Today, keeping on top of your records is increasingly difficult and especially important. At the beginning of a construction project, contractors and design professionals expect to be inundated with project records. What they do not always expect, however, is how long these records could, and should, stick around.
Managing project records requires knowing what you have, where you have it, and how long to keep it. Understanding the importance of a properly developed and implemented record retention policy is critical in making this difficult task manageable throughout your company.
The Case for a Record Retention Policy
Consider the myriad of reasons for a solid record retention policy. You may be contractually obligated to retain certain records for a specific period of time. Or you may need to keep records for warranty issues or repairs. You may also want to look back to see how a particular design was done or when/how a project was completed.
Perhaps one of the most important reasons to have a record retention policy is to be prepared in case of litigation. Architects and contractors can be parties to litigation involving such claims as:
- professional negligence
- breach of contract
- mechanics lien waivers
Even if not a party to a lawsuit, architects and contractors can be the subject of non-party subpoenas to produce documents. In any case, the requesting party — and the court — expect the architect or contractor to have kept the appropriate records. Additionally, knowing where and how the documents are stored makes it easier and cheaper to produce them.
During litigation discovery, whether as a party or non-party, not only will you be subject to a broad request for “documents,” but you will also be asked to explain what happened to any relevant documents that were discarded.
The typical definition of documents used in discovery requests includes written material of any kind — whether typed, printed, or handwritten — and electronically stored information (ESI), such as electronic data compilations, computerized files, database records, voicemail, email, or text messages, however they are stored. Documents include all information in the company’s possession or control, including ESI maintained on personal devices or stored in the cloud.
Based on §(a)(1)(A) of Federal Rule of Civil Procedure 34, a document includes “writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations — stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form.”1
In recent years, ESI — the data stored on computers, phones, and other electronic devices — has taken a center stage in discovery. Parties to litigation and subpoenaed non-parties are expected to produce ESI with metadata in a specific format and timely manner. The ESI process can be very expensive, but following a well-crafted record retention policy can be an enormous time and money saver.
“Litigations are fought and won with information.”2 Litigation has always involved lawyers looking for a needle through discovery, but with ESI and construction, the haystack is infinitely bigger. It becomes a balancing act to retain records for a reasonable length of time without saving them indefinitely. Construction and design professionals sometimes worry about destroying records because of the possibility of litigation at some point.
When determining whether records were reasonably destroyed pursuant to a record retention policy, courts look at factors such as:
- Whether the record retention policy is reasonable;
- Whether lawsuits or complaints have been filed frequently concerning the type of records at issue; and
- Whether the record retention policy was instituted in bad faith.
When Not to Destroy Records
When anticipating filing or defending a lawsuit, do not destroy project records. In Micron Technology, Inc. v. Rambus Inc., the plaintiff knew that it would be filing a lawsuit. Prior to filing, it implemented a new document retention policy and began shredding documents — over 9,000 pounds in total. The court found that the plaintiff destroyed documents “in contravention of a duty to preserve them and, thus, engaged in spoliation.”3
Also, make sure that you have implemented a litigation hold, which is discussed later, to ensure that nobody in your company destroys any remotely relevant documents per your record retention policy.
Saved by the Policy
A record retention policy is low-hanging fruit in your risk management orchard. “[W]here a party has a long-standing policy of destruction of documents on a regular schedule, with that policy motivated by general business needs, which may include a general concern for the possibility of litigation, destruction that occurs in line with the policy is relatively unlikely to be seen as spoliation.”4
In one such instance, a defendant had destroyed records pursuant to their record retention policy before they were aware of a lawsuit.5 When the plaintiff could not obtain the documents requested in discovery, they filed a motion with the court requesting that the court impose a rebuttable presumption that the records contained information that was detrimental to the defendant’s defense.6 Because it was the defendant’s regular practice to destroy the records and because the destruction occurred prior to the start of the lawsuit, the court did not impose sanctions against the defendant.7 The court found “no evidence of bad faith or intentional destruction of documents to suppress the truth.”8
Having and following a reasonable record retention policy is important, especially in anticipation of and during litigation.
How Long Are Records Relevant?
While some general business records fall under federal requirements for the length of time to preserve, most records should be kept according to state-specific requirements. States generally have statutes of limitations, which is triggered by a loss, and a statute of repose, which sets a claim horizon based on project completion. For example, while an individual may have two years to bring an injury claim under a statute of limitation, the claim may have to be brought within 10 years of substantial completion under a statute of repose. Accordingly, it is important to retain project records at least as long as the requirement under the applicable statute of repose.9
Under the Uniform Preservation of Private Business Records Act, which has been adopted by a small number of states, when there is no other law on the length of time to keep certain records, business records should be kept at least three years from the making of such records.10