Best Practices Construction Law : Construction Lawyer & Attorney : Matthew DeVries : Stites & Harbison Law Firm : Green Building & LEED Litigation

Thanks for all inquiries and well wishes for our family.  Yesterday, my wife was released from the hospital after a prolonged two-week stay.  She has been ordered on bed rest for the near future, but we are on the road to recovery. 

All the emails and phone calls from my friends and colleagues ("Matt, what's going on?"  "Yo! Why have you not responded?"  "I hope your family is okay.")  illustrate a good lesson for construction projects:

Facts are important.

More appropriately, facts are really important!  I have found that a construction dispute with good facts and bad law can, nonetheless, result in a good outcome. Rarely, however, do you find that bad facts and good law will result in a good outcome. 

Since facts are so important, what can you do to develop and preserve the facts necessary to help you win your case?  Here are some tips:

1. Keep written records.  Although conditions in the field may constantly change, make sure you have a process in place to reduce to writing all pertinent facts that affect construction.  This may be a changed condition, interference by another party, unusually severe weather conditions, a change in material price, etc.  If you have a pertinent conversation by phone or in person, make sure you follow-up the conversation in writing.  I cannot tell you how many times I have heard, "Well, they agreed to the change order on the phone."
2. Record just the facts.  If you take the time to record the facts in writing, make sure you leave out all the informal language and other information that will make a good exhibit in litigation.  There is no need to tell the owner's representative that he is an idiot (...even if he is...) in a request for information.  There is no need to tell the contractor's project manager that he is incompetent (...even if he is...) in an email responding to the RFI.  Stick to the facts.
3. Organize your information.  Whether you keep hard-copy documents or you have incorporated the paperless project, make sure you take the time to use a folder structure system that organizes the information in a chronological manner.  This will help you (and your attorney) in the event a dispute arises.

Although this is my own personal opinion, remember that 90% of disputes are fact-driven ... which means that you need to get the facts right, reduce them to writing, and keep them organized.

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The following headline caught my attention this past weekend as I was reading the April issue of the ABA Journal:  "The Trouble with Terabytes: As Bulging Client Data Heads for the Cloud, Law Firms Ready for the Storm."   It piqued my interest not only because I am a lawyer who follows technology, but also because I represent construction contractors who are grappling with paperless project questions: Should we head to the cloud to back-up our document management system? Should we go entirely paperless on our projects? What are the risks?

Although the Terabyte article is focused on the struggles for law firms that are considering cloud solutions, there a number of practical tips for the construction industry.  Whether you are a general contractor, a specialty supplier or an owner/developer, consider the following as you take your construction data to the cloud:

1. Backing up your data should not be viewed as a best practice, it should be a requirement.  According to Matthew Knouff, general counsel of Complete Discovery Source, who was quoted in the Terabyte article, this is absolutely imperative.  As a player in the construction industry--whether you choose to go paperless--you should have a plan for backing up your current electronic data.  You should also consider how long to archive your project documents after completion.
2. The risks associated with loss of privacy, breach of security or public disclosure exist no matter where computing is conducted. If you think taking your data to the cloud presents new security risks, consider the risks that already exist if you networks and servers are attached to the internet.  When you move to the cloud as a back-up precaution, you are transferring that risk of loss to the service provide.
3. The benefits of collaboration can more easily be reaped through cloud computing. What's that suppose to mean? If you are involved in pre-construction design, project performance, or litigation, there is great benefit from controlled access project documents.  Web-based repositories can allow your project people, your consultants and your attorneys to review, issue code, and share documents as you prepare for litigation.  The same technologies allow the owner, designer, contractor and suppliers to communicate and share documents before disputes arise.

There are some risks, including the possibility that the cloud provider may experience technical issues, as well as financial strains.  Research and due diligence, thus, becomes important as you select a cloud computing solution.

Image: theaucitron

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I received an alert from my friends at KraftCPAs yesterday with the following subject line: "How long should your keep you tax records?"

The post by Morganne Keel contains some very basic, succinct and easy-to-implement ideas for document retention of tax records, including the following:

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Individual taxpayers

Keep at least three years, but six year may be better.  The following records are commonly used to substantiate a taxpayer’s income and expense items:

• Form(s) W-2
  
• Form(s) 1099
  
• Form(s) K-1
  
• Bank and brokerage statements
  
• Canceled checks or other proof of payment of deductible expenses

At a minimum, the above tax records should be kept for a three-year period following the date that you file your return (or its due date, if later). However, the IRS’s time limit for initiating an audit on a return where income was grossly understated, yet no fraud was discovered, is six years. Therefore, retain the above documents for at least six years to better protect yourself in the event of an audit.

Pass-through business entities

If you are an owner in a subchapter S corporation, LLC, LLP, or a limited partnership, you should retain a copy of the annual Form K-1 for as long as you own an interest in the entity plus seven additional years. Also, keep any paperwork related to the sale or other disposition of your interest for at least seven years after the disposition.

Corporate income tax returns

It is highly advisable that you retain copies of all corporate tax returns indefinitely.

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For construction companies, I think Morganne is right on track for retention of tax records, particularly in this day and age of electronic storage.  It is not too difficult to maintain these types of documents indefinitely in the event of an audit.

In the construction industry, the next question becomes: How long do you keep project records?  Project documents, including the contract, change orders, correspondence, drawings, specifications, daily logs, field notes, monthly reports, schedules, etc., should be kept and stored for at least as long as the applicable statute of limitations or repose period for the state in which your project is located.  Here is a good explanation of a statutes of limitations and repose for construction defect claims and how it applies to disputes.  In short, if your particular jurisdiction has a 10-year statute of repose, then you should keep you records maintained for at least 11 years. 

Image: agrilifetoday

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Last week, I was in Las Vegas speaking at the AGC National Convention and attending CONEXPO / CON-AGG, an international tradeshow featuring more than 2,000 exhibitors showcasing the latest in construction equipment, technologies and services.  Later this week, I will share some thoughts about the tradeshow, including some of my favorite exhibits.

In the meantime, I was impressed with the number of vendors with software solutions for document management.  The process of documentation, including its evaluation and improvement, may be better understood if it is subdivided into the following sub-tasks:

1. Recognition, collection and recordation: This is the most vital step in the entire process. Without it, the other steps are moot. It requires that field superintendents and/or project engineers evaluate all real-time events, selecting those that appear to be of future value, and committing them to a permanent record.  Many contractors have reported that their field personnel do not adequately evaluate the real-time events until after they have experienced a major claim on one of their projects. It is a shame to pay the costs for an undocumented claim to ensure better documentation in the future. For that reason, I have given numerous workshops and presentations on documentation and "real litigation" examples to demonstrate the importance of documentation.
2. Reporting, distribution and transmission:  This is a matter of communicating the documents or information to another party. Modern software is available to help with the reporting, distribution and transmission. There are many contractors who customize their software to meet their own particular needs. If field records are computerized at the outset, the cost of organizing them at a later point is eliminated.
3. Initial utilization: Initial utilization of field documentation is important. Contractor management must know what is going on in the field so that adjustments can be made. It is similar to football coaches reviewing real true photographs of plays during a game and then making adjustments to their plan. The documentations that is not reviewed may be routed directly to storage.
4. Storage and retrieval: Storage typically involves filing the information so that it can be retrieved at a later point. Once again, storage by use of computer software makes retrieval at a later date an easier task.

The solutions out there are numerous.  As we move forward to the paperless project, there will be more efficient, more effective and better integration through these task.

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In a recent article that I wrote for ABC's Construction Executive magazine, I shared some experiences and lessons learned from a paperless project.  The construction industry needs to consider that “paperless” involves more than simply a different form of documentation, but also a debate about whether the benefits of a paperless endeavor outweigh the upfront investment costs and the potential risks.

Indeed, the courts have struggled with electronic discovery challenges for years. Workable solutions can help parties manage the production of millions of pages of electronic documents. In the end, however, the same common-sense approaches to document management on a paper project can help a contractor deal with similar challenges on a paperless project.

To continue reading the article, please visit Construction Executive.

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Seems like I have been doing a lot of out-of-town speaking lately.  Fortunately, my next gig will be in my own office, in front of a computer, with a headset attached.  You should consider joining me on October 13, 2010, at 1:00 to 2:30pm (Eastern) for what will be an exciting webinar:

From Paper to Paperless:

Controlling Construction Documentation,

Improving Record Management, and

Identifying Risk in an Electronic Age

The event is hosted by It is sponsored by WPL Publishing Co., Inc., the publishers of Construction Claims Advisor, Construction Project Controls & BIM Report and Green Building Insider. Some of the exciting topics include:

• “Putting it in writing” rule – what should you record? What is the hearsay rule?
• Why are proper records so essential for claims and disputes?
• Critical project documentation – what you absolutely need to document; and non-critical documentation – what you don’t need to document
• How to use project management software and Web-based capabilities to move towards a paperless project, establish good audit trail and consolidate project documentation
• Are electronic documents subject to the same discovery rules as paper documents? Is a written instruction via e-mail the same as a change order?
• How do social media platforms (Twitter, Facebook, MySpace) affect your project? Do you need a social media policy for your employees?
• AND MUCH, MUCH MORE!

If you have any great construction "war stories" that you would like to share, please send me an email.

UPDATED: If you are a regular follower of the blog and want a huge discount to the webinar, please click here for registration.  Make sure the link has "BLOGGER'S DISCOUNT".

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At the end of yesterday's webinar on Construction Documentation and Record Management, I was overwhelmed with so many good questions. Due to time constraints, I did not get a chance to answer them all.  However, I promised to follow up on your inquiries ... below are some of your questions.

How long should project related documents be retained? Why would the timeframe for retaining documents be less than the jurisdiction’s statute of repose?

During the webinar, I said that this would depend on two factors: (1) any written retention policy in place; and (2) any advice given by your tax professional. As one of the participants asked in the chat questions, you may want to keep documents for as long as the statute of repose period in your particular jurisdiction. The statute of repose (like a statute of limitations) cuts off the right to bring action if not pursued within the applicable period. For example, the statute of repose for construction defects in Tennessee is four years after substantial completion, whereas Virginia has a five year statute of repose. Short answer: Keep ‘em 10 years, unless the statute of repose period is longer.

Is there a legal requirement for keeping project documentation and emails?

There are a few issues that are competing here: business issues and legal issues. Purely as a matter of business management, you want proper document controls in place … for the reasons discussed in the presentation. As a legal matter, the only “legal requirement” to maintain records is to make sure you comply with any document management/retention obligations that are required by the parties’ contract (public or private).

Do these project management tips apply to either/both public or private projects?

The lessons can be applied to both public and private projects. Of course, there may be different project controls in place or record management systems required for public contracts. For example, both Wisconsin and Texas now require use of Building Information Modeling (“BIM”) on certain public projects. Also, the general legal issues may differ if you are pursing a claim against a public owner because you may have the dispute resolved by an agency or administrative judge. However, most of the tips in the presentation are applicable to both public and private contracts.

Closing out a job: What recommendations do you suggest for Data Controllers in gathering electronic records from Project Managers, superintendents? Also--must such electronic files be printed and placed in a hard file?

During the webinar, I partially answered this question. Let me try again with the following recommendations for Data Controllers:

• Have the same person do the collection.
• Make sure the collection is complete and exhaustive—i.e., don’t collect emails from everyone’s computer except the “document clerk.”
• Have a written policy about what information is to be gathered and what will be done with the information.
• Create an index to describe or categorize the information.
• Back-up or save all the information in one location, preferably a portable hard drive that can be copied and sent to your attorney. It is hard to deal with 50 CDs or DVDs than one hard drive.
• It is not necessary (nor advisable for cost reasons) to print electronic files for long term storage.

Does using an Owner supplied management tool (Site Manager) for daily diaries (i.e. with a State DOT) relieve you from expanding the level of detail in documentation?

No. Use as much detail as necessary to accurately describe what is required in the report (i.e., conditions, scope of work, installed quantities, labor, man hours, etc.).

As you highlighted the advantages of using a one environment/system between all parties involved, what is the main disadvantage of such application?

Cost … depending on the size of your company and project. If you do not have this infrastructure in place, the initial investment can be costly in terms of licensing fees, usage and management fees, and additional costs for trained personnel.

In regards to emails, what about if you have a disclaimer on the bottom that states that the info is only intended for the person addressed? Can those still be used by the other party?

Yes. No. Depends. If you are talking about emails between individual employees of the parties, then they can certainly be used as party admissions. If you are talking about emails to/from a non-party to the litigation (what may be called a third party), then you can probably use the information in the email and even the email itself if you can get around one of a few evidentiary objections.

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