What is usually included in "due diligence" prior to forming a contract?

Due diligence is a critical process that occurs before forming a contract, and one of its primary purposes is to assess potential risks associated with the parties involved. Verification of the contractor's financial stability is a key component of this process. Ensuring that a contractor has the financial resources, creditworthiness, and stability to fulfill the obligations of a contract helps mitigate the risk of non-performance or default. This aspect of due diligence assists in protecting the interests of all parties involved in the contract by ensuring that they are engaging with a financially sound entity capable of meeting their contractual commitments.

The other activities listed, such as drafting the preliminary contract terms, negotiating payment schedules, and choosing project subcontractors, may occur later in the entire contract negotiation and formation process. While they are important in the overall contract management lifecycle, they are not typically part of the due diligence phase where financial stability and overall risk assessment are the primary focus. Thus, verifying a contractor's financial stability is integral to comprehensively understanding their ability to deliver on the contract and is a standard practice in the due diligence process.