Building owners spend billions of dollars a year to construct and refurbish their properties, yet many are unaware of the hidden costs some contractors charge improperly. Building owners are often vulnerable to this kind of corruption because they do not know how to select the appropriate contractor for the project, do not have the experience or knowledge to analyze construction costs, or need to build quickly.
Major corruption in New York City’s construction industry came to light in 1998 when a false billing and kickback scandal surfaced.
The scandal resulted in two dozen companies and many executives pleading guilty to bribery and other related charges. Although City prosecutors met with success at the time, there is still corruption in the construction industry. Prosecutors raided the offices of three prominent New York City area subcontractors and in January 2010 charged another company for allegedly stealing over $7 million from clients. These companies are just a few among those under the scrutiny of City officials. This is not to say that all contractors are corrupt; the vast majority are honest and hard-working people.
One Way Overcharging Occurs:
When a building owner hires a general contractor or construction manager, that contractor will generally delegate certain aspects of the project to subcontractors. Overcharging may occur when the building owner pays out a false or inflated invoice that is submitted by the contractor for the subcontractor’s work. When the subcontractor receives payment on that inflated invoice, the contractor may seek a “kickback” from the subcontractor. The owner is at risk of losing substantial (but hidden) sums if he is careless or does not understand the inner workings of the construction industry.
There are several ways building owners can protect themselves from false billings and kickbacks in the construction industry. In selecting a contractor, the owner should: