Records Retention Requirements for Federal Contractors
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Records Retention Requirements for Federal Contractors
Federal contractors must know the requirements for maintaining records pertaining to work performed on federal contracts. Unfortunately, there’s not one definitive answer on how long a record should be kept. Often, the first step for determining how long a record must be kept is identifying what type of records your organization creates and maintains in the first place. The following article is meant to help federal contractors in identifying relevant sources of law as they determine how long to maintain various document types.
Additionally, federal contractors should maintain compliance with state and federal laws pertaining to record keeping that are not specifically related to performance on government contracts, such as the Fair Labor Standards Act (See 29 CFR Part 516.5), the ADA, Title VII of the Civil Rights Act of 1964, the Davis-Bacon Act, the Contract Work Hours and Safety Act, and the Service Contract Act.
FAR Subpart 4.7
The first place a federal contractor should look to in determining its record retention obligations is FAR Subpart 4.7.
Under FAR 4.703(a), the general rule is that “contractors shall make available records, which 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, and other supporting evidence to satisfy contract negotiation, administration, and audit requirements of the contracting agencies and the Comptroller General” for three years after final payment on the contract.
Certain records, however, are subject to different records retention periods under FAR 4.705 to 4.705-3. More on that below.
The first deviations from the three-year rule are found in FAR 4.703(b), which states that contractors must retain records longer than the period prescribed in FAR 4.703(a) if:
- A specific clause in the contract requires documents to be kept for a longer amount of time; or
- The contractor, for its own purposes, retains records for a longer period of time.
- The contractor does not meet the original due date for submission of final indirect cost rate proposals specified in paragraph (d)(2) of the clause at 216-7, Allowable Cost and Payment. Under these circumstances, the retention periods in 4.705shall be automatically extended one day for each day the proposal is not submitted after the original due date.
The second major deviation from the three-year rule is found in FAR 4.705 to 4.705-3. Records falling under FAR 4.705 to 4.705-3 are subject to varying lengths of retention and include:
Financial and cost accounting records (FAR 4.705-1)
Pay administration records (FAR 4.705-2)
Acquisition and supply records (FAR 4.705-3)
FAR 4.705-1 includes the following categories of documents which must be retained for four years:
- Accounts receivable invoices
- Adjustments to accounts receivable
- Invoice registers
- Carrier freight bills
- Shipping orders and other documents which detail the material or services billed on the related invoices
- Material, work order, or service order files, consisting of purchase requisitions or purchase orders for material or services, or orders for transfer of material or supplies
- Cash advance recapitulations, prepared as posting entries to accounts receivable ledgers for amounts of expense vouchers prepared for employees’ travel and related expenses
- Paid, canceled, and voided checks, other than those issued for the payment of salary and wages
- Accounts payable records to support disbursements of funds for materials, equipment, supplies, and services, containing originals or copies of the following and related documents:
- remittance advices and statements
- vendors’ invoices
- invoice audits and distribution slips
- receiving and inspection reports or comparable certifications of receipt and inspection of material or services
- debit and credit memoranda
Under FAR 4.705-1, the following types of records must be kept for two years:
- Labor cost distribution cards or equivalent documents
- Petty cash records showing description of expenditures, to whom paid, name of person authorizing payment, and date, including copies of vouchers and other supporting documents.
Another provision within the FAR that is sometimes overlooked but still relates back to records retention is FAR 31.201-2(d), which states that a “contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported.”
Repercussions For Non-Compliance With Retention Regulations
Failure to retain records can lead to agency action against a contractor for overcharging the government. See JANA, Inc. v. U.S., 936 F.2d 1265 (Fed. Cir. 1991). Although the JANA case was decided prior to the 1996 enactment of FAR 31.201-2(d), the holding of that case is consistent with what can happen under FAR 31.201-2(d). In JANA, the contractor at issue failed to retain labor recap sheets showing how much the contractor’s employees worked on the federal contract during a given month for a minimum of three years, which the Federal Circuit determined to be the applicable time under the Armed Services Procurement Regulations in effect at the time. The failure to maintain records was discovered during a routine Defense Contract Audit Agency review initiated before the three-year period expired. The Federal Circuit ultimately held that JANA was liable to the Government for overpayment.
Personnel and Employment Records must also be preserved in accordance with 41 C.F.R. § 60-1.12 and U.S. Department of Labor (DOL) Directive (DIR) 2008-1
On September 24, 1965, President Lyndon B. Johnson issued Executive Order 11246 charging the Secretary of Labor with the responsibility of ensuring equal opportunity for minorities in federal contractors’ recruitment, hiring, training and other employment practices.
DIR 2008-1 and 41 C.F.R. § 60-1.12 are the current regulations pertaining to Executive Order 11246. These regulations lay out records retention policy for federal contractors as it pertains to personnel and employment records. These records must be “complete and accurate personnel records.”
The Office of Federal Contract Compliance Programs (OFCCP) is responsible for carrying out the DOL’s policies contained within DIR 2008-1. That directive states in relevant part that “any personnel or employment record that is made or kept by the contractor [must] be ‘preserved’ by the contractor for a minimum of two years. However, if the contractor has fewer than 150 employees or does not have a contract of at least $150, 000, § 60–1.12 (a) provides that the record retention period is a minimum of one year.”
Historically, the OFCCP required federal contractors to keep records in the original form. Now, however, OFCCP interprets “preserve” to allow federal contractors to digitize records for storage.
OFCCP requires contractors to preserve the following categories of personnel and employment records:
- Lay off or termination
- Rates of pay or other terms of compensation
- Selection for training or apprenticeship
- Records having to do with requests for reasonable accommodation
- Results of any physical examination
- Job advertisements and postings
- Any and all expressions of interest through the internet or related electronic data technologies as to which the contractor considered the individual for a particular position such as on-line resumes or internal resume databases
- Records identifying job seekers contacted regarding their interest in a particular position
- For purposes of recordkeeping with respect to internal resume databases, the contractor must maintain a record of each resume added to the database, a record of the date each resume was added to the database, the position for which each search of the database was made, and corresponding to each search, the substantive search criteria used and the date of the search
- For purposes of recordkeeping with respect to external resume databases, the contractor must maintain a record of the position for which each search of the database was made, and corresponding to each search, the substantive search criteria used, the date of the search, and the resumes of job seekers who met the basic qualifications for the particular position who are considered by the contractor
- Tests and test results
- Interview notes.
If a compliance evaluation is initiated by the OFCCP, then a federal contractor must keep all employment and personnel records until the OFCCP makes its final disposition of the evaluation per 41 C.F.R. § 60-1.12(a).
Federal contractors should be conservative when interpreting these records retention rules. The penalties for non-compliance can negatively affect a contractor’s status with the federal government and/or lead to the Government recouping monies paid.
Given the relative ease of maintaining digital records, the general rule of “Better safe than sorry” applies.