The End of "Commercial Smoothing"

Why Your Construction Business is Now a Live Legal Risk

For decades, the construction industry has operated in a "grey zone". We’ve called it "commercial management," "smoothing the numbers," or "protecting the project". But as of September 2025, the UK’s legal landscape shifted beneath our feet.

The Failure to Prevent Fraud (FTPF) offence, part of the Economic Crime and Corporate Transparency Act 2023 (ECCTA), is now active. If you are a leader in a contractor, consultant, or Government Arms length, public utility, or private client organisation, the "business as usual" approach to commercial data is no longer just a performance risk it is a criminal one.

The New Definition of Fraud

The most dangerous misconception in our industry right now is that fraud is only something people do against a company. Under the ECCTA, your organisation is now criminally liable for fraud committed by employees or subcontractors for your benefit.

You don't need to know it's happening. You don't need to have authorised it. If a site team manipulates completion data to trigger a payment and hit a quarterly Capex target, your organisation has committed a crime. In the eyes of the law, that "smoothing" is a fraudulent act, and soon will become a Corrupt Act under contracts, intended to benefit the business.

From "Standard Practice" to "Base Fraud"

What does this look like in the real world? Audit and regulatory reports across the UK frequently highlight behaviours that the new Act now classifies as base fraud:

• Milestone Manipulation: Falsifying progress reports to meet regulatory milestones or release retention payments.

• Phantom Variations: Creating or inflating variation orders that have no basis in actual site scope to cover budget overruns elsewhere.

• The "Prisoner’s Dilemma" Defection: Inflating claims or cutting corners on quality to protect margins, behaviours often excused as "opportunistic" but now legally indefensible.

• Data Asymmetry: Exploiting the gap between what the client sees and what is actually happening on-site to gain a commercial advantage.

If your current systems allow these "shadows" to exist, you are already exposed.

The Price of Inaction: Unlimited and Existential

The "safety net" of plausible deniability is gone. The only legal defence is proving you have "reasonable procedures" in place, and policies on a shelf don't count.

The consequences of failing this test are severe:

• Unlimited Fines: There is no cap on the financial penalty for failing to prevent fraud.

• Reputational Carnage: A conviction suggests a fundamental lack of control and governance.

• Market Exclusion: Major programmes and private developers are increasingly vetting partners based on their FTPF compliance. If you can’t prove you have control, you won’t get the work.

Does the team understand the risk of guessing at progress, they need the data back reports up?

A Call to Arms for Professionals

This is no longer an IT ticket or a legal footnote; it is a boardroom responsibility. To protect your business, you must move toward a Single Version of the Truth (SVOT).

We must shift from reactive, sample-based auditing to Digital Cost Assurance (DCA), using automated systems to check 100% of invoices and data against actual contract terms. We need immutable audit trails where every pound claimed is linked to verifiable site evidence, such as geotagged imagery or site logs.

The grace period is over. Every day you continue to operate with fragmented spreadsheets and "estimated" progress is a day of criminal exposure.

Don’t Wait for the Audit

If a subcontractor falsified data this morning, would you catch it? If the answer is "no," your defence is non-existent.

At Black Pear Advisory, we help organisations bridge the gap between commercial reality and procedural safety. We implement the systems and the organisational change needed to turn your contracts into living, defensible documents.

Contact Martin at Black Pear Advisory today. Let’s audit your exposure and build the "reasonable procedures" that will protect your business in this new era of accountability.

Dr Martin Perks is a specialist in construction commercial management and fraud risk. Black Pear Advisory Ltd is a management consultancy specialising in infrastructure.