Most contractors are honest business owners, trying to earn a living. Unfortunately, the damage that can be caused by a single exception to this general rule can be devastating. Recognizing early signs of contractor fraud, and understanding some of the options available for taking legal action to address it, can put homeowners and other potential victims of contractor fraud in a position to protect themselves and, when necessary, recover losses. To learn more or to discuss the particulars of your own situation, reach out to the civil litigation team at King Law Offices. Call 888-748-KING today to be connected with a member of our team in Tennessee.
What Is Contractor Fraud?
Contractor fraud occurs when a party misrepresents their services in order to secure a contract, or on the other hand contracts for services they do not then provide, or do not provide at the level of quality implied by the contractor’s claims or, depending on the situation, required by law (typically for services that are legally required to be performed to a certain standard, such as wiring a new building for electricity). These are very broad criteria that could apply to many different situations. In practice, however, “contractor” in the context of a discussion about contractor fraud usually refers to a contractor involved in some aspect of building construction or maintenance, and – owing partly to the greater protections commercial clients tend to have in place – the term contractor fraud is most commonly used in discussions involving contractors engaged in residential work: home building, repair, or improvement projects.
Contractor Fraud and Civil Litigation
Some types of fraud are tried by prosecutors in the criminal courts. These cases may be state or federal, depending on the circumstances; generally speaking, however, most allegations of home improvement contractor fraud that lead to criminal trial will be prosecuted through state courts. The Tennessee Department of Commerce provides specific guidance for individuals who wish to press criminal charges. Keep in mind, however, that criminal law will require prosecutors to prove any defendant’s guilt beyond a reasonable doubt in order to secure a conviction.
Burden of Proof in Civil Litigation
Cases tried through the civil courts, on the other hand, are brought by plaintiffs rather than by government prosecutors, and the burden of proof those plaintiffs must meet to win a favorable verdict is considerably lower: Civil cases must generally prove the defendant’s responsibility only by a “preponderance” of the evidence. This difference in how the burden of proof is configured means that victims of contractor fraud may sometimes be able to pursue remedy through civil litigation, even if a criminal case fails or prosecutors decide not to move ahead with charges, based on the available evidence.
Value of Legal Remedy for Victims of Contractor Fraud
The concept of a legal or equitable “remedy” also helps to explain why victims of contractor fraud may sometimes decide to file suit against a contractor who has dealt with them dishonestly, without regard to whether there is also a criminal case and irrespective of what its outcome might be. While criminal convictions can lead to steep fines and, in some instances, periods of incarceration, the legal remedies available through the civil courts are typically designed to more directly address the harms caused to the plaintiffs.
Common Types of Contractor Fraud
Unscrupulous contractor schemes are unfortunately numerous, and the individuals who perpetrate them can sometimes be quite inventive in their approaches. Nevertheless, there are a few types of contractor fraud that occur again and again. Becoming familiar with their general characteristics can set you up to be on your guard.
Substitution of Inferior Materials
Sometimes a contractor who in other respects carries out their work for a project as agreed will try to “cut corners” by substituting inferior building materials. This problem can be especially pernicious when the way the materials are used (e.g., as sub-flooring, or as wiring, pipes, or insulation concealed inside walls) makes it difficult for the homeowner to discern the substitution by visual inspection. Substitution of inferior materials can also present a headache when state regulations or local building codes require the materials used for a specific purpose to meet certain standards for strength, resilience, or durability that the materials actually used in the project do not meet (potentially causing the entire building project to fall “out of compliance,” without the property owner’s knowledge).
Regardless of whether the materials meet “code” requirements, if the building supplies a contractor uses in substitution are less expensive than the materials for which the contractor bills the client, the substitution may constitute an instance of fraud. In addition to any damages that might be awarded in a civil case, a contractor who substitutes inferior materials in a home improvement project without the client’s written consent to the changes could face criminal charges for violation of Tenn Code Ann. § 39-14-154(b)(2)(B).
Overcharging for Materials
A related form of contractor fraud consists of charging a customer more for the materials than their actual cost. Sometimes this overcharging is accomplished by misrepresenting the amount of materials actually used in a project; at other times, the total quantity used is accurate, but the contractor has inflated the per-unit price. Customers affected by either form of contractor fraud may be able to recover their losses due to overcharging.
Overcharging for Time
Whether time-based contractor fraud is a likelihood in a particular situation will likely depend on whether, and to what extent, the contract is established to bill the client for time spent on the project (usually itemized as “labor”). Hourly billing for the work of the contractor or company employees is a very common practice across many different types of home improvement projects. Property owners who are not at the building site regularly enough to develop their own estimates of the time spent may be particularly vulnerable to this type of contractor fraud. The evidence can also sometimes be difficult to establish, so you may wish to consider discussing your suspicions with an experienced litigator at King Law Offices.
Misrepresentation of License or Permit
Virtually all home building contractors in Tennessee are subject to the contractor licensing requirements specified under Tenn. Code Ann. § 62-6-103. In addition, many types of contractor activities require the contractor to obtain a permit for each project, under the rules set out in Tenn. Code Ann. § 62-6-137. Any contractor who misrepresents himself or herself, or his or her contractor business, to be appropriately licensed, or to have obtained the permits required for the contract project, may be responsible for damages to the customer.
Identifying Contractor Fraud
Contractor fraud may unfortunately not always be obvious right away. However, there are a few signs that can alert you to a potential problem. Once your suspicions have been raised, you may wish to consult with an attorney in your area before determining your next steps. Some common signs of contractor fraud include:
- Pressure to sign a contract quickly: Like many other types of fraud, contractor fraud often relies on creating a false sense of urgency, pushing the consumer to commit themselves without fully investigating their options.
- Very low bids: While a major function of bidding is to ensure competitive pricing, most contractor bids for any project will usually “cluster” close to the same amount. When one bid is dramatically lower than its competitors, that may be a sign that the deal is “too good to be true” – and a reason for property owners to be on their guard.
- Unusually direct or informal solicitation: Cold-calling is a common practice in many industries, but home improvement contracting is not typically one of them. Properly licensed contractors do not typically go door-to-door in hopes of finding a homeowner who will sign a contract for a substantial project, nor is it common for construction contractors to stop by houses in the neighborhood of a legitimate project to see who else might hire them. If a contractor approaches you by either of these unusual methods, treat any offer with skepticism.
- Incomplete or unclear communication: Individuals have differing degrees of proficiency with communications, and some are always going to be more thorough than others. When a contractor declines to answer direct questions, or repeatedly fails to provide specific information in response to a request, that may be a sign that something untoward is happening behind the scenes.
- Demanding large payments up-front, or insisting on final payment before project completion: Be wary of working with contractors who demand very large portions of their payment upfront. If a contractor asks for final payment before the final project handoff, consider consulting an attorney before you act.
No matter whether you see any of these possible signs of contractor fraud, or something else that makes you uneasy, you may be able to take steps to protect yourself by looking up the contractor’s history with the Better Business Bureau (BBB). You may also wish to verify their licenses, and to check any permits that relate to your project. While taking action through civil litigation may help individuals affected by contractor fraud to recover damages, identifying and preventing fraudulent contracting schemes can often save property owners time and money.
Work With a Tennessee Attorney
If you are facing a contracting issue that raises your suspicions, or if you believe you may have become a victim of contractor fraud, a conversation with an experienced litigator may help you to evaluate the options available in your situation. Schedule a consultation with King Law Offices by calling 888-748-KING today.