While single instances of overcharging may be mistakes, recurring incidents of overcharging can indicate a fraudulent scheme. This type of overcharging violates federal laws.
Overbillings are revenues billed to clients that exceed the cost of work completed. It’s a common practice in industries like construction, notorious for slow payment turn-around times. As it helps contractors stay ahead of the project cash runway and avoid costly time bottlenecks.
Fraud
While it is impossible to prevent all fraud. A contractor who engages in any fraud may face severe charges and penalties. Fraud can occur in various ways, such as overbilling, embezzlement, stealing, and even faking expense reports or hours worked.
One of the most common forms of fraud is a fraudulent billing scheme. This occurs when a company bills clients for services and materials they haven’t provided. Often, these schemes involve false documents to support the inflated costs.
Construction contractors must be wary of overbilling, particularly with government contracts. This can be done through a “job borrow,” where the contractor bills for work on projects that will not be completed, or they use material substitution (such as reclaimed materials). These practices can also expose the company to claims for negligence. An experienced government investigations attorney can help contractors avoid these claims by working to ensure that their billing practices are transparent.
Negligence
A contractor’s billing practices can be subject to legal liability under the theory of negligence. In negligence cases, a defendant’s actions are judged against the standard of care a reasonable person would use in similar circumstances. This concept is explained in detail in the Restatement (Second), and it includes several elements, such as duty, breach, cause, proximate cause, and damages.
An example of overbilling is charging a client more than what services are worth. Overbilling can also include fees that don’t make sense, such as inflating an airfare reimbursement.
Overbilling can resemble negligence; if it is a regular occurrence, a contractor may be subject to civil or criminal penalties. However, a single instance of overbilling is usually treated as a business dispute and resolved through informal correspondence. Continual instances of overbilling, on the other hand, could be indicative of fraudulent activities and be subject to federal laws.
Breach of Contract
Once two parties enter a contract, they are legally bound to comply with its terms. Contracts may stipulate payment amounts, goods and services to be provided, or actions to be taken. If any of these requirements are not met, a breach has occurred.
A minor breach of contract involves partial delivery. Whereas a material breach occurs when a specific good or service is not delivered to the standard outlined within an agreement. Restitution and cancellation of the contract are viable remedies for breach of contract.
A single instance of overcharging could be a simple mistake. But if this occurs repeatedly, it should be treated as a breach of contract. A legal professional with a strong business law background can help you find the best course of action for resolving this issue. They will also be able to advise you on the type of evidence required to prove this type of breach.
Damages
Contractors rely on overbilling to ensure they receive sufficient payments to cover their costs and earn the profit they’ve agreed upon in their contracts. When these contractors are not receiving enough revenue to meet their expenses. They may use a variety of illegal practices to make up the difference.
False Invoicing
One of the most common reasons for overbilling is false invoicing. Which involves submitting fraudulent invoices or utilizing a billing system that needs to track costs accurately. Large contractors often use these methods to get out of paying their bills, which can result in fines and other penalties.
Overbilling in Construction
In the construction industry, overbilling is a standard and accepted practice. It allows contractors to stay slightly ahead of their billings and avoid negative cash flow and time bottlenecks. However, significant overbilling can lead to financial problems and even lawsuits. Overbillings are reported on the contractor’s Work In Progress Report and should be accounted for as Current Liabilities.
Read more interesting articles on Ebeak
