False Billings and Kickbacks? How Building Owners Can Protect Themselves

 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:

 Inflated Bills

 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:  

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