Overcharging for services and materials

The project owner may be overcharged for work and materials during the project execution.

Risk type: Practice

Risk driver: Internal; External

DESCRIPTION

Contractors can overcharge a project owner by overstating work, material or staff-day requirements for the contracted project. This is commonly done by fraudulent variation claims, i.e. the illicit addition of work or material to the original contract specifications. Here, the contractor issues variation claims that are unnecessary or inflated. These have to be validated by the quantity surveyor and approved by the project officer.

Hence, overcharging often includes collusion between the contractor and the quantity surveyor or project officer. Quantity surveyors and/or project officers falsely accept the quantities of certified works and the project owner pays for the overstated materials or services. The contractor provides only the necessary amount of materials or services and pockets the payments for the overstated elements or shares them with the quantity surveyor and/or project officer.

Contractors may also act on their own. In such cases, quantity surveyors and/or project officers lack the necessary capacity to detect fraudulent variation claims. In addition, projects with high visibility and time pressure are very vulnerable to fraudulent variation claims, since project officers may be inclined to approve claims without proper scrutiny in order to keep to deadlines.

RED FLAGS

General:

• Conventional market prices and discounts (e.g. volume discounts) not applied in the invoices
• Complaints by project officers or field staff and customers regarding quality of goods and services
• Frequent repair work necessary

Fraudulent variation claims:

• Alterations to initial contract specifications
• Works added later to the contract
• High number of variation claims issued
• Contractor only wants to deal with a specific field engineer/supervisor

Overstating work, material or staff-day requirements:

• Higher costs than indicated in the bid or than the estimated costs mentioned in the contract, without additional works
• The claimed quantity of material cannot be shown at the project site (e.g. during inspections)
• Additional staff-days required without strong justification and documentation

KEY GUIDING DOCUMENTS

Davis, J., 2004, Corruption in Public Service Delivery: Experience from South Asia’s Water and Sanitation Sector. World Dev. 32, 53–71

Stansbury, C. and Stansbury, N., 2008, Examples of Corruption in Infrastructure, Global Infrastructure Anti-Corruption Centre (GIACC)

GENERAL EXAMPLES

Falsely increasing work scope¹

Location: n.a.

A plumbing sub-contractor is requested by the project owner to repair a toilet. After inspecting the toilet, the plumbing sub-contractor ascertains that the repair could be completed by the supply of a replacement washer. The plumbing sub-contractor, with the intention of securing a higher price, falsely informs the project owner that several new parts are necessary. The project owner agrees. The plumbing sub-contractor replaces the parts and invoices the project owner for the work carried out. The invoice is higher than it would have been had only the washer been replaced. The project owner pays the invoiced amount.

Fraudulent variation claims¹

Location: n.a.

A contractor carries out work, which is not in compliance with the contract specification. Under the contract, the architect is responsible for issuing variations. The contractor offers the architect a bribe to confirm in writing that the work was carried out pursuant to a variation issued by the architect, and is therefore acceptable. The architect does so.

FULL REFERENCES

1. Stansbury, C. and Stansbury, N., 2008, Examples of Corruption in Infrastructure, Global Infrastructure Anti-Corruption Centre (GIACC)