What is a general contractor worth?

A general contractor sells coordination. It wins projects, hires subtrades under contract and delivers the finished result. Ask how much of what it owns outlasts a project, because a valuation cannot stop at what the company earned last year. The harder question is what will still be there after the owner leaves. Revenue may arrive job by job, so ask how much of it is repeat work. This page covers the mechanisms that move value in this kind of business. It gives no number and is not a valuation. A figure for one company needs a qualified valuator working from that company’s own records. For the wider trades picture, see what a trades business is worth.

Which kind of general contractor it is

“General contractor” covers very different companies. The Canadian Home Builders’ Association describes its membership as home builders, renovators, land developers, trade contractors and others, which shows how wide the field is. A residential builder, a renovator and a commercial or institutional contractor face different clients, rules and risks, so a comparison only means something between similar companies. Before you read any benchmark, confirm that the kind of work, the size of project and the type of client match the business being valued. Ask what share of revenue comes from repeat clients and what share from one-off tenders.

Backlog is worth what actually transfers

Signed work in progress and awarded jobs that have not started are the part of the future a buyer can see. Ask what each contract says about assignment or a change of control, and whether the owner of the project must consent. Ask who won each award and whether the relationship sits with the company or with the person selling. Ask whether backlog that rests on one individual’s relationships with developers or architects would stay with the company after a sale. Also separate jobs priced at a healthy margin from jobs priced tight to win them, because a thin-margin job adds revenue without adding much to earnings.

Subtrades are a network, not an asset

Ask whether relationships with subtrades are written down or rest on trust and past work, since a buyer cannot assume they carry over. Ask which subtrades do the bulk of the work, whether any are under standing agreements, and what they would do if the owner left. Also check their workers’ compensation standing. In Ontario, the WSIB’s policy says a principal that directly retains a contractor for construction work must obtain a clearance certificate (the policy does not apply to householders who retain a contractor for exempt home renovation work only), and that without one the principal may be liable for the contractor’s payment obligations to the WSIB, up to the labour portion of the contract. The same policy treats a contractor and its sub-contractor as a principal and a contractor. A gap in clearances can leave the hiring company exposed to that liability.

Licences, bonding and the size of work it can bid

Whether a general contracting business needs a licence depends on the province and on the work, so check what applies where the company operates. In Quebec, the Régie du bâtiment du Québec’s licence section includes general contractor subclasses, licence security, and pages on adding or replacing a guarantor. Ask which licence and subclasses the company holds and whether they depend on a named individual. Separately, ask how large a project the company can bid and what its surety relationship allows. Ask whether a strained surety relationship would limit the work the company can win after a sale. The Canadian Construction Association lists procurement modernization among its advocacy topics. Read the actual tender requirements the company has met rather than assuming its record opens every door.

Recasting earnings and finding the discounts

Recast earnings start with add-backs, but a contractor needs more. Ask how profit is recognized on unfinished jobs, what is held back or disputed, and whether the owner’s pay reflects the work of running projects. Ask for the work-in-progress schedule and compare what has been billed with what has been earned on each job, because a job billed ahead of the work done, or one carrying costs not yet billed, can change what the earnings really are. Have an accountant who knows contractors review it. If the owner is the only project manager, a buyer may need to hire one, and the recast should carry that cost. Deficiency claims and disputes over a construction holdback on completed work may become discounts or conditions of the deal, so ask about them.

Why similar contractors price differently

Two contractors with the same revenue can be different purchases, because revenue does not show who earned it, on what margin or on what terms. These are the questions that separate them, and the answers may explain why one is priced lower.

• Does anyone besides the owner run jobs, and would that person stay?
• How much signed work is in hand, on what margins, with which clients, and who holds each relationship?
• Has the company met the requirements of larger or institutional tenders, and can it show the documents?
• Is the surety willing to keep supporting the company under new ownership?
• Are there open deficiency, lien or holdback disputes on completed projects?