Due Diligence Checklist: Engineering & Surveying Firms

Financial Due Diligence: Documents and Red Flags

Start with three years of financial statements and work forward. Engineering firm financials have specific patterns that signal health or trouble.

Request accrual-basis P&Ls if at all possible. Cash-basis financials hide billing timing problems. A firm that bills on project completion rather than percentage-of-completion can show lumpy revenue that masks underlying performance.

**Revenue quality check:** Segment revenue by client, project type (public vs. private), and fee type (lump sum, T&M, unit price). Lump sum projects with clean margins are more valuable than T&M projects, which depend on efficient hour management. Government T&M with audit rights introduces another layer of risk.

**EBITDA add-back documentation:** Owner compensation above market (market for a working PE or LS owner is $120K–$160K/year), owner vehicle ($8K–$15K/year typical add-back), owner health insurance and retirement contributions, one-time legal or accounting expenses. Each add-back should be documented with actual invoices or payroll records.

• 3 years of P&L statements (accrual basis preferred)
• 3 years of balance sheets
• Most recent 12 months month-by-month revenue
• Accounts receivable aging schedule (current, 30, 60, 90, 90+ day buckets)
• Work in progress (WIP) schedule — unbilled revenue by project
• Owner compensation documentation and market-rate add-back schedule
• Business tax returns (3 years) — compare to internal P&L
• List of all owner personal expenses run through the business

License and Certification Due Diligence: PE, LS, and Beyond

California licensing due diligence for engineering and surveying firms goes well beyond confirming the owner's license is current. You need to understand the full license picture across all staff.

**BPELSG license verification:** Verify every claimed PE and LS license directly on the California BPELSG license lookup tool. Confirm licenses are active, not suspended, and not subject to disciplinary action. Disciplinary history is public record.

**License continuity plan:** Map every active project to the licensed professional who signed it. If the seller-owner signs 90% of deliverables and is leaving post-close, who signs after? Get a written transition plan from the seller before close.

**FAA drone operations:** If the firm uses UAVs, verify FAA Part 107 certifications for all drone operators, and check that the aircraft registration is current. FAA violations can result in certificate suspension and civil penalties.

**CASP and other specialty certifications:** Firms that do accessibility consulting (CASP certification) or work in specific state programs may have additional license requirements. List and verify all specialty certifications claimed in marketing materials.

• Verify all PE and LS licenses on BPELSG license lookup — check for discipline history
• Confirm no pending license investigations or complaints
• Identify all staff who hold PE or LS stamps — not just the owner
• Verify FAA Part 107 certificates for all drone operators
• Check current aircraft registration for all UAV systems
• Confirm any specialty certifications (CASP, hydrographic, photogrammetry) are current
• Document which licenses would need to transfer or be re-obtained in an asset sale

E&O Insurance: Claims History, Tail Coverage, and Red Flags

Errors and omissions insurance is the most consequential insurance category for engineering and surveying acquisitions. A single E&O claim can wipe out multiple years of earnings.

**Request the full 5-year claims history** from the seller's E&O carrier. Even small claims (under the deductible, closed without payment) are relevant — they reveal process problems. A pattern of claims in a specific project type or with a specific client is a signal.

**Tail coverage in asset sales:** In an asset sale, the seller retains responsibility for pre-close claims under their existing E&O policy. But E&O policies are claims-made, not occurrence-based. If the seller's policy lapses after close, they have no coverage for claims that arise from pre-close work. Require the seller to carry tail coverage (extended reporting period endorsement) for a minimum of 3–5 years post-close. This should be a condition of close in the purchase agreement.

**Buyer's new policy:** After close, you need a new E&O policy in the buyer entity's name. Budget $3,000–$8,000/year for a small firm. Carriers will ask about the acquisition and want to see that you have a transition plan for pre-close work. Some carriers will not cover a newly acquired firm's run-off work without explicit endorsement.

**Red flags:** Any open or pending E&O claims as of close. Any claim that exceeded $50K. Any claim involving a government project (these tend to be larger and longer to resolve).

• Request 5-year E&O claims history from seller's broker
• Confirm no open or pending claims at time of LOI and at close
• Require seller to carry minimum 3-year tail coverage as condition of close
• Obtain quote for new E&O policy in buyer entity before close
• Verify general liability and workers' comp are current and claims history is clean
• Check if any projects have outstanding change order disputes that could become E&O claims

Equipment Due Diligence: GPS, Total Stations, Drones, and Vehicles

Equipment in a land surveying firm is real, tangible, and depreciates fast. A firm with $250K in equipment on the books might have $120K in actual orderly liquidation value if the gear is aging.

**GPS/GNSS rovers:** Useful life is typically 7–10 years. Units manufactured before 2018 may lack multi-constellation capability (GPS + GLONASS + Galileo) and are less competitive on precision and speed. Ask for purchase dates and model numbers. Trimble, Leica, and Topcon are the major brands — check current trade-in values on the secondary market.

**Robotic total stations:** Similar useful life. Check calibration certificates — these should be done annually or per manufacturer specification. Uncalibrated equipment has liability implications for survey deliverables.

**Terrestrial LiDAR scanners:** High-value equipment ($80K–$200K new). Age matters significantly for scan resolution and processing speed. Leica RTC360 and Faro Focus units from 2018+ are generally still competitive. Older units may require proprietary processing software that's no longer supported.

**Drones:** Consumer-grade drones (DJI Phantom 4 Pro) have a useful commercial life of 3–5 years. Survey-grade drones (DJI Matrice 300, senseFly eBee X) are more durable and more valuable. Check flight hour logs if available.

**Vehicles:** Verify title, mileage, and any liens. Survey crews are hard on trucks — check for deferred maintenance.

• Full equipment list with make, model, serial number, purchase date, and purchase price
• Current calibration certificates for all survey-grade equipment
• Maintenance and repair records for all equipment
• Drone flight hour logs and FAA registration documents
• Vehicle titles, mileage, and any outstanding liens or financing
• Software license inventory — confirm all licenses are transferable
• Third-party equipment appraisal if total value exceeds $100K

Client Concentration and Backlog Analysis

Client concentration is the most common valuation haircut trigger in engineering firm acquisitions. Here's how to analyze it properly.

**Concentration thresholds:** Request a client revenue breakdown for the trailing 12 months and each of the last 3 years. Flag any client above 20% of LTM revenue. Understand whether that revenue is under contract (MSA, IDIQ) or relationship-dependent (handshake work, purchase orders, sole-source projects).

**Backlog quality:** Total backlog is the dollar value of contracted work not yet completed. But not all backlog is equal. Government contracts with formal task orders are firm — the work will happen unless the agency cancels, which is rare. Private sector backlogs (developer clients, especially in real estate) are more volatile. A $2M backlog from a single master developer during a market downturn is less reliable than a $1.2M backlog spread across 15 municipal clients.

**Revenue trend:** Three years of revenue should show a direction. Flat or growing is fine. Declining revenue needs an explanation — lost client? Owner semi-retirement? Market contraction? Declining revenue with strong EBITDA (cost cutting) is a yellow flag; the owner may have hollowed out capacity to pump up the sale price.

For a full walkthrough of the acquisition process for engineering and surveying firms, the acquisition guide covers sourcing through close.

• Client revenue list for trailing 12 months — ranked by revenue
• 3-year revenue trend by client (identify churn and new clients)
• Signed backlog schedule — project name, contract value, percentage complete, expected completion
• MSA and IDIQ contract list with annual minimums or spend history
• Government contract vehicle list with expiration dates and renewal history
• Top 5 client relationship profile — how long, who manages the relationship, any personal dependency on owner

Government Contract and Legal Due Diligence

Government contracts add value but also add complexity. Diligence them carefully.

**Contract transferability:** Federal contracts under FAR 42.12 require formal novation. State contracts vary by agency. Municipal MSAs often allow assignment with notice. Get the assignment/novation provisions from every material government contract and understand the timeline and process before close.

**DBE/SBE certifications:** If the firm holds Disadvantaged Business Enterprise (DBE) or Small Business Enterprise (SBE) certifications, these belong to the entity under the current ownership structure. A change of ownership may trigger recertification requirements. DBE certification requires owner to be socially and economically disadvantaged — if the buyer doesn't qualify, the certification lapses. This can eliminate contract access on public agency work.

**Legal due diligence:** Check for any pending or threatened litigation beyond E&O. Mechanic's liens filed by subcontractors are a common issue on project-based work. Labor and employment claims. California-specific: PAGA (Private Attorneys General Act) claims are common and can be significant even in small firms.

**Employee matters:** Offer letters and employment agreements for all key staff. Any non-compete or non-solicitation agreements (California's non-compete ban affects how these are structured). Any pending unemployment claims or labor board complaints.

• Complete contract list with assignment/novation provisions highlighted
• DBE/SBE certification documents and renewal dates
• Litigation search — state and federal courts
• UCC lien search on business assets
• Copies of all employment agreements and offer letters
• I-9 compliance verification
• California PAGA demand letters or wage claims (last 3 years)
• Any non-compete agreements and assessment of California enforceability