SCAMS IN THE CONSTRUCTION INDUSTRY

SCAM IN THE CONSTRUCTION INDUSTRY

Contractor fraud

Whether you are trying to avoid getting scammed yourself or whether you want to make sure you’re abiding by the law, it’s a must for you to understand what exactly contractor fraud is.

Contractor or construction fraud is when a contractor or a subcontractor engages in illegal activity with a building owner, general contractor, developer, project manager, or any other person involved in the construction industry. As we see on the local news all the time residential contractor fraud typically targets young home owners mostly, typically the contractor tends to scam the homeowners into performing repairs and other types of work in their homes that are not necessary. Commercial contractor fraud is more elaborate, involving more money and larger commercial project. Examples would include bribery, kickbacks, and extortion.

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TYPES OF CONTRACTOR SCUM

i.???????????????????Falsifying Payment Applications or Invoices

This type of scam happens when a contractor submits inflated information in order to receive more money than the actual owed amount. This is a common problem for homeowners who are in need of repairs. This can be evaded by carefully reviewing the payment applications and invoices before proceeding to pay. A homeowner can also have an outsider construction professional like the Quantity Surveyor review the payment document.

ii.?????????????????Manipulating Schedules

This scam occurs when a contractor gets behind schedule or runs into unexpected problems. To make up for the lost time, the contractor may request that the scope of work be increased or the timeline is extended. This increases the cost of the contract and in some cases, the contractor may decide to leave the contract if his/her demands are agreed upon by the employee.

iii.???????????????Rock Bottom Deals with Repairs and Renovations

This happens when a contractor offers a very low price for the service, promising to do the work in quickly without a formal contract. Most of those types of contractors are unlicensed. The result is that the client might end up paying higher than he or she would have hired a reputable contractor. To evade this a client may have multiple bids and check references with a lot of kin and remember the saying ‘when a deal is too good think twice.

iv.???????????????Unsolicited Home Inspection

This type of scam involves an inspector offering a free home inspection. The inspector will find numerous problem which requires expensive repairs. The inspector will even offer to do the repairs at a lower cost. This type of scam is a problem because it convinces the homeowner to spend money on unnecessary repairs, in addition, the contractor may not even do quality repair work, leading to more damage to the house.

v.?????????????????Diverting Purchases and Stealing Equipment and Tools

Diverting Purchases is a scam that is not easily detected if you are not careful on the site. A contractor pays for the materials but then has them delivered to a different project site or keeps them for personal use. To avoid this, the client must check the invoice carefully. Some contractors sometimes Steel equipment or tools from the site.

vi.???????????????False Representation.

It occurs when a subcontractor lies about their employees, insurance, purchases, or other aspects of their business in order to win a contract. For example, a subcontractor may falsely claim to have a certain percentage of minority workers on their staff in order to meet the requirements of a contract. If a contract is later found to be misrepresenting their business, they may be held liable for damage that occurs as a result.

vii.?????????????Using leftover materials from previous jobs, Substituting or Removing Materials.

Some contractors may tend to use the leftover materials without consent or approval from their employees. In this case, their goal is to save money by using cheaper materials or by reusing materials that can be considered scrap materials this often results in poor quality workmanship and increases the risk of accidents on the site.

viii.???????????I don’t need permits

If you hear a contractor saying this phrase to you chances are that he/she is trying to scam you. Having a permit is the most important step in construction as it will protect the client by making sure that the work is done up to code and meets all local regulations. A contractor who skips this step is not only breaking the law but also putting the client at the risk as well. If a contractor tells you that they are saving your money by skipping the process of having a permit, walk away from that deal because the reason is that they are either lazy and their work will reflect this or they are trying to scam you.

ix.???????????????Subcontractors Collusion

This type of scam occurs when two 0r more subcontractors agree to submit false bids to the main contractors in order to inflate the cost of the project. The subcontractor may also agree to divide up the work among themselves in order to avoid competition. This type of scam is difficult to detect and can have a major impact on the cost of the project. The contractor should be careful when choosing the Subcontractors carefully and get multiple bids before awarding the contract.

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For you to get rid of the scam you must know these Red flags

1.?????Beware of any contractor who doesn’t physical address. If a contractor refuses to provide a reference, they are either inexperienced or have a shady past and should not be trusted.

2.?????If a contractor doesn’t want to get things in writing whether it’s a detailed estimate of the work to be performed or the material needed.

3.?????Be cautious of any contractor who asks for full payment upfront. A reputable contractor will request a deposit but not the full amount.

?How to Avoid Scams

a.?????Only hire a licensed contractor with insurance.

b.?????Always have a contract and utilize an attorney. Have a contract and utilize an attorney who has knowledge of construction law to assist you in your contract. A contract is the best protection for you from construction scams.

?c.??????Don’t hire on spot. Do your research and get references. When a contractor offers a discount- but only if you hire them right there on spot- It’s tempting but, approach the deal with this contractor with caution. A reputable contractor will encourage you to take time and do due diligence, which may include your own research and even checking for his/her references

?d.?????Beware of rock-bottom bids and high-pressure sale tactics. Rock bottom bids are often too good to be true because they are. The contractor is likely cutting corners or using subpar materials. High-pressure tactics can be another sign that the contractor is more interested in making a quick sale than in doing a solid job and even if they did a good job, you don’t want to be doing business with someone who has an aggressive, obnoxious attitude. It's best to take multiple bids and take your time choosing the best contractor.

?e.??????Try not to prepay more than 10% of the total job Value. However there are some project which requires a large amount of deposit like where special ordered material needs to be purchased, but if you are asked for more than 30% of the total job value, be sure to check where the laws in your country allow it to be legal.

?f.???????Do not pay in cash. Cash being one of the easiest methods of payment is also the easiest way a contractor may use to scam you by asking for it. Cash payment makes it difficult for the employer to trace expenses and leaves him/her vulnerable to fraud

?g.?????Get all necessary permits. Getting permits may seem inconvenient but is a solid way to protect the employer from both law and quack contractors.

?h.?????Include a procedure for change orders in the contract. Before the project begins the client, can ensure that, the contract outlines what procedure should be if the contractor-in the middle of the project- claims the need for more materials or an extension of time to complete the project. For example, one can have a contracting state that a contractor cannot charge more than 15% of the original cost of the project