Excavation and earthworks contractor due diligence

A buyer under a letter of intent needs to confirm, within whatever period the letter allows, that what the seller described is what exists. In an earthworks company the equipment may be the largest item, so much of the work can be matching the fleet list against ownership records and physical inspection. The rest is the record of what has gone wrong: buried-utility damage, safety orders, soil that was taken to the wrong place. This guide lists the documents and searches in an order that works, and explains what each kind of finding means for the deal.

Match each machine to its owner

Take the fleet list and search the security registry for the province. Ontario’s Personal Property Security Act defines equipment as goods that are not inventory or consumer goods, and provides for searches of the individual and business debtor name indexes and the motor vehicle identification number index, so search under the company’s name as well as each vehicle’s number. Its registration system can be searched for a lien, as the PPSA registration entry explains. Quebec keeps a register of personal and movable real rights under the Civil Code. Then inspect the machines and compare them with the list. If a lender turns up that the seller did not mention, read what to do if the seller pledged the same equipment to two lenders.

Read the incident and claims file

Ask for every utility-strike report, insurer claim, regulator order and near-miss record for the past several years, with the outcome of each. Where the company works in Ontario, ask for evidence that locate requests were made, and for the complete locate package on a sample of jobs, since Ontario Dig Authority says that package must be kept at the excavation site. An open claim with unresolved liability is a finding that can stop a deal. A closed one with a documented fix is information about how the company responds.

Check the carrier and driver records

Ontario’s carrier abstract summarizes collisions, convictions and inspections, and its higher-level record is for carriers only, so ask the seller to order and share it. Alberta issues Safety Fitness Certificates to carriers who own certain commercial vehicles. Ask for the equivalent record in the provinces where the trucks are registered, together with the licences held by each driver and operator. Gaps here may not matter to the price, but they do matter to whether you can operate on closing day.

Trace the soil

Ask for a list of sites worked, particularly former industrial land, and for the records showing where excavated soil went and who accepted it. Provincial regimes differ: British Columbia regulates contaminated sites under its Environmental Management Act and Contaminated Sites Regulation, and Alberta publishes soil and groundwater remediation guidelines. A prior environmental assessment, if one exists, belongs in the data room. The Ontario article on environmental cleanup liability for an asset buyer shows how the structure of the purchase affects who inherits a problem.

Test the customer relationships

Revenue by customer tells you who matters; conversations tell you whether they will stay. With the seller’s permission, and after the confidentiality terms allow it, speak to the two or three largest general contractors or developers. Ask what they would need from a new owner. Read the written contracts for assignment and change-of-control clauses. WorkSafeBC describes a business saving its clearance letter to send to its prime contractor, so where the company works in British Columbia, ask whether its clearance is current.

Know which findings change the deal

Not every finding means walking away. A machine with a lien the seller will discharge on closing is a closing condition. An old strike claim that is closed and paid is a footnote. Three findings carry more weight: a strike or injury claim with liability unresolved, because the exposure may follow the company; contaminated soil traced to a site the company worked, because the cost of remediation is something to ask an environmental professional about before signing; and customer relationships that would not survive a change of owner, because that is the revenue you are paying for. For each one, decide in advance whether you would want a lower price, a holdback, a different structure, or no deal.

Put the findings into the agreement

Diligence is only useful if the findings reach the purchase agreement. Ask your lawyer to turn each material finding into a representation by the seller, a closing condition, a price adjustment or an indemnity, and to consider whether part of the price should be held back until open items are resolved. Keep a running list of items found, who is responsible for each, and how it was dealt with. If the structure is an asset purchase, ask how liabilities for past work are left behind with the seller, and what protection you will have if they are not.

• Registry search results under the company’s name, and by vehicle identification number for each motor vehicle on the fleet list
• Utility-strike, claims and regulator-order file with outcomes and open items
• Carrier and driver records from each province where the trucks are registered
• Site list, soil disposal records and any environmental assessment reports
• Customer contracts with assignment clauses, plus current workers’ compensation clearance