B-100489, OCT. 21, 1965

B-100489, OCT. 21, 1965

TO THE HONORABLE LAWSON B. KNOTT, JR., ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

REFERENCE IS MADE TO LETTER DATED JULY 9, 1965, WITH ENCLOSURES, FROM THE CHAIRMAN, AD HOC GSA-DOD COMMITTEE ON RETENTION OF CONTRACTORS' RECORDS REQUESTING OUR COMMENTS ON A PROPOSAL DEVELOPED BY THE COMMITTEE FOR THE PURPOSE OF EFFECTING SAVINGS FOR THE GOVERNMENT INCIDENT TO THE RETENTION OF CONTRACTORS' AND SUBCONTRACTORS' RECORDS.

THE COMMITTEE'S PROPOSAL, WHICH IS STATED TO HAVE BEEN REVIEWED BY THE DEPARTMENT OF DEFENSE AND GENERAL SERVICES ADMINISTRATION, CONSISTS OF (1) AN APPENDIX TO THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) PROVIDING SHORTENED RETENTION REQUIREMENTS FOR CONTRACTOR AND SUBCONTRACTOR RECORDS AND (2) FOUR REVISED ASPR STANDARD CONTRACT RECORDS CLAUSES.

IT IS STATED THAT UNDER THE PROPOSAL, WHENEVER A CONTRACTOR OR SUBCONTRACTOR IS REQUIRED TO RETAIN RECORDS TO SATISFY CONTRACT NEGOTIATION, ADMINISTRATION OR AUDIT REQUIREMENTS OF THE CONTRACTING AGENCY, THE LABOR DEPARTMENT, OR THE COMPTROLLER GENERAL OF THE UNITED STATES, THERE WILL BE COMPLIANCE WITH THESE REQUIREMENTS IF THE CONTRACTOR OR SUBCONTRACTOR RETAINS THE RECORDS FOR THE PERIODS OF TIME DESIGNATED IN THE RECORDS RETENTION SCHEDULE IN THE APPENDIX.

UNDER THE PROPOSAL AN APPENDIX TO ASPR WOULD SHORTEN THE REQUIRED RETENTION PERIODS FOR CERTAIN CONTRACTOR AND SUBCONTRACTOR RECORDS, NOTWITHSTANDING THE PROVISIONS OF THE USUAL ACCESS TO RECORDS CLAUSE INCLUDED PURSUANT TO U.S.C. 2313/B). IN ADDITION IT IS PROPOSED TO MODIFY THE FOUR ASPR STANDARD CONTRACT RECORDS RETENTION CLAUSES TO PROVIDE FOR THE SHORTENED RETENTION PERIODS DESIGNATED IN THE APPENDIX. SIMILAR MODIFICATIONS WOULD BE MADE IN THE FEDERAL PROCUREMENT REGULATIONS.

CONSISTENT WITH 10 U.S.C. 2313/B), LONG-STANDING REQUIREMENTS OF ASPR FOR THE RETENTION OF RECORDS PROVIDE THAT, SUBJECT TO SPECIFIED AND RELATIVELY MINOR EXCEPTIONS, RECORDS FOR A NEGOTIATED FIXED-PRICE CONTRACT OR A COST REIMBURSEMENT TYPE CONTRACT SHALL BE RETAINED UNTIL THE EXPIRATION OF THREE YEARS AFTER FINAL PAYMENT UNDER THE CONTRACT.

THE PROBLEM OF REDUCING THE MAGNITUDE OF THE RECORD STORAGE PROBLEM HAS BEEN THE SUBJECT OF DISCUSSION AND CORRESPONDENCE BETWEEN THE DEPARTMENT OF DEFENSE AND THE GENERAL ACCOUNTING OFFICE INTERMITTENTLY SINCE AND PERHAPS PRIOR TO 1959.

WE HAVE FOUND LONG PERIODS OF DELAY BETWEEN THE DATES OF SUBSTANTIAL PHYSICAL COMPLETION OF CONTRACTS FOR ALL INTENTS AND PURPOSES AND THE DATES FINAL PAYMENTS ARE MADE THEREUNDER. THESE DELAYS, WHICH ARE ATTRIBUTABLE TO INACTION ON THE PART OF THE CONTRACTORS, THE GOVERNMENT, OR BOTH, POSTPONE THE BEGINNING DATE OF THE THREE-YEAR RECORD RETENTION PERIOD REQUIRED UNDER 10 U.S.C. 2313/B). WE ARE OF THE OPINION THAT THESE DELAYS ARE THE HEART OF THE STORAGE PROBLEM INVOLVED AND THAT THE OVER-ALL RECORDS RETENTION PERIOD WOULD BE SHORTENED CONSIDERABLY BY EXPEDITING THE SETTLEMENT AND FINAL PAYMENT UNDER CONTRACTS UPON THE PHYSICAL COMPLETION OF THE WORK REQUIRED UNDER THE CONTRACTS.

IN THIS CONNECTION, IT SHOULD BE NOTED THAT THERE APPARENTLY IS A LACK OF A REASONABLE UNDERSTANDING OF THE PHRASE "FINAL PAYMENT.' IN A LETTER DATED OCTOBER 11, 1962, B-100489, TO THE SECRETARY OF DEFENSE, THE COMPTROLLER GENERAL STATED:

"* * * FINAL PAYMENT (UNDER THE CONTRACT CLAUSE) APPARENTLY IS CONSTRUED ADMINISTRATIVELY AS HAVING BEEN ACCOMPLISHED ONLY AFTER FINAL SETTLEMENT OF ALL MATTERS REMAINING FOR CONSIDERATION ON THE DATE OF SUBSTANTIAL COMPLETION, THAT IS, ADJUSTMENTS OF COMPARATIVELY MINOR ITEMS OF A ROUTINE NATURE RELATING, FOR EXAMPLE, TO INSURANCE, WARRANTIES, SALES TAXES, PATENT ROYALTIES, CLAIMS ON APPEAL AND SIMILAR ITEMS, AND THE THREE-YEAR PERIOD STIPULATED FOR THE RETENTION OF RECORDS IS INTERPRETED AS BEGINNING ON THE ULTIMATE DATE THE LAST PAYMENT IS MADE. THIS WOULD SEEM TO EXTEND THE GENERAL CONTRACT RECORDS RETENTION REQUIREMENTS UNNECESSARILY AS ALL THE RECORDS PERTINENT TO THE CONTRACT ARE NOT NEEDED FOR THESE MINOR ADJUSTMENTS. IT IS OUR VIEW THAT THE PERIOD FOR RETAINING CONTRACT RECORDS GENERALLY NEEDED AND REASONABLY REQUIRED MIGHT BE MADE MORE CERTAIN AND IN MANY CASES CONSIDERABLY SHORTENED BY DEFINITIZING THE CRITICAL DATE OF "FINAL PAYMENT" TO MEAN THE DATE ON WHICH THE CONTRACT IS SUBSTANTIALLY COMPLETED BY THE PARTIES, THAT IS, THE DATE ON WHICH THE CONTRACTOR'S PERFORMANCE HAS BEEN ACCEPTED AND THE AGREED PAYMENT HAS BEEN MADE WITH THE EXCEPTION OF THOSE ITEMS USUALLY RESERVED FOR FUTURE DETERMINATION AND SETTLEMENT. RETENTION OF RECORDS PERTAINING PARTICULARLY TO SUCH RESERVED ITEMS OF NECESSITY WOULD BE REQUIRED UNTIL FINALLY DETERMINED.'

SO FAR AS WE KNOW, NOTHING WAS DONE ABOUT OUT SUGGESTION. HOWEVER, EVEN IF A MORE LIBERAL INTERPRETATION OF "FINAL PAYMENT" WERE PRESCRIBED, IT APPEARS THAT THE PROBLEM OF RETAINING RECORDS WOULD STILL BE OF CONSIDERABLE MAGNITUDE, ALMOST ENTIRELY BECAUSE OF THE "BULK" RECORDS, SUCH AS ATTENDANCE CARDS, TIME CARDS, RECEIVING AND INSPECTION REPORTS, MATERIAL REQUISITIONS, MAINTENANCE AND REPAIR ORDERS, PRODUCTION ORDERS, AND PRODUCTION RECORDS.

UNDER THE PROPOSALS DRAFTED BY THE AD HOC COMMITTEE, RECORDS COULD BE DISPOSED OF FROM TWO TO SEVEN YEARS (DEPENDING ON THE TYPE OF RECORD) AFTER THE END OF THE CONTRACTOR'S FISCAL YEAR WITHIN WHICH THE TRANSACTION OR OTHER EVENT WAS RECORDED. ON LONG-TERM CONTRACTS THIS COULD RESULT IN THE DISPOSAL OF IMPORTANT RECORDS PRIOR TO THE TIME SET BY THE CURRENT ACCESS-TO-RECORDS CLAUSE IN CONFORMITY WITH 10 U.S.C. 2313/B) AND ITS COMPANION PROVISIONS, 41 U.S.C. 254/C), AND 42 U.S.C. 2206.

GENERALLY, WE FEEL THAT THE BASIC PROBLEM RESULTS FROM LACK OF ACTION TO CLOSE OUT AND MAKE FINAL PAYMENTS ON CONTRACTS WHERE THE WORK HAS BEEN PHYSICALLY COMPLETED. WE DO NOT BELIEVE THAT THE RECOMMENDED CHANGES REPRESENT AN ACCEPTABLE SOLUTION TO THE PROBLEM. HOWEVER, THERE APPEARS TO BE SOME MERIT TO PERMITTING DISPOSAL OF THE "BULK" SUPPORT RECORD REFERRED TO ABOVE BEFORE EXPIRATION OF THE THREE YEARS AFTER FINAL PAYMENTS AS NOW PRESCRIBED. WE BELIEVE THAT THE RECORDS SUBJECT TO SUCH EARLIER DESTRUCTION SHOULD BE LIMITED AND THAT EMPHASIS SHOULD BE PLACED ON THE EXPEDITIOUS SETTLEMENT OF CONTRACTS. AS TO OTHER THAN THE "BULK" RECORDS WE ARE FIRMLY OF THE VIEW THAT THE RECORD RETENTION PERIOD SHOULD NOT BE REDUCED BELOW THREE YEARS AFTER FINAL PAYMENT.