Construction contractors are in the business of documentation: contracts, reports, schedules, the list goes on. And that’s not including tax and financial records. Though most if not all this documentation is done digitally now, there are still questions about how long to keep certain records. In any business, thorough recordkeeping can be the difference between something as substantial as a lawsuit or defending tax deductions to the IRS. In construction, documentation is risk management.
Before figuring out an appropriate records retention policy, first understand that there are two distinct time periods from which a retention timeframe is based. These are statutes of limitations and statutes of repose.
A statute of limitations limits when one party can sue another. In construction, a statute of limitations can be indefinite unless a timeframe is specified in the contract. The period begins when a defect or injury occurs, which can happen at any point after a project is done.
Because a statute of limitations could theoretically last forever, construction firms should work with advisors to decide a retention policy for project documentation.
A statute of repose, on the other hand, is based on a pre-determined timeframe. If a defect or injury occurs outside this window, claims cannot be brought against either party. A statute of repose can begin either when a project is finished or upon some other trigger event, like occupancy. Almost all states have a statute of repose ranging from four to 15 years.
In Virginia, the statute of repose is five years after project completion; in Washington, D.C. the statute of repose is ten years; Maryland, 20 years, and North Carolina, six years.
Project documentation, like drawings, specs, calculations, meeting minutes, etc. should be kept for at least three years after the statute of repose ends.
General Timeframes for Record Retention
Broadly speaking, the below guide will help to answer most questions regarding how long to keep certain documents.
- Correspondence (including emails)
- Receipts – for example, for meals and entertainment
- Keep the detailed receipt with the name(s) of those in attendance and the purpose of the meeting not just the credit card receipt with a total
- Internal audit reports
- Employment applications
- Bank reconciliations
- Bank statements
- Expenses analyses/distribution schedules
- Accounts payable ledgers and schedules
- Tax records
- Tax returns and worksheets
- Contracts, mortgages, notes, and leases
- Payroll records and summaries
- Personnel files
There are also several documents that should be kept permanently. These include:
- Checks for substantial purchases and payments (all items on your depreciation schedule)
- Insurance records and accident reports
- Year-end financial statements
- Audit reports
- Legal correspondence
- Deeds, mortgages, and bills of sale
- Depreciation schedules
- Organizational documents and Bylaws
- Patents, trademarks, and copyrights
- Retirement and pension records
Also note that Maryland is one of seven states that has adopted some version of the Uniform Preservation of Private Business Records Act, which essentially says that businesses can keep records for three years if no other date is specified.
For ongoing contracts, maintain all documentation for as long as the job goes on. Then, follow the above guidelines.
Paper copies may not need to be kept if the documents are stored in at least two places: one ‘normal’ storage location and one back-up location – on a separate server. That way, if the primary server or machine gets hacked or destroyed, there is another accessible option. Any paper records should be stored somewhere safe from tampering and unexpected events, like flooding or a fire.
These retention guidelines are a good place to start for construction firms, but knowledgeable legal and financial advisors should still be the final word on how long to keep important records. Contact Jennifer French, CPA, Partner and Team Leader of PBMares’ Construction and Real Estate Team, for more information.