Jason E. Handin | Daily Business Review | October 26, 2016
The outcome of construction defect lawsuits often comes down to the validity of expert witness testimony and — most importantly — project documentation.
The chances of overcoming a construction defect claim without the documents that detail the entire life of the project in question are not very good. Without documentation, expert witnesses have limited information to review in order to form their opinions. A lack of documents can result in the expert’s opinions being stricken from the record through a Daubert challenge due to a lack of grounds or factual basis for those opinions.
While retaining project documents is of the utmost importance and many entities do so to some degree, construction and design companies still frequently fail to retain them for a sufficient amount of time. These companies often operate without any formalized plan for document retention and use the nebulous phrase “industry standards” or the common excuse of “this is the way we’ve always done it,” to determine how long to retain project documents. These construction and design companies are not retaining documents to the extent necessary to avoid legal risk.
Instead, the Florida statute of repose, in Section 95.11(3)(c) of the Florida Statutes, should govern how long project documents are retained. The statute of repose details the absolute time period in which a construction defect lawsuit may be filed. This includes both the four-year statute of limitations pertaining to construction defect lawsuits and the 10-year statute of repose.
The statute of limitations states that a lawsuit based on the “design, planning or construction of an improvement to real property” must be filed within four years after one of the following occurs: possession of the property by the owner, the date of the certificate of occupancy’s issuance, the date of abandonment of the project if it was not completed, or the date of the completion or termination of the owner’s contract with the engineer, architect or contractor being sued. However, when the lawsuit involves a latent or hidden defect, the four-year time period runs from the day the defect is discovered or should have been discovered “with the exercise of due diligence.” Most importantly, the statute of repose provides that “in any event” the lawsuit must be filed within 10 years following the latest of these four thresholds.
Simply put, the owner has 10 years to discover defects, but once discovered, the owner has only four years (up to the 10-year mark) to take legal action for them. The purpose of the statute of repose is to avoid an unlimited time period in which claims can be made for latent defects that may not be discovered or cause damage until decades after the project’s completion.
The statute of repose timeframe is critical to guide a construction or design firm in forming its internal document retention policies. In general, many construction and design firms hang on to project documents for seven years before destroying their project file. Enforcing such a policy inconsistent with the Statute of Repose is risky, especially considering that there is a window of an additional three years under the statute of repose when construction defect claims can still be made. With this consideration, the primary reason for revising a document retention policy becomes clear: if a construction defect lawsuit can still be filed against your company, why destroy the project file and undermine your ability to defend against a claim?
After closing out a construction project, paper files can accumulate. While burdensome, it is still necessary to retain the documents because it is extremely difficult to predict alleged claims in a future lawsuit and which documents will be relevant to those claims. Sensible document retention, for the allotted time under the statute of repose, is the best way to minimize the potential for costly surprises.
However, the decision boils down to an analysis of retaining physical documents for the required period of time versus the potential strategic risks of not retaining records that may be beneficial in the future. If limited physical storage space is an issue, scanning systems and document storage services can help reduce the need for physical space and document retention costs. If it becomes necessary to limit the documents that can be retained, the documents that should be kept are those reflecting what was required per contract, what occurred during the planning and construction phases of the project, and any documents reflecting changes or problems that arose during those time periods.
Policy Checklist
To help establish a policy, these firms should take the following steps:
• Communicate the written policy to all employees and clients.
• Hold a live seminar with key supervisors to review the policy and answer questions.
• Be explicit about which documents should be retained.
• Establish a procedure for preparing and collecting documents both in the field and in all offices.
• Prohibit any business-related communication between employees on private cell phones.
• Prohibit archiving of records at nonbusiness sites.
• Clearly label and organize retained files to assist with searches.
• Keep a backup of files stored at a site outside of the business premises if retaining documents digitally without any physical copies being kept.
• Suspend all destruction of records for a particular project upon receiving verbal or written notice of potential claims being asserted. Destruction of files after receiving notice of a potential claim can be interpreted by a judge or jury as an attempt to improperly destroy evidence, known as spoliation, which can result in evidentiary sanctions being imposed.
The document retention policy should be implemented uniformly in all projects. One individual, most likely the lead risk management employee, should be responsible for implementing and managing the firm’s policy. This approach greatly enhances the appearance of corporate responsibility and offers the best response to construction or design defect claims. Construction and design professionals should turn to an experienced construction attorney to better understand the statute of repose and help ensure their retention policy is clear and lawful.