When you hire a professional to come into your home and provide a service for you, the last thing you want is to end up being a victim of fraud.
Unfortunately, it happens all too often – with the Association of Certified Fraud Examiners reporting that construction fraud cases average $245,000. In 2011, $147 million was recovered from fraudulent contractors in 22 states, and the situation is only getting worse.
All too often, homeowners are left with incomplete and/or substandard work that they have to pay another contractor to fix and finish. This is enough to make you want to avoid hiring anyone altogether. Instead of saying goodbye to your basic home renovation needs or your dream home plans, take the time to learn how to prevent construction fraud from happening to you.
4 Types of Construction Contractor Fraud
Before you can prevent anything, you need to be able to recognize it. There are four main contractor fraud categories that you should be aware of:
- Abuse of equipment – Equipment can be abused and misused on and off the job site.
- Corruption – Larger firms are usually the ones you should look out for in the corruption category. Things like bid-rigging, quid pro quo arrangements, bribery, and kickbacks can unfairly influence the price of a job.
- Billing schemes – Unfortunately, almost 35% of fraudulent activity falls into this category. You may be over-charged for materials, payment may be made up, or contractors may use the job funds for their own personal items.
- Theft – Someone related or unrelated to your construction project can take materials from the job site because the materials are difficult to track.
Key Steps to Take Before You Hire a Contractor
The best way to avoid being a victim to fraud is to take the following steps to protect yourself:
- Don’t make any decision before you’ve taken the time to think it through.
- Trust your instincts. If someone gives you a bad feeling or something doesn’t sound right, it probably isn’t right for you.
- Don’t let any contractor rush you into signing a deal with them.
- Always get everything you plan to do in writing as well as a contract explaining the contractor’s policy.
- Get more than one estimate and see multiple contractors so you get a feel for what seems like the best choice.
- Know what you want to accomplish with the project before signing anything.
- Hire someone local and ask for references from previous jobs.
- Make sure they’re licensed, bonded, and insured – and ask for proof.
- Check with the BBB for any complaints against them.
Contractor Fraud Red Flags
There are some warning signs you can look for both when speaking with potential contractors and after you officially hire them for a job. Keep in mind this doesn’t include every warning sign out there and you need to keep your eyes and ears open even if you don’t see any of the following:
- Using materials leftover from a prior job
- Asking you to pay only in cash
- Requiring (or asking) for the whole payment upfront
- Recommending borrowing money from a lender they know personally
- Offering unusually long guarantees on their work
- Asking you to obtain your own building permits
Again, if something sounds too good to be true or doesn’t seem right, take a moment to pause and assess the situation instead of blindly going forward.
We hope that these tips help you avoid being the next victim of contractor fraud. Remember, it’s never wrong to ask questions or research a company, person, or process before making your final decision.
