Quality Should Be Your First Consideration

What constitutes a fraudulent product substitution?

On Behalf of | Jul 10, 2023 | Contract Law

Business contracts should make operations and expenses for an organization more predictable. Once companies have entered into an arrangement with a service provider or vendor, they should be able to rely on the delivery of goods or the completion of necessary services as agreed upon in an applicable contract. Unfortunately, simply having a written agreement with another party isn’t always a guarantee that they will follow through on their promises.

Some parties default on their contractual obligations by totally failing to perform services or deliver materials. Other times, they may try to reduce their expenses by cutting corners, possibly by substituting materials. An unapproved material substitution can drastically alter the value of supplies provided by a vendor or decrease the quality of a finished project, such as when a company substitutes a lower-cost, less durable carpet for a high-traffic area at a business during a remodeling project. When would such substitutions constitute actionable fraud on the part of the business making the substitution?

When there is a significant value difference

One of the most important considerations for whether or not the substitution of certain materials or products for others constitutes fraud includes whether or not it alters the value of the final product. The bigger the financial difference in the materials, the more likely the motive behind making the substitution was an attempt to defraud the recipient. Calculating the difference in value can often have a major impact on the validity of a fraud claim.

When there was no communication or an attempt to hide the substitution

Typically, vendors and construction professionals will need to provide written notice when they intend to make a significant substitution, possibly by replacing one kind of hardwood flooring with another. The failure to provide advance notice before making a significant substitution could impact whether or not it was a contractual violation. Attempts to hide the substitution, possibly by putting items in other packaging or attempting to alter the appearance of materials to make them look like what a business requested in their initial order or service agreement could very well strengthen the claim that a substitution was an act of intentional fraud.

Validating a suspicion that a vendor or contractor made an unapproved substitution and reviewing the applicable contract language can be important steps for those seeking to fight back against contract fraud that has affected their business. Seeking legal guidance is a good place to start.