Concrete contractor due diligence

A buyer who has signed a letter of intent is no longer asking whether a concrete contractor looks good. The question is whether what the seller said is true, and in this trade the answers are spread across public registries, regulators’ accounts, the seller’s job files and the customers themselves. The general framework is in what to check before buying a business. This page covers what is particular to a concrete contractor.

Registry searches come first

Searches against public registers do not depend on what the seller says. In Ontario, the Personal Property Security Registration system, reached through Access Now, shows whether a lien has been filed against personal property such as mixers, pumps and forming equipment. British Columbia and Alberta keep their own personal property registries, and Quebec keeps a register of personal and movable real rights under the Civil Code. A buyer can ask its lawyer to search the company, any former names and, where equipment is held outside the company, the owner personally. Each registration should match a lender, a piece of equipment and a payout figure on the seller’s own list. A registration that matches nothing on that list needs an explanation. What a PPSA search is explains how to read the results.

Workers’ compensation, fleet and licence records

The next set of checks is regulatory. In Ontario, WSIB policy says a clearance is valid for up to 90 calendar days and is renewable, and that principals and contractors must keep a record of clearances for at least three years. Asking for the clearance history on the contractor’s structural jobs therefore shows both whether the account has been in good standing and whether the seller keeps records. The same policy says a principal without a clearance may be liable for the contractor’s payment obligations to the WSIB, up to the value of the labour portion of the contract, and the WSIB says it issues clearances to relieve the principal of liability for amounts the contractor owes, for the validity period of the clearance. WCB-Alberta’s clearance letter states whether a contractor has coverage and an account in good standing, and WCB-Alberta says that without one, a principal may be liable for premiums the contractor has not paid.

For the trucks, an Ontario CVOR abstract summarizes a carrier’s collisions, convictions and inspections, and the province says an Unsatisfactory safety rating causes operating privileges to be suspended or cancelled throughout Canada. In Quebec, the RBQ publishes a way to check whether a contractor’s licence is valid.

Excavation and utility strikes

Foundation and footing work involves digging, so excavation records are worth asking for. Ontario Dig Authority, formerly Ontario One Call, says requesting a utility locate before excavation is free and required by law, and that contacting it before you dig helps protect a project from damage, injuries and potential administrative penalties. A buyer can ask the seller for the locate requests behind recent excavation jobs, whether the locate packages were kept on site as the Authority advises, and for any record of a strike or near miss.

Past pours and warranty claims

An unresolved structural claim can be a serious finding. A buyer can ask for a list of every project in recent years on which a customer complained of cracking, settling or failure, with the outcome, any insurer involvement and any warranty the contractor gave. Correspondence is more reliable than summaries, because a claim settled by phone may appear in no file. A closed claim paid by an insurer is information about quality. An open claim on a foundation is a liability, and whether it stays with the seller or follows the business depends on how the deal is structured, which is a question for the buyer’s lawyer.

Backlog, holdbacks and receivables

Backlog is checked against signed contracts and, with the seller’s permission, against the customers themselves. Beside it sits the work-in-progress schedule, job by job, reconciled to billings and to bank deposits. Two items deserve separate attention: amounts customers are holding back on finished jobs, with the dates they are due and any dispute behind them, and older receivables from general contractors. Held-back money that has sat for a long time may point to a deficiency list nobody has cleared, which could land on the buyer’s working capital.

Crews, classification and unions

Payroll records show how each crew member is paid. CRA’s guidance describes a self-employed worker as someone who carries on their own business and is free to choose how to carry out the contract, so a finisher paid as a contractor who works only for this company, on its schedule, is a classification question for the buyer’s accountant. Where the workforce is unionized in Ontario, section 69 of the Labour Relations Act, 1995 provides that when an employer bound by or a party to a collective agreement sells its business, the person it is sold to is bound by the agreement as if it were a party, until the Ontario Labour Relations Board declares otherwise. A labour lawyer should read the agreement and the rest of that section.

What a finding means

Findings are not equal, and the same discovery means different things depending on its size and cause:

• A registration nobody mentioned may be unlisted debt against equipment. It can be resolved by a payout and discharge at closing or a price adjustment, and it prompts a closer look at what else was left out.
• A gap in clearances or unreported payroll is a liability in the account itself. It can be fixed or priced before closing, and it may raise doubt about the rest of the books.
• An open structural claim can be a serious finding because its size may be unknown. A buyer may price it, hold part of the price against it, or walk away.
• Backlog smaller than described may reflect the difference between awarded and signed work, and it can change the price.