How to Prevent Overbilling

hbrOverbilling and other kinds of fraud are rampant. But it may be possible to induce vendors, contractors, and employees to become more ethical just by changing how you ask them to account for their work. Focusing on units (hours needed, tasks performed, widgets produced) rather than overall price encourages accountability in providers.

That’s the finding from new research involving university students, online participants, and auto repair garages. Across four studies, people were 26% to 59% less likely to overbill if they were required to report the volume of work completed or projected before stating the amount of money due, rather than the other way around.

In one study, participants were paid for doing sets of numbered tasks. Because their pay was based on their own reporting, everyone had an opportunity to cheat, and many did. But people were less likely to cheat (42% versus 66%), and the average amount of overbilling was lower (55 cents versus $1.38), if they were required to first note the number of tasks completed and then request the amount they were owed.

In another study, one group of mechanics asked to come up with a charge for replacing brake pads and resurfacing rotors was instructed to first provide a cost estimate and then to enumerate the parts and labor needed; another group was instructed to do these things in the reverse order. The second group’s cost estimates were 14% lower, on average, and mechanics in this group projected significantly less labor time—suggesting that at least some mechanics in the first group had engaged in “defensive bolstering,” or fudging the details in hindsight to match the initial cost estimate.

The behavior comes down to what the researchers call “felt accountability”—a sense that someone is carefully monitoring the details. When vendors or employees are asked to specify the units of work or time required for a job, they may feel that the buyer or employer is paying close attention and might ask them to justify the price. And that appears to have a palpable effect on their ethics.

About the Research: “Work-Report Formats and Overbilling: How Unit-Reporting vs. Cost-Reporting Increases Accountability and Decreases Overbilling,” by Sreedhari D. Desai and Maryam Kouchaki
A version of this article appeared in the December 2015 issue (p.26) of Harvard Business Review.
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Author: Stephen G. Barr, Group Publisher

Author, Syndicated Columnist, Editor In-Chief and Group Publisher at SGB Media Group, a social media marketing firm specializing in digital media content production, publishing, affiliate marketing, public relations and advertising. Over 25 years experience in retailing, advertising, website & online forum development, niche social networking, affiliate marketing, search optimization, branding and identity, site location, non-profit fund raising. Event planning, promotion, production and MC/Host at public events. Author, Editor & Publisher of 35 syndicated, digital publications utilizing multiple digital distribution channels in conjunction with launching and administrating national advertising campaigns for major Fortune 500 advertisers in partnership with Google, Ning, Facebook, Myspace, Yahoo, DoubleClick, LinkShare, PepperJam and other industry leading third party affiliate networks. Product development team member from conception to launch on many websites, tangible goods and organizational structure for start ups. Specialties: Public relations, retailing, advertising, website & online forum development, niche social networking, blogging, email campaigns, affiliate/performance marketing, search optimization, branding and identity, site location, event production & promotion, non-profit fund raising and tasteful, responsible adult content publishing. An internationally recognized and read social media columnist & pundit on The Examiner, Associate Content, Vator.tv, X-Biz.net and Technorati and his own affiliated sites.