Here’s an often-overlooked fact: Meticulous recordkeeping plays a key role in running a successful construction business. Without proper documentation, you’ll likely struggle to support your position if a dispute arises. Worse yet, you may be unable to adequately defend yourself in the event of a claim. The simple truth is properly documenting your work can have a big impact on your construction company’s financial stability.
The documents a construction business generates and should retain tend 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 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.
Every construction company should organize documents based on those they most frequently use. Once organized, categorize the documents by importance and risk. Here are some suggested categories:
Contract documents. Proposals, contracts and subcontracts describe, at minimum, each project’s scope, price, payment schedule, time frame, change-order process and other finer points.
Project diaries. Daily reports and logs are an excellent way to account for what happened on a job from day to day. They can serve as a critical source of information about work done and who might be at fault in the event of a delay or loss. If you aren’t already, consider using photos and videos 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 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
The proof of any project is in the paper (or digital) trail. If you haven’t already, consider implementing a comprehensive document retention policy that covers everything mentioned here and more. When in doubt on what to keep and for how long, consult your attorney regarding legal documents and contact our firm for help with tax and financial documentation.