Protecting Your Business from Contractor Fraud – Why You Need a Reliable Lawyer

When thinking about fraud, you’re likely to understand it in the context of insurance fraud, wire fraud, or pyramid schemes. Unfortunately, you’re equally at risk of experiencing fraud with your contractor as well. Contractor fraud typically results from illegal acts by individual firms or contractors.

Businesses who want to rely on independent contractors to handle some errand can avoid fraud, financial losses, or contract breaches by working with a reliable contractor fraud lawyer. Business fraud on the contractor’s part can be comprehensive. This ranges from substandard repairs, exaggerating appliances’ costs, or being deceitful when offering their services.

SMEs and established businesses alike should be wary of contractor fraud for many reasons. For instance, these fraudulent actions and sloppy repair work could significantly raise your bills. What’s more, you may experience extensive property damage or losses that may require more effort and resources to repair or replace.

Common Forms of Contractor Scams and Fraud

When hiring a contractor for any errand in the company, you must sign a legal binding contract specifying every term in the entire arrangement. Standard terms include the scope of work to be completed, the timeframe setting the deadline for the task completion, and the amount you’re supposed to pay.

The most common lawsuits against contractors result from their failure to work within the terms agreed in the contract. This may include missed deadlines or failure to complete the entire work. Here are the key examples of contractor fraud:

  • Billing fraud – This refers to intentionally overstating the number of materials, labor, and other necessary resources for project completion.
  • Bid/contract rigging – Sometimes, suppliers in the market may conspire to fix the rates for particular services or direct clients to work with specific contractors. This may go hand in hand with kickbacks or bribes.
  • Corruption/bribery – This is where two parties collude and enter into a secretive pact offering a financial incentive to a party to secure a preferred outcome. Such instances include purchasing an asset or issuing a private or public contract on ‘favorable terms.’
  • Fictitious vendors – Some unscrupulous contractors falsify payment applications to cover up money diverted to phantom companies or to acquire personal items. This activity is mostly under the control of a staff member. However, external entities may also falsify company documentation and contact details.
  • Material theft – You must also be wary since dishonest contractors can easily take material from the site for personal use. Also, others are likely to acquire lower-grade material instead of the quoted ones. This would raise your chances of subsequent replacements or repairs.
  • False representation – Dishonest contractors may sometimes include undocumented workers, falsify minority content reports, insurance papers, or test results. This fraud also involves non-compliance with environment safety regulations and misrepresentation of the company status.
  • Tax avoidance or money laundering – Tax frauds by contractors may involve commonplace acts like paying workers through cash. Others may also try to legitimize illegally earned cash.

Practical Tips On Protecting Yourself from Contractor Fraud

Contractors are crucial for many business operations; hence you must brace yourself with the right knowledge of maneuvering the industry and avoiding contractor fraud. You may not be entirely fraud-proof, but you can still ensure your transactions are as clear-cut as possible.

Below are some practical tips:

Read and Understand the Contract

A contract describes every term of your agreement with your contractor. As such, you must ensure you go through it to understand every aspect of your transaction. Working with a contractor fraud lawyer would make this more comfortable for you.

Look for Four References

It is common to find contractors ready with their three references. These are not enough for an accurate judgment – you need four. The fourth one must have contacted the agency for some work done. If they were satisfied with their delivery, then you have a clue of the quality to expect from them.

Verify Their Licenses

Your conversation with your potential contractor should not end on the phone. You must go ahead to verify if they have the relevant local operating permits and licenses via the secretary of state’s office. Also, ensure you confirm their compliance with local laws with the relevant authorities.

Check Their Coverage

The company you choose to hire must have proper coverage like performance bonds, staff compensation, and surety bonds. Your insurance agent may come in handy as you seek to decipher this coverage.

Consult with Your Insurance Provider

You must consult with your insurer what will happen if the equipment or supplies are stolen from the site. Will they cover such losses, or is it the responsibility of the contractor’s insurance agent? If it will be on the contractor, go ahead to obtain their insurance details, and confirm whether it is currently in effect.

Work with A Contractor Fraud Lawyer

To sue a contractor, you must prove that they committed fraud or failed to meet the contract’s specific terms. Whether there’s a written and signed agreement in place, filing such a lawsuit is no easy process. The varying state laws make it even harder.

Therefore, it would help if you work with a knowledgeable, qualified contractor fraud attorney to guide you through the entire process. An experienced attorney will help you know every legal option available and advise you aptly as you build your case.

All the above tips will help you stay safe from contractor fraud. However, it would be best if you contacted a reliable contract attorney to ensure you are protected.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.