Whether engaged in a residential or a commercial project, exposure to contractor fraud is a real and serious concern. Contractor fraud can pose serious financial risks to businesses, especially when making repairs, improvements, or recovering after natural disasters. Whether it is a business recovering from wildfire-related damages in California, a business recovering from tornadoes in the Midwest, or a company picking up the pieces after a hurricane in the Southeast, it’s crucial for business owners to recognize the warning signs and take steps to safeguard themselves.

Five common examples of contractor fraud:

  1. Advance payment scams – Contractors request a large upfront payment and fail to complete the project.
  2. Exaggerated damage claims – Contractors may overstate repair needs or falsify damage reports, especially on insurance jobs.
  3. Change order abuse – A low bid is followed by excessive change orders, inflating project costs.
  4. Poor work quality – Using unlicensed subcontractors or inferior materials, leaving businesses with unsafe or non-compliant work.
  5. License misrepresentation – Claiming to be licensed, bonded, or insured when they are not—particularly common after wildfires or earthquakes.

How businesses can protect themselves:

  • Verify licenses through the appropriate state agency: For example, Californians can use the California Contractors State License Board to confirm licensing, bonding, and insurance status.
  • Require a detailed contract: All commercial jobs should have a written, itemized agreement that includes scope, cost, timelines for completion milestones, and payment schedules.
  • Limit upfront payments: Avoid releasing extensive money before the project even begins.
  • Request references and visit past projects: Reputable contractors should have verifiable work histories.
  • Avoid door-to-door solicitation: Be cautious of contractors who appear unsolicited after a storm or disaster.

Helpful online resources:

Much like combatting workers’ compensation fraud, vigilance and due diligence are essential for protecting your business from costly contractor fraud. Current and future policyholders are encouraged to visit ICW Group’s website for anti-fraud resources.