Contractor Fraud

There are many types of contractors, but consumers usually think of contractors as individuals or businesses hired to perform work, typically on a home or other property. This can include general contractors, electricians, plumbers, carpenters, and other trades.  

Contractors enter into agreements with consumers that outline when and how they will provide materials and perform labor, lay out financial details such as cost estimates and budget, and include an expected completion date. These contracts protect both consumers and contractors, ensuring both sides hold up their end of the bargain—contractors get paid, and consumers get the work they pay for.

General contractors have a legal responsibility to do work they’ve agreed to perform and pay the subcontractors they have hired. Contractors who engage in illegal business practices are committing contractor fraud. In some cases, the fraud might be criminal.  

• Performing unlicensed work. 
• Advertising services or otherwise making an effort to sell services other than those advertised or a refusal to offer the services advertised. 
• Misrepresenting the standard, quality, or grade of services or materials. 
• False or misleading statements concerning the price of goods and services. 
• Failure to pay subcontractors or failing to set aside money for subcontractors. 
• Failure to disclose important information about materials or services that the contractor knew at the time of advertisement. 
• Failure to perform work after receiving payment or using those funds for purposes unrelated to the project. 

The Federal Trade Commission has a list of some of the most common signs a contractor may be looking to scam consumers (opens new tab). These include: 

• Going door-to-door looking for customers, especially after a hailstorm or other severe weather event or a natural disaster. 
• Offering to provide free or low-cost work. 
• Using high-pressure tactics. 
• Asking for more than 10% of costs up front. 
• Requiring payment in cash, gift cards, or cryptocurrency. 
• Refusing to pull required local permits. 

It could also be a sign of fraud if a contractor suggests financing the costs of your project through a lender they refer you to. 

Do your homework. Only hire licensed, insured contractors who have a good reputation. Check with your city or county to make sure the general contractor is licensed to work in your area. Licenses to perform electrical or plumbing work are regulated by the state and you can search for them with the Department of Regulatory Agencies (opens new tab). Arrange bids or estimates from at least three businesses before signing any agreements. Check with the Better Business Bureau to see if the business has any complaints filed against them.  

Importantly, always read any contracts thoroughly before signing anything. Federal law also provides consumers with certain rights to cancel some sales or other agreements you made at your home, workplace, or at a temporary business place like a hotel room or other location other than the company’s permanent place of business (opens new tab).

Finally, trust your instincts. Whether it’s promises of cheap materials, low-cost or free work, or unreasonable schedules for completing work, if a contractor is offering you something that sounds too good to be true, it probably is. 

If you believe a contractor is defrauding you, attempt to work things out with the contractor first and document these attempts. Sometimes these issues can be a matter of a misunderstanding or due to some unforeseen emergency.  

If you can’t solve the problem and believe you may be the victim of a scam or fraud, file a complaint with the Colorado Attorney General’s Office (opens new tab) and contact your local police department.