Construction fraud is a form of fraud committed by a construction company or a contractor. This type of fraud can include performing substandard repairs or cheating another party involved in the construction project such as the client.
Fraud is the intentional act to deceive through false representation of some fact. This misrepresentation causes another party to rely on the fact to its legal detriment. For example, manipulating charge orders is a type of fraud found in a construction setting. It involves changing order prices to increase or reduce prices. The fraud may result in the victim suing the other party for contract fraud. However, if the fraud is serious enough, the party committing the fraud may also face charges for criminal fraud.
No. Criminal fraud involves breaking a law that will result in jail or prison time and/or fines, such as intentionally passing off illegal building materials as perfectly legal and safe building materials. Contract fraud is based on one party intentionally misrepresenting or deceiving another party. This type of fraud will likely result in the invalidating of the construction contract between the two parties.
Examples of construction fraud include:
- Falsifying Payment Applications: A party can create false invoices or inflated rates that charge more than the actual project cost
- Subcontractors Working in Collusion: Subcontractors work together to rig bids and fix prices. The scheme includes providing kickbacks, bribes, bid rotation, or fake subcontractors submitting bids.
- Removing Material: Subcontractors or construction suppliers can use lower-grade or dangerous materials such as low-quality or lead paint, but charge for contractor for more expensive materials.
- Billing for Underperformed Work: A subcontractor overstates the units of production actually finished. 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 subcontractor may budget a lump sum about for the project. However, the subcontractor may then bill for materials and time. Both costs are already in the lump sum costs so the contractor is double billed.
Construction fraud can be committed a wide range of people, such as:
- Construction employees
- Construction material suppliers
- Construction consultants
- Construction partners
Construction fraud is a serious white collar crime that can lead to fines or even imprisonment. Contact a criminal lawyer if you have been accused or charged with construction fraud.