2.38 Due diligence costs can be high and can make low value changes uneconomic if applied. Legal due diligence will generally be necessary where there is either a change in the terms of the contract or else where a separate deed of variation is necessary, as for some high value changes. Technical due diligence may be necessary if the variation results in additional design or construction risks or has a material effect on lifecycle and operations. The protocol should state where third party due diligence may be appropriate, but this should be limited to larger changes.
2.39 Financial due diligence may be required for adjustments to the financial model and the payment mechanism. For high value variations, senior lenders may wish to interrogate the financial model to make sure that cover ratios remain acceptable. Where possible, authorities will wish to avoid having to re-run the financial model because of the cost charged for doing so. For small value changes, it is preferable to adjust the financial model no more than once each contract year to reflect the changes which have taken part in the year. Where possible, authorities should look to group changes together to keep re-runs at a minimum. For high value changes, it is appropriate to pre-agree a fee for this work as per para 2.23 of this guidance. Where the mechanics for altering the financial model to calculate the new unitary charge are not covered in the original contract, the mechanics should be agreed and documented. Some of the older projects may rely only on a "no better, no worse" principle. Authority may wish to include the requirement to "optimise" the model. Some projects have developed a variations model with their contractor where the effect of a variation on the Unitary Charge is calculated outside the main model in order to save the time and cost of re running the main model.