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LEGAL ASPECTS OF MANAGING CONSTRUCTION PROJECTS IN MASSACHUSETTS:

Chapter 5 - Project Documentation

© 2008, Steven J. O’Neill, Attorney at Law

Construction Project Documentation

The management of construction projects is a problem in information, or rather, a problem in the lack of information required for decision-making.  In order to keep the project rolling, decisions have to be made before all the information required for the decision is available.  Decision-making in construction is, therefore, about robust decisions, rather than optimal decisions. Winch, Graham. Managing Construction Projects. Oxford, UK: Blackwell Science, 2002. pg. xiii.

Imagine a time in our preindustrial past, where an owner might contract with a designer who was also a skilled builder to carry out the development of the owner’s program from conception, to design, to the actual personal supervision of the work.  Hypothetically, the traditional master builder might completely comprehend the owner’s design program without the necessity of a drawing: “Build us a church like the First Church in Wayland, but with a much taller steeple and more windows.”  The master builder might visit, inspect, measure and prepare some sketches, notes and measured drawings.  However, because the master builder selected the materials, hired and supervised the artisans, and could make design decisions as needed, there was little need for written specifications as complicated as the CSI Masterformat.

Massachusetts was home to one of the most famous American  architects and master builders, Asher Benjamin.  Benjamin is famous not so much for his design or construction of church buildings.  He is famous in great measure for his documentation. Benjamin wrote a series of books cataloging and detailing architectural designs. [1]   By creating documentation, Benjamin’s designs could be communicated to other builders and reused or adapted to local conditions.  Similarly, the encyclopedic Architectural Graphics Standards was first published by George Ramsey, AIA and Harold Reeve Sleeper, FAIA in 1932 and has long served as a standard reference.  Not too long ago, architectural firms were stocked with hundreds of binders containing catalogs, details and specifications that further standardized construction documentation.  Today, the availability of updated online catalogs and CAD details have displaced many paper files with electronic documentation.  The modern rationalization and specialization of the construction process requires communication through documentation.

Societies create a built environment to serve a variety of economic, social and even symbolic goals.  Interstate highways, power plants and office buildings serve economic interests.  Homes and hospitals serve social needs.  Churches, museums and memorials serve symbolic needs.  In our modern specialized economy, the owner and related stakeholders need help converting their vision and imagination into a program.  That program must eventually be refined, conceptualized and communicated by the design professionals, downstream to the actual artisans.  One measure of the success of a construction project is whether the completed project meets the needs and vision of the owner.  Every step of this process is evidenced by documentation and indeed would be impossible without proper documentation.  The owner’s vision cannot be converted to reality without a chain of good documentation.

Another attribute of construction documentation is the extent to which it enables any given stakeholder to protect its own interests during the course of, and after the project.  For example, claims must be noticed in writing.  Specialized consultants exist to assist parties in properly and effectively documenting claims.  Clear, logical and contemporaneous documentary evidence is almost always persuasive in a dispute resolution.

5.1.            Why Build a Record?

The Brochure for this seminar suggests: “Build a Record You’ll Be Proud Of.”   It costs enough money to build a facility, why spend scarce funds building a record too?  What is the average cost to draft a one-page letter documenting a potentially important event or conversation on a project?  Should all potentially important events be documented?  Should there be standards for the cost-benefit analysis required to make this decision?  Where in the organizational chart should this decision be made?  Should there be training on the recordkeeping requirements for the project?  What should the contract documents require?  Should all parties involved in the construction project from designer to lower-tier subcontractors be required to communicate in a specific way?  Should information management and communication be centralized?  If so, who should host the information?  Is all project email part of the project record?  Unfortunately the answers are very dependent on the type of project, the sophistication of the parties, and other factors.  Every project must build a record; the devil is in the details.

5.2.            What is a Record?

The term “record’ is used in a number of contexts.  The Random House Unabridged Dictionary (1973) provides 26 definitions. For example, it describes the usage in the Law as: “the commitment to writing, as authentic evidence, of something having legal importance . . .”  Another useful definition is: “an account in writing or the like preserving the memory or knowledge of facts or events.”  Records can also be defined by functional categories such as: payroll records, RFIs, applications for payment, tax records, HR records and the like.  In general terms, a record is information in written or electronic form that is needed for business, organizational, legal, historical or other reasons. 

The recordkeeping needs of businesses vary greatly by size, industry, and scope of business.  In the construction context, the recordkeeping requirements of a Cost Plus contract are more transparent than those of a Lump Sum contract.  Some projects require certified payroll.  Legal and regulatory recordkeeping requirements for businesses operating nationally can be difficult to identify.  A conservative estimate is that there are over 12,000 separate local, state and federal laws & regulations mandating some type of recordkeeping requirement.  Some are well known or universal such as IRS Revenue Procedure 98-25 addressing the retention of automatic data processing records.  OSHA and state equivalents address workplace safety documentation. Hazardous materials regulations including MSDS information are also well known.  Publicly traded companies now have substantial recordkeeping requirements regarding financial accounting as a result of the Enron scandal and the passage of Sarbanes-Oxley.

The prosecution and defense of construction claims is an important business reason to create and maintain good records.  And most importantly, inasmuch as information is a critical asset for planning and decision making on a construction project, managing records and information is the key to successfully managing construction projects.

5.2.1.      Records vs. Documents

If a record can be defined as “an account in writing or the like preserving the memory or knowledge of facts or events,” what is a document?  Records and Information Management (RIM) is a specialized profession dealing with records retention issues.  RIM professionals design recordkeeping systems that help organizations identify and define what documents and other information have sufficient business, organizational, legal, historical or other value to be classified and maintained as a record.  RIM professionals, legal counsel and organizational managers must work together to identify and define a formal Records Retention Schedule for all records.  The Records Retention Schedule assists the organization in identifying what documents and information constitute records and then defines how long each record must be maintained.

Even when there is no external legal requirement for creating records, organizations have wide latitude to decide what documents and information serve organizational purposes.  Additional recordkeeping systems cost money and it is up to managers to evaluate the most cost-effective way to manage information on each project.  Absent legal or contractual requirements, every document does not need to become a record. 

Notwithstanding a formal or informal records retention policy, both records and non-records (i.e., documents &information) may become relevant to a claim or dispute.  At the time when there is sufficient notice of a claim or dispute, all relevant formal records as well as documents and unstructured information must be preserved.  The scope of a “legal hold” is broader than formal records.  Legal holds are discussed below.

5.2.2.      Records vs. Email

Email presents a special problem.  Is every email a record?  Is every email a document?  What about metadata?  During the mid-1980s when fax machines reached the construction industry, the technology was accepted as a tremendous convenience.  Because a fax works like a copy machine and is transmitted over secure telephone lines from one station to another, it was easy to understand and rely on.  The fax copy was, for all intents and purposes, a copy of the actual document.  It originated from an identifiable source and its transmission header and log could be used as competent evidence.

Email got rolling in construction about a decade later.  Despite reports about small subcontractors lacking technical sophistication, in recent cases almost all of the parties and witnesses used email accounts (corporate domain or personal account, e.g., AOL) to transmit some communications and documents via email.  Email is convenient, and used with PDAs, smart phones and portable computers, is nearly instantaneous.  Email is also characterized by informality.  Email is often unvarnished.  Litigators know that there is often good evidence in email and want to see it all.  When performing word searches on email, litigators often include the “cuss words” and other colloquialisms associated with emotional stress or cover-up to ferret out smoking gun statements.

Email is not necessarily a record.  Email is not necessarily a document.  Email contains information and metadata (i.e., information about information).  In the context of records, perhaps the best way to think of email is as a container for records, documents and information.  Metaphorically it is the equivalent of a stamped envelope – the envelope may be empty or contain records.  The focus must be on content.

Because any busy manager is overwhelmed with mixed email, the important decision to classify each email as containing a record or a non-record is often neglected.  If and when the record, document or other information contained in an email becomes relevant to a claim, dispute, audit or investigation it is too late to cull out things you could have legitimately deleted.  For the above reasons email, for all of its advantages, creates risk for an organization.  Email risks can be mitigated by adoption of a Document Retention Policy.

5.2.3.      Records Requirements Under the Contract Documents

Standard form contracts contain a variety of provisions and requirements related to project records.  For example, the AIA A201-2007 addresses the ownership and copyright of the Instruments of Service.  Cost-Plus contracts delineate the categories of allowable costs, provide the owner with a right to inspect records, and require the contractor to retain certain records for a period of time (typically 3 years) after substantial completion.  Some municipal CM contracts contain provisions stating that all documents created or acquired by the CM with respect to the project, belong to the owner and that they must be maintained for a period of time.  Rated jobs require certified payroll.  OCIP insured (or after-rated) jobs require recordkeeping to allow the insurer to adjust premiums.  Legal recordkeeping requirements are also incorporated into contract documents by direct reference or by implication.

As early as possible in the conception of a project (and definitely when the contract terms are negotiated) the parties and stakeholders to a construction project should try to address the information and recordkeeping needs of the project.  If “[t]he management of construction projects is a problem in information, or rather, a problem in the lack of information required for decision-making,” addressing information and recordkeeping protocols at the outset is fundamental to effective management.  As discussed below, both the AIA and ConsensusDOCS standard forms now try to address the issue of project electronic information protocols.  The electronic protocols must be meshed with the paper document protocols and aligned to the needs and risk environment of the project.

5.3.            Making a Record

Making a record involves identifying at least four subsets of records: what records are required by the law, what records are required by the contract, what records are required for good management, and what records are required to prosecute or defend a claim.[2]  For most projects there will be substantial overlap in a Venn diagram depicting these records.  The first two categories are mandatory once the Agreement is executed.  However, keep in mind that a Records Retention Schedule can always apply longer retention periods than legally mandated for a particular record type in order to serve other organizational needs.  The “good management” subset can include anything that is deemed to help the project or the individual organization succeed.  Depending on the type of project, the type of contract used, the relationship of the parties and other risk factors, the recordkeeping requirements for claims may vary.

5.3.1.      Guidelines for Making a Record

There are some overall attributes that make a good record.  All records should be kept so that they are accurate and can be shown to be authentic.  Records should be accessible to authorized personnel (internal and external).  Records systems should be designed to facilitate the objectives of the organization.  Many records systems will need to provide some sort of audit trail as to changes made.  Records containing confidential information must be secured.

Good management practices during a project involve the creation of records of events.  Daily reports, meeting minutes, field memos, project photographs and other systematized recording of project information should be factual and contemporaneous.  Other recordkeeping is triggered by project events such as the following:

         Field meeting

         Accident or injury

         Disruption

         Nonpayment

         Schedule impact

         Telephone conversation

         Interference or coordination problem

         Design error

         Constructability issues

         Theft

When an event occurs that may have some impact on a party’s rights or interests, it is important that an record be developed to protect and benefit that party.  Whether the event is captured in a formal project record (e.g., daily report), letter, memo or email, the record should:

         Be factual

         Be specific

         Be accurate

         Be as contemporaneous as possible (e.g., dictate to voice mail)

         Explain who, what, when, where, & how

         Not overstate facts or positions

         Not be emotional

Give consideration to how the record might appear to a stranger in a dispute resolution, months or years after the fact.  Consider how it might be attacked by an opponent.  Gather and add back-up documentation to the record so that it is all in a package.  Assign a retention schedule so that the record can later be destroyed if it is not going to be needed.[3]

5.4.            Records and Claims

The focus of this presentation is on avoiding disputes and claims through good management.  However, there are inevitable tensions and conflicts on any construction project where one party or another may be harmed or deprived of something it expected. The dispute resolution clauses in the standard form contracts all contemplate a tiered process that includes formal claims followed by mediation and final binding dispute resolution.  Contract documents typically require that claims be in writing and noticed within a short period of time or waived.  This can create a dilemma over whether to upset the apple cart. It may be necessary to begin documentation of claims in the background while trying to work out an amicable resolution.  Because of the risk that any claim could escalate to litigation or arbitration, it is prudent to be aware of the potential scope of document requests.  Carefully note the date and time of claim triggering events to comply with the contract notice provisions.

The discovery portions of the Federal Rules of Civil Procedure were revised effective December 1, 2006 to directly address the impact of Electronically Stored Information (“ESI”).  Prior to the amendments, electronic information was already discoverable in federal courts, state courts and in arbitration.  The new Federal Rules are an attempt to bring more order and predictability to the process by requiring the attorneys to discuss protocols for the exchange of ESI such as cost recovery and inaccessible information.  The most important thing to understand is that relevant email and electronic documents are discoverable in litigation and arbitration.

Some of the types of documents that may be subject to a discovery request in a construction case include:

         General contracts, subcontracts, design contracts, supply contracts, documents related to project financing;

         Other Contract Documents;

         Side agreements;

         JV agreements;

         Correspondence;

         Documents related to the owner’s interest in real property for the project;

         Insurance documents;

         Surety bond documents;

         Business information about the structure and ownership of contracting parties;

         Organizational charts;

         Design documents and contracts allocating design responsibility among consultants;

         Geotechnical reports and site inspection documentation;

         Documents dealing with site inspections;

         Daily reports, field reports, project photographs, web cam data;

         Bid packages and scopes of work for subcontractors, suppliers, etc.;

         Lien notices;

         Estimating work files, GMP work files;

         Email including personal email accounts used for project at home stored on any computer;

         Document Retention Policy;

         Information regarding IT infrastructure and location of all ESI relevant to project;

         Transmittal and other Logs;

         Meeting minutes (including recordings, if made)

         CORs and backup files;

         RFIs

         Subcontractor invoices;

         Payment applications and backup work files;

         Schedules and analyses;

         Cost accounting records;

         Timesheets and records, certified payroll records;

         Test results;

         Employee information such as resumes

Depending on the specific issues in the dispute resolution, this can be as expensive and onerous as it appears.  If records that could be subject to discovery are well organized and segregated from records that may be privileged or confidential, then discovery is more likely to run smoothly and not disrupt the core responsibilities of the organization.  This type of planning can result in a demonstrable return on investment (“ROI”) and should be contemplated as part of a document retention policy. 

5.5.            Document Retention Policies

A document retention policy should cover records as well as non-record documents and information.  A document retention policy is in reality a Document Destruction Policy.  An organization can legally create a  reasonable policy that allows for the destruction of its records and other documents after those documents have no further usefulness to the organization.  This is valid and legal according to the U.S. Supreme Court.  The Court recently observed that, “[i]t is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances.” Arthur Andersen, LLP v. U.S., 544 U.S. 696, 125 S. Ct. 2129, 2135 (2005).  This is also considered to be a practical necessity according to Judge Sheindlin in the famous Zubulake litigation.  “Must a corporation, upon recognizing the threat of litigation, preserve every shred of paper, every e-mail or electronic document, and every backup tape? The answer is clearly, ‘no.’ Such a rule would cripple large corporations, like UBS, that are almost always involved in litigation.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003).

A document retention policy must be reasonable. See Stevenson v. Union Pacific R.R., 354 F.3d 739, 747 (8th Cir. 2004) (considering reasonableness of destruction of corporate records).  And, it is just as important that it be followed consistently.  A party to an arbitration or litigation who is forced to disclose that it has a written policy to regularly dispose of old records but didn’t really follow it (except in the case of the current dispute where the records sought by the opposing party were destroyed) will not be looked upon favorably.

Document retention policies should cover traditional paper documents as well as email and other forms of ESI.  There is no one-size-fits all policy.  Generally the policy should be developed by a team with the input of legal counsel, Record and Information Management (RIM) professionals and the key managers of the organization.  The multidisciplinary team approach recognizes that a document retention policy is an investment in the management of information as a business/organizational asset.  A document retention policy can greatly reduce the costs of electronic discovery and legal fees for any organization that is subject to litigation, arbitration, audit or investigation.

         Document Retention Policy Team

While each document retention policy must consider the particular needs and risk environment of the organization, there are a number of standards and guidelines that help avoid “reinventing the wheel.”  The following organizations publish information concerning the records management, legal, information technology and other elements of a document retention policy.

         ARMA International

         AIIM

         The Sedona Conference

         ISO

         MoReq

         DoD

         Industry Specific (e.g., NSPE)

5.5.1.      Attributes of a Document Retention Policy

A document retention policy has a number of important basic attributes:

                                                        i.            Valid until trigger of Legal Hold

                                                      ii.            Good Faith Basis

                                                    iii.            Business Purpose

                                                    iv.            Reasonableness

                                                      v.            Cost Management of Information Assets

                                                    vi.            Compliance with Laws

                                                  vii.            Reduce Attorney Review Costs

                                                viii.            Legitimate Removal of “Smoking Guns”

5.5.2.      Sedona Conference Guidelines

The Sedona Conference publishes and updates a number of documents that provide guidelines and best practices concerning the interrelationship of legal discovery and records management.  These include the following:

1.      Organizations should have reasonable policies and procedures

2.      RIM (Records & Information Management) policies should be realistic, practical and tailored

[One size does not fit all; Stressing Process over Forms; putting your organization’s name on someone else’s template may not be effective]

3.      Organization need not retain all information

4.      Policy must be supplemented with procedures dealing with the creation, retention and destruction of records

5.      Legal Hold policy and process

The Sedona Guidelines: Best Practice Guidelines & Commentary for Managing Information & Records in the Electronic Age, September 2005.  Available at  www.thesedonaconference.org

5.5.3.      Structure of Policy

A document retention policy involves much more than a two page statement of good intentions.  The policy needs to be supplemented with a researched records retention schedule as well as specific protocols governing the creation, use, storage and destruction of both official records and documents.  The policy protocols must include provisions for the proper identification of events or knowledge triggering the duty to implement a “legal hold.”  In addition, the protocols should create a robust system for the implementation of legal holds.  For example, internal and external information technology personnel must be notified to suspend activities that could destroy records.  Each implementation of a legal hold should be documented with records of its own to ensure that the efforts were reasonable.

          Structuring a Document Retention Policy

5.6.            Legal Holds

A legal hold is the term for the action to be taken by an individual and/or organization as soon as a legal duty to preserve evidence attaches.[4]  The triggers for the duty to preserve depend heavily on facts and circumstances.  There is a developing case law on the topic and organizations such as The Sedona Conference have issued guidelines and best practices.  Judge Sheindlin, one of the best informed jurists on this topic, wrote a series of opinions dealing with electronic discovery in an employment case named after the plaintiff Zubulake.  Her standards in that case are quite instructive:

First, counsel must issue a “litigation hold” at the outset of litigation or whenever litigation is reasonably anticipated. The litigation hold should be periodically re-issued so that new employees are aware of it, and so that it is fresh in the minds of all employees.
Second, counsel should communicate directly with the “key players” in the litigation, i.e., the people identified in a party’s initial disclosure and any subsequent supplementation thereto.
Finally, counsel should instruct all employees to produce electronic copies of their relevant active files. Counsel must also make sure that all backup media which the party is required to retain is identified and stored in a safe place. 

Zubulake v. UBS, 229 F.R.D. at 422  (“Zubulake V”)

The Sedona Conference Guidelines echo some of Judge Sheindlin’s principles and discuss the necessity of a document retention policy.  The following is adapted from the current Public Comment version of the Guidelines:

1.      Reasonable anticipation of claims/litigation/arbitration arises when an organization is on notice of a credible threat it will become involved in a dispute or anticipates initiation of a dispute.

2.      The adoption and consistent implementation of a policy defining a document retention decision-making process is one factor that demonstrates reasonableness and good faith in meeting preservation obligations.  In the absence of identical controlling case law, the factors used to judge the application of a document retention policy are reasonableness and good faith.

3.      The use of established protocols to report potential disputes to a responsible decision maker is a factor that demonstrates reasonableness and good faith in meeting the duty to preserve.

4.      The determination of whether a claim/arbitration/litigation is reasonably anticipated should also be based on a reasonable investigation and an evaluation of the relevant facts and circumstances.

5.      Arbitral/judicial evaluation of a legal hold decision should be based on the reasonableness and good faith of the decision at the time it was made, not with 20-20 hindsight.

6.      When a duty to preserve arises, reasonable steps should be taken to identify and preserve relevant information as soon as is practicable.  Different types of information are at different risk of destruction (spoliation of evidence) and should be prioritized.  Consider swapping out the hard drive of a departing project employee before the computer is wiped, re-imaged and reassigned.

7.      In determining the scope and duration of a legal hold, consider the nature of the dispute, the organization’s experience with similar disputes, the amount in controversy, and other risk factors.

8.      A legal hold is most effective when the protocols include instructions on how to accomplish at least the following objectives:

(a) Identifies the persons who are likely to have relevant information and communicates a preservation notice to those persons;

(b) Communicates the preservation notice in a manner that ensures the recipients will receive actual, comprehensible and effective notice of the requirement to preserve information;  (The Zubulake opinions include a requirement that outside counsel should personally communicate with key witnesses and custodians of information relevant to the dispute.)

(c) Is in written form;

(d) Clearly defines what information is to be preserved and how the preservation is to be undertaken;

(e) Is periodically reviewed and, when necessary, reissued in either its original or an amended form.

9.      The legal hold policy and process of implementing the legal hold in a specific case should be documented considering that both the policy and the process may be subject to scrutiny by the opposing party and review by the court or arbitrator.  (The documentation is likely to involve counsel.  Because attorney client privilege and work product protections can be waived, it is advisable from the outset to avoid intermingling the documentation of legal hold activities with other protectable communications and work product.)

10.  The implementation of a legal hold should be regularly monitored to ensure compliance. [This section repeats 8(e).]

11.  The legal hold process should include provisions for the release of the hold upon the termination of the matter at issue. (This is one of the greatest practical problems for IT departments in large organizations.)

See The Sedona Conference Commentary on Legal Holds, August 2007 Public Comment Version, available at www.thesedonaconference.org.



[1] Asher Benjamin published The Country Builder’s Assistant in 1797 and The Architect, or Practical House Carpenter in 1830. Some books can still be found in print .

[2] Remember, even non-record documents and information may be required to be maintained if there is a duty to implement a “legal hold.”

[3] Again, all document destruction is subject to the existence of the duty to implement a “legal hold.”

[4] Legal hold is also known as a litigation hold.