This is just a simple blog about the second most important thing that I finally figured out about business.

Everybody thinks the construction business is a poker game, a contest of wits, a never ending price cutting duel with your competitors. Hide the money, outsmart the other one, be the smartest person in the room.

I’m thinking not so much (though brains are certainly of vital importance). We have three or four projects right now that are among the most profitable we have ever undertaken. If all of our projects were nearly as profitable as these, I would be enjoying a massage on a very large estate in Tahiti right now instead of typing.

What these three projects have in common is that from the outset, we shared every bit of information with our clients and their teams. Every dollar and every detail. They knew everything we knew, and everything we didn’t know, and about every dollar of our profit.

For sure, we have outstanding people on these projects, otherwise we’d be dead and gone. And there were certainly some intense negotiations, because we guarantee our performance commitments. But the negotiations were conducted with every bit of known information out front and on the table.

It’s all about complete openness, every detail and every dollar. That’s where the client loyalty lays, the financial rewards, and the future opportunities. (It also works in lawsuits and marriages, but the lawyers will never tell you that.)

Wish I’d learned that a lot earlier, though Tahiti would probably get boring after a while.

Everybody appears to think that management by consensus is the way to build a successful company. I get this advice from every possible direction. And who could disagree – you forge a consensus on your direction, strategy and every key issue, and then you have everyone pulling together with unified enthusiasm in the same direction. Who could argue with that?

I’m out. It doesn’t work and never will. People don’t all agree with each other, and when they all do, that is the best possible sign that you are all going in the wrong direction.

Don’t get me wrong. It’s crucial to put everything on the table for absolutely everyone to see. And I am all for vigorous, passionate, all out debates. Everybody gets their say in a respectful but very energetic atmosphere. But then a decision needs to get made, and you can’t have everyone holding a veto.

First, people don’t like change and are often threatened by it (sometimes justifiably, sometimes not). If you are going to introduce real change, you will never get consensus. Second, if you do push for a consensus, the necessary compromise to get everyone to sign on will be profound, and likely fatal to the original initiative. Consensus can be good, it can never be great. In fact, the best, transformational decisions are always the most controversial.

Looking back, here are some things would not exist today if consensus was a prerequisite for moving forward:

Far better to take risks, to make mistakes - to have your reach exceed your grasp - than to suffer the eternal mediocrity of ‘consensus management’. This is a concept that needs to be slain.

Just one person’s view. Think we can get a consensus on that?

The Fatal Attraction of Consensus Management

At EllisDon, we really do understand how important Subcontractors are to our future. We recognize that without their loyalty, EllisDon cannot compete or ultimately survive. And we all know that if EllisDon is the preferred GC throughout the subcontractor market, we will have a substantial advantage over every one of our competitors.

And yet, I acknowledge that we are still not 100% consistent across the board in our treatment of these partners. We are almost there, I think, but not completely there. Sometimes, games get played. Sometimes, relationships get cashed in on. Sometimes we don’t execute and sometimes – hopefully rarely – it is tempting to trade ethics and reputation for a few dollars of profit in the short term.

This is not what anyone at EllisDon wants to see, anywhere or at any level. Therefore, here are suggested steps to ensure that we are treating our subcontractors always professionally, always ethically.

Let’s call it a Subcontractors’ Bill Of Rights, or Code Of Ethics, which we would ensure that every subcontractor enjoys, and which we would commit to, every day, in writing, or pay the price. There are five principles I am suggesting:

1. Price Shopping Will Be An Employment Termination Event: Price shopping is when, during a bid close, one subcontractor’s lower price is quietly given to another subcontractor, in order to make that sub low. It is one of the most unethical practices in the industry and cannot be tolerated at EllisDon. We have a Verbal, Written and Gone policy on our sites regarding safety. We will institute the same policy with respect to this price shopping. Caught once, you get a verbal warning, twice and it’s written, three times and you’re gone, gone, gone, regardless of seniority. (Maybe that’s too lenient, especially for senior people, but we will start there and see.) If any subcontractor has concrete evidence or proof of bid shopping, they are welcome to contact me directly.

2. The Low Qualified Sub At Closing Gets The Job: A pretty simple concept, really. We need to make sure that we get all the info on every price at closing, so we know which price to carry. And if you’re the low qualified sub at closing, you get the award on those terms, period, full stop. (Let’s acknowledge that CM subcontractor bids to clients often have more complexity and are often beyond our control, but our ‘recommendations to award’ should follow this standard.)

3. No Backcharges: Which we will define as: A charge that comes on an EllisDon project without both clear advance notice and appropriate justification/documentation. This idea that we can just send out backcharges at the end of projects, without an adequate prior warning (enabling the sub to fix the problem) and appropriate justification, has got to die. If the sub can show an inappropriate backcharge, according to the above definition, it gets cancelled. Regardless of the amount. We eat the loss.

4. Timely Payment: If we don’t include a sub’s legitimate billing on our invoice, or if we don’t bill the owner when we should (and as a result the sub doesn’t get paid on time), we will pay the sub interest at prime plus 2% on the payment delay.

5. Returned Phone Calls: We will return your phone call within 24 hours, or you are encouraged to call me to complain. EllisDon must be committed to this standard. If our people are on holiday, they will leave instructions as to whom to talk to in their absence.

We must all understand that these issues are often more complicated than contemplated by these strict standards. On CM projects, clients often control bid closings and awards (we will let subcontractors know what the process is, and they can decide what they want to do). But day to day, the bottom line is: what is fair and ethical in both directions? Appropriate judgement, openness and fairness are required from everyone.

EllisDon is determined to be the best builder in the industry, and that demands high standards of execution, professionalism and ethics at every level, every day. That is the promise we are making here.

I am happy to hear from anyone on these issues at any time. It is my intention – after any and all helpful advice – to finalize this Code of Ethics, and issue it to every EllisDon subcontractor.

Openess

Transform

Design

Operate

Advise

Equip

Manage

Construct

Finance

Digitize