Vital Retention

 CONSTR DOC ED PIC 2Document retention policies can be inconsistent with recommendations.  

By Jason E. Handin, Esq.

Construction defect lawsuits are typically won or lost on two factors: Testimony of expert witnesses and the existence of project documents – the most important factor. Without project documentation, expert witnesses have their hands tied as far as what information can be used as the basis to form their opinions. An absence of documents results in a lack of factual foundation on which the experts’ opinions can be formed, which ultimately leads to a Frye/Daubert challenge and potentially to the experts’ opinions being stricken, delivering a fatal blow to that party’s case.  

The retention of project documentation is paramount. Despite the importance of retaining construction project documents, construction and design professionals often find themselves failing to retain project documents for a sufficient amount of time. In these instances, when a construction defect claim arises, the company has little to no documentation that may help to support their defenses or refute the opposing party’s position. Construction and design professionals use “industry standards” to determine how long to retain project documents, even though many of these entities cannot cite the origin for this standard and, rather, just that it has been the entity’s routine practice for years. It is the common excuse of “this is the way we’ve always done it,” which is never a good reason.  

Instead, the Statute of Repose for the particular state in which the construction project was built (or in which the construction defect lawsuit is filed depending on the contract terms), should be the governing authority regarding how long project documents should be retained. The period of time, and legal standard, stated in a Statute of Repose, which governs the absolute time period in which a construction defect lawsuit may be filed, varies from state to state. The time frames range from as short as four years to as long as 13 years. The Statute of Repose begins to “run,” meaning the clock starts to tick on the window to file a lawsuit at a particular point in the project’s timeline. Often, this is the point of reaching a particular threshold (such as the issuance of the final certificate of occupancy) or when the owner of the property takes possession of it at the conclusion of construction. After the time limit elapses, construction defect claims are forever barred. The purpose is to avoid an unlimited time period in which claims can be made for latent defects that may not be discovered or may not cause damage until decades after the project’s completion.

The Statute of Repose timeframe is key for a construction or design entity to establish and maintain its document retention policies. In general, many construction and design entities retain project documents for seven years, after which they destroy their project file. Enforcing such a hardline policy is risky and not best practice, especially without consideration of the particular state’s Statute of Repose. For example, if a project file is destroyed after year seven in a state with a longer Statute of Repose, but then a construction defect claim is filed in year eight, the entity may have substantial trouble defending itself. Currently, only 13 states have Statutes of Repose of less than seven years, with 10 years being the most common. With this in mind, the overarching reason for revising a document retention policy becomes clear: If a construction defect claim can still be maintained against your company, why take the risk of destroying the project file?

After closing out a construction project, paper files can accumulate in the form of boxes upon boxes of records. Is it necessary to retain it all? As a matter of good practice, yes, because there is no realistic way to predict alleged claims in a future lawsuit and which documents will be relevant. However, the decision boils down to a cost/benefit analysis of the monetary expense of retaining the physical documents for the requisite period of time versus the potential strategic risks of not retaining the records that may be beneficial in the future. If limited physical storage space is an issue, scanning systems and document storage services can help abide by prudent retention policies, while reducing the need for physical space and potentially reducing document retention costs. Ultimately, if limiting the documents that can be retained becomes necessary, the documents that should be kept are those reflecting what was required per contract, what actually occurred during the planning and construction phases of the project, and any documents reflecting changes or problems that arose during those time periods.

A document retention policy, like construction materials and their implementation in a construction project, has no one-size-fits-all blueprint. Construction and design professionals, and their risk management employees, should review the Statutes of Repose in each of the states in which they perform their services and establish a document retention policy that at least reaches the longest Statute of Repose of those states. Furthermore, adding an additional year beyond the Statute of Repose during which to retain documents is a measure of safety and good practice.

As a skeleton of guidance in establishing a policy, these professionals should do the following: (1) Communicate the written policy to all employees and advise the client of the policy via contract; (2) hold a live seminar, if scheduling permits, with key supervisory employees who work in the field and in the office in order to go over the policy and answer questions; (3) be explicit in the policy regarding which documents should be retained to avoid confusion and inconsistency, even if not limiting the types of documents to be retained; (4) establish a procedure for retention in the field, such as who is to prepare and collect documents,  when these documents are to be collected and how often, when and how the documents will be submitted from the field to the office for storage; (5) prohibit any business-related communication between employees by text message on private cell phones; (6) prohibit any archiving of records at non-business sites; (7) clearly label and organize retained files to assist with searches; (8) keep a backup of the files stored at a site outside of the business premises, if retaining documents digitally without any physical copies being kept; and (9) suspend all destruction of records for a particular project upon receiving verbal or written notice of potential claims being asserted. 

Destruction of files after receiving notice of a potential claim can be interpreted by a judge or jury as an attempt to improperly destroy evidence, known as spoliation, which can result in evidentiary sanctions being imposed.

The document retention policy should be implemented consistently in all projects, and one person, most likely the lead risk management employee, should be appointed with the responsibility of implementing and managing the entity’s policy once it is approved. Reliably maintaining such policies greatly increases the appearance of corporate responsibility and provides the best ability to respond to construction or design defect claims. Construction and design professionals should confer with an experienced construction attorney in order to better understand how the Statute of Repose timeframe operates and to help establish a more effective retention policy. 

 CONSTR DOC ED PIC 4Jason E. Handin is an attorney in Kelley Kronenberg’s Fort Lauderdale office, where he handles construction defect litigation and general liability matters. He can be reached at (954)370–9970 or jhandin@kelleykronenberg.com.

 

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