Wendy Wendrowski | International Law Office | January 30, 2017
Given the critical role of written documentation in resolving construction claims – whether inside or outside of the courtroom – it is essential that companies adequately train the individuals who create written documentation. Depending on experience and training, the average worker on the project management or quality control team may not be aware of the best practices for creating written documents that may later be used to prove, or disprove, entitlement to additional time or money. These employees are also unlikely to be aware of the business records exception to the rule against hearsay and the requirements that must be satisfied before a written document may be used as evidence in trial. This update outlines the best practices for generating and preserving construction records to avoid evidentiary challenges to company records if a construction claim is litigated.
State and federal courts prescribe standards, commonly known as the ‘rules of evidence’ to ensure the credibility and authenticity of documentary evidence offered at trial. One such rule – the rule against hearsay – provides that a statement that is made or created outside of the courtroom generally cannot be admitted into evidence in a trial to prove that something happened (or did not happen).(1) Such statements are viewed as inherently unreliable because:
- they were not made under oath or under penalty of perjury;
- they were not stated or shown to a judge or jury; and
- the speaker or writer was not available to be questioned about the statement.(2)
Written business records may be admissible in court, even if the author of the document is not available to explain the document’s meaning, under the exception to the rule against hearsay for ‘records of a regularly conducted activity’ (more commonly known as the business records exception). Under the business records exception, a document relating to an event affecting a business organisation will not be excluded from evidence, even though the individual creating the document is not available to testify, if it was created:
- by someone with knowledge of the event;
- near the time when the event occurred;
- as part of a regular activity of the business entity; and
- under trustworthy conditions.(3)
To increase the likelihood that business records will be admissible in court when needed, companies should relay the following tips to the project managers and quality control personnel who are likely to prepare and maintain these documents.
In order for a document to be classified as a business record, it must have been created at or near the time when the event being documented took place. Generating documents at or near the time of the event increases the reliability of the information contained in the document, as the memory of the person recording the information will not have faded with the passage of time. In practice, writers need to record information about an event on the same date that the event occurred. For example, a daily field report that summarises an on-site conversation about the discovery of an unknown site condition will have little value if the information about the conversation was written down a week or so after the conversation took place. Similarly, a letter identifying an event that occurred must be prepared and sent on the date that the event occurred or, at the latest, the following day. If too much time passes between the occurrence of the event and the writing of the letter, the accuracy of the information may be scrutinised more closely or dismissed outright and the letter could possibly be excluded from evidence under the rule against hearsay.
Documents should be written by an individual who actually knows about the matter being described in the document. Although the business records exception technically permits a document to be based on information that was provided by an individual with knowledge, if the document simply contains information that was reported by a third person, the party challenging the admission of such a document may succeed in preventing the document from coming into evidence.(4) For example, if the project manager writes a letter based on what the project superintendent has told him, the letter is likely to be viewed as less reliable since it reflects the project manager’s interpretation of what the superintendent told him. Such a document in all likelihood will not be treated as a business record, unless the project manager or superintendent is available to provide testimony to demonstrate that the information is reliable.
A better practice is for the document to be written by a person who has seen or experienced what the document is about – for example:
- a first-hand witness; or
- someone who has personal knowledge of the subject of the document.
However, for this requirement to be met, the people in the field need to know how to efficiently and consistently create different types of construction documents and such knowledge comes only from successful training, supervision and practice.
In order for the business records exception to apply, the document needs to be created as part of the regular practice of the business. For example, if the contractor intends to offer evidence in the form of daily field reports prepared by the project superintendent, the project superintendent must have prepared similar daily field reports for every day of the project and must have regularly recorded similar types of information. More specifically, if daily field reports are prepared for every day of the project and those daily field reports regularly record the weather conditions, the daily field reports are likely to be admitted as business records to prove what the weather was like at the project site on one or more days in question and to support a contractor’s weather delay claim. On the other hand, if the same field reports fail to consistently provide information about materials delivered to the project site, they will not likely be admitted as business records to prove that certain materials were delivered to the project site on a specific date.
Documents do not qualify as business records if they have been created specifically for litigation.(5) In other words, the purpose of the document must be to address a business issue that exists at the time of writing rather than simply to prove a point at trial. This issue corresponds with the requirement that a document be created at or near the time of the event being discussed in the document; if the record is created at or near the time of the event being discussed, it is less likely to have been created solely for litigation purposes.
The business records exception mandates that the record be kept in the course of a regular business activity. This may translate to a requirement that the document be maintained in an organised filing system, which is thought to increase the reliability of the document.(6) To comply with this requirement, the field personnel should identify:
- all types of document being prepared on the project;
- whether the records will be maintained as hard-copy (paper) documents or electronic (computer) documents;
- where they will be kept; and
- who is to organise and keep them.
As with any type of work, more work on construction projects is being performed electronically. Technology is changing the way that construction projects are being documented and the way that project documentation is being stored. New technology needs to be taken into account when evaluating the different types of documents that exist and the storage requirements for those documents. Effective as of December 1 2015, the Federal Rules of Civil Procedure were amended to address the obligation for companies to preserve and maintain electronically stored information. While the previous rule stated that a party could not be penalised by the court for the destruction of electronically stored information that had been “lost as a result of the routine, good-faith operation of an electronic information system”, the new rule requires companies, upon becoming aware of potential claims, to “take reasonable steps to preserve” electronically stored information or face penalties if electronic information is deleted.(7) Such ‘reasonable steps’ typically include, at a minimum:
- notifying employees that they must not delete electronic information after the date the company learns of potential claims; and
- discontinuing programs that automatically delete electronic information, such as emails, after a certain period of time.(8)
Companies should have in place a procedure identifying the length of time after project completion for which project files must be stored before they may be destroyed. As record retention policies vary from company to company, it is important that all employees understand company policy. Moreover, document retention policies must address both hard-copy files and electronically stored information. In most instances, the timeframe for project document retention correlates with applicable timeframes within which a lawsuit may be filed. For example, in those locations mandating that a lawsuit based on a breach of contract be filed within five years of the breach of contract, an appropriate document retention policy may require that project documents be retained for at least five years after expiration of the warranty period.
When it comes to resolving claims that arose during a construction project, companies do not want to discover that field personnel failed to record relevant information concerning actual or potential construction claims. Proving or disproving a claim will be very difficult if a company is required to rely on the memories of its project personnel, especially if those project personnel have left the company. Accordingly, companies will benefit by confirming that their field personnel know what written documents they need to prepare during a construction project, as well as by training their employees to comply with the requirements of the business records exception to the rule against hearsay. If a claim is litigated, it is essential that a company possesses business records to support its assertions at trial. In addition, the preparation of accurate business records may help a company to resolve project issues before they become claims, since the other party may be less likely to challenge a claim when the undisputed facts are laid out in black and white.
In litigation, courts attempt to render accurate decisions based on their consideration of all relevant facts. To do so, they strive to admit into evidence only those documents that accurately reflect what actually happened. In evaluating whether a business record is accurate, courts determine whether that record satisfies the requirements of the business records exception to the rule against hearsay:
- Was the record created by someone with knowledge of the event?
- Was the record prepared near the time when the event occurred?
- Was the record generated as part of a regular activity of the business entity?
- Was the record produced under trustworthy conditions?
Accordingly, companies that want their business records admitted into evidence to support their claims must ensure that their project documentation complies with these requirements. The tips set forth in this update will assist in this endeavour.
(1) Under the Federal Rules of Evidence, ‘hearsay’ is defined as: “a statement that: (1) the declarant does not make while testifying at the current trial or hearing; and (2) a party offers in evidence to prove the truth of the matter asserted in the statement.” FR Evid 801(c). “Hearsay is not admissible unless any of the following provides otherwise: a federal statute; these rules; or other rules prescribed by the Supreme Court.” FR Evid 802. State rules of evidence and case law establishing those rules are similar. Cal Evid Code Section 1200; Presley v Commercial Moving & Rigging, Inc, 25 A3d 873 (DC Ct App 2011); Ga Code Sections 24-8-801(d) and 24-8-802; Il Evid R 801 and 802; Md R 5-801 and 5-802; Devon S v Aundrea B-S, 924 NYS2d 233, 236 (NY Fam Ct 2011); Tx R Evid 801 and 802; and Va S Ct R 2:801 and 2:802.
- whether the witness accurately perceived what is being described;
- whether the witness retained an accurate memory of that perception;
- whether the witness’s testimony accurately conveys the memory retained; and
- whether the witness’s testimony is sincere. (2 McCormick on Evid Section 245 (June 2016 update)). If a witness cannot be evaluated by the fact-finder, the rule against hearsay and its exceptions come into play to ensure that these factors are evaluated through other means.
“The following are not excluded by the rule against hearsay, regardless of whether the declarant is available as a witness: …
(6) Records of a Regularly Conducted Activity. A record of an act, event, condition, opinion, or diagnosis if: (A) the record was made at or near the time by – or from information transmitted by – someone with knowledge; (B) the record was kept in the course of a regularly conducted activity of a business, organization, occupation, or calling, whether or not for profit; (C) making the record was a regular practice of that activity; (D) all these conditions are shown by the testimony of the custodian or another qualified witness, or by a certification that complies with Rule 902(11) or (12) or with a statute permitting certification; and (E) the opponent does not show that the source of information or the method or circumstances of preparation indicate a lack of trustworthiness.”
F R Evid 803. See also Cal Evid Code Section 1271; DC S Ct R Civ Proc R 43-I; Ga Code Section 24-8-803(6); Il Evid Rule Section 803(6); Md R 5-803(b)(6); NYCPLR Section 4518; Tx R 803(6); Va S Ct R 2:803(6).
(4) Agricultural Insurance Co v Ace Hardware Corp (214 FSupp2d 413, 415-16 SDNY 2002) – a portion of an accident report prepared by the project superintendent who did not witness the accident but simply recorded information provided by witnesses does not fall within the business record exception. However, the witness presenting the business records for admission at trial:
“need not have been the record’s creator or have any personal knowledge of the contents of the record; rather, the witness need only have personal knowledge of the manner in which the records were prepared“.
Concept General Contracting Inc v Asbestos Maintenance Services Inc (346 SW3d 172, 181 Tex App 2011) – the owner of the subcontractor permitted to authenticate, as a business record, documentation and photographs demonstrating extra work despite the owner lacking personal knowledge of the work performed (citation omitted). See also Green Construction Co v Department of Transport (643 A2d 1129 Pa Commw Ct 1994) the witness need not have personal knowledge of the individual entries in a business record (here, master diaries) “[a]s long as someone in the organization has personally observed the event recorded, the evidence should be admitted”. Indeed, a document may still qualify as a business record even if prepared by someone outside of the organisation, if the party preparing the record had a duty to prepare the document accurately. Houston Shell & Concrete Co v Kingsley Constructors Inc (987 SW2d 184, 186 Tex App 1999) – concrete test core results prepared by the state and an independent testing laboratory were sufficiently authenticated to constitute the subcontractor’s business records.
(5) See, for example, Carrie Contractors Inc v Blount Const Group of Blount Inc (968 FSupp 662, 666 MD Ala 1997) – accounting records prepared almost 17 months after the events in question to assist in settlement discussions did not qualify as business records and were excluded from evidence.
(6) Bishop v Shaw (978 So2d 568, 572-73 La Ct App 2008) – third-party invoices received, processed and maintained in company files are incorporated business records that may be used to prove the amount of damages; and International Brotherhood of Elec Workers v United Pacific Ins Co (573 A2d 270, 272-273 RI 1990) certified payroll records prepared by a third party but maintained by the company in a file folder and relied upon by the company constituted admissible business records.
“Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.”
The new version of Rule 37(e) is significantly more detailed and states:
“If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.”
(8) See, for example, Gonzalez-Bermudez v Abbott Laboratories PR Inc (2016 WL 5940199, *24 D Puerto Rico, October 9 2016), Virtual Studios Inc v Stanton Carpet Corp (2016 WL 5339601, *3, *10 ND Georgia, June 23 2016) and Matthew Enterprise Inc v Chrysler Group LLC (2016 WL 2957133, *2-*3 ND California, May 23 2016).