How to establish a document retention policy

By Randy Bonnecaze

Self-help gurus tell us to clear out clutter and simplify our lives. For contractors, this advice may indeed lead to a more organized operating environment, but tossing out the wrong paper or accidentally deleting a computer file can also have dire consequences.

That's why establishing and maintaining a solid document retention policy is critical.

Identify your needs. To get started, appoint an employee, ideally someone with experience and authority, as your "document archivist." This person should first establish your policy's goals and how you'll achieve them. A good way to accomplish this task is to look at each type of document your company uses and ask:

• Why should we keep this?
• Could we have a legal reason to hold on to it?
• What would happen if we couldn't find it?
• Can we produce it elsewhere if needed?

Be sure your document archivist involves your technology department (or advisor) in decisions regarding document retention and destruction, which should always be systematic, never arbitrary. He or she should also consult with legal counsel and the appropriate managers.

Classify by potential claim. As you well know, contract claims abound in the construction business. So ask your archivist to base each document's lifespan on the nature of the claim it might defend. For example, keep items such as daily time reports and meeting minutes for a relatively short period of time, as project-delay claims typically arise during the course of a job and not afterward.

Defect claims typically have a longer exposure. Therefore, retain documents such as insurance policies and warranties for a much more extended period. More specifically, here are retention recommendations for these and a few other common construction documents:

1. Insurance polices. Hold on to these indefinitely because the burden is on you to produce this document if a coverage issue arises.
2. Warranty papers. Maintain these for the life of the warranty.
3. As-built drawings/specifications. Retain these for 10 years after completing the project.
4. Contracts. Store these for 15 years following completion.
5. Employee records. Keep these throughout an employee's tenure plus the statute of limitation period after termination, which varies by state.
6. Tax returns. Save these for seven years.

Be prepared to suspend your regular retention and destruction procedures when litigation is pending or imminent. In addition, create a plan for quickly notifying staff of the suspension and cautioning them to destroy nothing under these circumstances.

Quantify the true costs. A document retention policy's implementation costs vary depending on the size of your construction company and the number of jobs you perform annually. But, whatever the price may be, don't let dollars and cents alone deter you from action.

Absent an enforced policy, you'll more likely lose documents and in turn suffer substantial expense searching for and re-creating them. In addition, as we alluded to above, being caught unprepared for a claim can lead to devastating legal fees and penalties.

You may be paving too much in unnecessary storage space as well. Consider electronic document retention to address this issue.

Solidify your defenses. Once it's established, distribute your document retention policy to your employees and ask your archivist to lead a meeting (or perhaps a series of meetings) to educate your workers about it. Then periodically conduct compliance audits to ensure your staff follows the policy and regularly review its effectiveness, revising as needed. By doing so, you'll ultimately have solidified your defenses against a number of risks for years to come.

Editor's Note: Randy J. Bonnecaze is a Certified Public Accountant (CPA) with Hannis T. Bourgeois LLP, Baton Rouge.