Anonymised, illustrative composite. A Lower Mainland electrical and mechanical contracting group, a working capital peg, and a diligence model carried over unchanged from the acquirer’s previous deal in Ontario.
At a glance
A private equity-backed acquirer had closed an Ontario general contracting business four months earlier, on a deal where the working capital peg turned entirely on how statutory holdback was classified: one pool retained under the basic 10% obligation, and a second, separate 10% pool that started accruing once a contract was certified substantially performed. The same in-house deal team, running the same workbook, moved on to a British Columbia target — an electrical and mechanical subcontracting group serving institutional and multi-residential projects across the Lower Mainland, being acquired by share purchase for $14,200,000.
The workbook travelled with the team. Its working capital tab still had two holdback line items: a base retention and a “finishing holdback,” the same two rows that had done real work on the Ontario file.
British Columbia is a different statute, not a re-badged Ontario one. The Builders Lien Act, S.B.C. 1997, c. 45 sets its own holdback rule, and it does not contain anything resembling Ontario’s second, substantial-performance-triggered finishing holdback. The deal team, without checking, populated the “finishing holdback” row for three BC contracts that had reached completion milestones during the diligence period — the same trigger that would have started a second pool in Ontario — and modelled $210,000 sitting in it, on top of the ordinary base holdback already carried for those same three contracts.
That $210,000 was not a second pool. It was the ordinary single holdback already counted once in the base figure, entered a second time under a different row label.
Base holdback across the target’s active British Columbia contracts, at 10% under s.4(1): $640,000. The additional “finishing holdback” layer modelled on the three contracts that had reached completion during diligence: $210,000, entered as though it were a second retention distinct from the base figure. Removing the duplicate row raised the calculated working capital by $210,000 — the working capital peg had been understated, not overstated, the reverse direction of the Ontario file this team had just come from.
British Columbia’s holdback obligation sits in one subsection. Section 4(1) of the Builders Lien Act provides that the person primarily liable on a contract or subcontract under which a lien may arise “must retain a holdback equal to 10% of the greater of (a) the value of the work or material as they are actually provided under the contract or subcontract, and (b) the amount of any payment made on account of the contract or subcontract price.” Nothing in the Act creates a second, separate holdback keyed to substantial performance the way Ontario’s Construction Act does. The Act’s own definition of “completed” — “if used with reference to a contract or subcontract in respect of an improvement, means substantially completed or performed, not necessarily totally completed or performed” — governs the single release, not a second retention event.
Ontario’s Act is genuinely different in structure, not just in name. Section 22(1) of the Construction Act requires the basic 10% holdback, and section 22(2), under the marginal note “Separate holdback for finishing work,” requires a further, independent 10% once a contract is “certified or declared to be substantially performed but services or materials remain to be supplied to complete the contract” — a second retention pool with its own trigger, tracked apart from the first. That second pool is what the deal team’s workbook had learned to model on the Ontario file, and it is the row that had no British Columbia counterpart to populate.
The release timing differs too, on the single pool that does exist. Ontario’s lien preservation period runs 60 days from the earlier of publication of the substantial performance certificate and completion, abandonment or termination of the contract. British Columbia runs 45 days: under s.20(1), a claim of lien “may be filed no later than 45 days after the date on which the certificate of completion was issued,” and under s.22, “a lien in respect of which a claim of lien is not filed in the manner and within the time provided in this Act is extinguished.” The percentage is identical in both provinces — 10% — so the amount at stake was never the difference. The number of pools, and the date each one clears, are.
The working capital model was rebuilt with a single British Columbia holdback pool of $640,000, released on the Act’s own 45-day clock from each contract’s certificate of completion rather than Ontario’s 60-day rule the workbook had been defaulting to. The corrected calculation raised the target’s working capital by $210,000 relative to the first cut, and the purchase price adjustment moved accordingly under the agreement’s own collar.
Left uncorrected, the double-counted $210,000 would have depressed the calculated working capital and, through the deal’s dollar-for-dollar adjustment, reduced the price paid to the seller for an obligation the seller’s business did not actually carry twice. On a sophisticated vendor represented by counsel who reads British Columbia’s own Act, that is not a quiet saving; it is a closing statement the seller’s side has every reason to challenge, on numbers the buyer cannot actually defend once asked which subsection creates the second pool.
The tell was the row label itself: “finishing holdback (BC),” copied down from the Ontario tab of the same workbook onto a British Columbia target with no section of its own governing statute that the label could point to. A model built for one province’s lien Act does not travel to another province by relabelling the currency; it has to be rebuilt from that province’s own sections.
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