Buying a general contractor in Canada

Someone weighing a general contracting business is buying a company that wins and delivers projects, and it is easy to look first at the revenue and the backlog. Start with yourself. Some of what the business relies on, such as a licence or a bonding facility, may be tied to a named person or to the company’s history, not to the company as a bundle of assets. If you cannot qualify for it, the backlog may not be yours to finish. Then look at the business, and then at what the seller may not mention. For the wider picture, see buying a trades business.

What you must qualify for yourself

Ask each regulator and the surety what they will require of you as the new owner, before you price the deal. In Quebec, the Régie du bâtiment du Québec’s licence section covers the licence classes and subclasses, examinations and competency evaluation, recognized training and licence security, so a buyer without an existing licence should ask about each. In Ontario, ESA says only electrical contractors it licenses may do electrical work for hire, and that a licensed contractor must be a Master Electrician or have at least one working for it at all times. If the business performs any work of that kind itself, confirm who holds that qualification and whether they are staying. Ask a surety what it would want to see from you.

What a sound contractor looks like

Look for a company where more than one person can price, run and close out a job. Ask for the names of the project managers and how long each has been there. Look for signed work spread across several clients, not one developer. Look for subtrades who have worked with the company on more than one project and who can say so. A contractor whose last few years of jobs all came through the owner’s personal calls is a different purchase from one with a documented bidding process, even if the revenue is the same. Ask to see how a recent bid was built, from the quantity take-off to the subtrade quotes to the margin, and who signed off on it. A company that can show that process is easier to assess.

What the seller may not volunteer

Do not wait for the seller to raise these points. Ask directly about jobs priced below cost to win them, change orders the client has not agreed to pay, deficiencies the client has raised, holdbacks still outstanding, and amounts owed to subtrades and suppliers on finished work. Ask whether any project is in dispute, and whether the seller expects a claim on completed work. Ask about the surety: whether it has been asked to pay out, and whether it has said anything about the company’s future capacity. Ask whether any subtrade has refused to work for the company again, and why. These answers may not appear in a financial statement, so ask for the documents behind each one.

Shares or assets changes what comes with it

The structure of the deal decides what you take on. If you buy assets, ask for each contract, licence and registration whether it can be assigned or must be reissued to you, and who must consent. If you buy shares, ask what the company carries with it, including claims on past work, workers’ compensation history and any obligations to the surety. Your lawyer and accountant can tell you which structure fits your situation. Settle the question before you sign a letter of intent, because it changes what you ask the seller to disclose.

Workers’ compensation is part of the purchase

The company’s workers’ compensation history comes with it in some deals and not in others, so ask. In Alberta, WCB says that if you hire a contractor or subcontractor without WCB coverage, you could be responsible for any outstanding premiums, and it advises getting a clearance before hiring and before releasing payment. In Ontario, the WSIB’s policy says the principal and contractor must ensure a clearance is obtained before construction work begins and remains in effect for the entire time the work is done, except where a householder retains a contractor for exempt home renovation work only. Ask for current clearances for the company and for the subtrades on live jobs.

• Which licences, qualifications and bonding does the business rely on, and which of them depend on a person who is leaving?
• Who besides the owner prices work, manages jobs and holds the client relationship?
• What disputes, deficiency claims and unpaid holdbacks exist on completed projects?
• What does the surety say about supporting the company under new ownership?
• How much of the backlog is signed, and what consents does it need to transfer to you?