In the fast-paced world of construction, a project manager’s ability to understand and administer contracts can make or break a project entirely.

Contracts are more than just legal documents—they’re the blueprint for managing expectations, timelines, and finances.

For the construction PM, the prime contract is also your roadmap for navigating any number of potentially tricky situations which could threaten the success of your project. 

In Ep. 5 of our Hot Takes Podcast, I dive deep into best practices to highlight key contract elements every construction PM should understand.

Whether you’re new to the role or looking to refine your expertise, this discussion offers valuable insights to help you stay ahead of potential pitfalls.

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Podcast Transcript:

Jack Austin:
Alright, so, Jeff, thanks for joining us here this morning. Just wanted to kind of have another conversation with you here today and pick up on, our last topic, or follow up on it, I should say, which was, of course, common tips and tricks that project managers can kind of look out for to be able just to do different aspects of their job, right. It's a wide, encompassing job, of course, with project management. And I know that, you know, we had more we wanted to get into last time about the legal aspect of it and knowing and administering the contract. I kind of wanted to throw that back at you here today and see kind of what some of the follow up thoughts on that were?

Jeff Robertson:
Sure. So, we were talking before about financials and project managers having a little bit more financial acumen. A big piece of that is the monthly pay application, for example, making sure you're getting that submitted on time, knowing, your terms and conditions. We find with our clients that, well, it's kind of a mixed bag, but much like the financial side of the business, project managers sometimes feel like that the contract is outside of their realm as well. ‘You'd have to be a lawyer to read it. That's not for me to understand. I'm just here to build this building’, what have you. It couldn't be farther from the truth.

A really important part of being a project manager is understanding the deal. So, you think, well, what's the deal? It's the scope of work. It's what I'm building, but it's all based in the contract. So I was recently with a client that we were talking about what forms of agreement do you normally work under? What types of contracts? Is it lump sum? Is it unit price based? Is it cost plus, you know, GMP, what have you? And they said, oh, no, it's unit price based. I was like, oh, okay. That's okay, fine. And we were talking through a couple of other things, and I found that I didn't really think that the project managers really understood what they were trying to explain to me. Their answers were just a little bit off, and I thought, well, maybe we need to do a little bit of education here. And I asked them to send me a copy of the contract so I could take a look at it. And because there's, I don't know, maybe let's call it basically a dozen, a baker's dozen, maybe, of things in the contract that a project manager can fairly easily scan through and find. And so, I thought, well, I'll do that for them, and then we'll have a conversation.

So, again, they said it's a lump sum contract. So, he sent me the contract, and the very first, I opened it, and it was the AIA 101, which is a stipulated sum contract. So that was a first alarm. Like, oh, maybe he didn't send me the right contract. So, I checked the contract, the owner name. It was what he told me it was. So, I was like, well, this is weird, but I'll keep reading. I'll keep looking to see that, maybe they've modified it heavily. I don't know why, but maybe they have. No, no, they had not modified it. It was 100% a lump sum contract. It was very clear. The language was, not difficult to understand at all. So, I say all that to point out that the project manager thought he was working under a lump sum, or, I mean, a unit price contract, and he wasn't. I mean, it couldn't have been more far from the truth. So, it got me to thinking, you know, what are all those ... What are all those things, that baker's dozen of things that I used to look at when I was a project manager as I started up a project. Or maybe I was looking at the contract during precon. Most project managers are not negotiating the deal. Some may not even have access to the contract Preconstruction, pre execution of the contract. They may get handed the contract after it's, you know, it's all signed and done, but still, you know, you want to be able to read it.

So, I thought I'd go through just a couple of those things and recommend we do this. We recommend this to our clients all the time. Construction company owners should give their project managers access to the contract, to the prime contract. It's what they're administering. You know, they need to know what are the rules of the road. One of the things that, it was a seminal moment for me when I was a young project manager is I was, trying to figure my way out. And I don't know, one day, I don't know who I was talking to at the time, but I figured out all I have to do is read this contract, understand it a little bit better, which I had resources to help me do that. I could ask my boss. I could ask ... we had an in-house counsel. There was training on it. I had opportunities to learn a little more. All I have to do is understand a few basic things about this contract and then I just do what it says. That takes all the emotion out of this. I don't have to worry. I just have to follow the rules, just do what it says. And I'm you know, doesn't make the job like, you know, a piece of cake by any means, but it sure does take some of the guesswork out of it.

Jack Austin:
Because you have that guideline. Sorry to interrupt - because, I mean, you do, like you're saying, I mean, you have that guideline there right in front of you. It really is just - and you're kind of, you're going into a little bit of my first question, which is good. I was kind of curious just from the perspective of, you know, maybe a younger project manager who doesn't have all the experience, maybe going through extensive or multiple contracts extensively. My question was going to be for you, what is that first step? It feels like you really do just kind of have to dive in and be able to pick it apart and understand, like you're saying, the different, you know, need to know's in there, what those are. And so, like I said, you're kind of going into that a little bit. But like I mentioned, it really comes down to just knowing at the start you do have all that roadmap in front of you. It's kind of just knowing how to dissect it and navigate it a little bit. Right?

Jeff Robertson:
Right, yeah. So, there's a bunch of different, you know, contracts come in all kinds of shapes and sizes. The industry standard is generally the AIA format. There are others, but you know, you see the AIA format a lot. Sometimes it's just out of the box and sometimes it's heavily modified. It depends. But you're right, there are, there are, I don't know, let's say it's a dozen, fifteen things to go looking for, to understand that are going to help you manage this contract better. So, what I have done for years, and I recommend this to our clients, is create kind of a checklist, I guess, or some kind of form that you have to go through and read the contract, at the beginning of the project or your first opportunity. And go find these things that you've included on your checklist or your form, go find them in the contract and answer for yourself, How am I handling this particular situation in this contract?' It's a terrible mistake to assume, even with an owner. Say, for example, I've worked with this client over and over and over again. It's a terrible mistake to assume that the contract is the same today as it was on the last job you did with that client. You know, trust and relationship aside, people change things in between. So, it's a good idea to read that contract every single time. Confirm for yourself. If it's the same, it'll go real fast, because you're like, oh, yeah, yes, yes, yes. I got it.

So, there's a couple of things I'd go to look for. The first thing I would go to look for is I would confirm my start date. I want to know, when do I have to start construction? Often called the Notice of Commencement. Contracts are worded a little differently around that. Sometimes it's as of the date of this agreement. Sometimes it's ten days following the execution of this agreement. Some days it's when the contract is signed really early, it'll say that the owner has to give you a Notice to Proceed or a Notice of Commencement, and it's as of that date, or it could be ten days after the Notice of Commencement. So there's - the calendar is incredibly important, because in construction, we guarantee, most of the time, we guarantee the schedule. We guarantee how long it's going to take to build this. It's not true all the time, but most of the time, that's true. There's some language in a contract that says time is of the essence, or some version of that. When you see that in a contract, you know you're guaranteeing the schedule of this project. So it's really important you understand, when does the clock start? The clock starts in whatever the date that says, you know, as of this agreement, or ten days following or after the Notice to Proceed, or whatever. You need to know your start date. That's really important.

You need to understand your end date. Sometimes a contract doesn't give you an end date, it gives you a duration. This contract will be so many, 265 calendar days. Or it may say you must be substantially complete and then give you a date certain. It depends. Neither are wrong. Both are perfectly fine, but you need to know that. You need to know, how long do I have to build this thing, and can my schedule support that? Build your schedule to fit it within that window of time. And know ... again, it's worth repeating, the clock starts at that date, that magic start date, you need to know that. If you're not counting from the same start point, you have a problem. Why is that important? Well, a lot of contracts have liquidated damages. So if you're late, if you don't finish on time, there's penalties. There's a couple different types of penalties. Liquidated damages are the most common. Actual damages are another way to, that you might have damages on a contract. We can get into what the difference is with that later, but, just know that if you're late, you're probably going to write a check as the contractor. You have to pay somebody for being late. It's a penalty. That's what it is. That's what it's supposed to be. If you don't understand the duration of your contract, if you don't understand exactly when you were supposed to start and exactly what the end date is expected, and you miss that date, you're going to pay the consequences. It's that simple. So I'm going to want to know, are there liquidated damages, how much are they, and just keep that in the back of my mind. Should I think I'm going to go long on the schedule, and I need to start doing some analysis of, well, how much is this going to cost me? I need to know that. I need to understand it's going to cost me $750 a day. It's going to cost me $1,000 a day. It's going to cost me whatever. I need to understand that.

Along the lines of schedule, I want to understand what my notice provisions are. What are notice provisions, you ask? Well, notice provisions are, and they're sprinkled throughout contracts. They're never in the same place and they're multiple places, but I need to know, when I have to notify my client, the owner of the project, I need to notify them there's been a delay. So again, back to schedule. If there's been a delay, if it's ... delays could be a lot of different things. So we'll just use delay as a generic term. There's been a delay. There's probably a provision in that contract that I have a certain amount of time to notify him of that delay and the effects thereof, or I lose my right to claim said delay. It's very common, and it ranges. It could be 24 hours, it could be 48 hours. I saw one the other day that was 21 days. That's excessively long. The other important thing to read about for your notice of delay is, or notice in general, especially notice of delay, is it will likely have language there that says something like, you have to notify the owner within so many period of time from the onset of the delay. Or, from when you first became aware of the need for the claim or delay. That's really important because sometimes a delay happens and you don't see it happening. A claim comes up and you don't realize it's a claim for a couple of days, maybe even a couple of weeks, and suddenly you go, oh my gosh. That thing that happened, it caused something. So it gives you that grace period basically to say, we're not omnipotent. None of us are omnipotent. So, you have that ability to, 'Well, when I first became aware of it, I notified you. As soon as I was consciously aware. So I need to understand that. How much time do I have to make sure, you know, mister client, that I need to notify you that I may be making a claim? That's true for dollars, that's true for time, that could be true for just about anything. Maybe the owner's in default of the contract. There's provisions in there for that, and there's a, there's a timing structure for that.

Weather, that's another very important one. How am I supposed to notify my client, that there's been a weather delay? What is a weather delay? A lot of contracts are pretty silent on this. They don't really define it. Other contracts define it very, very precisely to the point of giving you how many days per month are allowed in the contract for there to be a delay. So say you get five days in January and seven days in February and so forth. So you need to know, you need to know that. How is your contract handling weather? Weather, we can't control that. Right. There's a lot of things in the construction industry in our sequencing and scheduling and management we can control. That one we can't. So, you need to be prepared to claim those, those entitlements when they come up. You can't do that unless you've read the contract and know.

Another big, well, another big one, I mentioned earlier, pay apps and getting paid. Understanding the payment terms of the contract is important for the project manager. When is the pay application due? Again, sometimes project managers have less to do with the pay application than others. I'm coming at this from the perspective that the project manager is running his little business out there in the field building this job, He is responsible for making, sure the bills are paid, and getting paid, right. So making sure the money is coming in and it's coming in on time. So how do you do that? Well, I mean, a really good first step is understanding the terms of the contract. What are the payment terms? What is the form of the pay application? When is it due every month? Is it due on the 25th, projecting to the end of the month? Is it due on the 30th? Does the contract have any provisions for, a pencil pay app, which is another way of saying a draft. Does it speak to any type of process that may, it may have been, the contract may be, dictating that you need to follow in order to get paid on time. The number one thing you can do to get paid on time, again, a lot of things in this world we cannot control. I can't control if you delay paying me, necessarily. If you decide I'm going to wait three days to write a check to pay me, there's not a lot I can do about that. I can call you and I can ask nicely and I can pressure you, etcetera. But you're going to do what you're going to do, right. But what I can do to control that is I can turn my pay application in on time per the contract. I can follow the contract. I cannot give you any excuses to not pay me when the contract says you're going to pay me. Most contracts will say, you know, submit the pay application not later than the 25th of the month and payment will be made not later than the 30th of the following month, or something along those lines. Those terms are sometimes negotiable. That's getting more into kind of negotiating the contract versus administering it.

So, from the project manager's perspective, just know, you need to know when you're supposed to get paid. You know, what kind of documentation is required for that pay application? Not just the form of the pay application. You know, a standard G-702, 703 type of a format, or has the owner come up with a new format? That's probably in the contract. It's probably an exhibit or something like that. You need to know that. You know, is there other requirements for me submitting? Going back to notifications or timing, do I need to submit a schedule of values within a certain period of time after notice of commencement? I need to make sure I follow that rule. Right. What are the billing terms? Am I billing on a percent complete? Am I billing, on, like in a unit price contract, am I billing on units installed? How are we validating this, what I'm billing? If it's a percent complete, most commonly an architect is going to come out, maybe the owner too. Maybe there's a bank involved. So anywhere between one and three or four people are going to come out and look at your pay applications and say, you say you're 50% complete, I agree with you, or I don't agree, I think you're 30% complete. Whatever. How are you validating this? That's usually in the contract. And if it's not, if these things are not in the contract, you need to understand what is and then fill in the blanks.

So, project management is, is anticipating, it's, drawing upon your experience and recognizing that you're in charge of that project. So have a meeting. Have a meeting at the very beginning of the project, before you've broken ground. Have a kickoff meeting with your client, and the architect, and say, let's just have an administrative meeting. These are the things the contract says we're supposed to be doing, but it's a little light and language on how we're going to do it. How are we going to process this payout? Can we talk about that? It says I have to submit on the 25th. That's great, and I'm going to do that, I can promise you. But, what are we going to do to make sure that it's to the bank by the 30th? You know, mister architect, are you going to be here on the 26th? Or like, how are we going to handle that? You can have that conversation. You know, it's relationship building. It's managing your client, it's managing the architect. These are all things project managers should be thinking about.

Jack Austin:
So, and on that note, if I'm understanding you right, so when it comes to things ... I also thought of this when you were talking about the weather situation ... For situations that I'm sure come up a lot where it's kind of maybe in that gray area where you're maybe dealing with something that's not specified specifically in the language of the contract about how to proceed in a certain situation maybe, is that kind of where it becomes up to the project manager or the parties involved to get together, like you're saying, and figure out what, you know, what the protocol is in that situation? So, going back to the weather, is that common practice to be, for everybody to get together and those conversations to be, you know, if we have a delay, this is what we're going to do?

Jeff Robertson:
That's a great example, yeah. It's pretty rare. I mean, I've seen it. I've seen the, you know, a pretty wide spectrum. But it's not uncommon. All it says is delay. There's not even the word weather in a contract, even though we all know that weather delays projects. Right. So in those cases, I'm absolutely going to sit down. Let's say the contract's kind of silent on it. It just has some very generic language about delay. Some delay happens, and this is how you handle it. You got to give me so many days’ notice, etcetera. Okay, great. I'm absolutely going to sit down early in the project before there's a weather delay and say, okay, who needs to be notified? Who specifically?

And as an experienced project manager, I'm going to document that weather day on the day it happens. I'm not going to ... so it's raining today. I get to the job site, it's raining, and we're doing earth work. Let's pick something easy. Right? It's a muddy mess out there. We cannot work today. This is pretty obvious. Well, I'm going to document it right that minute. I'm going to, again, protocol with your client. You decide how this is going to work. So the client says, well, give me a call. Tell me. Okay, well, that's fine. Except, he who writes the history usually wins the argument at the end of the job. So just a phone call is not enough. A text is not enough. We've gotten to this really bad habit, and our society is in general, and I see it in our industry, texting has become some form of documentation. I disagree. I think that's a bad idea. The only way that works is if you're using some sort of a platform that records those texts and logs them away. It files them away just as writing a letter or an email would. That you could go retrieve it later. Screenshots of texts. I suppose that falls into a category of, yeah, I documented it and I saved it somewhere. I don't love it, but it's better than just texting the guy and go, yeah, we took care of it. Right. You want to make sure you're documenting this stuff. But talk with your client about how are you going to document it?

You know, I've personally had clients. I know this is the case. Somebody says it's raining here, it's on the job site, and the client maybe jokingly maybe not, says, it's not raining where I am. Well, let's be realistic about this. If you've ever lived in Florida, Florida's a good example. It could be raining across the street and not where you're standing. You know, isolated thunderstorms happen. So that goes back to the documenting it when it happens. Take pictures. I recommend having a rain gauge on the site. Take a picture of the rain gauge. So you show up in the morning and it's been raining all night long, and it's a muddy mess outside, and you're not going to be turning dirt today. Take a picture of the rain gauge when you get there. It's whatever time. Six, seven, whatever. Take a picture of the rain gauge. Document that, say overnight, we receive two inches of rain. Can't work. Take a picture of the job site. Show the muddy mess. Make the phone call, if that's what's required. Definitely send an email, Document that you're claiming a rain day. Maybe you're making a phone call as well, just to validate it. So you have a good relationship with your client, you call them. Right.

One thing to point out here is that weather does not have to be confined to rain. It could be high winds, depending on where you're working. So say, you're working out in the mountain west. Well I mean, high winds happen just about anywhere, but let's say it's where winds are common. Or you have a critical pick that day. You've got the crane set up and you're going to lift some, I don't know, air handlers up onto the roof and you get in that morning and it's, you know, the wind's aloft or, you know, 40, 50 miles an hour. You're not lifting anything, that's dangerous, that's a delay. Now, you know, there's you know, there's nuances here, delays, did it affect critical path, et cetera. That's what's worth talking about. But claiming the day, you'll figure that out later. Claim the day as soon as it happens, and get with your client and decide how are we going to, how are we going to decide, you know, how are we going to document this so we're all, so we're all on the same page later. It's a great, great best practice.

Jack Austin:
So we've talked a lot about, you know, or you've mentioned a lot of technical terms in the contract, different situations. And this is, you know, from your perspective of someone who's been in the industry for, you know, over like 30 years. Right. And so, you've kind of had that time to be able to have it become so familiar and to be able to pick out every little thing and know every little detail. What advice would you have for a younger project manager that doesn't have that same level of experience but is maybe wanting - is there a way that they can accelerate that learning curve? Can they go and read, maybe sample contracts that their companies are working on just to try to understand those terms? How is a way that, or does it just take the time to have the experience? What are your thoughts on that?

Jeff Robertson:
That's a great question. I hate to age myself here, but when I started in the business, we didn't have the Internet, and so, we, I read the contract and I don't think there's any, there's any, there's no real replacement for critical thinking skills. Read it and come up with what you think that means. That would be step one. I think I would enforce, I would really recommend flexing your brain a little bit on that. However, we have this great thing called the Internet now that you can, you know, you get to a section that you're not quite sure you understand. Look it up. That's one option.

Another option is you have a, you have a boss. Everybody's got a boss of some kind. Maybe it's, if you're a project manager, maybe it's a senior PM, maybe it's a project executive if you're working in a larger business. Maybe you're working in a smaller contractor and it's just the owner of the business. Ask that person, you know, say, I want to understand this contract better. I've read through it. Here's the things that I understand. Do I understand them correctly? Here's the things I don't think I understand. This is what I think it says, or I don't have a clue what that means, you know.

Now, there's things you, you could read past, because you're truly ignorant in this scenario. You could read over something that's really important and not even know it. Right. You could step on a stick and it's a snake. Right. That takes, that's where that, well, that's where, you know, having a trusted mentor helps. That's where Ascent Consulting can help. We can help with that. But there's, you can take a class. The ABC offers contract reading classes. The AGC offers contract reading classes. There's a bunch of resources. But my first advice is, read it. Force yourself to try to understand it. You know, check yourself. Go back and ask somebody, do I have this right? Am I interpreting this correctly? You should 100% do that. But my advice is just read it, just try to understand it. Just see what you think it says, and then sit down with somebody and go, here's some stuff I saw. Is this important? is this how I should handle this? Is this what, know, this is the stuff I'm supposed to be looking for?

There's like, you know, there's kind of like building block skills. There are advanced skills. This is probably in the advanced skills stage. Building block skills are like, you know, running a meeting. Right. You know, maybe scheduling is kind of in the mid-range. You know, how much, how well do you understand scheduling? Most people are just afraid of the software. Most people think, well, that's just on paper. Who cares? It doesn't really happen like that. But they don't understand the idea of, well, it's a planning tool. Like, it's a manifestation tool. Plan it, think about it. What order should it go in and then go make it happen. That's literally the job.

Jack Austin:
Yeah, the legalese and understanding the contract that we've talked about today, if I'm hearing you right, that would be kind of for maybe the project manager that has their feet on the ground a little bit with that stuff, but then kind of wants to take it to the next level to really be able to -

Jeff Robertson:
Yeah, in my mind, if you're, if you just got promoted to project manager and you've never read the contract, you have a problem. Like you, you need to, you've got some curve to get up. You know, I always had my APMs read the contract. When they would, you know, the conversation we had before about APMs coming to me and saying, I want to be a project manager, when am I a PM? Well, okay. When was the last time you read the owner contract?

I actually used to do a thing. Now, these were big jobs, right. And they were, they were kind of complicated. And I had negotiated the contract for the most part, most of the time. So, I knew it. I would, I would, actually, this came from years ago when I was a young PM, our in-house counsel, they called them contract abstracts. So, it was kind of that checklist idea, right, where you read the contract, fill this in, and then explain it back to your boss, prove that you've read it, and then explain it to them, prove that you comprehended it. So, we started doing that. That's pretty much what started my habit. I would give that to my APMs to read. I would say, I negotiated this contract, so I know what it says. I want you to read it, and then we're going to have a meeting and you're going to tell me about the contract that we're all about to administer. I thought that was always a really good exercise.

Jack Austin:
Yeah, no, absolutely. And then I'm sorry to cut us off here. I know I see the less than a minute. So I did just want to quickly say thank you for joining us here. Thank you for making some time. I know you've got a busy schedule, but, like we said, I know, until next time, I know that the listeners will hopefully be excited for some more PM tips and skills, but, thanks, Jeff, for, speaking with us here today.

Jeff Robertson:
My pleasure. Thank you.

Jack Austin:
Awesome. We'll take care.

Jeff Robertson:
See you, bud.

- End of Episode -

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