Contractual fraud in the construction industry can negatively hurt construction companies and homeowners. This type of fraud happens when one party intentionally deceives another to gain an unfair edge, causing financial losses, project delays and legal disputes.
Common types of contractual fraud
Contractual fraud in construction can take many forms, including:
- Bid rigging: Cheating the bidding process so that a specific contractor wins the contract.
- Invoice fraud: Sending false or inflated bills for payment.
- Material substitution: Using low-quality materials while charging for better ones.
- False representations: Lying about the project’s scope, cost or timeline.
Knowing these types of fraud can help you take steps to prevent them.
Steps to protect yourself
Whether you run a construction company or own a home, taking action can help you avoid contractual fraud:
- Do your homework: Check the credentials and reputation of contractors or clients. Look at references, read reviews and confirm licensing and insurance.
- Document everything: Ensure all deals, including work scope, timelines and payment terms, are in a detailed contract. Don’t rely on verbal agreements.
- Monitor progress: Regularly check the work site and review progress reports. Stay involved in the project to catch any problems early.
- Use escrow accounts: For payments, consider using an escrow account to ensure funds reach the recipient only upon achieving specific goals.
- Consider hiring a lawyer: Have a lawyer review contracts and guide you throughout the project. Legal advice can help you handle complex contracts and protect your rights.
Taking these steps can significantly lower the risk of fraud and ensure a smoother construction process.
What to do if fraud occurs
If you think contractual fraud has happened, act right away to protect your interests:
- Collect evidence: Gather all relevant documents, messages and records that support your claim.
- Talk to a lawyer: Get legal advice to understand your options and rights. A lawyer can help you file a lawsuit if needed.
- Report the fraud: Inform relevant authorities, such as the North Carolina Licensing Board for General Contractors, to investigate and take proper action.
- Consider mediation or arbitration: These other ways to solve disputes can provide a quicker and cheaper solution than going to court.
Understanding the common types of contractual fraud and taking action to prevent them can protect you from potential problems in the construction industry. If you need more help, don’t hesitate to contact a qualified legal professional.