Beware of Independent Contractor Fraud

Independent contractor fraud can be a serious problem in the construction industry unfortunately. An independent contractor is a person who is licensed to independently perform certain kinds of work. The license indicates they have met all state and federal requirements for contractors and is legitimate. Unfortunately, too many people pass themselves off as licensed contractors, when in fact they don’t have the proper licenses or qualifications.

A legitimate independent contractor spends a lot of money making sure they have proper insurance and licenses. The contractor has probably trained in his or her specialty and can provide references upon request. Because they are registered and insured, the homeowner who hires this person has recourse against independent contractor fraud if the job is done poorly.

Independent Contractor Fraud

Independent contractor fraud includes a contractor passing him or her self off as being properly licensed when they have no license. All too often remodel jobs are done by people who claim to have experience which they don’t actually have. When the job gets botched, you have no one to call because there’s no license. When properly licensed, the state, county or city could be notified and proper action taken.

Independent contractor fraud can take many forms:

Employees on your job don’t get paid by the contractor even though you paid the contractor invoice
Contractor leaves the job before it’s finished and doesn’t return
Contractor fails to do job as agreed upon for the money involved
Contractor causes property damage
Contractor uses unlicensed subcontractors
Contractor doesn’t pay material bills with money you paid for that purpose
Misrepresents experience

There are steps you can take to prevent independent contractor fraud. First, you should always get a license number and then verify with the state that the number is valid and in good standing. You can call the Better Business Bureau and make sure there have been no complaints filed against the contractor. If you borrow money, ask the bank how you can make sure all the subcontractors get paid. Most banks require subcontractors sign a release of lien before releasing money.

You can also prevent independent contractor fraud by verifying the contractor insurance policy is valid. This will protect you in the event the contractor makes a mistake or fails to complete the job as agreed. Anyone who works on your job that’s required to be licensed should be able to give you a license number and an insurance number. This applies to electricians and plumbers in most states.

Preventing independent contractor fraud just takes some common sense. Of course, there will always be those times when you are defrauded despite all precautions. All you can do at that point is contact the appropriate authorities and regulating agencies.