HVAC contractor due diligence

A buyer under a signed letter of intent is no longer asking whether the contractor looks good. The job now is to confirm that the claims behind the price are true and to find what the seller did not mention. For a heating and cooling contractor, that means three checks. The first is whether the repeating work is real. The second is whether the people and permissions needed to do the work will still be there. The third is whether the company carries liabilities, such as unpaid safety-board amounts or unresolved callbacks, and whether they would pass to you, which can depend on whether the deal is a share or an asset purchase, a point to confirm with your lawyer. This guide sets out the documents to ask for, the registry searches to run, and the findings that can change or end a deal.

Test the maintenance book against the visits

Request the full list of maintenance agreements with customer, start date, renewal date and price basis. Then ask for the service records that show each agreed visit was performed. An agreement with no visit history may be a name on a list. Read a sample of the agreements themselves for assignment and termination terms, because a contract that cannot be assigned without consent changes the plan. Look at cancellations by month and compare the months around the sale talks with earlier ones. Where the vendor contracts matter, which supplier and manufacturer terms apply, read those too.

Match certificates and registrations to people

Ask for a schedule listing every certificate, licence and registration the work depends on, with the holder, the number and the expiry date. Then check each against the issuer. In Ontario, Skilled Trades Ontario issues certificates of qualification and TSSA says contractors working on fuel oil equipment must be registered with it, and in Quebec the Régie du bâtiment du Québec provides a repertory of licence holders for the licence checks it describes. TSSA says its licences are not transferable and the new owner must apply, so confirm which of the business’s permissions are held by the company and which by individuals. Any permission that lapses at closing is a condition to solve before closing.

Check workers’ compensation status

Ask for the safety-board account status and any clearance letters. In Ontario, WSIB policy says a clearance certificate relieves a principal of liability for payment obligations to the WSIB that a contractor may incur on a contract with that principal during its validity period, and that it is valid for up to 90 calendar days. The same policy says that if the contractor has payment obligations owing to the WSIB, the principal may be liable for them up to the value of the labour portion of the contracts between them. WorkplaceNL says its clearance confirms whether a contractor has its own coverage and is in good standing. Ask whether the company obtained clearances for the subcontractors it uses, and whether they were current when the work was done.

Look at excavation, electrical and incident records

Not every heating and cooling contractor excavates or does electrical work, so ask what the business actually does. If crews dig, ask for the locate records. Ontario Dig Authority, the name Ontario One Call now operates under, says a locate request must be submitted before any excavation begins and that contacting it helps protect a project from damage, injuries and administrative penalties. If the company does electrical work in Ontario, ask whether it holds an Electrical Safety Authority contractor licence; ESA says only electrical contractors it licenses may do electrical work for hire in Ontario. Request incident reports, insurance claims history and any regulator correspondence. A gap in these records is not proof of a problem, but it is a reason to ask the seller to explain.

Which findings can end a deal

Findings change a deal in different ways. If cancellations cluster around the sale announcement, ask whether customers were attached to the owner rather than to the company. Safety or refrigerant incidents that were never documented raise the question of what else is missing. Key certified technicians who will not commit to staying may leave the buyer unable to perform the work. Unresolved callbacks on large installations are a liability that can be priced or covered by a holdback. A permission that cannot pass to the buyer should be settled with the regulator before closing. Decide which findings you would accept at a lower price, which need a condition, and which end the deal.

• Maintenance agreement list, sample contracts and visit records for each
• Certificate, licence and registration schedule, checked against the issuers
• Safety-board account status, clearance letters and subcontractor clearances
• Locate records, if crews excavate, and electrical licence status, if electrical work is done
• Incident reports, warranty and callback files and insurance claims history