How do I check a contractor’s work in progress before buying the company?

Work in progress is where a contractor’s true condition often hides. Ask for the schedule for every open job and read the contracts behind the biggest ones. Look for change orders that were verbal, billing that runs ahead of the work, and costs that are still to come. Have your accountant compare the schedule with the financial statements. If the statements count revenue the work has not yet earned, the profit can look better than it is. Ask how the seller estimates the cost to finish, and who last checked the estimate.

Visit several sites with the seller’s help. Talk to the site supervisors, and, if the seller allows, to the clients. Ask about deficiencies, delays, disputes and holdbacks. Finally, decide who carries what. If you buy the company, its obligations on each open job come with it. Your lawyer can explain whether the agreement should adjust for jobs that run over, and how to handle bonds and insurance. Keep notes from each site visit and bring them to your lawyer and accountant, so the final agreement reflects what you actually saw on the ground.

Key takeaways

• Get a job-by-job schedule and tie it to the financial statements.
• Visit several active sites and talk with supervisors.
• Have your lawyer settle who carries the risk on open jobs.
• Write up each site visit and share it with your advisers.