Here’s an often-overlooked fact: Meticulous recordkeeping plays a key role in running a successful construction business. Without proper documentation, you cannot clarify your position when disputes arise, nor can you optimally defend yourself in the event of a claim against you. The proof of any project is in the paper trail.
Safe period
The documents a construction company generates and should retain tends to vary depending on its specialty, as well as the project type, number of parties involved and contract requirements. Generally, you need to retain job records for the duration of the liability period after completion date plus one year.
To determine that period, check each contract’s document-retention requirements, as well as applicable federal, state and local statutes of limitations and/or statutes of repose. Of course, you should never destroy any documents related to pending or probable litigation, no matter how old.
Suggested categories
Every construction business should categorize documents based on those it most frequently uses. Once categorized, organize the document types by importance and risk. Here are some suggested categories:
Contract documents. Proposals, contracts and subcontracts describe, at minimum, the project’s scope, price, payment schedule, time frame, change-order process and other finer points of the agreement.
Project diaries. Daily reports and logs are a good account of what happened on a project from day to day and an excellent source of information about work done and who might be at fault in the event of a delay or loss. Photos and videos of construction progress are an excellent way to enhance this documentation.
Reports. This category can include project feasibility studies preceding a job, as well as work in progress reports and job cost reports.
Technical documents. Requests for information and responses, shop drawings, and other submittals can help support why a project was delayed or a change order was needed. Additional documents to keep are drawings and specifications, blueprints, and design and engineering calculations.
Meeting minutes and schedule updates. Keep records of who attends and what’s said during preconstruction, job progress and “postmortem” meetings. Be particularly sure to document and retain written updates to the schedule if it changes.
Purchase orders, invoices and receipts. These documents not only support the financial history of the job, but also could be needed in case of an IRS audit.
Notice records and change orders. The former prove that you provided notice about potentially troublesome project issues. The latter show that you submitted a formal description of the additional work needed to complete the job and the associated costs.
Licenses and certificates of insurance. Carefully retain copies of licenses and proof of insurance to guard against frivolous claims and other legal issues. This documentation could also help you avoid charges for accidental worksite damage.
Emails and other correspondence. Agreements settled by handshake are nearly impossible to prove. Put it in writing! Save written letters or notes. Be sure you’re backing up servers that house emails, text messages and other electronic communications.
Consider a policy
If you haven’t already, consider implementing a comprehensive document retention policy that covers everything here and more. When in doubt on what to keep and for how long, consult your attorney regarding legal documents and your CPA for help with tax and financial documentation.
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