Watch out for Construction Scams in 2013
As the construction industry hopefully improves in 2013, one must always be mindful of construction scams. These scams can take many forms, including but not limited to the following:
The free test and need for a new system – An individual visited homeowners in Virginia and offered to test their water. Perhaps not surprisingly, the homeowners were then told they needed new water filtration systems. Yet, after paying for the systems the homeowners were unable to contact this individual. His so-called office address turned out to be a chiropractor’s office. Charges for construction fraud were brought against this individual in Virginia.
Advance payments for work not done – A general contractor in Texas continually got advance payments from its clients while doing minimal work in relation to the monies paid. In appealing criminal convictions determined in the trial court, the general contractor argued that it only quit the jobs after there were payment disputes. The appellate court disagreed. The evidence showed that the contractor did more than simply fail to perform the contracts and refund the money. The contractor engaged in a series of transactions with the same pattern—promising to complete the construction projects in a short time frame, demanding advance payments on a tight weekly schedule regardless of job progress, beginning a minimal amount of work and then stopping and walking off the job, leaving it unfinished after a “payment dispute” arose, while giving no refund of payments made. Although available beforehand, once the contractor got the money, he was unresponsive. The Texas appellate court affirmed the contractor’s criminal convictions for misapplication of fiduciary property and theft by deception.
The low ball bid followed by a contract with excessive change orders – Various commentators have written about the practices of some [certainly not all] contractors low ball bidding a job to get awarded the contract; to only then be followed by excessive change orders in an attempt to make up or increase the contractor’s profit margin. On government projects, at least one state, Illinois, has enacted a Public Works Change Order Act in an effort to minimize the impact of potentially excessive change orders. This Act provides that on government projects, units of local government and school districts are to re-bid change orders when such change orders increase the overall cost of a project by 50% or more of the original contract price.
Proactively addressing potential construction scams – Although there are no guarantees, there are ways to minimize the chances of being exposed to a construction scam. Some examples of items to consider include verifying a contractor’s license and credentials, checking the contractor’s references, being wary of the high-pressure contractor that claims there is an extreme urgency in getting the work done, obtaining more than one bid for the work, determining if the bids are actually responsive to the work that needs to be done, avoiding cash payments, eliminating up-front payment for the entirety of the work and instead having a payment schedule that corresponds to the work done, having a qualified individual oversee the work, and having a written contract that protects your interests. Remember that “an ounce of prevention is worth a pound of cure.”