Framing contractor due diligence

Under a letter of intent, the task changes from judging a business to proving it. In a framing company, look first for what the seller can produce in documents and what the public registries can show. This guide sets out the documents to request, the searches to run, and the findings that should stop or reprice a deal in this trade. It assumes you have already looked at the commercial picture in the guides on buying and on worth. Use it alongside the general buyer due diligence checklist.

Contracts, builders and backlog

Ask for every contract and standing supply agreement with a builder, plus the open job list with scope, price, billed to date and start dates. Read each for assignment and change-of-control wording, payment terms and warranty periods. A relationship with no paper behind it is a relationship you cannot test. Where the builder holds a right to approve a new owner, ask the seller to make introductions in a way your agreement allows. Compare the backlog to the last year’s completed jobs to see whether it is real. Ask also whether any builder has withheld payment or charged the company back for a defect, and read the correspondence. Ask your lawyer to confirm the company’s corporate records, including who the directors and shareholders are and whether any shareholder agreement limits a sale.

Registry searches

Search the provincial personal property registry for the seller’s name, the company name and any former names. Ontario’s Access Now service lets you find out whether a lien has been filed, and Alberta advises searching the personal property registry before buying personal property. BC’s Personal Property Registry records security interests and liens under its Personal Property Security Act. A registration against the equipment or the receivables tells you who must release it at closing. See how to run a PPSA search.

Workers’ compensation and clearances

Ask the seller for the account statement and any clearances. For an asset purchase, Ontario’s WSIB says it may hold a purchaser liable for amounts the vendor owes up to the date of sale without a valid purchase certificate, that the certificate must be requested before the date of sale and that it is valid for 30 days. Alberta’s board says to get a clearance before hiring a contractor and before releasing payment, and WorkSafeBC says unpaid premiums can lead to a lien on the firm’s assets. Ask the seller how the subcontractors it hires were cleared.

Crew status and payroll

Request each crew’s engagement agreements, invoices and payment records. The CRA says status is determined by all the facts, not only the intention of the parties, and that a CPP/EI ruling can be requested. Compare what the documents say with how the work is actually directed, tooled and paid. A mismatch is a finding. Its size depends on who must answer for it and for what period, so ask your lawyer which obligations could follow the business into your hands under your deal structure.

Project and safety records

Ask for inspection reports, engineering letters, deficiency notices and warranty claims for recent projects. Ask what was remediated, who paid, and whether anything remains open. A completed job with an unresolved structural question may be a liability for whoever owns the company or assumes the obligation, depending on the deal. Also request insurance policies and any claims history, and ask the insurer, not only the seller, whether the coverage can continue for a new owner and whether any claim is open. Match the dates on every certificate to the jobs it was meant to cover.

Financial and payroll records

Reconcile the financial statements to bank deposits and to the builder invoices behind them. The CRA publishes how employers remit payroll deductions and contributions, and its guidance covers confirming a remittance and viewing statements. Ask the seller for remittance confirmations and statements and for any notice or arrears. Ask for GST/HST filings as well. A company that has missed remittances may carry a liability that depends on the structure of your purchase, so put the question to your lawyer and accountant before you set the price.

Equipment, vehicles and leases

Match the equipment list to what is in the yard, by serial number where there is one. Ask which trucks, trailers and tools are owned, financed or leased, and get the lease documents. Compare the list to the registry search results, since a registered security interest over an item should appear there. Ask whether the staging and compressors used on site belong to the company or to crew members, because a crew’s own tools may not come with the sale.

• Builder concentration that the contracts show would not survive a change of ownership
• A structural deficiency history that required engineering remediation, or remediation still open
• Crew leads or subcontractors who will not commit to you
• Registry liens that the seller cannot or will not release at closing
• Workers’ compensation debts, or no clearance or purchase certificate where one is required