$55 MILLION FINE FOR US CONTRACTOR

Assuming that the size of a fine has some relationship to the size of the fraud, this one is truly noteworthy.

According to respected industry magazine Engineering News Record, a US contractor has pleaded guilty to fraud charges and will with pay a $55 million fine related to client overbilling and falsified recordkeeping arrangements. http://enr.construction.com/business_management/ethics_corruption/2014/0430-contractor-structure-tone-agrees-to-pay-55-million-in-fraud-plea.asp  Below, in blue, is an extract from the article.


"Structure Tone Inc., the New York City-based building and interiors construction giant, pleaded guilty to fraud charges in a Manhattan court April 30 in a client overbilling and falsified recordkeeping arrangement, and will pay $55 million.

Manhattan District Attorney Cyrus R. Vance, Jr. said that, according to Structure Tone’s guilty plea and documents filed in court, between 2005 and 2009, the company "required the subcontractors on CM jobs to increase their bids by adding, in many cases, unnecessary contingencies listed in an addendum provided by [the contractor] called the 'Rider B.' This practice was concealed from the ... clients."

The firm then obtained added discounts from subs that were not passed along to clients, says Vance. Structure Tone created fraudulent purchase orders that omitted subcontractor discounts, with subs holding overpayments for the contractor, according to the district attorney statement.

Structure Tone "recovered these overpayment amounts by inducing these same subcontractors to provide discounts to [it] on other unrelated GC projects," says Vance.

Under the plea agreement, Structure Tone will allow the D.A.'s office to review selected projects to insure "the safeguards [the firm] put in place are, in fact, working," says the court document.

The contractor says that since about 2010, it has instituted new purchasing guidelines and trained its staff in their use. It also "has made Rider B transparent to all clients" and installed accounting procedures to track its use, according to the court document.

Structure Tone also has "issued directives to purchasing agents to ceast the practice of obtaining undisclosed discounts from its subcontractors," the plea says."


While it is a tragedy for the industry that any contractor would act to defraud its clients, it provides yet another good reason for prudent owners to hire a professional Quantity Surveying firm to represent them (and thereby protect their pocket-books) on any construction project.

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posted by The QS

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