Unknown Contractors and Owners – Pre-Project Due Diligence
It happens all the time; you have the low bid on a project with a contractor or owner with whom you have never done business. Maybe you haven’t even heard of them before. You call around and try to find out any information you can from other contractors with no luck. Do you take a leap of faith and sign the contract? After all, you need the work. Before you bind yourself to a business partner you don’t know, there are a few quick and simple ways to do some pre-construction project due diligence that could save you down the road.
Your due diligence should begin with public court records. One quick and easy way to check on the solvency and business practices with a construction company or owner is to check the court records. Many jurisdictions now provide access to their records online. The first stop should be the county/parish where the contractor has their principal place of business; after that, research in counties/parishes in which the project is being performed and counties in which the company has a satellite office or focuses their operations. Make sure you check both the district court records and county court records, if applicable, in your jurisdiction. If you have questions about locating cases in the online database or if your jurisdiction does not offer this service, call the the court clerk for assistance. The county court records for Dallas County can be found here.
Next, check the federal cases. This will show if there have been any federal lawsuits against your potential business partner or if they have declared bankruptcy. You can find this information at www.pacer.gov. You will need to register an account and there are nominal fees for research. The website also contains a tutorial about how to use the service.
Your due diligence should next take you to the property records for the county in which the construction project is located. For checking out an owner, check the property records for the property on which you are going to be performing work to see if there are any liens. Some counties/parishes have their property records online and some do not. You will need the legal description of the property you are to perform work on. This description will be used to identify any liens and deeds of trust filed on the property. The more bank liens you see, the more likely it is that the owner is not sitting on a load of cash. Also look for mechanic’s liens, which means the owner has not paid contractors in the past, and tax liens, which means the owner has not paid the government.
Secretary of State
A quick check with the secretary of state should also be included in your due diligence because will often yield ownership information about the company/owner you are dealing with. It will also tell you where the company is headquartered, how long the company has been in existence, whether it has changed names, has any d/b/a names, or has subsidiaries or parent companies. It may also tell you whether the Owner and general contractor are related entities, which can be important when filing a mechanics lien. This information should be available online in virtually all jurisdictions. Information for Texas entities with the Texas Secretary of State can be found here: http://www.sos.state.tx.us/corp/sosda/index.shtml. You will need to create an account and there are nominal charges for the searches.
Tax Status of the Entity
In states that have franchise tax, you can often check with the appropriate state agency to see if the contractor/owner is current on their franchise tax payments. If they don’t pay the government on time, odds are they won’t pay you on time either. In Texas, this information can be found with the Texas Comptroller of Public Accounts at the following address: http://www.window.state.tx.us/taxinfo/coasintr.html.
The steps above are certainly not exhaustive of the due diligence you can perform before entering into a contract but they are a good start. The small amount of time and money you will spend performing this due diligence is well worth the extra assurance it provides. If you still have questions or concerns about an entity you will potentially do business with, consult an attorney. You have to make sure you won’t lose money due to a bad contractor or owner before you can focus on making money.