Record Retention

Three years back your company was awarded a large production contract by the Army for a training film on desert warfare. You finished the project two and a half years ago, and after haggling over some extra work, you negotiated a change order and received final payment almost two years ago.

Today, your company was visited by personnel from the Army’s Inspector General, Audit Division, asking to inspect your records relating to the completed production project, especially your costs of extra work under that negotiated change order. You’re not sure that you still have all of your records. After all, final payment was made almost two years ago, and your records are in a mess since you moved your facility last year. You’ve done nothing wrong. What do you do? Call your lawyer? Can the Army do this to you?

The fact of the matter is that when you do business with the government, you are under a duty to retain contract, cost, and pricing records for a certain period of time, generally three years from the date of final payment. As usual, there are some exceptions with alternative record retention periods, but for the most part three years is standard. For certain records, the period runs from the end of the fiscal year in which the cost was incurred, so that the actual retention period could last even longer.

This is quite different from the commercial world, where you are not required to maintain records for a fixed period of time, except for tax purposes. Although the business world would not normally wait two or three years to investigate issues concerning contract pricing, the government can and often does take several years before initiating an investigation, long after the out-takes have been thrown away.

If your government contract is terminated because the government defaulted you, you had better rent a storage bin. You are required to keep your records for three years beyond settlement of any dispute, which could itself take many years to get resolved.

Your record retention obligations are for the most part spelled out in the boilerplate clauses that accompanies most contracts, or, even worse, is simply incorporated by reference in that laundry list of clauses set forth in Section I of the solicitation. These clauses usually give the procuring agency specific rights to audit your records relating to performance, although the scope of the government’s inquiry is more limited in a fixed-price contract without negotiated change orders.

What’s more, Congress, through its legal enforcement arm, the Comptroller General, has an even broader power to examine contractor records during or after the performance of a negotiated procurement. According to the Federal Acquisition Regulation (FAR) Subpart 4.7, the Comptroller General can ask a contractor to, “make available books, records, documents, and other supporting evidence to satisfy contract negotiations, administration and audit requirements.” This doesn’t leave much out. Keep in mind this means all contract documents and it is enforceable for three years after final payment.

The important lesson here is to read your government contract in its entirety, including the boilerplate clauses incorporated by reference, and to plan ahead for record retention. You may think it’s tedious and wasteful, but if you don’t produce the documents when they’re asked for you could face financial penalties. Record retention is a vital part of contracting with the government and should be part of your overhead. The risks associated with noncompliance aren’t worth taking.