| Connect Follow us on Twitter Like us on Facebook
About | Subscribe | Advertise


Download our free Marine Industry Coating Systems eResource Book

Paint and Coatings Industry News

Main News Page

Construction Fraud Tab: $860B

Monday, November 4, 2013

More items for Program/Project Management

Comment | More

Money laundering, bid rigging, bribery and other types of fraud are now bleeding the global construction industry of about $860 billion a year—a tab that could nearly double by 2025, a new report says.

Construction fraud has become so common that it may account for five to 10 percent of revenues, a percentage likely to rise as the industry continues to recover, predicts "Time for a new direction: Fighting fraud in Construction."

The report was published by Grant Thornton, an organization of independent assurance, tax and advisory firms, and focused on research carried out in Australia, Canada, India, the U.S., and the UK.

The report calls the construction and real estate industries highly vulnerable to fraud and urges action to stanch the losses.

"More companies need to take their head out of the sand and recognize that fraud and corruption costs—not only in terms of profits, but also a company's reputation," Clare Hartnell, global leader of Real Estate and Construction at Grant Thornton, said in a press release.

fraud report
© iStock / shotbydave

A report calls construction and real-estate fraud commonplace. Mindsets that view fraud as a cost of doing business are sure to worsen the problem, experts say.

"It's a real threat to growth. Fraud is often seen as the cost of doing business. This does not have to be the case," Hartnell added.

The Cost of Fraud

The Grant Thornton research draws on other studies.

For example, the Association of Certified Fraud Examiners reported that 3.4 percent of all reported fraud cases were attributable to the construction industry during a two-year period up to December 2011. The median average loss from fraud was reported as $300,000.

A separate report from the UK's Chartered Institute of Loss Adjusters estimated a 10 percent impact on the construction industry's revenues from fraud.

In a series of studies, Global Construction Perspectives and Oxford Economics estimated that the global construction industry is worth $8.6 trillion and will rise to $15 trillion by 2025; therefore, the global cost of fraud could be $860 billion, reaching $1.5 trillion by 2025, according to the report.

Keeping it Quiet

Furthermore, said Hartnell, "most fraud is undetected, so the quantum is impossible to accurately estimate."

construction industry
© iStock / JacobH

The Association of Certified Fraud Examiners says 3.4 percent of reported fraud is from the construction industry, with a median average loss of $300,000.

"Businesses that have suffered from fraud are very reticent to let people know they have been a victim. Fraud happens, but it's another thing to report it—mainly for reputational reasons," Hartnell said.

The report calls fraud throughout Australia, Canada, India, the UK and the U.S. "commonplace" and sometimes "endemic," with many companies accepting it as part of the cost of doing business.

Flavors of Fraud

The report highlights eight main types of construction industry fraud:

  • Overbilling for labor, materials and equipment for a project;
  • Bid/contract rigging via price-fixing or directing customers to use certain contractors;
  • Bribery/corruption via secret agreements with financial incentives for a particular outcome;
  • Fictitious vendors in order to falsify payments and divert money
  • Change order manipulation: Diverting lump-sum cost to time and material cost;
  • Theft or substitution of lesser materials;
  • False representation by using undocumented workers, falsifying minority content reports or insurance certificates, ignoring environmental regulations, and misrepresenting small business status; and
  • Money laundering/tax avoidance.

Internal Threats & Organized Crime

Most construction companies have insufficient controls to identify fraud, the report says. As the number of stakeholders increases on a project, so do the opportunities for fraud, it says.

The greatest threat, it adds, comes from within a company.

construction fraud
Grant Thornton

Based on the experience of Grant Thonton teams, this map shows the likelihood of encountering the eight types of fraud in the countries studied for the report.

Outside influences are still a threat, however, especially given the evidence of organized crime involvement in construction fraud.

The report notes testimony at the Charbonneau Commission in Canada that stated that parts of Quebec's construction industry were controlled by a small group of contractors who took turns "winning" bids. According to one organized-crime expert, five major Mafia families in New York take an estimated 5 percent share of all construction projects in the city.

Breakfast Clubs

Bid rigging is also "extensive" and has almost become routine  in the UK, Canada and Australia, the report says.

"Contractors meet at so-called breakfast clubs to decide who will win the latest contract. This is a normalization of an illegal act," said Sterl Greenhalgh, fraud specialist for Grant Thornton UK.

The report recommends that companies speak more openly about fraud and implement steps to mitigate it, such as encouraging whistleblowing, being vigilant, adopting a zero tolerance policy, and being prepared to prosecute.


Tagged categories: Architects; Bidding; Construction; Ethics; Finance; Research

Comment Join the Conversation:

Sign in to our community to add your comments.

PPG Protective and Marine Coatings Group
Industrial strength performance in ONE can.

Now get the durability and protection of two components in one can: Amercoat® ONE, PSX® ONE and Sigmadur ONE.

SAFE Systems, Inc.
SAFE Systems'
Blast Lights &
Deadman Switches

Halogen or LED blast lights available with our NEW urethane bumper. Switches available in many colors for color coding your hoses.

Minerals Research & Recovery

Sharpshot®XL is a new fast-cutting, low-dusting, cost-effective iron silicate abrasive. Call Patrick Conry: 502-552-5895 for details.

Ethox Chemicals LLC
Ethoflex® ER instantly upgrades your epoxy!

The only epoxy additive that improves flexibility, corrosion resistance, toughness, and adhesion, without hurting pot life, cure time, or increasing VOCs.

Safety Lamp of Houston, Inc.
Wet & hazardous area lighting solutions from SAFETY LAMP of Houston

New WOLF LED and fluorescent lights are now available, including low voltage tank lighting kits.
Call: (281) 964-1019.

CS Unitec
Peening Preparation Tools

CS Unitec’s hand-held scarifiers are an ideal alternative to small-area shot blasting for cleaning and preparing concrete & metal surfaces.

Covestro (formerly Bayer)
Bayer MaterialScience is now Covestro.

The pioneering spirit of our first 150 years will drive the bold vision of our next 150: to develop the industry’s most innovative coatings solutions.

Novetas Solutions
Number 1 Crushed Glass Abrasive in America!

Manufactured from 100% Recycled Glass.
NO Crystalline Silica,
Beryllium & Arsenic
Great White Metal Finish!
4 plants on Navy QPL
Call us at 866-775-6226

Built for Tough Jobs

From Epoxies to Urethanes to other high solid coatings, the new Binks Airless 75 delivers a great finish using an ergonomic design. Visit for more information.

Monti Tools, Inc.

Surface cleanliness of SSPC-10 | Anchor profile up to 4.7 mils | Removes corrosion & coatings | ATEX approved for zone 1 | | 832-623-7970

Technology Publishing

The Technology Publishing Network

The Journal of Protective Coatings & Linings (JPCL) PaintSquare
Durability + Design Paint BidTracker

EXPLORE:      JPCL   |   PaintSquare News   |   Interact   |   Buying Guides   |   Webinars   |   Resources   |   Classifieds
REGISTER AND SUBSCRIBE:      Free PaintSquare Registration   |   Subscribe to JPCL   |   Subscribe to PaintSquare News
MORE:      About   |   Privacy policy   |   Terms & conditions   |   Site Map   |   Search   |   Contact Us

© Copyright 2000-2015, Technology Publishing / PaintSquare, All rights reserved
2100 Wharton Street, Suite 310, Pittsburgh PA 15203-1951; Tel 1-412-431-8300; Fax 1-412-431-5428; E-mail