construction fraud

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By [AUTHOR NAME, CREDENTIALS]. Reviewed [DATE].

A $58 million contract to restore the facade of Philadelphia’s 30th Street Station grew by more than $52 million in change orders. According to federal prosecutors, the Amtrak project manager approving those changes was receiving about $323,000 in gifts from the contractor, and Amtrak was overbilled by more than $2 million. In October 2025, the contractor’s president was sentenced to seven and a half years in prison.

That case is a textbook example of construction fraud, and it is not rare. Summaries of the ACFE’s 2026 Report to the Nations put the median loss in construction cases at $120,000, with billing schemes and corruption among the most common types. The money rarely disappears in one dramatic theft. It leaks out through paperwork that looks routine.

Why Construction Is So Exposed

Construction projects combine features that fraudsters look for:

  • Large payments released in stages, often on someone’s judgment of percent complete
  • Long chains of subcontractors and suppliers
  • Job sites far from the accounting office
  • Scope that changes mid-project, legitimately and often
  • Owners who do not build for a living and rely on others to verify the work

Each construction fraud scheme below exploits one of those gaps.

Change Order Fraud

Change orders are a normal part of building. Conditions differ from the drawings, owners change their minds, and prices move. That legitimacy is what makes them useful cover.

Common versions include:

  • Lowball and recover. Bidding below cost to win, then making the profit back through change orders
  • Padded pricing. Inflating labor hours, material quantities, or markups on extra work
  • Duplicate scope. Billing as “extra” for work already included in the base contract
  • Collusive approval. Paying the person who signs off, as alleged in the Amtrak case

Red flags worth tracking: change orders that cluster just under an approval threshold, the same approver on every one, vague descriptions, and signature dates that fall after the work was done. Where an insider is involved, the scheme overlaps with the patterns in bribery, kickbacks, and extortion and procurement fraud.

Phantom Progress Billing

Most projects pay monthly against a schedule of values, a line-by-line breakdown of the contract price. The contractor reports a percent complete for each line and bills accordingly. Phantom progress billing means claiming progress that has not happened.

One nuance matters here. Some front-loading, meaning weighting early items like mobilization and foundations more heavily, is common industry practice for cash flow and is not automatically fraud. It becomes a problem when billing runs so far ahead of the work that the remaining contract balance could not pay someone else to finish.

Watch for:

  • Line items at 100% when the site shows otherwise
  • Billing for stored materials nobody has seen
  • Missing, late, or suspicious lien waivers
  • Subcontractors calling the owner about non-payment

That last sign is serious. In September 2026, an Ohio man was sentenced to eight years in federal prison for a $1.9 million scheme in which, prosecutors said, he presented fabricated certificates and lien waivers to collect project payments while diverting the money. Paper that says “everyone has been paid” is only as good as your verification of it.

Inflated Costs

On cost-plus and time-and-materials contracts, every dollar of reported cost becomes a dollar billed, plus a fee. That creates a direct incentive to pad:

  • Labor. Ghost workers, inflated hours, or billing apprentices at journeyman rates
  • Materials. Charging for premium products and installing cheaper ones
  • Equipment. Billing for idle or owned equipment at rental rates
  • Cost shifting. Moving expenses from a fixed-price job to a cost-plus one
  • Pass-through entities. Routing purchases through a related company that adds a markup

Padding can also be buried in subcontractor numbers. In May 2025, energy contractor NORESCO agreed to pay about $9.6 million to resolve federal allegations that included instructing two subcontractors to add $3.46 million in contingency costs to a Navy project after contracting staff had partly rejected them. The claims were allegations only, with no determination of liability. For related mechanics, see fake vendor and fictitious supplier fraud and payroll fraud and ghost employees.

Controls That Stop Construction Fraud

Whether you are an owner, lender, or general contractor managing subs, these steps make construction fraud harder to hide:

  1. Write a right-to-audit clause into every contract, covering subcontractors and electronic records
  2. Verify progress independently. Walk the site before approving each payment application, with photos tied to schedule lines
  3. Collect lien waivers every cycle. Get unconditional waivers for the prior payment and conditional waivers for the current one, and confirm a sample directly with subcontractors
  4. Control change orders. Require written scope, backup pricing, and approval before work starts, with a second approver above a set amount
  5. Audit early. Review the first payment application and first change order in detail, not just the final one
  6. Analyze the data. Compare labor hours to badge or gate logs, and material invoices to delivery tickets. See how anomalies reveal hidden schemes
  7. Open a reporting channel to subcontractors and site staff. A hotline people will use is often the first warning

The Bottom Line

Construction fraud thrives on trust without verification: a change order nobody priced, a percent complete nobody checked, a cost report nobody traced to source documents. Build verification into the payment cycle and most schemes surface early. For more case breakdowns in plain English, explore the Fraud Files or contact our team.

Frequently Asked Questions About Construction Fraud

What is the most common type of construction fraud?

Industry summaries of ACFE data point to billing schemes and corruption as the most frequent. In practice that means inflated or false invoices and payments to influence approvals.

Is front-loading a schedule of values illegal?

Not by itself. Modest front-loading is common, but billing far ahead of completed work can breach the contract and, on public projects, may expose the contractor to false claims liability.

How can an owner verify percent complete?

Have an architect, engineer, or owner’s representative inspect the work against each schedule line before payment. Photos, delivery records, and inspection reports should support the numbers.

What is a right-to-audit clause?

It is a contract term that lets the owner examine the contractor’s books, records, and supporting documents. Without it, getting cost detail after a dispute starts is much harder.

Can change orders be fraudulent if someone approved them?

Yes. Approval obtained through bribery, false pricing, or misrepresented scope does not make the charge legitimate. Several federal cases have involved approved change orders.

What should I do if I suspect construction fraud on my project?

Preserve payment applications, change orders, emails, and site photos, and avoid tipping off those involved. Then consult legal counsel and a forensic accountant. Our guide to the first 48 hours after discovering fraud covers the sequence.

References

  1. U.S. Attorney’s Office, Eastern District of Pennsylvania. (2025). President of Masonry Contractor Sentenced to 7½ Years in Prison for Conspiring to Bribe Amtrak Employee, Making a False Claim. https://www.justice.gov/usao-edpa/pr/president-masonry-contractor-sentenced-7-12-years-prison-conspiring-bribe-amtrak
  2. U.S. Attorney’s Office, Eastern District of Virginia. (2026). Ohio Man Sentenced to Eight Years in Prison for $1.9M Fraudulent Construction Scheme. https://www.justice.gov/usao-edva/pr/ohio-man-sentenced-eight-years-prison-19m-fraudulent-construction-scheme
  3. U.S. Attorney’s Office, District of Massachusetts. (2025). Government Contractor NORESCO Agrees to Resolve Allegations of Overcharging Federal Agencies. https://www.justice.gov/usao-ma/pr/government-contractor-noresco-agrees-resolve-allegations-overcharging-federal-agencies
  4. Association of Certified Fraud Examiners. (2026). Occupational Fraud 2026: A Report to the Nations. https://www.acfe.com/rttn
  5. PBMares. (2026). Key Findings From the 2026 ACFE Report to the Nations. https://www.pbmares.com/?p=41489
  6. Levelset. (n.d.). Front Loading a Schedule of Values: Risks of Gambling with Cash Flow. https://www.levelset.com/blog/front-load-schedule-of-values/
  7. James Moore & Co. (n.d.). Construction Draws and Progress Billing. https://www.jmco.com/articles/construction/construction-draws-and-progress-billing/
  8. Construction Business Owner. (n.d.). Most Common Types of Construction Fraud. https://constructionbusinessowner.com/insurance/most-common-types-construction-fraud
  9. PilieroMazza PLLC. (2026). A Kick in the Asphalt: $30 Million Settlement Highlights FCA Risk for Construction Contractors. https://www.pilieromazza.com/a-kick-in-the-asphalt-30-million-settlement-highlights-fca-risk-for-construction-contractors/

Disclaimer

This article is for informational purposes only and is not legal, financial, or professional advice. Reading it does not create a client relationship. Consult qualified professionals about your specific situation. For questions about FraudOrder services, visit https://fraudorder.co/