or contemplated transactions with vendors, customers or any other third parties.
• All licensing agreements, franchises and conditional sales contracts.
• Lists and descriptions, together with copies of documents and instruments relating to all the Company patents, patent applications, trademarks, service marks, trade names, brand names, copyrights and trade secrets, including:
  • File histories of all the Company owned patents, including issuing country, patent number, title of invention, inventor and date issued.
  • Patent applications pending, including country in which application is made, application number, title of invention, applicant, date of application and inventor.
  • Technology identified as potentially patentable for which an application has not yet been filed, including a brief description of the relevant technology, inventor, name of individual with whom filing decisions resides and all annuities and maintenance fees paid for patents or patent applications.
  • With respect to trademarks, trade names and logos, a list of the product or service for which the business mark is used, countries in which such mark is used, existence and countries of formal trademark, trade names, service mark or certification registration or application and registration numbers for any existing registrations or applications.
  • With respect to copyrights, countries where material has been distributed, existence and registration number of any formal copyright registrations, materials in which copyright is claimed but not registered, copyrighted materials involving software owned by third parties but used by the Company, including identity of the owner and whether or not an agreement exists allowing the Company to use such copyrighted materials and the allowable scope of such use.
  • With respect to trade secrets and know-how, a description of known distributions outside the Company and all measures taken to protect the confidentiality or secrecy of such trade secrets and know-how.
  • All agreements for the acquisition, transfer, sale, license or use (whether as licensor or licensee) of patents, trademarks, copyrights, trade names, logos, trade secrets, patent applications, technology and software, including, with respect to licenses, the licensor, licensee, date of license, term, subject matter, royalty, assignability and other material terms and conditions.
  • All consulting agreements and nondisclosure agreements relevant to protection of the Company’s intellectual property rights.
  • History of any the Company infringement claims, including the name of claimant or plaintiff, identity of defendant, the court in which such case was filed (if applicable), type of suit (e.g., patent or trademark infringement, etc.) and a description of the resolution of such claims.
  • All the Company policies and procedures related to patents, copyrights, trade secrets, trademarks and/or trade names.
• All significant documents relating to any major stock or asset acquisitions or dispositions within the last three years, other than fixed asset acquisitions or dispositions done in the ordinary course of business.
• All contracts or agreements with the Company’s directors, officers or shareholders or any entity in which such persons have more than a five percent equity interest.
• Copies of any research and development agreements in which the Company, any shareholder holding a significant number of shares or any entity in which such shareholder has more than a five percent (5%) equity interest has performed or contracted for the performance of such research and development.
• Any documents and instruments relating to any other transactions between the Company and any of its directors, officers or shareholders, or any entity in which such persons have more than a five percent equity interest.
• All documents pertaining to any receivables from or payables to its directors, officers or shareholders.
• Forms of purchase orders and contracts.
• Any agreements, commitments or proposals which are not otherwise covered by this Section 5 and which can be canceled only upon payment of a premium or penalty or which require more than thirty (30) days advance notice of cancellation.
• Copies of all product descriptions and marketing materials utilized in the business or provided to customers or dealers.
• Copies of all training materials provided or sold to dealers (whether for technical or marketing support).
• Documentation pertaining to all transactions between affiliated entities, e.g., lease of facilities or equipment to the company by an employee or officer.

GOVERNMENT CONTRACTING, CONTRACTS AND PROPOSALS

Due diligence for a potential acquisition is no different than managing a current company within the organization. The difference is for a current company most of the information is already available from prior risk assessments. Understanding risk for either starts with a risk assessment, which you can find here:

Financial and Risk Profile, Assessment, and Compliance and Training Plan

The risk assessment starts on the 1st tab the Finance and Risk Profile collecting basic contract and procurement information. Based on what is gathered from that information a Risk Assessment is established. See tab 2022 Risk Assessment - BU tab for an example with "Considerations for Assigning Risk."

The USG Minimum Standards shall be used for "Considerations for Assigning Risk." That document captures contract clauses, FAR requirements in a matrix with background information, descriptions, and what the main requirements are. You can find that document here:

http://www.govcwiki.org/index.php?title=File:USG_Compliance_Minimum_Standards.xlsx

CONTRACTS

• List of all current customer contracts, categorized by customer contract value, contract type (e.g., FFM or T&M).
• Current contracts and subcontracts: For each current contract or subcontract, please provide the following information (to the extent applicable):

• Copy of the contract or summary of its terms, conditions and prices, and copies of all related correspondence.
• Schedule showing contract number, customer, contract type, effective date, period of performance, est. completion date, dollar value and basis of award.
• Any significant modifications or add-ons broken out separately
• Schedule detailing year to date revenue, cost, profit and profit % and cumulative prior year revenue, cost, profit and profit %.
• Schedule detailing total estimated revenue at completion, total estimated cost at completion, total estimated profit at completion and total estimated contract profit % at completion.
• Schedule detailing the net cash to go on each contract (i.e., contract value less cash receipts and amounts billed but not received to date), including customer deposits and advance payments.
• List of recent accomplishments and milestones on the contract and upcoming milestones.
• Contract performance schedule, including resource loaded network and other information regarding identification availability and commitment of resources.
• Any concerns or complaints expressed by any customer relating to performance on the contract. Include a schedule of all pending or potential claims against the government or by the government against the company, e.g., delay/disruption, termination for convenience, termination for default, defecting pricing, false claim, request for equitable adjustment.
• All information related to past performance assessments performed by the government for the current fiscal year and 2 prior fiscal years.
• Detailed design documents, acceptance plan and/or criteria approved by the customer and all other information relating to technical approaches and problem solutions.

• Customer-specific files and Agency-wide contract vehicles such as GSA Federal Supply Schedule contracts
• Detailed list of contract/task close out status.

FLEXIBLY PRICED CONTRACTS

• Is the company up to date on Incurred Submittions? How up to date are they on final Indirect Rates?
• Identify all current and potential cost disallowance issues, raised by the government either orally or in writing.

BUSINESS SYSTEMS

Does the company have approved business systems for:

• Accounting System,
• Earned Value Management System,
• Cost Estimating System Requirements,
• Contractor Purchasing System Administration,
• Material Management and Accounting System, and
• Contractor Property Management System Administration

Accounting System

PreAward_Survey_of_Prospective_Contractor_Accounting_System_(including_SF1408)

GOVERNMENT PROPERTY

• Detailed list of government property by contracts.
• Detailed list of government property at subcontractors.
• Documentation supporting government approvals of property system.
• Copies of policies and procedures regarding the management of government property.

• Detailed list of 8(a) and small business/SBIR contracts.
• Past contracts and subcontracts: For each completed contract or subcontract with respect to which the Company has any continuing warranty, indemnity, product liability or other contractual obligations:
• Copy of the contract or summary of its terms and conditions as they pertain to warranties and indemnification obligations, and copies of all related correspondence.
• Any concerns or complaints expressed by any customer relating to performance under the contract.
• Summary of any actual warranty or repair experience with respect to such contract.
• Detailed design documents, acceptance plan and/or criteria approved by the customer and all other information relating to technical approaches and problem solutions.
• Provide a list of all outstanding proposals, including proposals submitted but not yet negotiated and unsolicited “white papers.
• Summary of all vendor agreements and open purchase orders.
• Copies of all written warranty policies and summaries of (i) any unwritten warranty policies, together with an estimate of warranty risk, whether or not reserved, for past sales and installations and (ii) work still within warranty period and time when warranty obligations expire (by individual contract or year).
• Copies of discount agreements, pending or active, if not incorporated in contracts or proposals.
• Copy of all OEM Agreements, active or pending.
• Provide copies of outstanding cost proposals within the last 2 years, including proposals submitted but not yet negotiated and unsolicited white papers.
• Provide copies of cost proposals submitted during active contracts.
• Provide schedule of unbilled receivables by contract.
• Provide schedule of work being performed “at risk” without formal contract documentation by contract. Provide dollar amount expended to data and amount expected to be expended before receipt of contract documentation.
• Provide copies of any export licenses or technical assistance agreements.
• Provide list of contracts with international export requirements.
• Provide list of contracts with international companies.
• Estimating system policies and procedures.

REAL ESTATE AND ENVIRONMENTAL COMPLIANCE

• Summary schedule of each office location noting the following:
  • Whether facility is leased or owned.
  • Square footage of leased space or owned space.
  • Annual rent for leased space.
  • Full time equivalent employees at location.
  • Lease end date.
  • Lease end date.
  • Lease cancellation or renewal rights.
• Lists and descriptions, together with copies of all documents and instruments relating to any real estate currently or previously owned by the Company, including:
  • Address, land area, area of buildings and date of construction, date of acquisition, current property taxes, date and amount of last assessed value, next scheduled assessment, current tax rate, next scheduled tax rate change.
  • Surveys, title insurance policies, title certificates and a current preliminary title report.
  • Options, easements, rights of way and other encumbrances.
  • Documentation and agreements associated with the original acquisition.
  • Copies of any recent valuations by independent appraisers.
• Lists and descriptions, together with copies of all documents and instruments relating to real estate financings, including:
  • Identity of mortgagee, term, original principal amount, unpaid principal balance, interest rate and the amount of periodic payments.
  • Financing documents, including mortgages, notes, deeds of trust, assignments and related collateral documentation.
• Lists and descriptions, together with copies of all agreements, documents and instruments relating to real estate leased by or from the Company (whether as lessee, sublessee, licensee, lessor, sublessor, licensor, etc.), including the property address, identities of the lessors and lessees, date of lease, term of lease, land area, area of buildings, base rent, additional rent (if any), permitted or prohibited uses, assignability, status of title, options to renew or purchase, environmental provisions, professional appraisals and other material terms and conditions.
• With respect to all the Company facilities, whether owned or leased, copies of all bills and invoices for the past three years relating to expenditures for utilities, insurance, property maintenance, operating expenses, janitorial services, as well as a pro forma schedule summarizing estimates of such costs and expenses for the next three years.
• With respect to all the Company facilities, whether owned or leased, environmental, soils and other engineering reports.
• With respect to all the Company facilities, whether owned or leased, all structural and mechanical reports, plans or specifications relating to buildings (including without limitation mechanical, system, roof, HVAC, electrical, life safety, fire hazard/sprinklers and load bearing matters).
• A schedule showing depreciation or amortization of leasehold improvements with respect to all the Company facilities, whether leased or owned.
• A copy of any compliance actions (e.g., citations, notices of violations, compliance orders, etc.) received from the Occupational Safety and Health Administration (OSHA), Environmental Protection Agency (EPA), or any other federal, state or local regulatory agency relating to the Company’s (including any predecessor entities) compliance with environmental, transportation, health and safety, or related laws or regulations.

Copies of any uniform hazardous waste manifests under which the Company (or any of its predecessor entities) acted as a generator, arranger (e.g., subcontracted transportation, treatment, storage, or disposal), or transporter of hazardous wastes for treatment, storage, or disposal.

• A list and description of any facility (whether contracted, leased, or owned) at which the Company (or any of its predecessor entities) disposed of hazardous substances or petroleum products.
• A description of any known environmental liabilities associated with the Company's (or any of its predecessor entities) operations.
• A copy of any inspection report prepared by OSHA, EPA, or any other federal, state or local regulatory agency relating to the Company’s (including any predecessor entities) compliance with environmental, transportation, health and safety, or related laws or regulations.
• A copy of the Company’s programs (e.g., policies, procedures, plans, etc.) related to environmental, health and safety compliance.
• A listing of any outstanding actions or claims against the Company (or any of its predecessor entities) by employees, customers, regulatory authorities, or other third parties, related to environmental, health or safety compliance.
• A copy of any permit, license, plan, registration, or notification under which the Company or its facilities currently operate relating to compliance with environmental, transportation, health and safety, or related laws or regulations.
• A listing and summary of transactions in which the Company or its predecessors disposed of a business or property for which it retained liability for environmental or related matters, or in which it agreed to indemnify the purchaser in part or full for such obligations.
• Provide the primary Standard Industrial Classification (SIC)/North American Industrial Classification System (NAICS) code under which the Company operates at each of its locations.
• Provide a copy of the Company's OSHA Form 200/300, "Log and Summary of Occupational Injuries and Illnesses" for each of the previous five (5) calendar years.

Environmental and Safety

• Have any employees been exposed to radio frequency radiation (RF Exposures)? Yes/no
• Does the operation use lasers? If so, in what capacity and who uses it?
• Does the operation use other radiation sources? If so, in what capacity and who uses it?
• All environmental assessment, audit or compliance reports or surveys, including Phase I, II, reports, asbestos surveys, engineering studies, analyses of air, solid waste, water and effluent conducted in the last 3 years, reports and memoranda, current or historical aerial photos of or concerning any aspect of the operations of the Company or any subsidiary or in connection with real property currently or formerly owned, leased or occupies by the Company or any subsidiary concerning any aspect of the operations of the Company or any Subsidiary or in connection with real property currently or formerly owned, leased or occupied by the Company or any Subsidiary.
• Decrees, orders of judgments in force or any other documentation pertaining to any government environmental investigations pending or resolved.
• As to each current and former operating facility, describe the age, history of operations conducted there by Company, the name of each prior owner or operator and history of operations conducted by current or prior owner.
• Copies of any emergency planning, information or notice developed or submitted pursuant to any community right-to-know program or similar emergency coordination.
• Description of any on-site waste disposal practices, including type of waste, quantity, date and method of disposal and whether on-site disposal has been terminated and subject to closure. Provide any environmental assessment on the location.
• Provide site maps including waste storage areas, emission points and effluent discharges (industrial, sanitary sewers, storm, leaching pools, site tanks – USTs & ASTs, recharge basins, sumps, etc.) and any aerial photos.
• Has company performed any voluntary or mandated cleans ups, in any facility?
• List all ozone depleting chemicals (ODCs), changes for processes and air conditioners, environmental test chambers, etc?
• List properties adjacent to or up gradient of the Company’s properties with known environmental problems, such as federal, state or local Superfund sites or leaking underground tanks.
• Do you own your electrical transformers? Provide all notifications received from any federal, state, local or foreign governmental agency or any private party, (including designation as a potentially responsible party or potentially liable party with respect to a site listed or proposed to be listed on the National priorities List (“Superfund Site”) or any state or local equivalent thereof, of any violations of any environmental laws by the Company or any subsidiary.
• Provide the last three years DMRs from NPDES/SPDES.
• List by name and location all off-site landfills and all disposal firms the company has utilized.
• Please provide any Phase I ESA tests or any other environmental impact studies

INSURANCE MATTERS

• A description of any self insurance program or feature; (ii) a claim loss history of the past four (4) years and specify that the list should include claims/losses that were insured, self-insured, and uninsured; and (iii) the name and phone number of the Company‘s insurance broker(s) and the name and phone number of the person at the Company responsible for the Risk Management function.
• A schedule identifying all insurance policies that have been in effect during the past four (4) years. The schedule should include the following: Coverage Type (e.g., general liability, workers’ compensation, etc.); Insurer; Policy Number; Policy Period; Limits of Coverage; Deductible; and Premium.
• A schedule identifying all claims and losses that were incurred during the past four (4) years, including claims that were insured, self-insured, and un-insured.
• A schedule identifying all standard contract terms and conditions that have been in effect during the past (4) years including indemnification provisions and insurance requirements.
• A schedule describing the presence of any benefit plans subject to ERISA rules.

CORPORATE SECURITY

• Level of Facility Security Clearance - Provide copies of the form 441 and the form 381-R (For all cleared facilities).
• Provide level of approved Safeguarding (for classified information) (For all cleared facilities).
• Total number of classified contracts w/ copies of all DD 254's (Contract Security Classification Specification).
• Provide details of any classified efforts with non-DoD entities (Intelligence Community customers, DoE, etc.).
• Please provide copies of the subcontractor names and copies of the sub-DD 254s for all classified subcontracts.
• Provide total number of cleared employees along with their level of security clearance.
• Provide Key Management Personnel List (KMP/OODEP List) (For all cleared facilities).
• Copy of their latest approved SF-328, Certificate Pertaining to Foreign Interests.
• Copies of all Cognizant Security Agency (CSA) inspection results for the past two years.
• Please provide copies of the reports submitted to the responsible CSA for any security violations that occurred in the past two years.
• For any Information System that is approved to process classified information, please provide copies of the approval letters from the CSA (s) and copies of the System Security Plan(s).
• Does the Company employ any non-US Persons (As defined by the International Traffic in Arms Regulations, Section 120.15)? If yes, provide a list of the names, the countries they represent, and the Company’s CSA-approved Technology Control Plan.
• Please provide a copy of the Standard Practices and Procedures Manual and any other manual that provides guidance on how employees should handle classified, sensitive and proprietary information.
• Please provide detail regarding any access control systems.
• Does the Company hold any security clearances for any consultants?
• Does the Company have any cleared employees assigned OCONUS?
• Provide the name and telephone for the FSO, CSSO, PSO for all cleared facilities).
• CAGE (Commercial and Government Entity) numbers for all cleared facilities.
• For any personnel cleared through a temporary agency, please provide the name of the agency used and a copy of the agency’s DD254.

MISCELLANEOUS

• List and description of all lawsuits, actions, litigation, administrative proceedings or other governmental investigations or inquiries, pending or threatened, affecting the Company or its businesses or operations.
• Reports to and correspondence with all government agencies not provided pursuant to Section 1 or Section 7 hereof.
• All consent decrees, judgments, other decrees or orders, settlement agreements and other agreements requiring or prohibiting any future activities to which the Company is a party or is bound.
• All assumed, fictitious and other business names under which the Company is conducting business, or has conducted business within the last three years, the states (or counties or other political subdivisions) in which, and the dates when, those names were registered, recorded, filed or otherwise protected as required by, or desirable under, relevant law.
• A list of all persons holding tax or other powers of attorney executed by the Company and the purposes for which those powers were given.
• Any other documents or information which, in your judgment, are significant with respect to any portion of the business or which should be considered and reviewed in making disclosures regarding the business and financial condition to prospective investors.
• Is the Company, or any employees or officers of the Company, registered to lobby with the federal or any state or local government, or does the Company, its employees or officers, conduct any lobbying activity? If so, please provide details.
• Company organization before and after: final organization and charter, site rationalization plan

Export Controls

• Copy of the company’s registration statement with the U.S. Department of State under the International Traffic In Arms Regulations (“ITAR”) and/or registration with any international government under comparable regulatory requirements including any amendments or renewals and any correspondence between the Company (or any subsidiary) and the Department of State, or equivalent international government agency regarding such registration.
• Provide a schedule of each export license, marketing license, Technical Assistance Agreement, Manufacturing License Agreement, or other authorizations (or pending export license applications) submitted to and/or approved by the U.S. government or any international government, indicating the product, service or technology covered, the names and addresses of all parties, the current status, including whether any such application has been denied or revoked and the reason for the denial or revocation, and the delivery date of all such items. Please provide a copy of each such license, agreement, application or other such authorization and copies of any denial or revocation letters.
• Copies of the Company’s (or any subsidiary’s) policies and procedures regarding compliance with export control laws and regulations, importing or security.
• A schedule of each potential disclosures, voluntary disclosure or directed disclosures made within the last five years to the U.S. or any international government regarding violations of any U.S. or international export control laws or regulations, including but not limited to the Arms Export control Act, the Export Administration Act, the ITAR, the EAR, the Foreign Assets Control Regulations, or any U.S. economics sanctions programs, indicating the date of disclosure, the subject matter, the U.S. or international government agency involved, the status of the matter, the outcome, and any civil or criminal penalties imposed. Please provide copies of the voluntary disclosure and any correspondence with the appropriate government agencies.
• Is the Company (or any subsidiary) subject to any ongoing or completed enforcement investigations undertaken by the U.S. or any international governments regarding potential violations of any U.S. or international export control laws or regulations? If so, please provide a schedule of each enforcement action, indicating the date of initiation, the subject matter, the U.S. government agency involved, the status of the enforcement action, the outcome, and any civil or criminal penalties imposed.
• Has the Company (or any subsidiary) applied for and/or been approved for any authorizations by the U.S. Treasury Department’s Office of Foreign Assets Control or any comparable international government agency under any U.S. or international economic sanctions program? If so, please provide a schedule of all such licenses, including a description of the transaction, all parties to the transaction, the status of the transaction, and the validity dates of the license. Please also provide a copy of such licenses.
• Copies of each export license applications been submitted to and/or approved by the Department of Commerce (“DoC”) under the Export Administration Regulations.
• Copies of all commodity jurisdiction requests made by the company or any subsidiary to the U.S. government or any foreign government and any determinations issued in response to such requests.
• Copies of all commodity classification requests submitted to the DoC and all determinations issued in response thereto.
• Does the Company (or any subsidiary) have any sales to or otherwise conduct business with or in any country subject to the U.S. trade embargo.
• Does the company do, or in the past five years has the company done, business with any person or entity designated by the U.S. Government as a restricted, denied or blocked party? If so, please specify the name, nature of business and details of the relationship with such person or entity.
• Has the Company (or any subsidiary) ever been subject to a suspension or debarment with respect to licenses for defense articles and/or participation in U.S. government procurement? If so, please specific.
• Has the business exceeded the scope or violated any of the provisos included in export or import licenses, permits, or agreements, which were valid during the past 6 years? IF YES – Please explain.
• Has the business improperly utilized any ITAR exemptions or EAR exceptions during the past 5 years? IF YES – Please explain.
• Does the business screen all customers, suppliers, vendors, brokers, freight forwarders, partners, new hires, and visitors against the following U.S. Government lists:
  • - Denied Persons List (BIS)
  • - Entity List (BIS)
  • - Unverified List (BIS)
  • - Debarred List (DTC)
  • - Specially Designated Nationals and Blocked Persons List (OFAC)?
• Does the business conduct any brokering activities as defined in 22 C.F.R. 129.1? IF YES - Please explain and provide copy of the annual brokering reports for the past five years.
• Has anyone employed by the business been, or is now, the subject of an indictment, or has been convicted of violating any of the U.S. Criminal Statutes enumerated in 22 C.F.R. 120.7 (attached); or is ineligible to contract with, or to receive a license or other approval to import articles or defense service from or to receive an export license or other approval from any agency of the U.S. Government? IF YES – Please explain.
• Does the business have any employees who are citizens of, or known business activities or representation, directly or indirectly, in any of the following countries: Afghanistan, Belarus, Burma, China, Côte d'Ivoire, Cuba, Cyprus, Democratic Republic of the Congo, Eritrea, Fiji, Haiti, Indonesia, Iran, Iraq, Lebanon, Liberia, Libya, North Korea, Rwanda, Sierra Leone, Somalia, Sri Lanka, Sudan, Syria, Venezuela, Vietnam, Yemen, Zimbabwe? With the Palestinian Authority/Hamas. IF YES – Please identify the countries and employees or explain the activities.

FCPA

• In the past five years has your company had a contract or other agreement with a party who has provided or is providing services of any type in order to secure the sale of your company’s products or services to, or to conduct other business with, customers outside of the United States? If so, please provide a copy of each such contract.
• Has your company, or anyone acting on its behalf, in the past five years paid a commission or fee to anyone, for services to assist in making a sale of your company’s products or services to, or conducting other business with, customers outside of the United States? If so, please provide the name and address of the person or company so paid and the reason for payment.
• In the past five years has your company, or anyone acting on its behalf, paid transportation, hotel, meals, entertainment or any other expense to a foreign public official either visiting the U.S. or traveling outside the U.S.? If so, please provide the particulars of such payment.
• Has your company, in the past five years, provided anything of value directly or indirectly to a foreign public official or a member of their family? If so, please provide the particulars of such gift or payment.

Ethics

• Does the company have a written code of business ethics and conduct?
• Is it provided to each employee working on a U.S. government contract?
• How does the company promote compliance with its code of business ethics and conduct?
• Please describe any business ethics and conduct awareness program.
• Do internal audits/assessments review for compliance with the requirements of U.S. Government contracting?
• Does the company have a "hotline" by which employees can report misconduct?
• Are employees encouraged to make appropriate reports? How?
• Have any employees been disciplined in the past three years? If so, for what and what was the discipline?

Information Systems

• General description of type and number of hardware and software installations
• Current organizational structure
• Infrastructure Overview: Voice and Data Network, Infrastructure services, Data centre, Desktop Support, Helpdesk, Security
• Applications Overview: ERP and BI, Engineering, Infrastructure, HR, Data takeover, Other
• IT budgets: Any TSA or agreements with service providers, Revenue/Expense, Capital
• List of Infrastructure (eg. Hardware lists)
• List of Software and any associated transfer costs
• IT Policy requirements, Pen tests, DR, SAM (Software Asset management), Policy

Operations

• Nature of manufacturing process.
• Any trademarks, patents, licenses or similar agreements.
• Factors in manufacturing process (e.g., know-how capital Investment, skilled labor force, etc.)
• Production scheduling techniques employed.
• Use of EOQs, BOMs, engineered standards, etc.
• Production methodology (i.e., JIT).
• Storage and Warehousing facilities
• Availability and price patterns of raw material.
• Schedule of backlog orders available?
• Lead times.
• Quality control.
• Extent of scrap.
• Identify components of production costs. (i.e., materials, labor, overhead).
• Identify fixed and variable costs, breakeven point and the relation of volume to breakeven level.
• Identify effects of non-cash costs and cost accounting for idle capacity and variance accounting.
• Obtain a breakdown of manufacturing overhead.
• Machine shop processes and equipment
• Assembly process and equipment
• Special facilities
• General facilities survey
• Capacity and Efficiency
• Efficiency of equipment
• Estimate remaining economic life of machinery and equipment
• Percentage of Production capacity utilized during past several years.
• Trend information for:
  • Idle time
  • Waste and scrap
  • Accidents, absenteeism, and overtime
  • Delays in delivery time
  • Returned goods
  • Downtimes.
• Use of EOQs, BOMs, engineered standards, etc. Industrial engineering

Purchasing

• Identify principle raw materials
• Past and future price trends
• Raw material supply
• Evaluate principal suppliers, locations and materials or products supplied. Financial viability or major suppliers.
• Items available from single source. Not Complete
• Order procedures (address REQs, POs, matching function and payment).
• Availability of land, labor, materials, and utilities
• Expansion necessary
• Zoning requirements and environmental regulations

Quality

ISO audit results Processes and procedures well established and adhered to

===============

Merger and/or Acquisition Due Diligence Checklist

I. Governance

Articles/Certificate of Incorporation and all amendments

Bylaws and all amendments

Corporate Minute Book

Annual Reports

II. Policies

Conflict of Interest Policy

Whistleblower Policy

Document Retention/Destruction Policy

III. Organizational and Registration Information

Organizational chart

Schedule of states where organization is doing business or raising funds, or owns property

IV. Tax

State tax returns

Local tax returns

Employment tax filings

Communications with IRS, State tax authorities

Tax liens

V. Real and Physical Property

Schedule of all real property owned or leased

Title policies, deeds, mortgages, security agreements, guaranties

Leases

Surveys, zoning approvals, variances, use permits

Environmental reviews

Schedule of hazardous wastes used, disposal methods employed

Equipment Leases

VI. Legal

Permits, licenses

Communications with EPA and other regulatory agencies

Schedules of related litigation, investigations

Schedule of contingent environmental liabilities

VII. Intellectual Property:

Schedule of significant IP, including trade secrets (e.g., donor lists, fundraising plans)

Registrations and applications

“Work for hire” and consulting agreements, nondisclosure agreements

VIII. Financials

Financials, audited (if available) – 3 years

Budgets, projections, strategic plans

Analyses of debt and contingent liabilities

Analyses of A/R and A/P

Analyses of fixed and variable expenses

Depreciation/amortization methods

Internal controls

IX. Contracts

Subsidiary, partnership, joint venture, affiliation agreements

Agreements with directors and officers

Loan agreements, lines of credit, promissory notes

Security agreements, mortgages, indentures, collateral pledges

Grant agreements, enforceable pledges

Restricted gift agreements

Sales and service agreements

Program-related agreements

Nondisclosure and noncompete agreements (applicable to the organization)

Letters of intent, memoranda of understanding

X. Human Resources

Employee information – position, titles, compensation, benefits, years of service, contracts, background checks

Nondisclosure and noncompete agreements (applicable to the employees, contractors)

Key employee information – resumes

Workers’ compensation, unemployment, and other HR-related claims

Employment policies and handbooks

Retirement plans (qualified and nonqualified)

Collective bargaining agreements (if applicable)

Description of significant employee problems, including alleged wrongful termination, harassment, discrimination

Insurance policies (H/R-related)

Employee-independent contractor categorization

XI. Risk Management:

Litigation – actual, pending, threatened

Settlement agreements

Injunctions, court orders, consent decrees

Unsatisfied judgments

Insurance policies

Schedule of claim

Risk management policies, practices, known violations

XII. Other

Licenses, permits, accreditations

Program-, service-, and product-related due diligence

Marketing research

References and Notes

1. ↑ http://en.wikipedia.org/wiki/Due_diligence