In all types of industries, organizations of any size, located in any part of the world, contracts are the lifeblood that binds their operations. These legal documents delineate the relationship between the parties, becoming the backbone of any commercial transaction, thereby maintaining the health of the organization. But merely having contracts is not enough. How these contracts are managed, specifically how they are filed and stored, plays a crucial role in a company’s overall efficiency and effectiveness. In this blog, we delve into the significance of a contract filing system and its benefits.
Why is a Contract Filing System Vital?
Imagine trying to locate a specific document from a cluttered and disorganized pile. It’s a daunting task, isn’t it? Now, magnify this to the scale of an organization. With hundreds, if not thousands, of contracts, the importance of an orderly, organized, and efficient filing system becomes evident.
A contract file management structure will:
- Keep contractual files in an orderly fashion
- Organize these contracts for easy retrieval.
- Enable finding something quickly for an audit at any point during the life of the contract.
- Help validate the contract requirements.
- Assist in locating the deliverables under the contract.
For Whom Do You Need a Contract Filing System?
Who benefits from a well-structured contract filing system? The answer is simple: almost everyone in the organization.
- Contract Writers: Those who draft sub-contracts under the prime contract need access to pertinent information to establish sub-contracts and navigate the procurement process.
- Contract Administrators: They need a filing system to ensure all contract requirements are met.
- Auditors: Whether for internal or agency audits, having an organized filing system is crucial for smooth and successful auditing.
- Data Safety Officers: A well-structured filing system safeguards against losing important data.
The Benefits of a Contract Filing System
When you have a functional contract filing system, the benefits are manifold.
- Efficiency: An orderly system means easy information retrieval, convenient storage, and access from any location, thereby reducing time spent on administering contracts.
- Cost Reduction: Save on management, storage, and document destruction costs.
- Operational Clarity: Find potential delivery delays, highlight performance inadequacies, and provide clear updates to senior leadership when necessary.
- Audit Readiness: Facilitate internal audits and ensure an organized approach to agency audits, helping your organization meet FAR 52.215-2 Audit and Records-Negotiation requirements.
- Regulation Compliance: Store data in line with FAR Subpart 4.7 – Contractor Records Retention.
As per FAR 52.215-2(f), all records necessary for contract negotiation, administration, and audit requirements should be maintained for three years after the final payment under a contract or for any shorter period specified in FAR subpart 4.7, Contractor Records Retention.
Adhering to FAR Subpart 4.7 – Contractor Records Retention
Government contracts have specific regulations surrounding contractor record retention, FAR 4.703 details the policy. FAR 4.705 provides a listing of the records a contractor must retention:
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Accounts receivable invoices, adjustments to the accounts, invoice registers, carrier freight bills, shipping orders, and other documents which detail the material or services billed on the related invoices |
Retain 4 years |
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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 |
Retain 4 years |
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Cash advance recapitulations, prepared as posting entries to accounts receivable ledgers for amounts of expense vouchers prepared for employees’ travel and related expenses |
Retain 4 years |
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Paid, canceled, and voided checks, other than those issued for the payment of salary and wages |
Retain 4 years |
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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, and debit and credit memoranda |
Retain 4 years |
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Labor cost distribution cards or equivalent documents |
Retain 2 years |
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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 |
Retain 2 years |
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Payroll sheets, registers, or their equivalent, of salaries and wages paid to individual employees for each payroll period; change slips; and tax withholding statements |
Retain 4 years |
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Clock cards or other time and attendance cards |
Retain 2 years |
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Paid checks, receipts for wages paid in cash, or other evidence of payments for services rendered by employees |
Retain 2 years |
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Store requisitions for materials, supplies, equipment, and services |
Retain 2 years |
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Work orders for maintenance and other services |
Retain 4 years |
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Equipment records, consisting of equipment usage and status reports and equipment repair orders |
Retain 4 years |
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Expendable property records, reflecting accountability for the receipt and use of material in the performance of a contract |
Retain 4 years |
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Receiving and inspection report records, consisting of reports reflecting receipt and inspection of supplies, equipment, and materials |
Retain 4 years |
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Purchase order files for supplies, equipment, material, or services used in the performance of a contract; supporting documentation and backup files including, but not limited to, invoices, and memoranda; e.g., memoranda of negotiations showing the principal elements of subcontract price negotiations (see 52.244-2) |
Retain 4 years |
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Production records of quality control, reliability, and inspection |
Retain 4 years |
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Property records (see FAR 45.101 and 52.245-1) |
Retain 4 years |
Understanding the Retention Period
To understand the retention period, you need to understand the requirements of FAR 4.704 Calculation of retention periods, which provides that:
- The retention periods are calculated from the end of the contractor’s fiscal year in which the contractor charges or allocates a cost to a government contract or subcontract. If a specific record contains a series of entries, the retention period is calculated from the end of the contractor’s fiscal year in which the final entry is made. The contractor should cut off the records in annual blocks and retain them for block disposal under the prescribed retention periods.
- When records generated during a prior contract are relied upon by a contractor for certified cost or pricing data in negotiating a succeeding contract, the prescribed periods shall run from the date of the succeeding contract.
- If two or more of the record categories are interfiled and screening for disposal is not practical, the contractor shall retain the entire record series for the longest period prescribed for any category of records.
A contract filing system improves efficiency, reduces costs, and ensures legal compliance and operational clarity. It might seem like a small cog in the grand wheel of an organization, but its importance cannot be overstated. Implementing such a system can significantly improve your company’s overall performance and productivity.
How Can Redstone Help
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors from contract award to contract closeout. We would be happy to assist you with questions and concerns. Our staff includes experts in human resources, accounting, audit support, government compliance, and contract administration to assist our clients in government contracting.
Senior Managing Consultant
JD is a senior managing consultant with Redstone Government Consulting. In his role, he routinely assists clients with matters of contract interpretation, management, and pricing.
Professional Experience
For almost 40-years, JD has supported a wide-range of government contractors providing services and products to the Federal Government. JD’s tenure in industry included the support of large electronics manufacturers and service providers to NASA, DOD and other agencies. His practical experience with contract law, interpretation of regulations and understanding of small business programs such as mentor-protégé, socio-economic designations and size standards, as well as GSA Schedule administration and maintenance provides a diverse range of knowledge for our clients to draw on.
JD has supported both the contracts and procurement areas during his time in industry including the development of contracts and procurement teams as part of growing government contractors where he was responsible for developing policies, practices and training to ensure compliance with federal contracts. He has supported contracts in environments subject to Contractor Purchasing System Reviews, ISO, and other professional certifications. Additionally, JD has supported pricing throughout his career and is a rare contracts professional with a deep understanding of pricing, indirect rates, development of escalation factors, as well as proposal management and compliance reviews. In his role in industry, he was frequently called upon to develop subcontract agreements, OCI mitigation plans, small business subcontracting plans, model contracts and other requirements in support of RFP pursuits. JD has worked contracts all over the U.S., as well as working contracts and subcontracts based in the Middle East, and Europe. His diverse range of experience provides our clients with an excellent resource for not only day-to-day matters of contract management, but also in-depth knowledge of pricing large proposals across government agencies. He has experience with working for 8(a), SDVOSB, and tribally owned companies supporting a wide-range of U.S. Government programs.