Area of Law: Criminal Law
Answer # 1806
Construction fraudRegion: Ontario Answer # 1806
What is construction fraud?
Most commonly, construction fraud occurs when someone hires a handyman or contractor and prepays for home repairs and items that are never delivered or completed. However, buyers, owners and occupants are not the only victims of construction fraud. Construction fraud can occur at all stages of a project, and affect all parties involved, including:
- project managers
- building superintendents
- investors and lenders
Common types of construction fraud
1. Construction fraud against property owners
Owners, buyers and occupants of construction projects can be victims of construction fraud when contractors and subcontractors:
- bill for work not done or materials not delivered
- bill for suppliers, contractors and employees that do not exist
- bill for materials and tools used for other projects
- substitute building materials with cheaper materials
- use building materials and tools for personal use
- create forged documents including: false invoices, purchase orders, test results, and insurance certificates that do not comply with environmental regulations
- inflate invoices beyond actual costs by using profit or mark-up formulas
2. Construction fraud against those in the industry
Contractors, subcontractors and others involved in the project can be victims of construction fraud, such as when:
- they are not paid
- customers pay with fraudulent cheques
- employees steal materials or tools
- an employee pays for personal items or siphons money from funds of the contractor designated for project expenses
- subcontractors collude for purposes such as bid rigging, bribes, kickbacks, false or inflated change orders, or fake subcontractors
Help protect yourself with a contract
To protect yourself against the possibility of construction fraud occurring, any time you plan to hire a contractor you should have a written contract or agreement between yourself and the contractor or company doing the work.
A written contract is a binding legal agreement that helps to remove the chance of disagreements or problems arising from vague or uncertain aspects of the project, such as quality of materials to be used, upkeep of the work site, and the contractor’s responsibility to maintain workers’ compensation insurance and other liability insurance.
A contract should include the following:
- the rights and obligations of each party,
- specifics of the work to be completed,
- timelines for the work,
- payment amounts and triggering events for payments (for example, completion of demolition for a first payment), and
- how disputes will be resolved.
Most importantly, never agree to a contract that requires full or a substantial payment up-front before any work is done. Most contractors can begin a project with as little as 10%-15% or no money down.
For more information on construction contracts, refer to topic #961 Having a signed agreement with your contractor.
If you discover you are a victim of fraud, it is a good idea to contact a fraud recovery expert for advice.
If you have been charged with a fraud or any criminal offence, contact our preferred criminal law experts, The Criminal Law Team
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