City+: `Standard terms' is to be the key phrase for preparatory work on private investments, writes Roger Trapp
The matter is small beer in relation to the general, vexed issue of liability, but it is worth noting that venture capitalists and their accountant advisers have struck a compromise in their dispute over suing in connection with "due-diligence" work. The memorandum of understanding on liability capping, agreed last week, brings to an end 15 months of talks, prompted by the Big Six accountancy firms' agreement in October 1996, that in future venture capital due diligence work - which typically involves accountants in reviewing financial and other information relating to a business before an investment is made - would be subject to standard terms.

The British Venture Capital Association, with represents the leading firms in the field, responded by complaining to the Office of Fair Trading.

The settlement of the dispute follows the Big Six concessions with regard to smaller deals. But Alan Comber, of KPMG, who is spokesman for the Big Six on the issue, said it was "very important" to the firms involved that "the BVCA has recognised the principle of both a cap and proportionality, while avoiding the need to negotiate complex proportionality clauses on most transactions."

Under the memorandum, the venture capital market is split into three categories, based on size of transaction. The smallest deals are classified as those worth less than pounds 10m, and in this case the accounting firm's liability will be limited to the size of deal. In mid-market transactions (pounds 10m to pounds 55m), liability will be limited to pounds 10m, plus a third of the amount by which the transaction value exceeds pounds 10m. This will result in a cap that rises to pounds 25m on a pounds 55m transaction. For the larger transactions (more than pounds 55m), the terms will normally include proportionality clauses, together with a cap set at pounds 25m.

Norman Murray, BVCA chairman, pointed out that, while members were not bound to use the memorandum, the organisation believed that it represented "a sound working framework for the negotiation of contracts of due diligence".

The association had been especially concerned that smaller deals were included under the original agreement, because such transactions were estimated to account for about 90 per cent of venture capital deals. Mr Comber responded that the accountancy firms were keen to have an agreement that provided "a fair limitation of our abilities" on the larger transaction. It is reckoned, for example, that last year there were about 40 venture capital transactions with a value of more than pounds 55m.

The move comes as it appears that proposals to allow accountants and other professional firms to set themselves up as limited liability partnerships will be contained in the Queen's Speech later this year.