New Scam to Watch For

Recently, the Salt Lake region was hit with a very sophisticated and alarming government contractor scam. We wanted to get the word out so that other regions could be aware of what to look for so as not to fall prey to this unscrupulous operation. I discovered that this fraud operates under several different names, as such I’m omitting the company’s name. Unethical behavior like this not only ruins business but also violates laws, leading to possible court proceedings in the future.

Small minority businesses win contracts easier with the federal government compared to Jani-King International and regional offices. We have all been approached by companies who’ve secured large contracts because they check all the boxes and receive large RFPs. This particular enterprise was awarded cleaning contracts for 60 federal offices, each averaging 2,500 square feet, then contacted offices like ours to service these contracts. Everything is status quo up to this point.

They place a small paragraph in their 20 page contract stating that if contractors cannot meet the customer’s needs (federal offices) then said contractors are responsible for paying the scammers the cost difference to contract another company in order to fulfill the contracted work. This verbiage reads like a performance bond. Likewise, they also emphasize that all communications with customers will be handled through their office. In other words, this means we have zero direct interaction. The fraudulent businesses start the first cleaning company, “Contractor 1,” at a reasonable rate, then about a month later they submit a written warning to Contractor 1 claiming a breach of contract. They list items from the cleaning schedule to be addressed immediately, also reminding Contractor 1 of the communication “rules,” that communication must be run through them. Scammers orchestrate the “termination for cause,” via delayed responses, requests for items outside the scope of work and lies, executing the terms in order to bring in a new contractor. They’re essentially fleecing honest businesses like Jani-King regional offices, charging the difference for “hiring a new contractor,” replacing Contractor 1.

“Contractor 2” is then contacted, informing them that Contractor 1 is unable to fulfill their duties to the customer, supplying them the amount that Contractor 1 charges, and stating that Contractor 2 can increase their price. It needs to be enough for Contractor 2 to “make the customer happy,” labelling the situation as an emergency as not to risk the remainder of the federal contract to facilitate an urgent, immediate change. Contractor 2 then sends a new proposal while the fraudulent company ensures it is at least 20% higher than the previous contractor. In a whirlwind of emails, telephone calls, text messages and extreme deadlines, the contract is finally given to Contractor 2. Keys are transferred and Contractor 2 executes the cleaning contract immediately. Subsequently, Contractor 1 is now obligated to pay the increase plus the scammers 30% management fee.

This dubious cycle repeats every 60 – 90 days using the increase to cover the new contractor’s price, all the while pocketing the additional 30% from each business on the list.

We’re lucky enough to have spotted this fraud and exit the contract before getting dangerously trapped. We cited breach of contract for non-payment as their invoices were past due. In researching this scam we discovered the Salt Lake region was the 10th contractor the customer had within the first 18 months of a three year contract, including over 60 locations. This false operation would net the scammers over four million in 3 years, assuming the average start contract price was $500 for Contractor 1, including a 20% increase with each new contractor, and ten contractor increases per location. They average $300 per month, per canceled contractor, knowing this is the kind of transaction that keeps paying off month after month, after month. There’s more than enough money to entice and inspire copy cats and we hope to encourage others to be cautious and more diligent with who we’re willing to partner with by scrutinizing contracts, with a full awareness of what we are signing.

Paid my Government for average account	$650
	Contract Increases 20%		Difference Paid to new Contractor	Scammers Management Fee 30%		Amount paid by each contractor
Contractor 1	$500		$0	$0		$0
Contractor 2	$600		$100	$180		$280	Paid by	Contractor 1
Contractor 3	$720		$120	$216		$336	Paid by	Contractor 2
Contractor 4	$864		$144	$259		$403	Paid by	Contractor 3
Contractor 5	$1,037		$173	$311		$484	Paid by	Contractor 4
Contractor 6	$1,244		$207	$373		$581	Paid by	Contractor 5
Contractor 7	$1,493		$249	$448		$697	Paid by	Contractor 6
Contractor 8	$1,792		$299	$537		$836	Paid by	Contractor 7
Contractor 9	$2,150		$358	$645		$1,003	Paid by	Contractor 8
Contractor 10	$2,580		$430	$774		$1,204	Paid by	Contractor 9
Scammers profit per account over 3 years				$ 65,551.26		Assuming it takes 90 days per transfer
Number of Locations				60
Scammers total profit from 3 years				$3,933,075.34