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Claims Specialist, Design Professional, AXA XL

The pandemic wasn’t the only thing on the rise this past year: so were claims from contractors seeking to gain new revenue from old projects. It’s more important than ever to hang onto—and manage—your project documents.

My colleagues and I have noticed an uptick in claims arising out of stalled and completed projects. These claims are generated by contractors seeking reimbursement from project owners and design professionals for cost overruns. It appears that because many projects have stalled during the pandemic, contractors now have more time to review old project disputes in search of ways to increase revenue.

For example, a contractor will review disputed change orders on a successful, completed project and request compensation from the owner, alleging that the change orders were the product of design errors or omissions. The owner then requests a detailed explanation from you. In some instances, contractors have asserted claims directly against the design team.

As bogus and frustrating as the claim may be, you still have to defend yourself and your team. To do so, you need to look at your project documents, drawings, and notes. But what if you can’t find the old project files? They’re missing— maybe scattered among various offices (or even home offices), stuffed in boxes in a warehouse miles away, or worse, destroyed. Now it’s just your word against the contractor’s, with the project owner caught in the middle. This is not a good position to be in and may force you to retain costly experts to support your position.

Where did I put those old documents?
The information in your project file is essential to rebutting a claim. Having a good document retention system will vastly improve your defense and could also help avoid potential claims of spoliation of evidence. That’s why it’s crucial to have a well-defined process for preserving, locating, and scheduling the destruction of project documents. If you don’t have a document retention policy, take steps to establish one as soon as possible. If your firm does have a policy, make sure it’s being followed consistently on every project.

The best practice is to keep your project file for at least three years after the statute of repose or period of limitation expires in the state or province where the project is located, or to which it is subject. This is because some jurisdictions provide an extension to the statute of repose if the claim is discovered within the last year or two of the statute. In other words, if the jurisdiction’s statute of repose is 10 years, it’s in your best interest to keep project files for at least 13 years. You’ll also want to make sure your client contracts don’t call for even longer periods.

Design professionals in Canada, as in the U.S., need to comply with each jurisdiction’s applicable laws and regulations, in addition to any internal controls. In British Columbia, for example, the bylaws of the provincial authority for professional engineers (Engineers and Geoscientists BC) include Section 7.3.2, “Standard for Retention and Preservation of Complete Project Documentation.” It states:

(3) Complete project documentation must be retained and preserved for at least 10 years after the later of the completion of the project or when the documentation is no longer used.

Interestingly, in response to the pandemic, the province’s statutory limitation periods were suspended for one year beginning in March 2020.

The best practice is to keep your project file for at least three years after the statute of repose or period of limitation expires in the state or province where the project is located, or to which it is subject.

Even after this period expires, we recommend retaining your contracts, agreements with subconsultants, and any amendments or changes to the scope of services, as well as certificates of substantial completion, certificates of occupancy, and closing documents, such as final invoices, for another five years or, better yet, the life of the structure.

Discuss with your lawyer exactly which types of project documents you should keep (in addition to those listed above) and make sure your document retention policy reflects the outcome. (See “Resources.”) Your policy should be the same for every project in which your firm is involved, subject to any litigation holds, client contract requirements, applicable periods of limitations, or regulatory requirements. Everyone in your firm should be familiar with and follow your firm’s policy.

Discarding documents must be routine and consistent, too. Be sure you also have procedures to prevent the destruction of any information that may be relevant to a potential or actual claim. As soon as you learn of a problem, we recommend issuing a “litigation hold” memo to the project team, as well as to any consultants or contractors the firm has hired on the project, so that all files and documents related to the case are collected and exempted from automatic destruction.

Keep your documents readily accessible
Hanging onto your project documents doesn’t do much good, however, if you can’t quickly get your hands on them. Ideally, you should be able to access the old files within a day or two during the retention period so that you can promptly defend yourself.

We know it’s frustrating to give up space for document storage or pay for archive service. However, it’s even more frustrating, and costly, to find yourself powerless in the face of a claim. Remember, some contractors are looking for excuses to file claims these days, so don’t throw away those old documents just yet.

Resources

  • Q&A: Project Document Retention,” May 2019 issue of Communiqué found in the EDGE resources section.
  • “How Much and How Long? Creating a Document Retention Policy,” October 2017 issue of Communiqué found in the EDGE resources section.
  • “Document Retention: Keys to Maintaining Files and Minimizing Risk,” an AXA XL eLearning course, available for premium and CEU credits. Information on how to enroll is available in the catalog on our new learning management system, the EDGE.
  • “Document Retention,” “Governing Law and Jurisdiction,” and “Statutes of Repose and Limitation” chapters in AXA XL’s Contract Guide, available on the EDGE. Also see “Exhibit 13, Periods of Limitation in Canada,” in the Guide.

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