CHAPTER 2 LET'S JUST TALK ABOUT IT: COMMUNICATION AND COORDINATION IN TITLE AND DUE DILIGENCE PROJECTS
| Jurisdiction | United States |
LET'S JUST TALK ABOUT IT: COMMUNICATION AND COORDINATION IN TITLE AND DUE DILIGENCE PROJECTS
Gage Hart Zobell
Dorsey & Whitney LLP
Salt Lake City, UT
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MARK L. BURGHARDT represents clients in the energy and natural resource industry in litigation, administrative hearings, and transactions. Mark engages with clients to prevent and solve issues with the location and development of their oil, gas, mining, and renewable energy projects. He has worked with companies on projects involving federal, state, private, and Indian lands. Mark has also represented clients in a wide range of transactions and joint ventures. He has litigated energy development and land use disputes in both federal and state court and has routinely appeared before Utah Board of Oil, Gas and Mining and the Utah Division of Environmental Quality.
A. Introduction
Title and due diligence projects are time consuming and difficult. They require tremendous resources and organization, in both the records reviewed and the people involved. Faced with such a sometimes herculean task, it is tempting to jump in with both feet and start working before you have any sort of plan and without truly understanding the scope of the project. Proper communication and coordination--especially at the beginning of the project--are often overlooked components of the project. The purpose of this paper is to help you understand how to communicate and coordinate with the client and the title or due diligence team so that you can complete a successful title or due diligence project.
This paper is not meant to provide a detailed analysis of each step in the title or due diligence process. There are other papers that cover these topics in terrific detail.1 Rather, this paper is meant to provide you with some practical advice on how to understand, plan, and execute the title or due diligence process. In particular, this paper will address how to effectively communicate and coordinate with the client and client team to understand the scope of the project, the issues and objectives that the client is trying to achieve, and when and how to discuss critical issues with the client.
B. Scoping the Project
Preparation is often cited as the key to success, or at least the surest way to avoid failure.2 This is especially true when planning, coordinating, and completing title and due diligence projects. Experience has shown that the first step in preparation for either of these projects is scoping. This is the stage where you sit down with the client to discuss the specific objectives, deadlines, composition of the team (especially for the due diligence in a large acquisition), limitations on your review, deliverables, and potential cost. Because each project is unique, the scoping process should be tailored to your specific project. There are, however, certain steps that you can follow in every project to aide in the scoping process.
1. Understand the Project
The first step in the scoping process should be to conceptually wrapping your arms around the entire title or due diligence project. This is true even where you are handling only a discrete portion of the project. By making sure that you understand the project at the beginning, you can avoid problems later on when unstated expectations or misunderstandings can cause problems for both you and the client. Here are some suggestions for how you can acquire the information required to understand your project.
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i Conduct an Initial Client Meeting
You should conduct an initial meeting with the client as soon as possible. The meeting's purpose is to ensure that expectations are stated and that everyone is on the same Page regarding objectives, deadlines, responsibilities, deliverables, costs, and potential "deal killers." This initial discussion is equally applicable to due diligence and title projects, though the scope of your discussion will likely be much broader when conducting due diligence on a large acquisition. Regardless of the size of your project, clearly understanding and discussing the client's expectations at the outset is critical to successful completion of the project.
While various commentators have assembled lists of potential discussion points to help guide you through these initial scoping meetings, we recommend that you consider the following questions:3
• What are the client's specific objectives in conducting the title examination or due diligence and what does the client consider deal killers?
• What are your deadlines (e.g., when does the client plan on drilling the well or closing on an acquisition)? Are there deadlines in the purchase and sale agreement (PSA)?
• What are the relevant expenses, both in terms of attorney time and third party expenses (e.g., abstract company)? Will the client engage the third party directly or will those companies be engaged by the law firm with the costs being passed on to the client through the attorney invoices?
• When the due diligence involves the purchase of an asset or entity, what is the definition of materiality used in the PSA and how might this affect your project?
• Who will be on the project team? Who will be in charge of the team and what is the reporting and responsibility structure?
• Are there any confidentiality agreements or other formal or informal limitations on your review?
• What is your final work product and how and when will this be delivered?
It is most likely unavoidable that the answers to some of these questions will change as the project progresses, but experience has shown that clearly understanding the project parameters at the beginning will lead to better results and a more efficient and cost-effective process for all involved.
ii A Few Thoughts on Final Work Product
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It is important to understand the work product that you will be delivering and how this will affect the scope of your project. For due diligence projects, you may have considerable latitude to determine how to report the final results of your due diligence.4 Alternatively, the client may have a specific format in which you are expected to report your findings. Regardless of the format used, knowing the final deliverable will help you plan your due diligence or title examination accordingly and will allow you to gradually compile your final work product as you move through the title examination or due diligence process.
There are different considerations regarding final work product for a title opinion. Chances are that, as an experienced title attorney, you already have a favorite title opinion form. What you need to know up front is what is the client's objective. Does the client want a drilling title opinion to verify that all of the interest is leased or does the client want a division order title opinion for distribution of production proceeds? If the client simply wants a drilling title opinion, there is no reason to address division-order issues (e.g., whether a particular interest should be held in suspense). On the other hand, if the client is expecting a division order title opinion, the failure to identify what interest should be held in suspense will likely result in a very unhappy client. Do not make assumptions about which type of opinion your client needs, and be ready to explain the relative benefits of both and what the additional cost might be to prepare a combined drilling and division order title opinion. Knowing what the client needs and expects at the beginning of your title examination will save a lot of headaches down the road.
2. Assembling and Organizing the Team
The next step in the title examination or due diligence process is to assemble and organize the team. The composition of your team will vary significantly depending on whether you are conducting due diligence or rendering a title opinion. In rendering a title opinion, the team may consist of only an abstract company and the title attorney.5 In contrast, a due diligence project for a large acquisition may require the use of multiple firms, environmental and tax consultants, and other third parties vendors covering specific portions of the due diligence.
Assuming that the client has asked you to assemble or manage the team, you will need to designate a process for managing workflow and reporting. As discussed in greater detail in several other papers, coordination and communication within the team and with the client is an important part of effectively managing your project.6 Establishing a clear chain of command and assigning specific responsibilities to individual team members, not just companies, is an effective and efficient way to manage the due diligence process. The various team members should understand the client's objectives, deadlines, relevant standards, and what work product will be delivered to the client, both in periodic and final reports. It is a good idea to create and circulate a responsibility
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matrix indicating exactly which team member is responsible for what task.7 This matrix should be continually updated as the project progresses.8
In regards to organization, the larger the due diligence project the more likely it is that you will need to assign various team members to fill supervisory roles, such as Project Manager9 and Team Leaders.10 Regardless of the size of the project, one individual should be tasked as the "Project Manager." As the due diligence and title project grows in size, the actual substantive review performed by this Project Manager decreases. In a very large transaction, the Project Manager may solely focus on the gathering, organizing, and disseminating of information, organizing reports, and communicating with the client.11 Depending on the size of the project, Team Leaders may be necessary to coordinate and lead smaller teams conducting certain aspects of the due diligence.12 The key takeaway here is that the...
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