Electrical contractor due diligence

At this stage the useful question is whether what the seller said holds up. For an electrical contractor, much of it can be checked with someone other than the seller: the regulator, a registry, a workers’ compensation board. This guide lists which documents to ask for, which searches to run, and which findings to raise with your lawyer. It assumes you have already read what to check before buying and are now testing the answers.

The licence file and the people behind it

Ask for the current contractor licence and the name of each Master Electrician or equivalent the business relies on. The Electrical Safety Authority (ESA) says an Ontario licensed contractor must be a Master Electrician or have one working for it at all times, and that the Director of Licensing may refuse a licence if requirements are not met. If the only qualified person is the seller and no successor is named, you cannot assume the licence will be available to you. In other provinces, ask the provincial authority what it requires. ESA also lists, among its licensing requirements, workers’ compensation registration where required and having paid or arranged to pay assessed tax, penalty or interest under certain tax statutes, so ask for proof that the business is current on both. Compliance action on file is a finding to discuss, not just to note. Ask the seller for the correspondence behind it and for what was done to resolve it.

Contracts, consents and insurance

Ask for every significant customer agreement, and read the assignment and change-of-control clauses to see which can pass to a buyer without the customer’s consent. Ask for the insurance certificates and the claims history, and confirm with the insurer that the policies continue after closing. Ask for the list of open jobs with what has been billed and what remains, so that you can see unfinished work and any amounts customers are holding back. Where the contractor posts bonds or sureties for larger jobs, ask how those would be replaced.

Registry searches on equipment and vehicles

Service trucks and test equipment can carry liens. Ontario’s Personal Property Security Registration system lets you find out whether a lien has been filed, through Access Now. British Columbia’s Personal Property Registry records security interests and liens against personal property under that province’s Personal Property Security Act. Run the searches in each province where the business holds assets. See how to run a PPSA search before buying. Ask your lawyer whether to repeat the searches close to closing. A registered claim the seller did not mention is a conversation to have before closing.

Workers’ compensation and clearances

In Ontario, the Workplace Safety and Insurance Board (WSIB) says that for an asset purchase you should get a purchase certificate and that it may hold the purchaser liable for amounts the vendor owed if you do not. It says a share sale creates no new entity, so no certificate is required, though the Share Purchase Agreement must still be submitted. For construction work, WSIB says a principal who directly retains a contractor for construction work must obtain a clearance certificate (its policy does not apply to householders who directly retain a contractor for exempt home renovation work only), that starting construction work without one is an offence for both parties, and that a clearance is valid for up to 90 calendar days. Ask whether the contractor’s work falls within WSIB’s construction policy, then ask for the clearances on file for current jobs.

Underground work and locate records

Ontario Dig Authority says contacting it before you dig helps protect a project from damage, injuries and potential administrative penalties, and that requesting a locate is required by law. If the contractor does underground service work in Ontario, ask for locate requests and responses on recent jobs, and for any record of damaged buried lines. A contractor that cannot show its locates has a process question you should resolve before closing. Ask also how the company handles a strike on a buried line, who is told, and whether any claims remain open.

Findings to raise with your lawyer

• A pattern of failed inspections or open deficiencies in the permit history, which raises questions about the quality of the work and any liability that comes with it.
• No qualified person who will stay or step in after closing, because in Ontario ESA requires a licensed contractor to be or have a Master Electrician at all times.
• A registered lien on key equipment that the seller did not disclose and cannot clear by closing.
• An unresolved workers’ compensation balance, or no purchase certificate or clearances, which WSIB says can leave a purchaser or principal liable.
• Customer concentration in relationships the owner holds personally, with no handover plan. See customer concentration.

Not every finding need end a deal. Some may be dealt with by a price change, a holdback, or a closing condition. What to do if diligence finds a problem covers the options.