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Document Retention: Rules of Thumb for Design Professionals

cloudcomputingIn this age of terabyte-sized digital memory banks and the seemingly infinite storage possibilities of “the cloud,” understanding how long a design professional should retain project documents can be tricky. More and longer aren’t always better, but there are legalities to consider before any kind of purge takes place. For architects and engineers, basing a firm-wide retention policy on consideration of the relevant statute of repose is usually a good start. For latent defect claims in California, for example, that’s ten years from the date of substantial completion.

According to attorney Jennifer Suzuki at Long & Levit LLP in California:

There is no statute of repose for personal injury claims arising from alleged construction defects.  (Such claims must be brought within two years from date of injury regardless of completion date.)  Although it is much less expensive these days to retain records in a digital form rather than in hard copy, most firms do not find it feasible to retain all their records in perpetuity.  It’s always a judgment call based on a cost/benefit analysis.

In the absence of notice of a pending or threatened claim, I believe many of our clients retain their records for ten or twelve years. (The additional two years allows extra time for Doe amendments and delayed service of process.)  Some clients designate different retention periods based on the type of project record, e.g., correspondence, drawings, etc.  In the event of a pending or threatened claim, clients should adopt a litigation hold so that no potentially relevant records are inadvertently destroyed as part of a normal destruction policy.

The following is an excerpt from the Small Businesses & Self-Employed page on the IRS website. Just a few rules of thumb on tax-related documents:

The length of time you should keep a document depends on the action, expense, or event the document records. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.

The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or that the IRS can assess additional tax. The below information contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.

1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.

2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.

3. You file a fraudulent return; keep records indefinitely.

4. You do not file a return; keep records indefinitely.

5. You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.

6. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.

7. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

We’ve also published a ProNetwork News issue on this topic, titled Document Retention and Disposition: A Key Element of a Design Professional Quality Control Manual. If you have questions about document retention or other risk management-related issues, don’t hesitate to call on your local a/e ProNet broker!

Disclaimer: As with all posts on The ProNet Blog, this post is not intended to convey legal advice. Readers in all cases should engage competent legal counsel with respect to particular issues, contracts, and disputes.