Document retention
That phrase reminds me of a Dilbert cartoon from about a decade ago that depicted the “pointy-haired boss” confronting Alice, the engineer, about her exceeding the company’s permitted email storage. The boss was depicted holding a white piece of paper. When Alice responded to his apparent sole work activity of carrying a piece of paper around the office, the boss emphatically informed her, “It’s not a piece of paper; it’s a document!”
That cartoon apparently made the “keep permanent” category of my brain’s retention protocol.
Now, many years later, my law practice includes engineering, architecture and related professional services firms that have sought counsel about, among other things, document retention policies, procedures, and practices. This article provides an overview of business and legal considerations for developing and implementing a document retention program, with a focus on a few unique considerations for engineering and related professional services firms.
Overview and Planning
Over the years, the business of providing professional services, like most other businesses, increased in agility and also complexity due to regulatory-, technology-, and liability-related developments. With ubiquitous advances in technology, once local or regional firms expanded their service reach to a multi-state or even a national focus, thus potentially subjecting the firm to a broader spectrum of legal requirements, including for document retention.
A well-planned document retention program can promote efficiencies and cost-savings by reducing storage space (both physical and electronic) and by promoting more swift and reliable recovery of records or information when needed. In addition, a document retention program can serve as both a sword and a shield in the event the organization is faced with, for example, legal claims, regulatory audits or reviews, or even a turnover in management.
A document retention and destruction program should be carefully and thoughtfully considered; there is no “one size fits all.”
Records Considerations
Records retention protocol and considerations for professional services firms are, in many ways, no different than those faced by businesses in other industries. Human resources, accounting, financial, legal, and tax are high-level categories of records that are relevant to just about all business entities. And, some recordkeeping requirements are universally applied under some state’s laws.
For example, any business entity that files for registration under Texas law is required to keep, at a minimum, books and records of accounts. See Tex. Bus. Org. Code § 3.151(a)(1). Depending on the statute under which the business is organized, other recordkeeping requirements may apply. See, e.g., id. at § 21.173 (providing a list of additional records that must be kept by for-profit corporations incorporated under Texas law); id. at § 352 (providing a list of additional records that must be kept by nonprofit corporations incorporated under Texas law).
For engineering and related professional services firms, other categories of business records must be contemplated in a records retention program, such as drawings and specifications, soil or site studies, calculations and reports, construction documents, professional liability insurance, and indemnity. Because of these unique business attributes, stakeholders across the business units within a professional services firm may have vital information or input to incorporate into the development of an effective document retention program.
Stakeholder departments and key management personnel should be tasked to provide input for document identification, retention systems and time periods, and destruction protocol.
The organization should identify the position(s) or person(s) who is, or are responsible for overseeing the policy’s development and implementation, and to promote efficient and effective implementation, the policy may include a list of the responsibilities or expectations for such oversight.
Retention Periods
A retention period of a business record may be governed by law (local, state, or federal), or may be prescribed by contract or by internal policy, or any one or more of those.
Statutory or regulatory retention periods for a particular record, or for a category of records, may vary from state to state, or from federal to state. In addition to statutory or regulatory retention periods, a records retention program should contemplate a situation where a document must be maintained (despite any otherwise applicable destruction protocol), such as where the document is relevant to a threatened or pending litigation or regulatory investigation.
In litigation, if a business record is relevant to a claim, the record is likely subject to production in discovery, absent a legally permitted exception. This includes electronically stored information. See Fed. R. Civ. P. 34(a) (providing that a party may request “any designated documents or electronically stored information . . . stored in any medium from which information can be obtained . . .”). If a business record that is potentially relevant to threatened or pending litigation is destroyed in violation of applicable procedural or substantive law, adverse consequences can result, including monetary sanctions or adverse jury instructions.
In addition, contracts for professional services may have a records retention requirement, or they may have a period following the conclusion of the contract where contracting parties may audit records relating to the services provided. If the contractual requirement differs from an internal retention policy, the contract should control.
An effective document management and retention program can promote the firm’s compliance with legally prescribed retention periods and contractual obligations and can help ensure the firm can appropriately and timely respond to compelled production of records in litigation or regulatory investigation.
A records retention policy should consider and incorporate retention periods prescribed by law and contract, and the retention program should contemplate other legal considerations, such as litigation and regulatory holds.
Statutes of Limitations and Statutes of Repose
Generally, a legal claim must be brought within the applicable limitations period, and the limitations period for a particular claim may vary from state to state, from federal to state, or by contract.
Under Texas law, a claim for specific performance of a contract has a four-year limitations period. See Tex. Civ. Prac. & Rem. Code § 16.004(a)(1). In New Mexico, a claim for breach of certain written contracts has a limitations period of six years. See N.M. Stat. § 37-1-3.A. Some employment-related claims and personal injury claims have a two- or three-year limitations period, and claims for discrimination in employment have differing limitations periods. See and compare 42 U.S.C. § 2000e-5(e)(1) (180-day time period for filing a charge for an unlawful employment practice under federal law), with Tex. Labor Code §21.201-.202 (providing limitations periods for unlawful employment practice under state law); 29 C.F.R. § 551.702(b) (2- and 3-year limitations periods for claims for unpaid wages under the Fair Labor Standards Act); Tex. Civ. Prac. & Rem. Code §16.003(a) (2-year limitations period for personal injury claims).
An effective document retention program contemplates varying legal claims that may arise from business operations, and the limitations periods applicable to those claims are a key factor to consider when establishing a schedule of retention periods.
A claim generally accrues when an injury or damage occurs and is discoverable. When a claim is, by its nature, not discoverable, the limitations period may be tolled or extended until the claim is discovered or should have been discovered. However, in the professional service space, a statute of repose may apply to put a definite deadline of when a particular claim may be asserted against a professional service provider. A statute of repose is intended to put an end to prospective liability for wrongful acts that, after the passage of a period of time, have yet to give rise to an actionable claim.
Most states, including the District of Columbia, have a statute of repose or similar substantive or procedural defense to claims brought against professional service providers, such as engineers or architects. See, e.g., D.C. Code § 12-310 (providing for a 10-year statute of repose for certain tort actions). As an example, Texas’ statute of repose in this context provides as follows:
a person must bring a suit for damages for . . . [injury, damage, or loss to real or personal property; personal injury; contribution; or indemnity] against an architect, engineer, interior designer, or landscape architect in this state, who designs, plans, or inspects the construction of an improvement to real property or equipment attached to real property, not later than 10 years after the substantial completion of the improvement or the beginning of operation of the equipment in an action arising out of a defective or unsafe condition of the real property, the improvement, or the equipment.
Tex. Civ. Prac. & Rem. Code § 16.008(a) (emphasis added). If a claimant presents a written claim to a professional within the 10-year period, the period in which to file suit is extended for two years from the day the claim is presented. Id. at § 16.008(c); see also id. at § 16.009 (similar statute of repose for claims against a person who constructs or repairs an improvement to real property).
The “repose periods” vary from state to state; sometimes greatly and with different application.
Like Texas’ statute of repose, many other states also incorporate a repose period that begins at “substantial completion” of a particular project made the basis of the claim made against the professional service provider. See, e.g., Co. Rev. Stat. § 13-80-104(1)(a) (providing a 6-year statute of repose after substantial completion); N.M. Stat. § 37-1-27 (providing a 10-year statute of repose after substantial completion); O.C.G.A. § 9-3-51 (providing for an 8-year statute of repose, with some variations); 12 Okla. Stat. § 12-109 (similar).
An effective document records retention program and policy for a professional services firm will contemplate and incorporate applicable statutes of limitations and statutes of repose that are relevant to the subject matter of a record.
Other Contract Considerations
Parties to a professional services contract may agree that a certain state’s laws apply to the services rendered. The designs, drawings, specifications, and other professional service-related records relating to that particular project may need to be retained for a longer period than prescribed by internal policy in order to adequately account for the statutes of limitations and repose made applicable by the choice of law provision of the contract.
A records retention program should reference potential contractual obligations that may differ from, and control over established internal policy. The retention program should consider the jurisdiction where the professional services are performed and the law made applicable to those services by contract.
Electronic Records
Generally, a professional services firm need not keep paper originals, if an accurate electronic version exists. In this regard, applicable state or federal law may expressly permit a company to discard original, physical copies of records, if an electronic version exists and is accessible and is readily available for inspection or examination by applicable regulatory agencies.
Most states, by statute, expressly permit a business record to be maintained solely in electronic form. For example, if either Texas, New Mexico, or Oklahoma has a law that requires retention of a business record, that state’s law also provides that the retention requirement is satisfied by retention of a reproduction of the original record, such as by an electronic copy. Generally, a “reproduction” means a counterpart of an original business record produced by, basically, any means that accurately reproduces the original. See Tex. Bus. & Com. Code § 72.003; id. at § 72.001(3) (defining “reproduction”); see alsoN.M. Stat. § 14-16-12; 12A Okla. Stat. § 12A-15-112.
Federal agencies also allow the disposal of an original paper version of a record after it has been transferred to an electronic recordkeeping system, provided that the electronic copy is an accurate reproduction of the original record and readily accessible.
The Department of Labor permits maintenance and retention of electronic records to satisfy requirements of, for example, the Family Medical Leave Act, the Fair Labor Standards Act, and ERISA (i.e., retirement plan documents), provided the electronic recordkeeping system meets the applicable reliability and accessibility requirements. See 29 C.F.R. § 516.1(a) (FLSA); 29 C.F.R. § 825.500(b) (FMLA); 29 C.F.R. § 2520.107-1 (ERISA).
Federal and state tax laws also require filers to keep appropriate and accurate books of account, and the records may be maintained in electronic format. Under Treasury Regulation section 1.6001-1, “any person required to file a return of information with respect to income, shall keep such permanent books of account or records, including inventories, as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by such person in any return of such tax or information.” See 26 C.F.R. § 1.6001-1(a); see, e.g., 26 C.F.R. § 31.6001-1 (records in general for employment tax matters, and providing, “The records required by the regulations in this part shall be kept accurately, but no particular form is required for keeping the records.”) (emphasis added).
At a high level, each federal statute that authorizes use and maintenance of electronic records over original hard-copies, requires or provides that (1) no particular order or form of records is prescribed, (2) the employer or applicable recordkeeper is required to maintain records containing the information and data required by the particular statute, and (3) the records may be maintained and preserved electronically provided that adequate viewing equipment is available, that the reproductions are clear and identifiable, and that transcriptions of the information required by law to be maintained are made available upon request of the applicable governmental agency.
Retention of electronic records, and discard of physical originals, is appropriate for most business records, provided the electronic reproduction is an accurate copy of the original record and is identifiable and accessible for viewing or production upon request of a government agency or through other legal compulsion, such as by subpoena. An effective document retention program and the systems used to implement a retention process contemplate these electronic efficiencies and also legally mandated accessibility requirements.
Drawings, Specifications, Surveys, Construction, and Other Service Records
As noted above, professional service providers must consider various unique categories of business records. Retention periods for these records vary from firm to firm, and they depend on many factors, including the firm’s risk aversion, applicable statutes of repose, contractual requirements, scope of the services, and other.
A most conservative approach, from a potential liability perspective, is to institute a program whereby all professional service records are maintained permanently. However, a permanent retention protocol can create or lead to unnecessary or unreasonable costs, and can give rise to unintended consequences, such as adverse legal consequences when a record cannot be located many years in the future, despite the permanent retention policy requirement.
Generally, though, engineering and architecture agreements between a professional services firm and an owner, subcontractor, or subconsultant should be maintained permanently, or at least as long as the applicable statute of repose. The same goes for feasibility studies, preliminary engineering reports, drawings, and design calculations. A records retention program could incorporate scaled time periods for retention, depending on the size or scope of the applicable project. Also, preliminary reports that are superseded by final reports may fall under a shorter retention period. But, where drafts of, for example, contracts or other working documents are exchanged externally in the course of a project, it may be best to retain those records for as long as the final documents are required to be retained.
Engineering and architecture agreements between a professional services firm and an owner, subcontractor, or subconsultant, as well as feasibility studies, preliminary engineering reports, drawings, and design calculations, should be maintained permanently, or at least through the applicable statute of repose.
Drawings, specifications, and related technical records should be evaluated for retention in physical format because electronic data may become difficult to access when the programs or software used to create the drawings, specifications, etc. become outdated.
Insurance
Insurance records are another category of records to consider for retention purposes. The retention period for insurance records depends on policy- and claim-specific information as well as the types of professional services provided by the insured. Service agreements may also have retention requirements for insurance policies.
Consider workers’ compensation claims. A former employee of an engineering firm may file a hazardous substance exposure-related claim, or other occupation-related claim against an employer many years after employment. For these reasons, if an engineering or architecture firm is involved in on-site construction management or other “in-the-field” services (or even if not), workers’ compensation insurance policies usually fall under the permanent retention category.
Occurrence-based policies potentially protect the insured from claims that are first discovered sometime in the future. The protections under these policies apply to an event or occurrence during the covered policy period, even if the claim is not discovered until years later. For those reasons, occurrence-based policies usually fall in the permanent retention category.
Claims-made policies generally cover claims that are made on the insurance during the applicable policy period. These policies may include a “tail” provision that extends coverage for a period beyond the standard policy period. Usually, the “tail” only covers a claim if the claim is the result of an insured event that occurred during the underlying policy’s insuring period, provided the claim is made within the period covered by the “tail.” These policies usually fall in the 8- to 10-year retention period, beginning after the policy and any applicable tail expire.
While professional liability policies are likely claims-made policies (not occurrence-based policies), a retention period of 12 years, or at least through the applicable statute of repose for projects completed during the policy period, is suggested, and depending on internal records controls and management abilities, a permanent retention standard may be most appropriate.
Destruction
Protocol for the destruction of records should also be considered. A suggested, albeit not simple, approach is to create and maintain a destruction log through which the firm records, by applicable categories, description, or file numbers, the documents that are destroyed pursuant to the established retention and destruction program. The manner of destruction may also be recorded. Some governmental agencies may prescribe methods for destruction of sensitive records, and those agencies may be contacted for consult where appropriate. But, generally, hard copy records (i.e., paper) may be destroyed by shredding or other similar method. For electronic records, a professional services firm is wise to consult with technology professionals (either internal or external) about appropriate destruction techniques that ensure the data is indeed destroyed and not simply deleted from sight.
Closing
This article addresses a few of the major considerations for developing and implementing a document retention and destruction program, with a focus on some of the unique considerations facing professional services firms. The keys with any internal policy creation and implementation are, in this writer’s view: (1) careful evaluation of business operations and the records generated thereby, (2) gaining an appreciation for legally prescribed recordkeeping as well as commercially practical retention periods, (3) stakeholder input and ownership of whatever guidelines may be implemented, and (4) uniform and consistent application of the guidelines adopted.
If the task seems overwhelming, perhaps take a step back and consider Alice, the engineer in Dilbert, and her pointy-haired boss, and debate with an office colleague about whether a piece of paper is or is not a document (and if it is, consider how and for how long it should be retained or destroyed).
Resources
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