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Tips to Avoid Construction Fraud

Tips to Avoid Construction Fraud

Fraud has become a common problem in the construction industry, especially with the rise in material cost. While there are many honest and reliable construction firms out there, you also have to be wary of conmen waiting to pounce on unsuspecting clients. This post is meant to help readers spot the most common construction scams and how not to fall victim to phony contractors.

● Ask to See Licenses and Proof of Insurance

Tips to Avoid Construction Fraud

The law requires all professional, legitimate construction contractors to carry licenses. If the contractor fails to produce the appropriate licenses, then it is safe to say that the contractor may be operating illegally and trying to rip you off.

To protect themselves, a licensed contractor also has several insurance plans:

  • contractor insurance
  • worker compensation insurance
  • small business liability insurance

When the contractor does not have any insurance, this can be a major red flag. If the company is using subcontractors, they should carry their own licenses, and proof of insurances, as well.

● Check with the Better Business Bureau

Tips to Avoid Construction Fraud

If you want to know the credibility of the contractor, check the Better Business Bureau to see all the registered complaints and the performance and reliability rates of the contractor. You can also verify their license number and insurance on the website.

● Choose Local and Established Contractor

Tips to Avoid Construction Fraud

Image of engineering objects on workplace with three partners interacting on background

In times of natural disasters, many contractors will offer their services to build and repair residential and commercial buildings. To avoid being ripped-off by fake contractors, watch out for the following red flags:

  • Door-to-door contractors – Professional local contractors usually have their own offices with registered local numbers.
  • Using unmarked vehicles – Many fly-by-night contractors come from another state, making it difficult to track them down after taking your money. Observe if they are using out-of-state plates and write it down.

● Be Discreet in Obtaining Several Bids

Tips to Avoid Construction Fraud

Obtain at least two or three bids, regardless of the contractor and the estimate they gave you. Scams can be detected from a bid — unfortunately, many victims only notice the scam after the transaction. The bid commonly includes the exact cost of labour and supplies, repairs, work details, guarantees, warranties, and the time frame for completion. Note that licensed contractors do not charge for bids.

● Get a Signed Contract

Tips to Avoid Construction Fraud

Before hiring a contractor, make sure that they passed all the criteria given above. Obtain a contract signed by both parties before starting the repair or construction project. The contract should contain the same information on the bid and does not have any empty spaces. The printed contract should look professional — it should contain letterheads, with local telephone numbers, address, email, and website address. Do not sign a handwritten contract or those containing vague languages. Retain a copy of the contract.

● Never Pay in Cash

Tips to Avoid Construction Fraud

It is never a good idea to pay the contractor in cash. Be careful when the contractor demands payment in cash. Paying in cash increases the risk of getting ripped off and once they receive the money, they will disappear and are likely untraceable. Also, they may be committing tax evasion because there is no record of the project and thereby, avoiding insurance fraud and tax fraud.

If you are an entrepreneur planning to renovate your office, expand your facility, or build restaurants in Toronto, the best thing you can do is to research, be aware, and smart in choosing the right contractor. If you feel that something is not right, trust your gut instinct and do not be afraid to obtain a second option or find another contractor whom you can trust.

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