What is Construction Fraud?

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  • Written By: Felicia Dye
  • Edited By: Heather Bailey
  • Last Modified Date: 23 February 2020
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Construction fraud refers to a wide range of dishonest practices that occur in the building industry. This can include operating with a false license, using a construction project to steal goods, or billing a person for work that was never done. Construction fraud can result in various types of harm, including the erection of unsound structures and large financial losses. Many jurisdictions lack sufficient law to effectively deal with all types of this fraud.

Construction fraud is not limited to unprofessional individuals. It has been found that prominent companies sometimes engage in various types of fraudulent behavior. Building companies can also be the victims of construction fraud. Examples of this include when subcontractors present bills for more hours of labor than they worked or when suppliers fail to provide the amount or quality of supplies ordered.

In some instances, the fraud involves scams that leave the victim with nothing. For example, a contractor may require a significant deposit from a homeowner for a pending project. Some fraudulent individuals convince people to pay for jobs in full before the work is done.

Construction fraud can actually be very dangerous. Such situations arise when people use substandard materials. In these situations, criminals often seek to make a profit by charging premium prices for materials they know will not be sustainable. Construction fraud can also be dangerous when individuals overstate their credentials or fake licensing and then erect unsound structures.


It has been noted that construction fraud is prevalent following major destructive events. There are often major rebuilding efforts following events such as a hurricane or war. Money is often distributed from various sources and managing progress against expenditures can be difficult. Even when individuals use personal funds, they are often not as cautious as they may normally be.

Construction fraud can be difficult to deal with. This is especially true when the project is completed, but in an unsatisfactory manner. This raises a legal question of whether a person is a victim of fraud or simply a dissatisfied customer. In some instances, consumer protection authorities will issue a cease and desist order that requests that the perpetrator stop accepting or engaging in building projects or engaging in certain practices.

People are, therefore, advised to be wise when commissioning building projects. To reduce the risks of becoming a victim of this type of fraud, people are encouraged to verify company credentials. When payments are made, they should be done by check, if possible. It is also advisable to do periodic audits of projects and materials.


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