Key Signs of Construction Fraud To Watch For

Running a construction business involves many undertakings, from managing tight deadlines, strict budgets, and constant coordination. It also presents several challenges, one of which is fraud. Construction fraud can lurk behind bids, contracts, payroll, and even everyday communication. Fraud, if not detected early, can quickly drain resources. The good news is that most construction fraud schemes leave behind clues, small red flags that, when caught early, can save your company from significant financial losses. Here are the key warning signs to watch for.

1.    Bid Rigging

Bid rigging is one of the most prevalent forms of fraud in the construction industry. It occurs when contractors secretly coordinate to control who wins a project, such as competitors agreeing not to bid, withdrawing a bid, or intentionally submitting inflated numbers to make one company’s bid appear more reasonable. Some of the red flags to watch for include;

• An unusually small number of bidding contractors
• Bids that either seem too identical, oddly high, or oddly low
• Relationships between bidders that feel too close.

2.    Spoofing and False Orders

Spoofing happens when someone disguises their caller ID or email to pretend they are part of a legitimate company. In the construction industry, this can lead to fraudulent orders for materials or unauthorized access to sensitive project information. If you receive a call from someone representing a supplier but don’t recognize the voice, ask for their position or extension. Additionally, it’s worth calling the company directly using its verified number for a quick check; this can save you millions, if not thousands, in false orders.

3.    Contractors Who Avoid Contracts

Contracts are the backbone of healthy business relationships. If a contractor tries to convince you that a contract isn’t necessary, that’s a major red flag. A contract can protect you by outlining costs, timelines, materials, payment schedules, and responsibilities. This safeguards you from dealing with individuals who disappear with deposits or fail to complete work. Even if it’s a small project, insist on a contract for clarity and legal protection in case something goes wrong.

4.    Payroll Fraud

Payroll fraud can be subtle, but the numbers can add up quickly. Be sure to watch for falsified timesheets, ghost employees, unrealistic overtime, or altered payroll logs. To protect yourself, regularly audit payroll records, communicate with supervisors, and consider using digital payroll systems to track entries and reduce manipulation.

5.    Improper Material Substitution

Some contractors cut costs by using cheaper, used, or lower-grade materials instead of what was specified in the contract. Material substitution can compromise the structural integrity and lead to significant financial and safety risks. To prevent inconsistencies, always compare invoices, delivery notes, and contract requirements to ensure accuracy. Additionally, remember that materials can be substituted at the last minute, so be cautious of this possibility.

6.    Suspicious Progress Reports

Construction fraud can also appear in project reports when a subcontractor exaggerates progress to receive early payments. Additionally, if you encounter delayed or missing documentation, such as licenses, permits, or project progress reports, it may be a sign of fraudulent activity or a cover-up.

Contact Us for Legal Help

If you suspect fraud or need help drafting stronger contracts, don’t wait. Contact our Knoxville construction law attorney at Reynolds, Atkins, Brezina & Stewart, PLLC, today to review your case and give you the protection and clarity you need.