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Fraud in the UK construction industry is a significant concern, with a substantial impact on both public and private projects.
The construction sector is vulnerable to a variety of fraudulent activities, both internal and external. The combination of high-pressure projects, resource constraints, and economic uncertainty creates an environment ripe for fraud and bribery.
Fraud and corruption in the UK can lead to increased project costs, delays, and a loss of public trust. Fraud can have devastating consequences for businesses. In a survey carried out of construction companies that have fallen victim to fraudulent activity in 2022 the findings were that:
26% of UK construction companies have been targeted by fraud in the past year.
Larger companies are significantly more vulnerable, with nearly double the likelihood of falling victim to fraudulent schemes."
40% nearly faced closure due to the financial impact of fraud.
30% lost employees as a result of the incident
Many cases of fraud go unreported, making it challenging to assess the true extent of the problem.
Bid Collusion - contractors conspiring to manipulate the bidding process, often resulting in inflated prices and reduced competition.
Materials Substitution - using inferior or cheaper materials than specified in the contract.
Mandate Fraud - fraudsters may pose as suppliers or the organization itself to divert payments to unauthorized accounts.
Expense and Invoice Fraud - employees or suppliers may submit false or inflated claims for reimbursement.
Bribery - offering or accepting bribes in exchange for preferential treatment or contracts violates the Bribery Act 2010.
Asset Misappropriation - theft or misuse of company assets, such as equipment or materials.
Payroll Fraud - falsifying time records, claiming excessive overtime, or creating fictitious employees.
Secondary Work and CIS - the growing prevalence of flexible work arrangements increases the risk of employees engaging in conflicting activities and tax evasion.
Implement a transparent bidding process with clear evaluation criteria.
Encourage open bidding and discourage restrictive practices.
Use independent third-party evaluators to minimise bias.
Establish a rigorous change order approval process requiring multiple signatures.
Require detailed cost estimates and supporting documentation for all changes.
Conduct regular audits of change orders and associated costs.
Verify invoices against work orders and supporting documentation.
Conduct regular audits of invoices and payments.
Implement a system for tracking and reconciling all financial transactions.
Require prior approval for all material substitutions and clearly define material specifications and quality standards.
Conduct regular inspections and testing to verify compliance.
Enforce strict conflict of interest policies.
Require disclosure and approval of all vendor and subcontractor relationships.
Implement a whistleblower protection programme.
Construction companies facing fraudulent activity can pursue various civil legal actions to recover losses and deter future misconduct. There is also a tactical decision to be made about reporting the fraud to the police, the possibility of a private prosecution and other important considerations. Here are some common options:
Employee theft and potential dismissal
Private Prosecution
Damages claim for deceit - if the fraudulent actions involved a deliberate misrepresentation of facts that induced the company to suffer a loss, they can sue for the tort of deceit.
Breach of contract - if the fraud was committed by an employee or contractor under a contract, the company can sue for breach of contract and seek damages.
Injunctions - the court can order the defendant to take specific actions to rectify the harm caused by the fraud.
Get in touch
If you would like to speak with a member of the team you can contact us on:
Partner - Business Crime and Regulatory
George has expertise in representing individuals and businesses subject to investigations and prosecution by the Serious Fraud Office (SFO), Crown Prosecution Service-Serious Economic Organised Crime and International Directorate (SEOCID), His Majesty’...