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5 Types of Construction Fraud That Require Legal Action

Submitted by on October 5, 2012 – 11:36 amOne Comment

Construction Legal ActionUnfortunately, fraud is far too prevalent across all industries today – including the construction industry. So it’s important to understand the common types of construction fraud that could require legal action.

Forging Payments

One of the most common types of construction fraud is the falsifying of payments.

False pay applications come in various forms:

  • Incorrect totals
  • Roll-forward errors
  • False invoices
  • Inflated rates

One example of this could happen if a subcontractor bills work by a journeyman when an apprentice actually did the work. The work of the journeyman could be significantly higher, but the quality may not fit the bill.

Substituting Materials

Material substitutions – or even removing materials completely – is a common form of construction fraud. It’s important to make sure that subcontractors do not use lower-grade materials than specified.

While it could be difficult to monitor, also make sure workers aren’t taking any materials with them for personal use.

Stealing Equipment & Tools

It’s important to keep a look out for tools leaving the job site at the end of the work day. Workers may want to take tools with them to work on personal projects and/or moonlight after hours. However, in many cases the building owner is paying for those tools, and once they leave there’s no guarantee they’ll come back.

Additionally, look out for situations where tools are shipped to a different address other than the construction site – you’re billed for the tools, but they never arrive.

Billing for Work That Wasn’t Actually Done

Another common type of fraud is the billing for work that was never completed.

What tends to happen is a subcontractor overstates the actual amount of work done and bills for that amount, when in reality, maybe only half of the work was finished.

This is actually a serious offense and can be considered a false claim under the federal False Claims Act, if the project is a government contract.

Working as a Contractor Without a Contractor’s License.

This law varies state-by-state, but the results are similar.
Those who work on construction project without a contractor’s license will be issued a fine as a warning. Those that continue to work without a license could serve jail time and pay even larger fines.

Laws requiring licensed contractors are in place for numerous reasons: safety, liability, worker’s rights and benefits, etc. Whether you’re a general contractor, a subcontractor, or a property owner, make sure everyone you’re working with is licensed. If they aren’t, that’s a red flag.

NOTE: This article does not constitute legal advice. Consult with your attorney – the information here is purely for educational purposes.

Guest post by Charlotte Howard for Makinson d’Apice – www.makdap.com.au.

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