Drywall contractor due diligence

For a drywall contractor, some items are not visible in financial statements: how the work was built, who is actually on the payroll, and whether the board and creditors have claims. This guide sets out which documents to ask for, which searches to run, and which findings are serious enough to change the deal. It is a map of questions, not a legal opinion, and your lawyer should decide what to ask for in your province. Agree the scope with your lawyer and accountant on day one, so each knows which requests belong to whom and nothing falls between them.

Project and customer documents

Ask for every active contract or purchase order, a schedule of jobs finished in the past few years with the general contractor and building type for each, and the accounts-receivable listing by customer. Compare the schedule with the revenue in the statements. Ask what share of work came from the largest accounts, which is customer concentration. Ask for correspondence on any dispute, back-charge or rework request. Where the contractor worked on fire-rated assemblies, ask for the drawings, inspection records and any deficiency lists, and have someone who knows the work read them. Ask for the insurance policies in force and any claims history. Ask for the lease or yard agreement and any vehicle financing. Ask for the employment agreements and any non-compete terms the crew has signed.

Workers and the board

Request a list of everyone who worked for the company in the past year, split into employees and subcontractors, with the paperwork behind each subcontractor. The CRA says an employee generally works under the direction and control of the individual or business who hired them, and a self-employed worker carries on their own business, so ask about the actual working relationship, not only the label. Then check the board account. The WSIB says a buyer of a business’s assets should get a purchase certificate, and that it may hold the purchaser liable for amounts the vendor owes up to the date of sale without a valid one. WorkSafeBC says that if a seller owes unpaid premiums, the firm’s assets may be subject to a lien in favour of WorkSafeBC.

Searches on assets and the company

Run a personal property security search against the company and any related owner. Ontario’s Access Now lets you find out whether a lien has been filed in the province’s personal property security registration system, and British Columbia runs its own personal property registry. Provinces run their own, so search where the company and its equipment are based. Ask your lawyer to add searches for litigation and, if relevant, corporate records, and to confirm what the equipment list shows against what the searches return. If a search finds a registration the seller did not mention, ask what debt it secures and whether it will be paid out at closing. Keep the dates of each search and ask your lawyer whether to repeat it shortly before closing.

Findings that can end a deal

Findings like these may be serious enough to change the price or the decision:

• A fire-rated assembly in a multi-unit or commercial building that does not match its tested design, so ask who would bear the cost of fixing it after a sale
• A pattern of moisture or mould claims on completed jobs, which may point to a method problem, so ask what caused each one
• One or two general contractors accounting for most of the work, with no sign they will stay after a sale
• Unpaid board premiums or a lien against equipment that the seller cannot clear before closing
• A crew that will not commit to the buyer, or workers treated as subcontractors whose status would not hold up

What to do with what you find

Not every finding is fatal. A lien that the seller can discharge at closing is a closing mechanic. A claim history may be priced, or covered by a holdback or indemnity your lawyer drafts. A defect in a past assembly may need an engineer’s review before you decide. Ask the seller to answer each request in writing, with dates, so that nothing rests on a phone call. Keep a running list of findings with a proposed response beside each, and share it with your lawyer weekly. Do not let a finding sit unanswered until the last week, since the seller’s answer may itself need checking, and a late surprise leaves little time to renegotiate or walk away. The buyer due diligence checklist covers items common to every acquisition, and the quality of earnings entry explains how earnings get tested.