When it comes to subcontractor fraud, adhering to the following processes will have a demonstrative impact on those seeking to gain an unjust advantage in the subcontractor selection process via unlawful means or other trickery.
- Know your market. Keep tabs on what things cost, including reasonable bid pricing on comparable projects.
- Refine your subcontractor selection process. Ask to see licenses and proof of insurance. Perform background checks for tax liens, lawsuits, code violations, and criminal convictions.
- Retain the right of first refusal to reject bids and reopen the request for more proposals. Sometimes, to limit collusion risks, you may need to open the process to a wider geographic area to draw a broader group of subs who are less likely to collude.
- Ensure your project management team is up to speed. Review invoices, compare actual-to-budgeted job costs on a line-item basis, and document your findings. Perform regular job site inspections so your process is known. Use photos or video to track and document worker’s activities and the current location of equipment and materials.
In 2019, Kroll working in partnership with Forrester Consulting surveyed 588 senior executives and found that fraud committed by external parties (suppliers, vendors, and business partnerships) was 28% globally, a 10% increase from the previous year.
Ipsen Due Diligence helps construction companies reduce their exposure to fraudulent actions from internal and external sources. These fraudulent and costly actions among others include fraud perpetrated by subcontractors. We do this through due diligence, vetting, site visits, and periodic audits.
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