Contractor and President Indicted On Alleged Billing Scam Arising From Change Order Work

Kegler Brown Construction Alert

On October 8, 2008, an electrical contractor and its president from the Cleveland area were indicted on 105 counts, based on an alleged billing scam involving public school construction projects administered by the OSFC. The electrical contractor is alleged to have over-billed its hourly labor rate for change order work. Because this work involved school projects, prevailing wage did not apply. The electrical contractor disputes these allegations.

In view of this development, it is anticipated that change order work on non-prevailing wage projects will be more highly scrutinized than ever and contractors are encouraged to:

  • Before work begins, establish with the Project Team a "blended rate" for each classification of worker on change orders that accurately reflects the pricing of the extra work (and avoids an administrative burden that needlessly increases the costs for all parties). The Owner, through both its Construction Manager and Architect, and the Contractor should approve this "blended rate" upfront in writing.
  • Have an "open book" policy, excluding personal information, such as social security numbers, when it comes to establishing the "blended rate."