Example:

A property development company appoints a contractor to construct foundations for a commercial building for the fixed price of $2 million.  The contract requires the contractor to excavate down to minus 10 metres in accordance with a specified design, remove from site all excavated materials, then fill the excavations to specified dimensions with foundations of steel reinforcement and concrete.  The contractor only excavates down to minus 9 metres, thereby saving 1 metre of excavation and earth removal.  As the excavation area is now 10% smaller, the contractor also saves on the installation cost and time equivalent to 10% of the concrete and steel.  The foundation contractor informs the property development company that it has completed the foundations in accordance with the contract requirements, and bills the property development company for the full $2 million.

Explanation:

The deliberate supply by the contractor of inadequate quantities of excavation, earth removal, steel, and concrete, and the subsequent invoicing for the correct quantities, is a fraudulent act. 

As with quality fraud (on the previous page), road projects and foundation projects are particularly vulnerable to this type of quantity fraud, as it is impossible to visually ascertain the quantity of materials used once they have been covered over by other materials. Therefore, once concrete had been poured into the foundations, it will be impossible visually to confirm whether the foundations were excavated to the correct depth, and whether the correct quantity of concrete and steel reinforcement has been used.  Alternative methods of calculation will then need to be used.  This could include, for example, calculating excavation volumes by comparing pre and post excavation levels, establishing volumes of excavated materials removed from site, and establishing quantities of steel and concrete delivered to site.  However, the accuracy of these calculations depnds on the accuracy of the underlying records.  They could have been falsified by the contractor.  Alternatively, destructive or non-destructive testing could be carried out, but this can be costly and disruptive.  A measurement of the final completed level would not reveal the fraud, as the top level of the foundation will be at the correct contract level – it is the base level which will be incorrect by 1m.    

It is more difficult to supply inadequate quantities in relation to items which are visible upon completion (e.g. lights, air conditioning units, doors etc.)

Large amounts of money can be made by not excavating to the correct depths, and supplying inadequate quantities to fill the excavation.  For example, on a $2 million project as per the above example, a 10% saving in work, material and time could equate to an additional profit for the contractor of $200,000.