Example:

A contractor is preparing a claim against the project owner for additional costs incurred by the contractor as a result of a delay caused by the project owner.  The contract allows the contractor to claim its proven actual costs directly consequent on any delay caused by the project owner.  The contractor prepared records of its actual additional labour and equipment costs and site overheads incurred as a result of the delay.  These totalled $350,000.  The contractor was concerned, however, that the project owner would try to negotiate the contractor’s costs down from this figure, and any outcome  less than $350,000 would mean that the contractor had not achieved full recovery of its actual additional costs. The contractor therefore added an additional $50,000 to the claim as a “negotiation margin”.   It could therefore give away this $50,000 in negotiation with the project owner, and therefore appear to be reducing its claim, but in reality, it would not be reducing its claim as long as it did not drop below $350,000.   The contractor needed to be able to evidence this additional $50,000 claim, and so submitted some false time sheets and overhead costs so as to justify this additional figure.

Explanation:

The need to resolve claims in relation to additional costs, variations and extensions of time is common on construction projects.  Frequently these claims can be contentious, and can result in court action or arbitration.  Mutual suspicions between parties about the integrity of each others claim process can frequently lead to the addition of false negotiation margins by both parties.  The outcome of this conduct is circular.  If one party believes that the other party will negotiate down its valid claim, it will be tempted to add an extra margin for negotiations.  If the other party believes that a negotiation margin will be added, it will be tempted to negotiate the claim down.  So, this mutual belief is self-fulfilling. 

It is entirely legitimate for parties to claim the full extent of their legitimate entitlement, and to compromise their respective claims by each party giving away part of their legitimate claim with a view to achieving a settlement. 

However, it is fraudulent to create false additional costs with a view to giving these away.  In doing so you are representing to the other party that these are genuine actual costs which you have incurred and which you are compromising on, whereas in fact this is not the case.  The purpose of you doing so is to make a gain or avoid a loss.