Disappearing Data: Avoid Losing Electronic Information to Avoid Losing the Case

It happens: A contractor on a delayed project ends up in litigation over liquidated damages, but the key communications regarding delays and approvals were sent and received by the project manager on a mobile device using text messages and personal email accounts. Unfortunately, the project manager left the company a year ago on bad terms and has changed phones. The information that would serve to mitigate the contractor’s liability has disappeared. With better awareness and policies for capturing and managing electronic information, this is avoidable.

Proactive and effective management of electronically stored information on construction projects can not only reduce costs and discovery disputes should litigation arise but can also provide critical evidence in reducing liability exposure in such disputes. The Federal Rules of Civil Procedure (as well as most state rules, which often mirror federal rules), provide for sanctions if a party fails to preserve electronically stored information (ESI) that should have been preserved in anticipation of litigation but is lost due to the failure to take reasonable steps to preserve it.

Even in arbitration, where discovery and disclosure obligations are often more limited than in the court setting, preservation of ESI can help strengthen claims and defenses, avoiding accusations of spoliation that can derail a case. Arbitrators can also fashion appropriate sanctions for destruction of relevant evidence, not to mention the impact that apparent spoliation can have on a party’s credibility.

Attorneys can help negotiate for reasonable limitations on ESI disclosures and discovery to meet the needs of each case, but prudent contractors can help themselves by taking certain basic, proactive measures to manage and preserve ESI. Since an increasing number of communications on construction projects come through electronic means – such as emails, text messages or instant messages – ESI can often become critical evidence necessary to support claims or defenses in a case. It can also be a trap for the unwary contractor whose employees are not careful and professional in the way they communicate with each other, as well as with third parties.

ESI is defined as any type of information that is created, used and stored in digital form and accessible by digital means. Common examples of ESI include word processing documents, PDF documents, spreadsheets, digital photographs, videos, emails and their attachments, text messages, instant messages, call logs, voicemails, information stored in databases, electronic records of online activity, location information (often automatically stored on mobile devices), notes, contacts and metadata. ESI may be stored on and retrieved from many sources, including computer hard drives, company network servers, USB drives, databases, cloud storage, mobile devices (phones, tablets) and websites.

In litigation, issues often arise involving the retention, retrieval and production of ESI. First, before any litigation arises, and often before litigation is expected, companies must have effective methods for capturing and storing ESI. Consider how project files are organized and how they are stored long term. In many instances, construction professionals remain exposed to litigation for lengthy statutes of limitations, and ESI must be stored such that it can be retrieved if litigation arises years later. When litigation arises, the costs associated with production may be reduced if ESI is organized and readily available.

Then again, companies need not feel compelled to document and preserve every single bit of data on live, active servers. In fact, parties are often excused from disclosure or production requirements relating to archived data that would be costly or burdensome to produce unless a requesting party can show good cause for its production. Companies should therefore carefully manage the types of data kept, the time when that data is sent to offline storage and when it is destroyed. This could avoid the cost and hassle of reviewing and sorting through large amounts of potentially irrelevant and sensitive ESI from older projects when confronted with a disclosure or discovery obligation. Companies with good document retention, archiving and destruction policies, who follow those policies, fare best when faced with issues involving ESI.

Managing ESI Internally

Aside from the obvious project files, such as the contracts, plans, change orders, invoices and payment information, the most important information on a project are the communications, including communications between contractors, other professionals, the owners and/or developers, any third parties and any government or regulatory authorities involved in the project. While a project is underway, communications often take place by digital means, such as emails and text messages, and are often sent and received via mobile devices used on the project site. ESI communications, particularly on mobile devices or personal computers and email accounts or other instant messaging applications, may comprise some of the most important communications related to a project and may also be the most difficult to manage, retrieve, preserve and produce in litigation long after a project is complete.

Consider, for example, whether employees are communicating about a project primarily via emails and text messages. If so, what mobile devices are being used? Are employees using their own personal devices or company-owned devices? If an employee leaves the project or leaves the company entirely, what is the plan and policy to retrieve and store the relevant ESI from that employee’s devices? How is the information saved and stored (computer, the cloud, a network drive)? If litigation arises years after the completion of a project, the project manager has since left the company, and the majority of relevant ESI communications were stored on a personal mobile device, this presents significant challenges. The company may have to subpoena this person for the information. The person may be uncooperative with the request, or the ESI may have been deleted, changed or incomplete. This happens when people change their mobile phones, and this common occurrence can result in the deletion of entire text message threads, hundreds of photos, voicemail messages and other important data. The ESI, which may be essential to prove claims or defenses in the litigation, may be much more expensive to obtain at best or, at worst, impossible to obtain.

In addition to simply retaining such information, consider the way it is organized and stored. If employees are communicating about multiple projects in the same period, is the ESI separated by project when saved? Using software apps for project-related communications, such as Slack or Microsoft Teams, is one way to keep communications organized by project, separate from private communications, and easily stored on company servers. It will be far more efficient and cost-effective if ESI communications are proactively retained, organized and separated by project when initially stored, rather than having legal counsel later review and separate those communications relevant to the project being litigated in preparation for production in discovery.

Internal company policies should address the ownership and retention of ESI on devices, particularly electronic communications, as well as the long-term storage of ESI. If employees are using their own personal devices, it is important to balance the employee’s privacy concerns with a clear policy to retrieve and store relevant ESI, as well as to have the employee sign an acknowledgment of the policy and its privacy implications. If devices are company-owned, company policy should dictate the parameters of an employee’s use of the device, how ESI from each device is stored and ideally provide for remote retrieval of ESI from devices. Policies should provide for the storage of all ESI for the full statute of limitations period under applicable state and federal laws.

Managing ESI Externally

Concerns relating to ESI retention extend to other parties involved in a particular project. Costs and disputes regarding ESI can be minimized by carefully outlining ESI obligations in contracts.

For example, the general contractor on a project should include contract terms imposing specific obligations for ESI retention and production on its subcontractors in the event of litigation. Although ESI disclosure obligations arise independent of such contracts, including specific contract terms anticipating ESI discovery will likely reduce complications and provide clear expectations. In particular, outlining the types of electronic communications allowed on a project, communication protocols (e.g., who must be copied on certain communications), and responsibility for storage of ESI communications will help avoid future discovery disputes, reduce costs and shift liability for potential failures to retain ESI.

Likewise, subcontractors should be aware of any document retention terms, specifically those relating to ESI, in their contracts. Subcontractors should be careful to ensure their own internal policies can meet the ESI retention obligations imposed and negotiate the contract terms as necessary to ensure such obligations can reasonably be met.

With respect to ESI, considering proper maintenance and retention early on in a project – in the company and in interactions with trade partners – can help reduce litigation costs, improve claims and defenses and help demonstrate exactly what happened on a project that gave rise to a claim or defense.

This article was originally published in Construction Executive.