Construction Fraud: How Construction Businesses Can Protect Themselves From Contract Scams

In the construction industry, contracts are the backbone of every project. From small renovations to large-scale developments, these agreements ensure everyone involved understands their rights, responsibilities, and expectations. But what happens when the contract isn’t what it seems?

Contract scams can devastate construction businesses, leading to financial losses, project delays, and legal disputes. The good news? With the right strategies, you can protect your business and avoid falling victim to fraud.

This blog post will guide you through the common signs of contract scams and practical steps to safeguard your construction business.

What Are Contract Scams in Construction?

A contract scam occurs when one party intentionally includes deceptive, unfair, or fraudulent terms in a construction contract. These scams can take many forms, from hidden clauses that unfairly favor one side to fake contracts designed to extract payment without delivering services.

In construction, contract scams often target busy contractors who may not have the time to thoroughly review every detail of an agreement. They can also exploit the trust that businesses place in clients, subcontractors, or suppliers.

How Do Contract Scams Happen in Construction?

Scammers often rely on specific tactics to target construction businesses. Here are some common methods:

• Hidden Fees and Penalties: Including vague or unclear language about additional fees or penalties that are triggered by minor, unavoidable delays.
• Incomplete Contracts: Presenting agreements that are intentionally vague or missing key terms, creating confusion about obligations and payments.
• Fake Clients or Suppliers: Scammers posing as legitimate clients or suppliers, collecting deposits or payments upfront and disappearing.
• Unauthorized Changes: Adding amendments or changes after the contract has been signed, without mutual consent.
• Inflated Invoices: Contractors unknowingly sign agreements that allow for price changes or inflated costs after the work begins.

How to Identify a Construction Contract Scam

Wondering how to spot a contract scam before it’s too late? Keep an eye out for these red flags:

1. Pressure to Sign Quickly: If you’re being rushed to sign without enough time to review the terms, take a step back. Scammers often rely on creating urgency to prevent you from catching problematic clauses.
2. Vague or Missing Details: Every legitimate construction contract should include specifics, such as the scope of work, payment schedules, and deadlines. If these details are unclear or absent, it’s a warning sign.
3. Unusual Payment Requests: Be cautious of contracts that demand full payment upfront or include suspicious payment terms.
4. No Option for Negotiation: Reputable contracts typically allow for negotiation or clarification. If the other party refuses to discuss terms or make amendments, proceed with caution.
5. Unverified Parties: If you’re dealing with a new client, subcontractor, or supplier, verify their credentials before signing any agreements.

How Can Construction Businesses Protect Themselves?

To shield your construction business from contract scams, you need a proactive approach. Here are practical steps to stay protected:

1. Always Review Contracts Thoroughly: Even if a contract seems straightforward, take the time to review every clause carefully. If you’re unsure about the language, consult a legal professional who specializes in construction law.

2. Verify All Parties Involved: Research any new clients, subcontractors, or suppliers before entering into agreements. Check for reviews, certifications, and references to confirm their legitimacy.

3. Use Clear and Specific Terms: Make sure every contract clearly defines the scope of work, deadlines, payment terms, and responsibilities. Ambiguity leaves room for manipulation.

4. Include Protective Clauses: Work with an attorney to include protective clauses in your contracts, such as:

• Force Majeure Clauses: Covering unexpected delays due to natural disasters or other unforeseeable events.
• Dispute Resolution Clauses: Outlining how disputes will be handled, such as through mediation or arbitration.
• Termination Clauses: Specifying conditions under which the contract can be terminated.

5. Keep Records of Everything: Maintain thorough records of communications, payments, and changes to contracts. If a dispute arises, these records can serve as evidence.

6. Consult an Experienced Construction Lawyer: Having a trusted attorney review your contracts can save you from costly mistakes. They can spot hidden issues, suggest improvements, and ensure you’re fully protected.

Why a Lawyer Is Essential for Construction Contracts

A construction lawyer is your best ally in protecting your business from scams. They bring expertise to the table, ensuring your contracts are fair, enforceable, and in your best interests. Whether you’re drafting a new agreement, negotiating terms, or dealing with a dispute, a lawyer can provide guidance tailored to your specific needs.

What to Do If You Suspect a Contract Scam

If you think you’ve been targeted by a contract scam, act quickly:

1. Cease All Payments: Stop any further payments until the issue is resolved.
2. Review the Contract: Identify the problematic terms or clauses.
3. Seek Legal Assistance: Contact a construction attorney to assess the situation and explore your legal options.
4. Gather Evidence: Compile all related documents, emails, and communications.

Let Ayala Law Protect Your Construction Business

From reviewing contracts to handling disputes, our team at Ayala Law is here to ensure you’re protected every step of the way. 

If you need help with this issue, contact one of our experienced construction attorneys at 305-570-2208. You can also email our lead attorney Eduardo directly at eduardo@ayalalawpa.com.  

We at Ayala Law PA are passionate about helping those in legal need, so please don’t hesitate to schedule a case evaluation with us online here. 

[The opinions in this blog are not intended to be legal advice. You should consult with an attorney about the particulars of your case].