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  • Writer's pictureJerry Ipsen, CFE, MBA

What is Construction Fraud?

Examples of Construction Fraud Include:

  • Falsifying Payment Applications: This happens when a party usually a material supplier or subcontractor creates fictitious invoices containing inflated rates charging more than actual cost.

  • Subcontractors Working in Collusion: Dishonest subcontractors have been known to work together to rig bids and fix prices. Takeaways include kickbacks, bribes, bid rotation, or even fake subcontractors submitting bids.

  • Removing Material: Included is charging for more expensive materials. Subcontractors or construction suppliers have been known to substitute lower-grade or dangerous materials such as low-quality or lead paint but charges the contractor (or project owner) for the more expensive materials.

  • Billing for Underperformed Work: This happens when a subcontractor knowingly overstates the units of production “actually completed.” This is considered a false claim via the federal government’s False Claims Act.

  • Diverting Lump-Sum Costs to Costs for Material and Time: A form of double billing occurs when a subcontractor who originally submitted a proposed lump sum amount for the project turns around and then bills the contractor again for (the same) materials and time. Because the costs are already included in the lump sum proposal, the contractor is being double billed.

Who Are the Usual Suspects When It Comes to Construction Fraud?

Construction fraud is usually committed by the following:

  • Construction employees

  • Subcontractors

  • Material suppliers

  • Consultants

  • Construction partners

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