Overview
FAR Subpart 4.7 establishes the policies and procedures for the retention of records by contractors and subcontractors to ensure availability for Government review and audit. It defines the standard timeframes for record-keeping—generally three years after final payment—while providing specific exceptions and shorter durations for particular classes of financial, payroll, and acquisition documents.
Key Rules
- General Retention Period: Records must generally be maintained for 3 years after final payment, unless a specific category in 4.705 dictates a different period or the contract clause specifies a longer duration.
- Specific Retention Windows:
- Financial/Cost Accounting: Most records (invoices, checks, AP) require 4 years; labor distribution and petty cash require 2 years.
- Pay Administration: Payroll registers and tax statements require 4 years; clock cards and payment receipts require 2 years.
- Acquisition/Supply: Purchase orders, equipment records, and production records require 4 years; store requisitions require 2 years.
- Calculation Method: Retention periods are calculated from the end of the contractor’s fiscal year in which an entry was made. If records from a prior contract are used for "certified cost or pricing data" in a new contract, the clock resets to the date of the new contract.
- Electronic Records: Contractors may store records electronically provided they maintain an effective indexing system, ensure image integrity (including signatures), and retain the original hard copies for at least one year after imaging for validation.
- Late Indirect Cost Proposals: If a contractor is late submitting final indirect cost rate proposals, the retention periods are automatically extended one day for every day the proposal is overdue.
- Interfiled Records: If different types of records are stored together and cannot be easily separated, the contractor must retain the entire set for the longest applicable retention period.
Responsibilities
- Contractors and Subcontractors:
- Must make all books, documents, and data available for audit by the contracting agency and the Comptroller General.
- Must establish secure procedures for electronic imaging and data transfer to maintain record integrity.
- Must maintain an audit trail for any computer data transfers.
- Contracting Officers:
- Responsible for ensuring the appropriate "Audit and Records" clauses (FAR 52.214-26 or 52.215-2) are included in the contract to trigger these requirements.
- Comptroller General / Audit Agencies:
- Authorized to review the retained records to satisfy contract negotiation, administration, and audit requirements.
Practical Implications
- Audit Defense: This subpart is the "statute of limitations" for government audits. Contractors who destroy records prematurely risk having costs disallowed during a Defense Contract Audit Agency (DCAA) audit because they cannot provide supporting evidence.
- Storage Management: By understanding the 2-year and 4-year specific windows, contractors can implement "block disposal" schedules to reduce storage costs (either physical or cloud) rather than keeping all records indefinitely.
- Digital Transformation: Contractors looking to go paperless must ensure their systems meet the requirements of FAR 4.703(c). Simply scanning a document is insufficient; there must be a formal indexing system and a one-year "safety period" for the original paper documents.
- Indirect Cost Risk: Contractors often struggle with closing out indirect rates. The "day-for-day" extension rule means that a five-year delay in settling indirect rates effectively adds five years to the total time a contractor must store every receipt and invoice, significantly increasing administrative overhead.