You Spin Me Right ‘Round, Baby: New Open Records Laws Affect Contractors’ Recordkeeping
Whether contractors do business with large or small governmental entities, a new public information law that went into effect on January 1, 2020, may affect how contractors maintain their business records when working on government projects. Senate Bill 943 now requires contractors to promptly provide certain information to governmental entities when requested by the public. Being aware of the new law now will hopefully prevent significant headaches (and financial losses) in the future.
If you contract with governmental entities, then you are probably somewhat familiar with the Public Information Act, commonly referred to as open records requests. The Public Information Act is a state law that requires governmental entities to provide certain documents and information to the public upon written request. The law presumes that all government information is public and sets out only certain exemptions from disclosure for different types of confidential information.
What some contractors may not realize is that the Public Information Act applies not only to government entities themselves, but also often to contractors when they perform work for governmental bodies. The new public information law extends this reach to contractors even further.
First, the good news: smaller contracts – those for under $1 million – are exempt from the new law. But contractors performing government contracts of at least $1 million or contracts that result in expenditure of at least $1 million in a fiscal year must comply with the new law. These larger contracts will now require government contractors to preserve all “contracting information” and promptly (no later than 10 business days after requested from the government body) provide it to the government body. SB 943 also requires that on completion of the contract, contractors provide any contracting information to the governmental body or preserve the contracting information related to the contract as provided by the records retention requirements of the governmental body, which can be years. And contractors have to do this at no cost to the governmental body – in other words, at the contractors’ expense. This results in contractors having to build this expense into their operating expenses.
So, what exactly is “contracting information”? Contracting information includes any documents or other information in the possession of the contractor that relate to the government contract. Not only does this include contract documents, but it also includes communications sent between a governmental body and a contractor or potential contractor during the solicitation, evaluation, or negotiation of a contract. And it includes communications and other information sent between a governmental body and a contractor related to the performance of a final contract with the governmental body or work performed on behalf of the governmental body. This includes invoices, correspondence (including emails and text messages), memos, subcontracts, and nearly every part of a standard project file.
Complying with this new law means contractors have to find a means of either transferring all of this contracting information to the governmental entity upon completion of the project or otherwise store it in case of future public information requests (with the understanding that storing it requires compliance with record retention laws). To make matters even more complicated, record retention policies are adopted individually by each governmental entity, so the length and format of retention may vary by each governmental entity.
Essentially, this new law now puts a burden on contractors to maintain their project files on behalf of the government body and provide them within 10 business days of a request. The penalty for non-compliance can be stiff – up to and including termination of the contract. Further, a history of violations could possibly preclude contractors from getting future government contracts.
SB 943 also changed how governmental bodies disclose contracting information upon request, with the law presuming that most contracting information is public. Under the new law certain types of contracting information simply cannot be withheld by the government body: overall price; price and description of items or services to be delivered; delivery and service deadlines; remedies for breach of contract; identity of the parties to a contract; execution and effective dates; and information connected to a vendor or contractor’s performance on the contract – all of these will be made public upon request. Additionally, information regarding performance under the contract is also defaulted as public information by the new law, including breaches of contract, contract variances, amendments, liquidated damages, and other penalties for non-performance. Contractors must be aware that information contained in government contracts will most likely be available to the general public, including, potentially, competitor contractors who work on similar governmental projects.
One beneficial change in the new law surrounds bidding information. Contractors may remember receiving letters from governmental bodies giving them notice of a public information request and an opportunity to object to the Attorney General’s Office as to why their bidding information should not be released. The new law changes this process – instead of the contractor receiving notice and having to affirmatively object to the request, the governmental entity will now raise those objections itself without notice to the contractor upon receipt of a request by the public.
But while this takes some of the burden off of contractors for general bidding information, it remains important when submitting bids or proposals that contain a contractor’s confidential information or trade secrets that those documents are clearly marked as confidential (or even specify that they contain trade secret or proprietary information). Such markings will put the governmental entity on notice that should it receive a request for that confidential information in the future, it must still give the contractor notice and an opportunity to object to the request as outlined in Government Code Section 552.305. Contractors will still need to raise objections with the Attorney General’s Office to keep trade secret or propriety information from being released.
This new law makes it imperative that contractors maintain their files for government contracts in an orderly fashion and clearly label all confidential information. Contractors need to consider how they maintain their electronic files, especially email and other electronic communications with government employees. If not collected in a separate project file, it could prove difficult to gather all communications and other project documents within 10 business days when a request comes in. Getting your project recordkeeping system in place at the start of a project (or taking the time to organize ongoing projects now) will save immeasurable time in the future.