Common Frauds in Construction

Fraud is constantly increasing in current difficult economic times. Tight credit and financial pressures are the key drivers of this vice. Construction contracts are particularly vulnerable to different types of fraud because of their multiple suppliers, subcontractors, and several cost inputs. For this reason, project owners, managers, superintendents, and managers should watch for fraud vigilantly. Here are common scams to be wary about during a construction project.

Payment Applications Falsification

False payment applications are up to over half of frauds in the construction industry. And they happen via line items, erroneous totals, false invoices, inflated rates, and roll-forward errors. Project accounts and project managers can falsify payment applications to cater for personal items purchases or funnel the funds to phantom companies under their control. This fraud can also include inflated subcontractor bills and wage rates. Therefore, monitor and scrutinize pay applications for irregularities and errors.

Unperformed Bills

Subcontractors can bill a project owner or contractor for work they have not done. They can also overstate their production units, equipment, and labor units. Such claims are false, and they make the person making them an offending subcontractor.

Subcontractor Collusion

Price fixing and bid-rigging are also common frauds in construction. Pre-approving and pre-qualifying subcontractors are essential because they provide the job’s full scope on which to bid. That way, you can select the most qualified, most responsive, and lowest-priced subcontractor. Also, set rules for the construction contractor to avoid bid-rigging. Bid rotation, kickbacks, bribes, inflated or false change orders should immediately disqualify the subcontractor.  

Other common frauds in construction include change orders manipulation. Contingency accounts and schedule of value manipulation, material removal and substitution, lump-sum cost diversion to material cost and time, stealing equipment, and false representation are also common frauds in construction. Paying attention to these frauds will help you to keep your construction project within its budget.…