Record Retention Requirements for Federal Procurement Laws
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Installment [ 37 ] Record Retention Requirements for Federal Procurement Laws By Eric Aaserud
In the wake of Enron, WorldCom, Global Crossing and other corporate scandals, corporate requirements and practices are under the microscope. Among the more important issues are those involving record retention.
In this installment, we take a close look at record retention requirements under federal procurement law.
Basic Retention Rules
If your company has at least one negotiated procurement or sealed bid contract with the federal government, it has a legal duty to maintain certain records. Given the current climate, one might reasonably assume that federal procurement officials are taking such duties seriously these days.
The Federal Acquisition Regulation (FAR) requires that all negotiated procurement and sealed bid contracts contain clauses requiring contractors and subcontractors (herein referred to generally as "contractors") to retain all records related to pricing, proposals, negotiations and performance of the contract and subcontracts.
"Records" include "books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form of computer data, or in any other form, and other supporting evidence to satisfy contract negotiation, administration, and audit requirements of the contracting agencies and the Comptroller General." FAR 4.703(a).
Retention Periods
The general time period for retaining records is not less than three years after final payment. For the following types of acquisition and supply records, however, the required period of retention is not less than four years:
- Work orders for maintenance and other services;
- Equipment records, consisting of equipment usage and status reports and equipment repair orders;
- Expendable property records, reflecting accountability for the receipt and use of material in the performance of a contract;
- Receiving and inspection report records, consisting of reports reflecting receipt and inspection of supplies, equipment, and materials;
- Purchase order files for supplies, equipment, material, or services used in the performance of a contract; supporting documentation and backup files including, but not limited to, invoices, and memoranda (e.g., memoranda of negotiations showing the principal elements of subcontract price negotiations);
- Production records of quality control, reliability, and inspection.
For store requisitions for materials, supplies, equipment, and services, the retention period is two years. For construction contracts, the following must be retained for three years:
- Payroll sheets, registers, or their equivalent, of salaries and wages paid to individual employees for each payroll period;
- Change slips;
- Tax withholding statements.
Also, in the case of construction contracts, the following must be retained for two years:
- Clock cards or other time and attendance cards;
- Paid checks, receipts for wages paid in cash, or other evidence of payments for services rendered by employees.
Keep in mind, though, that contractors must retain records for a longer period of time if the contract specifically says so.
Contractors may move electronic records from one computer system to another but must maintain an audit trail. FAR 4.703(d). Further, contractors may save space by scanning original records, as long as the contractor:
- has established procedures to ensure that the imaging process preserves accurate images of the original records, including signatures and other written or graphic images, and that the imaging process is reliable and secure so as to maintain the integrity of the records.
- maintains an effective indexing system to permit timely and convenient access to the imaged records.
- retains the original records for a minimum of one year after imaging to permit periodic validation of the imaging systems.
FAR 4.703(c).
Calculating Retention Periods
Calculating retention times can be a bit tricky. Here are the basic rules:
The retention periods outlined above should be calculated from the end of the contractor's fiscal year in which an entry is made charging or allocating a cost to a contract or subcontract. If a record contains a series of entries, the retention period runs from the end of the contractor's fiscal year in which the final entry is made.
When a contractor relies on records generated during a prior contract for cost or pricing data in negotiating a succeeding contract, the retention periods run from the date of the succeeding contract.
If two or more of the record categories listed above are filed together and separating them is impractical, the contractor must retain the entire record series for the longest period prescribed for any category in that group. FAR 4.704.
Conclusion: Read the Fine Print; Think Beyond the FAR
What it really comes down to is this: read the contract in its entirety, including FAR clauses incorporated by reference.
Multiple Award Schedule (MAS) contracts, for example, incorporate the retention requirements of FAR Subpart 4.7. Ebert, "Post-Award Audits of Multiple Award Schedule Contracts," http://www.immixgroup.com/government_legal_postaward_audit_main.html.
If the federal government asks for records and you can't locate them, your firm may end up paying substantial financial penalties. So it's critical that retention requirements be taken seriously.
And what if your company doesn't have a federal contract requiring record retention? There may be other laws in play. For example, the Federal Fair Labor Standards Act requires that employers retain payroll records for at least three years. The Equal Employment Opportunity Commission requires that employers subject to Title VII retain employment or personnel records for at least one year.
Furthermore, some argue that every company -- specific legal duty or not -- should have a record retention strategy. See e.g., Freeman, "The Lessons Of Arthur Andersen: Minimizing Your Liability Through Effective Management Of Your Documents," http://www.advamed.org/business-solutions/tomfreeman.html.
We hope you enjoyed this one.
Here's a confession: we're running out of topics for this series. Are there specific areas you'd like to see us cover? Send us your thoughts: editor@fedmarket.com.
Resources
FAR Subpart 4.7 - Contractor Records Retention
http://www.arnet.gov/far/current/html/Subpart_4_7.html
"The Lessons of Arthur Andersen: Minimizing Your Liability Through Effective Management of Your Documents," by Thomas M. Freeman. http://www.advamed.org/business-solutions/tomfreeman.html (Argues that all companies should have a record retention program in place.)
"Shredder Beware: Document Retention in the Wake of Enron." http://www.arterhadden.com/publications/clientalert/shredder.asp