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Can friends or those referred by a friend scam their clients? We don’t know the real story here but this kind of story seems to happen more often in real life. Why do construction contracts arising from friend’s or relative’s referral lead to scam?
First, the client may not do due diligence anymore owing to the belief that his/her friend or relative would not refer someone untrustworthy. Being a friend’s referral, the contractor may take advantage of not undergoing formal documentation and just rely on verbal agreements, especially if the contractor is not a professional engineer or architect and is not licensed either as a business or under PCAB.
Unlicensed contractors are usually motivated to remain unlicensed because they can not comply with the strict requirements as they may be unskilled or not professionals. And the best test if a contractor is a possible scammer is if he/she relies mainly on referrals to get a project, as he/she can not participate in formal biddings. Therefore, the best anti-scam approach is to require the contractor to submit all the registration documents before you even ask for a proposal.
Contractors resort to scamming because they go into vicious cycle of taking immediate cash to finance other losing projects, which they got because of either wrong estimates or deliberate lowering of price just to get the project. The contractor’s lack of business and technical skills (as they are usually not engineers and not licensed) can not save them from failing. This vicious cycle will eventually explode and the scam contractor will escape to another area where he is not known and repeat the same vicious practice. </div>
Below are red-flags that a contractor may be a scammer:
1. Falsely claiming to be licensed, insured, or bonded but in reality he/she is not.
2. Offers significantly low bid with the intention of just getting a downpayment to finance other losing projects.
3. Attempting to perform services without a written contract, which renders it almost impossible for consumers to assert their rights;
4. Easily says yes to your request for added works just to please you but he intentionally avoid putting them into the contract.
5. Requesting payment in cash, which could be a warning sign that the contractor runs a “fly by night” operation;
6. Charging for services, products, or materials not included in the contract and not requested by the project owner;
7. Using a lesser quality of materials than the project project owner agreed to and paid for;
8. Falsely claiming that contracted services or products meet with local code requirements;
9. Falsely claiming to have obtained all necessary permits and approvals for a project, or placing the burden solely on the project owners to obtain such approvals;
10. Requesting full payment up front;
11. Pressuring a project owner to make a decision on the spot;
12. Offering an unreasonably short or unreasonably long guarantee or warranty;
13. Failing to provide the needed insurance bonds as required in the contract.
