NDIA Annual Educational Seminar and MeetingsProcurement Division

Service Contracting – Record Retention Issues

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Record Retention - Access to Records

Requirements of FAR Clauses

• Standard Clause for Negotiated contracts

• Access to Records - Alternative T&C – Commercial Contracts

Applicable Issues

• Relevancy of Records - History

• Case Examples

• Issues and Trends

Outlook

• Disputes, Reliance, Misrepresentation, Conversion

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52.215-2  Audit and Records

Definition “records” includes:

• 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.

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Applicable to Contract Types :

• Cost-reimbursement, Incentive, Time-and-Materials, Labor-Hour, or Price Redeterminable contract, or any combination

Authority:

• The Contracting Officer, or an authorized representative of the Contracting Officer

Purpose:

• All costs incurred or anticipated to be incurred directly or indirectly

Where:

• The Contractor’s plants, or parts of them, engaged in performing the contract.

52.215-2  Audit and Records ; Examination of Costs

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Objective:

• If the Contractor is required to furnish cost, funding, or performance reports for the purpose of evaluating:

(1) The effectiveness of the Contractor’s policies and procedures to produce data compatible with the objectives of these reports; and

(2) The data reported.

52.215-2  Audit and Records ; Reports

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Objective:

• All the accuracy, completeness, and currency of the cost or pricing data,

• Including computations and projections, related to:

(1) The proposal for the contract, subcontract, or modification;

(2) The discussions conducted on the proposal (s), including those related to negotiating;

(3) Pricing of the contract, subcontract, or modification; or

(4) Performance of the contract, subcontract or modification.

52.215-2  Audit and Records ; Cost or Pricing Data

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Comptroller General:

• Access to and the right to examine any of the Contractor’s directly pertinent records involving transactions related to this contract or a subcontract hereunder.

• Does not require the Contractor or subcontractor to create or maintain any record that the Contractor or subcontractor does not maintain in the ordinary course of business

Subcontractors:

• Must flow down to all subcontracts under this contract that exceed the simplified acquisition threshold

52.215-2  Audit and Records ; Other

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• 3 years after final payment under this contract, or

• Shorter period specified in Subpart 4.7, or

• Longer period required by statute or by other clauses of this contract.

• Terminated contracts, partial or full; 3 years after any resulting final termination settlement;

• Appeals, Litigation, or Claims related to the contract until such appeals, litigation, or claims are finally resolved.

52.215-2  Audit and Records ; Periods Affected

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For T&M or Labor-Hour Contracts

• At any time before final payment under this contract,

• Access shall be limited to the listing below, unless otherwise agreed to by the Contractor and the Contracting Officer:

(i) Employees time on invoice meet qualifications for labor categories specified in the contract;

(ii) Timecards when required as substantiation for payment, and Subcontractor hours reimbursed at the hourly rate in the schedule

• Original timecards; Timekeeping Procedures; Distribution of labor between jobs; and verify employees have worked the hours shown on the invoices

(iii) For material and subcontract costs that are reimbursed on the basis of actual cost

• Any invoices or subcontract agreements substantiating material costs; and documents supporting payment of those invoices

52.212-4  Contract Terms and Conditions - Commercial Items; Alternate I (Feb 2007) - Audit and Records

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Life Cycle of a Contract : Record Retention Affected Time Periods

Solicitation

Contract Award

Negotiation / Final Agreement

3 Years Final Payment

Final Payment Proposal

Submission• Price Composition• Labor categories• Experience• Scope - Mix

Resolution•Termination•Claims•Disputes •Appeals

RECORD RETENTION PERIOD

T&M / LH Commercial

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Considerations, Cases, & Trends ….

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What Do You Know About Your Records ?

Storage Medium

Relevancy

Authorship / Benefactor

Consistency & Use of Terms

Ease of Retrieval& Access

Originating Purpose

?

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US-FED-CLAIMS, 47 CCF ¶78,122, Renda Marine, Inc. v. United States, United States Court of Federal Claims, (Aug. 29, 2003)

• A marine dredging contractor was required to produce job cost records in response to a discovery request, and identify and describe unavailable documents, because a reasonably prudent person would not have destroyed material bearing on his or her claim. The job cost records were particularly relevant to that claim.

ASBCA, GOV-CONT ¶89,917, Analytical Assessments Corporation, (June 25, 2001)

• The government was entitled to recoup payments under a cost-plus-fixed-fee contract because the contractor failed to keep records supporting the invoices. The contractor submitted invoices for work done by a subcontractor that were provisionally paid. However, the “partial evidence” was insufficient to permit the government to determine the amounts or the allowability of costs actually incurred in performing the contract. Furthermore, the contractor failed to independently audit the invoices it received from the subcontractor to establish the reasonableness of the level of effort expended.

Case Examples

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GSBCA, 91-1 BCA ¶23,513 , National League of Cuban American Community-Based Centers , (Dec. 28, 1990)

• Under a contract to provide an adult education program, the government was estopped from applying the strict terms of the Record Retention clause to demonstrate the contractor’s violation of its duty to maintain records required for an audit, because the contracting officer had ordered the contractor to destroy all records that contained any individually identifiable information about participants in the program. The contracting officer was fully aware of the contractor’s record-keeping obligations under the contract. The knowledge that many of the records ordered destroyed may have been necessary for an audit of the contract was imputed to the contracting officer.

US-CT-APP-FC, 37 CCF ¶76,116, JANA, Inc. v. United States, United States Court of Appeals for the Federal Circuit, (June 13, 1991)

• The government was entitled to recover overpayments for two contracts in which it discovered, during a routine audit performed more than two years after final payment, that there were discrepancies between the number of hours billed and the hours actually worked according to the contractor’s records, because the contractor did not retain records to substantiate the invoices.

Case Examples

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US-FED-CLAIMS, 45 CCF ¶77,821, Cavalier Clothes, Inc. v. United States, United States Court of Federal Claims, (Sep. 24, 2001)

• A contractor did not meet the criteria for recovery under the total cost method of pricing adjustments, because its inability to prove actual losses was directly attributable to its failure to preserve production records. The contractor could not establish its actual losses because it abandoned and ultimately discarded the only records that detailed how many coats were reworked and for what reasons, despite a contract clause mandating record retention.

Case Examples

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Trends, Technology, Other Influences….

• Familiarity is rooted in IRS requirements for Financial Statements

• Emphasis and terminology is further distorted by Sarbanes Oxley (SOX) requirements

• Access to records is frequently used in parallel with Emergency Preparedness & Disaster Recovery objectives.

• Tendency to develop “One-Approach-Serves-All ”

• Training is often limited to Facility / Service Center functions

• Requirements are often driven by Off-site Vendor agreements and Technology capacity

• Training tends to be a back-end process

• Contract Requirement is not addressed in approvals and reviews unless Cost & Pricing Data is required

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Outlook….

• Disputes, Bid Protests, Government’s Contracting Officers’ own record keeping may be brought into question

• Documented Compliance Training

• Collaboration with Technology experts to establish protocols, retrievals, naming conventions, etc…

• Electronic database reminders, trigger mechanisms, destruction policies, and monitoring

• Better sophisticated integrated arguments when relying on selected records and materials

• Known relevancy to contract issue

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Nancy HarrisonFTI Consulting

March 31, 2008

Thank-you