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Avoiding construction fraud that can harm your company

As a contractor or developer, you deal with numerous entities in a single project. You may rely on subcontractors, accountants and laborers, all of whom are looking out for their own bottom lines. If you are committed to running an honest, reputable business, you may assume others in your industry feel the same way. Unfortunately, not everyone is willing to take the moral high road to make a buck.

Fraud in the construction industry seems to be on the rise, and you may come in contact with any number of people who have slick schemes to rip you off before you realize it is happening. Knowing some of the most common fraudulent practices in construction may help you avoid becoming a victim.

Theft is fraud

Perhaps the most blatant form of fraud is outright theft. However, while a contractor is not likely to carry off your tools and equipment from a worksite, he or she may bill you for high quality materials after installing inferior, cheaper products and pocketing the difference. Not only does this cost you money, but you may face lawsuits in the future for construction defects due to the poor quality materials.

A contractor may also charge you for equipment to use on your project. This equipment then belongs to you, but an unscrupulous contractor may use it on other projects unrelated to your company. To avoid this, you will want to carefully review each itemized bill and inventory all purchased equipment at the end of a project.

Falsified application for payment

The most common kind of construction fraud may be the easiest to perpetrate. Your contractor may do any of the following to get more money from you than you should be paying by:

  • Inflating the costs of the materials used for the project or the number of hours spent on the job
  • Billing you for work they did not do
  • Sending invoices from outside companies they secretly control for jobs not included in the contract
  • Charging you the rental fee for equipment the contractor already owns
  • Charging you a higher rate for workers who are actually unskilled or undocumented
  • Charging you for environmental inspections or other requirements they do not complete

Documentation is your friend, and you should not fall for the trick some contractors may use of making you feel guilty for requesting proof of work they completed or purchases they made. You have the right to protect your company's reputation by insisting on ethical practices from your subcontractors. If you find yourself facing examples of construction fraud, you have the right to seek advice from an experienced Texas attorney.

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