School bus contractor due diligence

A buyer under a letter of intent has a short window to confirm that what the seller described exists and can be transferred. In this sector the work falls into five areas: the agreements that give the business its revenue, the carrier safety record, the drivers, the buses, and the security registered against those buses. Each area has its own documents and its own searches, and a serious finding in some of them can end the deal outright. The point of the list below is to show which documents to request, which searches to run and what each result means, so the findings can be weighed and priced. The searches named here are Ontario’s.

The agreements and who must consent

Request every route agreement with amendments, and read the term, the renewal wording, the termination rights and the clauses on assignment and change of control. Then ask the contracting body, in writing, whether it consents to the proposed buyer or to the sale structure. A refusal, or a statement that the routes would be tendered afresh, changes what is being bought. An agreement that ends soon with no renewal signal is a finding too. Reflect it in price or in a closing condition, and do not leave it to be assumed. Keep the correspondence together, because the same replies will be needed by your lawyer and by any lender.

The carrier record

Ontario’s ministry says a CVOR abstract summarizes a carrier’s collisions, convictions and inspections, and that a Level 2 abstract provides detailed event data for a five-year period. The ministry lists the Level 2 record as for carriers only, so ask the seller for it and for the online carrier record, compare them with what the seller reported, and read the safety rating, which the ministry says is public. The ministry also says an unsatisfactory rating results in operating privileges being suspended or cancelled throughout Canada, so treat it as a possible deal-ender. Ask about any ministry intervention, audit or sanction, and ask whether the seller’s answers match the record.

Drivers and credentials

Ask for the roster with each driver’s licence class, course certificate date and hire date. The MTO handbook says a class B or E licence applicant must complete a ministry-approved school-bus driver improvement course, with a certificate valid for five years, and sets limits on demerit points and on certain Criminal Code convictions. Compare the roster to those conditions and to any further screening the contracting bodies require. A route that depends on a driver whose credentials lapse soon is a finding. So is a roster that depends on the seller driving.

The buses, and what is registered against them

List each bus with its model year, inspection history, repair history and condition. Ontario’s Highway Traffic Act, s.175(4.1), requires every school bus registered in Ontario that was manufactured on or after January 1, 2005 to be equipped with overhead red and amber signal-lights in a set configuration, so confirm each unit meets the rules that apply to it. Then search for security interests. Section 23 of Ontario’s Personal Property Security Act says registration perfects a security interest in any type of collateral, and the province’s registry can be searched online. A lien the seller did not mention must be paid out or dealt with at closing. See equipment appraisal for valuing the fleet.

Employees, insurance and other contracts

Beyond the five areas above, ask for the employment terms of drivers and mechanics, any collective agreement, the insurance policies and claims history, and the leases for the yard and any maintenance garage. Read the insurance history alongside the carrier record and ask about any difference. Ask which other agreements, such as fuel, maintenance or software contracts, need consent to move. Ask what each of these means for the first months and what the seller should fix before closing.

What to do with a finding

Sort each finding into one of three groups: it can be fixed before closing, it can be priced or covered by a holdback or an indemnity in the purchase agreement, or it ends the deal. An outstanding lien can be paid out at closing. A lapsed driver certificate can be renewed. A refusal by the contracting body to consent, or an unsatisfactory safety rating, is harder to cure and may be a reason to stop. Write down the group for each finding and share the list with your lawyer before you respond to the seller.

• Written consent from each contracting body, or a clear statement that routes will be rebid.
• CVOR abstract, carrier record and any ministry correspondence on audits or sanctions.
• Driver roster with licence class, course certificate dates and any lapses.
• Registry searches against the company and each bus, with liens listed for payout.
• Inspection and maintenance records by unit, checked against what the seller reported.