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Volume 10 - No. 1                    Download PDF

In this edition of
The Kessler Report:

Craft or Graft?  The Insidious World of Construction Fraud

Bid Rigging: Fleecing the Public from Day 1

Understanding the Need for an Independent Inspector

Q&A with Fraud Specialist Ronald Goldstock

Construction Contracts: What to Know Before You Sign

Defending Your Walls: How to Help Prevent Construction Fraud

Kessler's Corner:
What to do if You Suspect Fraud

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Understanding the Need for an Independent Inspector

On any given large construction project, it is almost inevitable that a few corners will be cut, a few dollars will be pocketed, and a few violations -- of various kinds -- will be ignored.  Some say it's virtually unavoidable to experience some measure of fraud, waste and negligence, and will consider it the "cost of doing business."  What creates havoc is when illicit activities get out of hand and losses amount to much more than a stolen tool or substandard asphalt.  Many projects are so saturated with fraud that the purchaser may lose hundreds of thousands, or even millions of dollars.

How can this sort of massive malfeasance be avoided?  Buyers (including government entities) often expect public inspectors, who make periodic visits to ensure zoning and building code compliance, to be the primary negligence watchdog and to help nip corruption in the bud.  This is a somewhat understandable expectation, but leaving everything up to public inspectors can not only result in oversights, but may lead to bribes and kickbacks as crooked contractors seek to finish the job quickly and without any snags.  In addition, many buyers expect project architects to take an active role in assessing the progression of construction, but the jurisdiction of architects is actually quite limited and they typically have no real control over the many varied elements of a project.

The answer lies in an independent inspector, usually referred to as an IPSIG (Independent Private Sector Inspector General), OPR (Owner's Project Representative) or the more colloquial term, "Clerk of the Works."  Bringing an independent inspector on board can help ensure a job site that is free of fraud, corruption, waste and negligence, potentially saving incredible amounts of cash that might be otherwise frittered away.

Of course, utilizing an inspector is only effective when three major factors are considered.  First, it is important to locate an inspector that is sufficiently qualified.  For instance, hiring an inspector that is well-versed in electrical systems but knows nothing about plumbing leaves a key aspect of the project open to negligence.  Make sure that all major systems are part of an inspector's expertise.  Secondly, inspectors simply cannot be stretched too thin.  Even the most qualified individual may not be able to sufficiently monitor numerous projects at once, so take care to dole out a reasonable amount of responsibility for inspectors. And finally, a good inspector must have the credibility and assertiveness to command authority when dealing with contractors.  As it stands, most buyers are essentially at the mercy of contractors and architects once a contract is signed, so an intelligent, resolute inspector is crucial in sustaining leverage over your vendors.

Invariably, many buyers are going to forego third-party inspections for one reason... to save money.  A common explanation for not calling upon an inspector is that funds would be put to better use if allocated for building maintenance, staffing or other common expenses.  However, more and more thrifty thinkers are finding out that the benefits (both financial and operational) gained by hiring an inspector would have far outweighed the cost, particularly during those first few weeks after construction when complex mechanical systems are roused into operation for the very first time.  More often than not, maintenance staffs are under-trained and usually have little recourse when problems arise.  A qualified inspector can help alleviate those issues by working with the project contractors and the purchaser's staff to prepare the inhabitants of the new building for the future.

Clearly, an independent inspector can be a tremendous advantage to any construction venture.  By keeping tabs on the progression of the physical project itself, ensuring compliance to numerous codes and standards, looking out for signs of corruption and fraud, and helping owners get acquainted with their new structures, an inspector can be an extremely effective deterrent to illicit activity and a boon to overwhelmed building staffs. 

Remember, when commencing a major construction project, your financial stability is on the line.  Don't make the assumption that the contractors you employ are going to be forthright and honest, and certainly don't presume that everything will work out exactly as planned.  There are always going to be challenges.  The good news is that an inspector can help prevent these problems and solve them if they do arise, saving time, money and aggravation, and allowing you to experience something that is truly a rarity these days... a project that is on time, on budget and primed for the future.

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