Volume 10 Number 1

 

Your Source for Reliable Corporate Investigative and Security Information  ® 

Fraudbusters A

P u b l i c a t i o n

o f

Edition

K e s s l e r

I n t e r n a t i o n a l

Volume 10

Number  1

Craft or Graft Graft?? The Insidious Wo World rld of Construction Fr Fraud aud

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hether it is a public private organizations on a works project, a new high- rather regular basis. rise office building, a corpoConstruction, while a rate headquarters, a stadium truly indispensable and or a sewer pipe, few things mostly honorable industry, are as costly -- and often con- has a nasty reputation for troversial -- as construction  being rife with fraud. And projects. Major construction with good cause... the busialmost always affects a con- ness is simply littered with siderable amount of people unscrupulous contractors from company employees to looking to swindle innocent local community members,  businesses, naïve organizaand when it comes to public tions and even government construction, the taxpayers agencies. Scams range from are the ones footing the bill.  blatant, one-man "take the Construction projects usually money and run" plans to result in structures that are complex financial deception

offices, and purchasers pro-  become practically unavoidcure bids from contractors able. Of course, certain varivariwithout taking the time to eties of fraud are more comresearch the market. mon than others due to their Furthermore, illicit activ- likelihood of success, low ity in the construction busi- odds of detection or, as is ness is not exactly a modern sometimes the case, forced concept. Fraud, bribery, con necessity: games and outright theft have seemingly been an inex- Fraudulent Disbursements tinguishable part of the Generally found in largeindustry for ages, so what scale commercial or governwould make today's world ment projects, this broad catany different? different? Just as it has egory usually involves always been, the allure of crooked contractors in posieasy money is often enough tions of financial authority. to draw hardworking John Some classic methods of job-

necessary companyand or requiring cooperation of Q. Public to aone lifeof of the crime. communityforto afunction, numerous the crooked contracPerhaps prinoften represent much more tors and outside facilitators. cipal challenges in the fight than a building or public But why has construc- against construction fraud is service. These structures tion fraud become so com- that virtually any type of represent the very face of mon, and quite often, so scam can be applied to the major corporations, the mod- ridiculously flagrant? The  business,  busin ess, giving dubio dubious us ern appeal of a small town or answer is fairly simple... contractors and pure con the convenience of a boom-  because construction fraud fraud is artists an almost endless ing urban environment. easy.. Easy to perpetrate, array of opportunities to rip easy Therefore, it's no sur- easy to get away with, and off their victims. In addition, prise that when major con- successful prosecution is due to the very nature of struction frauds are revealed, often extremely difficult. large construction projects, the outcry is usually enor- Financial officers and public corruption can take place mous. However However,, the unfor- officials sign off on expendi- during any phase of the job,

site include shell embezzlement companies, personal purchases, ghost employees, falsified wages, phony workers compensation claims, overstated and fictitious expenses, fake invoices and altered contracts. Quite often, spurious expenditures are approved with no regard to the customer, as workers purchase brand new tools, computers, wireless phones, and a litany of other wasteful and unnecessary items that

tunate reality is that most construction frauds go completely unseen, and millions of dollars are embezzled from unwitting public and

shouldn't be billed to their client. Some contractors have even been known to intentionally purchase excessive amounts of expensive

tures without even a cursory glance as corrupt contractors take advantage of their lack of vigilance, corruption runs rampant at job sites and local

from pre-planning to final inspections. The result result is an industry that presents so many risks that some type of fraud or dishonesty has

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most common variety of corruption lies with those who have the power to move the project along, often in the form of inspectors or union leaders who can bring projects to a virtual standstill at a moment's notice. notice. Those who who have this sort of powerful leverage are often bribed or given kickbacks without much deliberation. Some even see it as a standard part of the job, a toll paid to the figurative gatekeeper. Of course, shady dealings  between construction managers and preferred subcontractors are also quite common, and are even more apt to go unnoticed, persisting for years and damaging the  bottom  bott om line of one buyer after another.

ticularly concerned about  being prosecuted for tax evasion, sometimes (as was the case with famous mobster Al Capone) it can be one of the most effective means of putting these criminals behind  bars.

standard materials. worse, some contractorsEven will Tax Fraud take it a step further by Nearly every sort of conknowingly engaging in shod- struction scam involves tax dy, haphazard construction fraud in some way, a crime and passing it off as com- that takes place primarily plete, or covering up poor due to the crimes that prewiring and plumbing with ceded it. For instance, if freshly-painted walls. All  bribery  briber y and corr corruptio uption n is across the country country,, inspectors taking place, tax fraud is have been known to discover inevitable since recipients dozens of building code vio- will certainly not be reportlations when customers ing illegal income (and can thought their structures were thus be susceptible to tax completely safe. evasion charges) and those

The non-competitive ronment generated byenvithe group is crucial to their racket, and legitimate competition is often forced out of the picture by any means necessary. And due to the fact that there is usually no hard evidence of collusion, bid rigging is among the most difficult frauds to uncover and prosecute.

handing out illicit payments will seek to cover up their under-the-table spending by generating fraudlent expenditures that can be reported as business expenses. False disbursements, overcharging for materials, ghost employees... these are all bases for tax fraud, and often the process of concealing illegal transactions directly leads to other crimes, such as the falsification of business records or, when large sums are involved, money laundering. And while it's not likely that crooked contractors are par-

 from Day One” on page 3 for more information on this clandestine form of fraud.)

Construction Fraud continued from page 1 materials, such as copper wire, and sell off the unused product to an outside buyer for a large profit. Mediocre Materials & Labor If you're paying for topquality concrete, you should  be getting nothing but topquality concret concrete. e. However, some contractors will bill for the good stuff and use cheap or diluted materials instead, thereby saving (and subsequently pocketing) a great deal of cash. Of course, this not only defrauds the customer, but may put lives in danger due to the use of sub-

Bribery & Corruption It's a problem for countless industries, but because the jobs are so costly and are often besieged with red tape, the construction business is renowned for being rife with corruption. People with ecoeconomic or civic influence, such as public officials, corporate executives, labor unions, mobsters and even other contractors, are often tangled up in construction fraud through bribery, kick backs, gratuities, bid rigging and extortion. Perhaps the

Bid Rigging This form of fraud takes place before any contract is signed, before an architect draws up plans, before a single bag of concrete is mixed. In essence, the customer is  being ripped off in advance. As bids for construction projects are being solicited, a number of contractors conspire together to establish excessive contract prices or ensure that a particular vendor will be chosen for the job.

(See the article “Bid Rigging: Fleecing the Public

Certainly these four examples do not come close to a conclusive list, but they provide a general overview of the various types of fraud and corruption in the construction industry industry.. Quite simply, there are far too many differing schemes and plots to document here, and most of them are specifically tailored to a particular segment of the marketplace or a certain geographical area.

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So what does the future hold for construction-related racketeering? Construction fraud has, for quite some time, remained fairly stagnant in terms of innovation. New cons do arise here and there, particularly with the emergence of technology in the accounting process, but  by and large, the various types of fraud occurring today are not much different from the scams of twenty years ago. Fortunately, while construction fraud is still widespread, public awareness is growing at a significant rate. High-profile corporate scandals including Enron, WorldCom and Tyco have  brought fiscal malfeasance to national attention, and as a result, many organizations are beginning to institute checks and balances that were sorely missing. In addition, the Internet has made it much easier for potential customers to research the reputations of contractors and to locate fair market rates, giving buyers an advantage and helping to circumvent fraud before it occurs. But will this heightened vigilance be enough? Will construction fraud continue to plague businesses and public organizations alike? Certainly no amount of publicity or internal control is going to make construction scams disappear... in fact, it will likely cause illicit contractors to become even more stealthy and clever. But for the most part, the populace is taking a step in the right direction, and hopefully this emerging era of accountability will help keep fraudsters at bay and cash in the pockets of its rightful owners.  

 

Bid Rigging: Fleecing the Public from Day One

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hile tales of money skim- artificially generate a non- have been given an unfair  Market Division This scheme aims to ming and corrupt public offi- competitive environment is a quote. The extra money will cials are most likely to grab violation of federal antitrust then be disguised by the con- divide up certain markets or headlines, it's important to law. Under the Sherman Act tractor during the course of geographical areas among understand that construction (15 U.S.C. §1), any violation the job, and sometimes the a group of conspirators, givfraud isn't all due to blatant committed after Nov. 1, 1990 wealth will be spread among ing each crooked contractor  job site overpayments and is considered a felony pun- the group of conspirators. a virtual monopoly in one particular segment of the easily-bribed government ishable by a fine of up to $10 market. For example, colludComplementary Bidding  million for a corporation, inspectors. Sometimes, even This form of bid rigging, ing companies may decide the most trusted construction and a fine of up to $350,000 companies begin cheating or three years in prison (or considered the most com- that a certain contractor will mon of the four, serves to  be the only one permitted to their customers long before  both) for individuals. Unfortunately, despite create the illusion of compet- submit bids in certain geothey are awarded the contract through a process of the prospect of hefty fines itive bidding when in reality graphical areas or to certain secret collusion and artificial and jail time, bid rigging it only obscures unfair prices purchasers. In return, this price inflation known as bid has become increasingly and the deception in particular contractor will Generally,, com- refuse to bid or will place common in recent years. progress. Generally rigging. When large construction Businesses and other private petitors will agree to submit unreasonably high bids on projects are slated, the vast entities are widely affected,  bids that are a bit too high or other construction projects majority of public, private  but when public projects are contain unappealing terms, that have been allocated to and organizascammed,big news. bid Schools, rigging thereby an loweasy win for aproducing pre-selected tionsgovernmental seek out contractors by  becomes  biddi ng cont contracto ractor. r. Of asking them to submit bids. hospitals, municipal depart-  bidding The goal of this procurement ments and countless other course, due to this phony process is to encourage com- tax-funded organizations are (yet legitimate-looking) bidpetitive pricing among vari- defrauded by conniving con- ding process, the low bid is ous companies, ensuring that tractors, and because evi- not low at all, and once again the price paid for any goods dence is usually circumstan- the buyer is duped. or services reflects fair mar- tial at best, the successful ket value. This process process also detection of this illicit prac- Bid Rotation Rather than defrauding provides all eligible vendors tice is especially rare.  buyers and divvy divvying ing the with a fair opportunity to take, this method of bid rigcompete for contracts and The Faces of Bid Rigging While schemes certainly ging allows for contractors to reduces the likelihood of the monopolization of a particu- vary in method and scope, take home the whole pie, as lar local industr industry y. Bid rig-  bid rigging essentially boils long as it's their turn. When new projects come along, ging occurs when companies down to four basic types: conspirators take turns as the that would normally comdesignated low bidder. bidder. This pete for a contract instead Bid Suppression This is a fairly simple results in a controlled districonspire together to submit inflated bids or to gear selec- method in which one desig-  bution of jobs and allows the tion toward a certain contrac- nated company will invari- offenders to fix prices as they tor, eliminating any sem- ably win a contract, due to see fit. Everyone is taken  blancee of compe  blanc competitio tition n or the fact that competing com- care of proportionately, and panies have either agreed to the volume of jobs typically equality. As in any other area of withdraw their bids or not corresponds with the size of commerce, lack of competi- submit bids at all. By doing the companies involved. tion causes prices to rise and this, the remaining contrac- While this scheme often quality service to dwindle. tor can submit an inflated appears legitimate and is difIn essence, consumers (tax-  bid, and the purchaser will ficult to spot at first, if conpayers in public projects) pay often be forced to award to spirators fall into a pattern it more and get the same. the contract to the lone bid- can be most visible method Naturally, any attempt to der, not realizing that they of all.

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fellow conspirators. Any of these methods can, and often do, result in major financial scores for the corrupt contractors involved and excessive losses for the victim purchaser. Even worse, bid rigging is often aided and abetted by public officials who receive gifts and kickbacks to look the other way, or possibly, to guarantee the selection of vendors in accordance with the colluding companies' wishes. Taxpayer money is funneled into a tainted system and deposited directly into the coffers of contractors, or in some scenarios, those entrusted by the public to lead the community with integrity. Turning the Tables The unfortunate reality of bid rigging schemes is that they are extremely difficult to discover. The crime is designed to be as secret as possible, and typically, only a few choice individuals are continues on page 7

 

Understanding the Need for an Independent Inspector

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n any given large construction project, it is almost inevitable that a few corners will be cut, a few dollars will  be pocketed, and a few violations -- of various kinds -will be ignored. ignored. Some say it's virtually unavoidable to experience some measure of fraud, waste and negligence, and will consider it the "cost of doing business." What creates havoc is when illicit activities get out of hand and losses amount to much more than a stolen tool or substandard asphalt. Many projects

The answer lies in an independent inspector, usually referred to as an IPSIG (Independent Private Sector Inspector General), OPR (Owner's Project Representative) or the more colloquial term, "Clerk of the Works." Bringing an independent inspector on board can help ensure a job site that is free of fraud, corruption, waste and negligence, potentially saving incredible amounts of cash that might be otherwise frittered away. Of course, utilizing an

are that so thesaturated purchaserwith mayfraud lose hundreds of thousands, or even millions of dollars. How can this sort of massive malfeasance be avoided? Buyers (including government entities) often expect public inspectors, who make periodic visits to ensure zoning and building code compliance, to be the primary negligence watchdog and to help nip corruption in the bud. This is a somewhat understandable expectation, but leaving everything up to public inspectors can not only result in oversights, but may lead to bribes and kickbacks as crooked contractors seek to finish the job quickly and without any snags. In addiaddition, many buyers expect project architects to take an active role in assessing the progression of construction,  but the jurisdiction of archi-

inpector only factors effective when threeis major are considered. First, it is important to locate an inspector that is sufficiently qualified. For instance, hiring an inspector that is well-versed in electrical systems but knows nothing about plumbing leaves a key aspect of the project open to negligence. Make sure that all major systems are part of an inspector's expertise. Secondly Secondly,, inspectors simply cannot be stretched too thin. Even the most qualified individual may not be able to sufficiently monitor numerous projects at once, so take care to dole out a reasonable amount of responsibility for inspectors. And finally, a good inspector must have the credibility and assertiveness to command authority when dealing with contractors. As it stands, most buyers are essentially at the

tects they is actually quitehave limited and typically no real control over the many varied elements of a project.

mercy of once contractors and architects a contract is signed, so an intelligent, res-

The Kessler Report spoke with fraud specialist Ronald Goldstock, former director of the New York State Organized Crime Task Force, and now a professor of law and independent independent consultant. Our discussion covered some of the problems inherent with fighting construction fraud: What issues might be a catalyst for corruption KR: in, for example, inspectional services? Inspectors always have the ability to slow RG: down a project, costing builders a huge amount of money.. Discretion and cost is a recipe for bribery or money extortion. Depending on how archaic and convoluted convoluted the relevant code is, inspectors will have even more discretion and opportunities to cause delay. Sometimes, building codes are so overprotective that, for example, if a 2-inch nail might have worked, the code might call for a three-inch nail. nail. If the contractor uses a 2½-inch nail, which would have been perfectly safe, it would not comply with the code and the inspector will have to tell the contractor to remove and replace each and every nail. That can create huge huge opportunities for bribery. KR: What efforts have been made to crack down on corruption, and have they been effective? RG: It depends largely on whether the efforts are aimed at the causes of corruption or at the symptoms. If the latter, attempts at reform might be counterproductive. As in our previous example, example, increasing layers of inspection and adding to the complexity of codes might create even more opportunities for payoffs and the use of expediters as the locus of illicit behavior. Unfortunately,, there has been the history of this type of Unfortunately response in the industry -- a reaction to a scandal produces a non-thoughtful response which appears to satisfy the electorate, but in fact creates more problems. On the other hand, a thoughtful analysis of corruption susceptibility and potential might lead to something like the Independent Private Sector Inspector General (IPSIG) program, which has had an enormous impact on the issue -- as shown, for example, in the World Trade Center cleanup. KR: Are there any steps that can be taken on a widespread level to fight against fraud and corruption? The mistake is to assume that all problems are RG: solvable the same way. way. There are so many factors to continues on page 6

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Construction Contracts: What to Kno Know w Before Before You You Sign

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The GC is also directly pleted) is to be adhered to by o matter if you are a government agency, a major cor- responsible for the utiliza- the CM and all entities under poration or a small, local tion and management of its authority.  business, planning and com- subcontractors. Subcontracmencing a construction proj- tors are typically transparent Agency Construction ect can be an extremely try- to the owner, and any sub- Management (ACM) ing process, and for many contractor issues are usually Whereas the GC or CM people, a very confusing resolved through the GC. is often seen as a third-party process as well. There are Contracts between subcon- entity that is contracted to numerous crucial considera- tractors and the GC are also complete a construction projagreements. This ect (with the authority to tions... which contractors to lump sum agreements. use, what the design will be, type of contract is meant to manage subvendors), an how much money will be increase efficiency and con- Agency Construction Manappropriated. Of course, the trol costs among specialty ager is seen as an extension majority of buyers will focus contractors, although the of the owner, and is utilized primarily on the third issue,  juggling of numerous ven- to help the owner realize and that's why it is so impor- dors can place too great of a profits that would otherwise  burden n on the GC if not  be earned by a contractor. contractor. In tant to know what types of  burde addition to this financial facconstruction contracts exist, properly qualified. tor, ACMs allow owners to and how they can impact your project plans and bottom line. While almost all construction contracts are customized for a specific s pecific project, nearly every agreement is essentially a modified version of one of several basic contract forms. These contract types are often classified as follows: Lump Sum, General Contracting (GC) This is typically thought of as the traditional method of contract structure, in which a General Contractor is employed after the design process to perform construction duties. duties. The GC GC is then responsible for completing the project for a lump sum, as defined in the contract. The owner will communicate directly with both the GC and the Architect, and while there is no direct contractual relationship between the GC and Architect, these two entities typically work in concert on each project to assure conformity in structural details.

entire construction process. As such, the owner only deals directly with one entity that will manage all aspects of the project from beginning to end, seriously reducing the administrative burden on the owner. For owners, the simplicity of one single contract is not the only advantage. advantage. This type of contract essentially pinpoints the responsibility of every facet of the job on one company. In additio addition, n, the centralization of responsibilities allows those responsible for different aspects of the project to work more closely, and also allows for

direct minimal the withoutspecialty the hasslecontractors of dealing  bidding,  biddi ng, stalling design desig n during and conwith a third-party. struction processes. Essentially, the ACM contracts with the owner to Whether you are planprovide management servic- ning a massive public works es in the capacity of a con- project or a simple building sultant. The ACM will will man- renovation, knowing which age vendors much like a GC type of construction contract or CM would, but without is best for your organization any contractual ties between can mean the difference them. As a result, subcon-  between a successful project tractors (often referred to as and months of stress and trade contractors in ACM financial difficulties. projects) report directly to the owner.

Construction Management with Guaranteed Maximum Price (CM w/GMP) In this type of contractual agreement, the construction manager is responsible for completing the project for a total sum that is equal to or less than a "Guaranteed Maximum Price." Price." Because of this particular term, this type of agreement is often said to  be "at risk." While the origio riginally quoted contract total may be adjusted during the course of the project, CMs must take care to adhere to original contract numbers. Extremely precise cost estimates are required for this type of construction management, and CMs need to exhibit superior knowledge of every step of the construction process. Furthermore, the CM is directly responsible for each subcontractor, much like a general contractor, with the distinction that the original contract (which is often signed before plans or specifications are actually com-

GUARANTEE OF DISCRETION

Design-Build (DB) With this type of agreement, the owner contracts directly with a design-build firm, which handles not only the task of designing the project with an architect (whether in-house or outside), but also handles the

In addition to cost effective, thorough investigative services, the clients of Kessle Kesslerr International International are are assuredd the highest assure highest leve levels ls of discretion and sensitivity to individual situations. We never sell or rent client lists, or in any way reveal the details of our investigat investigations. ions.

Publisher: Kessler International Editorial Director: Michael Kessler Editor: Susan Peterson Copywriter: Nicholas Vrona Contributions by: Ronald Goldstock The Kessler Report (V10,N1) Copyright © 2005 by Kessler International, 45 Rockefeller Plaza, Suite 2000, New York, NY 10111-2000. The Kessler Report Report (V10,N1) is a trademark of Kessler International. International. No portion of this newsletter may be reprinted reprinted without crediting The Kessler Kessler Report, a publication of Kessler International.

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Independent Inspectors

Defending Your Walls

continued from page 4

How to Help Prevent Construction Fraud  olute inspector is crucial in sustaining leverage over your vendors. Invariably, many buyers are going to forego thirdparty inspections for one reason... to save save money money.. A common explanation for not calling upon an inspector is that funds would be put to better use if allocated for building maintenance, staffing or other common expenses. However, more and more thrifty thinkers are finding out that the benefits (both financial and operational) gained by hiring an inspector would have far outweighed

Construction fraud can affect anyone -- public corporations, private businesses and even and even government agencies -- and usually scams are only discovered long after the project project is finished. So what can you do to prevent construction fraud fraud in your organization? Avoid  becoming a victim by heeding these tips: • Hol Hold d a publ public ic hear hearing ing to get get the the commu communit nity y and and concerned entities involved in the construction process from the beginning. The main objective of such a hearing is to allow individuals and officials to publicly discuss elements of the costly project, which may help ensure that the purchasing entity is proceeding with as much information as possible, as well as creating publicity that may dissuade crooked contractors from taking any chances. • Pro Procur curee bids bids in the the most most visi visible ble mann manner er possi possible ble,, and actively actively seek as many bids bids as possible. possible. Limiting your options to only a few select contractors can result in collusion between between contractors and bid rigging. By inviting as much competition as possible, the potential for  bid rigging or other duplicitous activities is decreased dramatically. • Con Conduc ductt seriou seriouss due dil dilige igence nce whe when n consid consideri ering ng  bids. Ask potential contractors for references, references, identificaidentification and license information, verify licenses with authorities, obtain information regarding previous projects completed by bidders, or contact an investigator to conduct a background inquiry. inquiry. Even though the law often often requires that contracts be awarded the lowest bidder for public jobs, evidence of o f irresponsibility, irresponsibility, incompetence or criminal behavior can disqualify potentially risky contractors. • Cre Create ate a fle flexib xible le sched schedul ulee for const construc ructio tion, n, but but do not allow allow unnecessary unnecessary stalling. stalling. A great deal deal of bribery and corruption occurs solely because jobs are rushed due to deadline restraints, such as a school opening or an outdoor public works project. project. When construction construction hits a snag or lags behind, illegal payoffs are frequently made to move the project forward, or contractors may do substandard work to finish on time. Basically Basically,, if there is ample time to finish the project, it is less likely that  bribes and slipshod construction will occur. • Str Strong ongly ly consi consider der hiri hiring ng a thirdthird-par party ty constr construct uction ion inspector to supervise your project from start to finish. Public inspectors are often easily corrupted or may be inclined (whether by pressure or not) to let things slide

the cost, those firstparticularly few weeksduring after construction when complex mechanical systems are roused into operation for the very first time. More often than not, maintenance staffs are under-trained and usually have little recourse when problems probl ems arise arise.. A qual qualifie ified d inspector can help alleviate those issues by working with the project contractors and the purchaser's staff to prepare the inhabitants of the

mencing a major construction project, your financial stability is on the line. Don't make the assumption that the contractors you employ are going to be forthright and honest, and certainly don't presume that everything will work out exactly as planned. There are always going to be challenges. The good news is that an inspector can help prevent these problems and solve them if they do arise, saving time, money and aggravation, and allowing you to experience something that is truly a rarity these days... a project that is on time, on budget and primed for the future.  

continued from page 4 consider... the geographical area, the particular setting, the rules and codes that are in place, the inspection process, the degree of privatization, prevailing wage laws, public versus private, horizontal versus vertical... each problem has to be

new building for the future. looked at separately, and Clearly, an independent solutions that are specifically inspector can be a tremen- directed toward those particdous advantage to any con- ular problems have to be struction venture. By keep- worked out. Of cours course, e, ing tabs on the progression of one of the great advantages the physical project itself, in having a decentralized ensuring compliance to num- system like in the United erous codes and standards, States is that various possilooking out for signs of cor-  bilities can be tried in differruption and fraud, and help- ent places and those that ing owners get acquainted work can be copied. with their new structures, an Remember that if you set one inspector can be an extreme- standard then you have no ly effective deterrent to illicit innovation, and if there is a activity and a boon to over- flaw that can be exploited in whelmed building staffs. one place, then it can be Remember, when com- exploited everywhere.  

to further and redapproach tape. An to independentreduce inspector willheadaches take an objective the procontinues on page 7

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Bid Rigging continued from page 3 privy to any information. information. A smaller amount of people in the know means a smaller chance of someone exposing the operation. Dissidents are quickly run out of the group and may be kept quiet through threats of violence. However, like any other crime, bid rigging can be discovered if purchasing agents and other key individuals remain vigilant and know what to look for. Some potentially indicative signs include: • On Onee pa part rtic icul ular ar co comp mpan any y repeatedly wins contracts.

the new contractor is invited to join the scheme). • Su Succ cces essf sful ul bi bidd dder erss sub sub-- continued from page 6 contract work to competitors that submitted excessive, unreasonable and otherwise  ject, will keep close tabs on expenditures and build qualfailed bids for the same job. • Bi Bid d pa pape perw rwor ork k su subm bmit it-- ity, and will help keep the smoothly y. ted by various vendors con-  jobsite operating smoothl tains similarities or even Remember that a few extra identical items (calculations, dollars early on could preerrors, fonts, etc.) This may vent major headaches and indicate that one entity has very costly legal fees down submitted documents for the road. • In Insi sist st on to tota tall acc accou ount ntaaeveryone in on the scheme. contracto ractors. rs. • A company cl claims to to be be  bility from cont submitting a bid on behalf of Every box of nails, every another contractor, whether spool of wire, every hour of as a favor, a courtesy or any employee time should be carefully recorded and dutiother reason. • Ev Evid iden ence ce is fo foun und d sho showw- fully organized. Keeping ing that contractors have accurate records can help previously discussed prices dissuade potential crooks with one another.

Defending Your Walls

This rigg points a number of  bid rigging ing tometho methods, ds, and  becomes even more suspicious when competitors continually submit bids that are unreasonably high, late or submitted in a way that disqualifies the bid itself. • An exc exclu lusi sive ve,, cons consis iste tent nt group of contractors bids on projects, and winning bidders appear to be on a rotating basis or following a particular pattern. • Bi Bids ds su subm bmit itte ted d by co conn-

• Publ blic ic of offi fici cial alss or obecome r othe otherr key Pu individuals excessively involved or vocal concerning the selection of certain vendors, or conversely, become unusually disconnected from the entire procurement process.

tractors are vastly higher than estimates for compara ble jobs or previous bids on similar jobs submitted by the same vendor. • Bi Bids ds su subm bmit itte ted d by by a sin sin-gle company for similar jobs fluctuate in price by extremely large amounts with no apparent reason for the difference in cost. • Es Esti tima mate tess app appea earr to to fal falll sharply when an unfamiliar contractor bids on a project. The presence of legitimate competition compels the collaborators to temporarily submit fair bids (at least until

thwarting bid rigging before it starts, prices are more likely to be competitive and fair. Purchasers should keep in mind that more competition reduces the chance that bid rigging will take place, and therefore any prudent buyer should actively solicit as many qualified vendors as possible. Doing this spoils the carefully-controlled environment formed by conspirators, and a proactive approach will help prevent this form of theft that quietly pilfers millions from unwitting citizens every year.  

and help track down thieves if fraud does take place. • Cl Clos osel ely y exa exami mine ne in invo voic ic-es for services rendered, change orders, and other notable expenditures. While it may not be reasonable (or cost-effective) for a customer to scrutinize every single receipt, tracking large and isolated charges can unveil fraudulent spending that you were probably expected to overlook. • Mo Most st imp impor orta tant ntly ly,, nev never assume that you are in the clear.. Even the most powerclear ful companies and government agencies can be cheated by dishonest contractors, and just because you can't see fraud in action doesn't mean it isn't there.  

KESS KE SSLE LER’ R’SS CO CORNE RNERR Sometimes, you can look for all the signs, make all the right preparations and document every transaction, and construction fraud will still find a way to take a chunk out of your budget. The harsh reality reality is that no one is immune to fraud, and as a result, countless millions of dollars are swindled from innocent organizations and public resources each year. So what can you do when construction fraud has taken you for a ride? What if you suspect fraud, but don't have the means to prove it? The answer answer is simple. The answer is Kessler International.

Looking for these signs can certainly help reveal bid rigging schemes as they play out. However However,, prevention may be the most sensible and effective action, and by

Since 1988, our firm hasofbeen tackling fraud some across of the largest, most complex cases construction the nation and worldwide. worldwide. Our forensic audits and construction reviews have uncovered scores of large-scale schemes from bid rigging to outright theft, affecting businesses and government organizations alike. It seems that nobody is safe these days, but with Kessler International, you don't have to remain a victim. If you’re feeling the effects of fraud, or if you believe that something is amiss with your construction project, contact us for a free consultation. We can deliver deliver the results you need to get justice and get back on your feet. Sincerely,

Michael G. Kessler President Presi dent & CEO

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INSIDE THE KESSLER REPORT: • • • • • • •

Learn about the insidious world of construction fraud Get valuable hints to help keep your organizati organization on fraud-free Get expert insight insight into construction fraud fraud vulnerability See why an independen independentt inspector is so important Learn the basics basics of various construction contract types Kessler’s Corner Corner:: What to do if you suspect fraud All this and more, more, only in The Kessler Report!

KESSLER ONLINE For more information about fraud auditing, forensic accounting, computer forensics, brand protection and other investigative solutions, visit our website atOur www.investigation.com. site is packed with useful corporate intelligence to aid you in your most crucial business decisions.

www.investigation.com

INTERNATION TION AL KESS LER INTERNA C or por at e I n v e s t i gat i v e St r at e gi e s WORLD HEADQUARTERS 45 Rock Rockefeller efeller Plaza • Suite 2000 • New Yo York, rk, NY 10111-2000 TEL: (212) 286-9100 • FAX FAX:: (212) 730-2433 • TOLL FREE: (800) 932-2221 WEB: www.investigation.com Call or write us for more information or for your free subscription to the Kessler Report. Kessler International is a registered trademark trademark of Michael G. Kessler & Associates, Ltd.