How long is a piece of string? Tricky. Twice the length from one end to the middle, you say? Well, yes, but still not very helpful in determining how long the string actually is, is it? We can do slightly better with the question as to how long a business should retain its professional appointment documents; but a definitive answer is almost as elusive.
Firstly, it should be emphasised that this note deals with general considerations relating to professional appointment documents only. For the myriad of other documentation and regulatory intervention that today’s firms need to be aware of, for example, in the fields of financial and accounting information, personal information and when dealing with public bodies, specialist advice should be sought.
With the increasing sophistication of computer storage systems, it is now possible to store many hundreds of thousands of documents relatively cheaply. With the drop in price of file servers and the associated backup hardware, digitising newly produced documentation is a real possibility for many. Many practices may never need consider purging documents; they simply digitise newly produced documentation as it is created. Nevertheless, for those of us with many years of old paper files to consider, the cost and time implications of digitising these can be a drain on resources.
As arrangers of Professional Indemnity (PI) insurance to various professions, the document retention question is one which we are often asked. If it is one you have already grappled with, then hopefully, this paper will do nothing more than reinforce the advice already given. Alternatively, if it’s something you have never considered, now might be the time to do so. With many practices struggling with burgeoning documentation, deciding when it is finally safe to destroy files is of increasing importance.
Be it schematics for the construction of a building, advice issued to clients on a negligence claim, or papers supporting the valuation of a house, documents are produced which are vital to the service that is provided. Indeed, the documents produced might be the very service itself. Storage space is finite for all businesses – everything cannot be stored indefinitely. The danger with destroying document early, however, is readily apparent.
Although general guidance can never address the specifics of individual situations, and we always recommend that you take specific advice, the following areas should definitely frame the debate:
- PI policy requirements
- Contractual requirements and liability periods
- Other factors
Professional Indemnity policy requirements
We suggest the first port of call in trying to answer this question is to look at the terms of your PI policy. Different insurers have different requirements ranging from remaining silent on the issue, to imposing quite onerous terms as to both how long you must store your documents and in what state they must be retained. The reasons for insurers taking an interest in how you keep your documents are obvious; in the event of an allegation of negligence, the notes you have taken, the minutes of meetings held and the written advice given, will all be crucial to mounting a defence.
Griffiths & Armour’s PI insurance schemes for construction professionals have no particular requirements relating to the retention or storage of documents and you are at liberty to make whatever arrangements you consider commercially prudent. It would be extremely foolish, however, to ignore the issue. As previously mentioned, project documents can be crucial in mounting a defence and as our latest risk management book ’Reinforcing the Simple Messages’ shows, a claim can fail or succeed on the accuracy and/or sufficiency of project records.
Other PI policies, however, can contain fairly demanding requirements, such as:
|‘The Insured, as a condition precedent to their right to be indemnified under the Policy, must keep all documents in a suitable secure location outside of normal business hours and shall maintain duplicates of all computer related records off site for a period of not less than 12 years following completion of the commission to which the documents relate.’|
|‘The Insured shall make available to Insurers at all reasonable times and Insurers shall have a right to inspect and copy during the period of insurance and thereafter, all books, papers and other records of the Insured and its agents or brokers in connection with this policy or the subject matter hereof.’|
It is important that you check with your broker exactly what conditions apply to your particular policy, so as to ensure that you can comply. Often, retaining the documents for the period and in the manner specified in the policy will be a ’condition precedent of cover’ (i.e. if you don’t comply, the policy will not respond to the claim). Even conditions at the less onerous end of the spectrum can allow insurers to reject claims, should they consider your actions ‘prejudice their position’.
Contractual requirements and liability periods
Quite aside from the conditions within your PI policy, your client may well require that you retain documents on a particular project for a specified number of years. Although it is unusual for clients to specify the manner in which the documents are kept, the requirement to store project documentation for ‘x years’ will often be combined with a right for the client to inspect the documents too.
The document retention period imposed by clients in contract often matches the relevant limitation period applicable to the project in question (i.e. the period after which claims become ‘time barred’). Knowing when your liability expires is essential when considering how long to retain your documents, even if the contract is silent on the matter. Usually, the liability period will expire a number of years following completion of the services you are providing or completion of the project to which they relate. The limitation period is usually six or twelve years depending on the form of contract and what you have agreed with your client.
In certain circumstances, where so-called latent defects are present, the law can impose liability up to 15 years following completion of your services and this, for most categories of claim you are likely to face, should be considered the ‘long-stop’ of liability. It follows that, generally, speaking this can also be used as the ’long-stop’ for retaining documents
Many more issues may well impact upon your decision as to whether or not to retain documents and, if so, for how long.
Some clients view historical records as a potential revenue stream. They view them as a useful tool in securing work in the future from, for example, clients refurbishing a building an engineer had previously worked on.
Special consideration should be given to certain categories of documents, for example, the certain financial documents (for example, balance sheets etc) as there may well be specific legislation (e.g. the Companies Act) which deals with how long these should be kept and specialist advice should be sought in this regard.