Ethics of contracting and the stabilizing of profits

Front matter

Copyright^ .

COFmiGHT DEPOSm

AND

Preface

The author of this book has endeavoured to set forth, as the result of nearly twenty-five years' experience, some suggestions and ideas which may be of value, not only to the contractor, but to those with whom he comes into business contact: the owner, architect, consulting engineer, general contractor, manufacturer, jobber, and last, but not least, the workmen's union.

Under different headings will be pointed out customs with which every contractor is familiar that are in various degrees deplorable. To a great extent these sharp practises and petty meannesses differentiate the commercialism of business from the dignity of a vii viii PREFACE

profession. Business is the art of interchanging work and services through the medium of money, but from time immemorial, the seller has endeavoured to get the better of the buyer, and the buyer of the seller. With the professions, the idea that should be, and often is, uppermost, is the giving of service, the compensation being a matter of minor consideration. With business, the uppermost idea is generally the extent of the compensation, and, just as soon as the professional man allows himself to be governed by commercial considerations, he is lowered to the business level. Similarly, if the business man has as his main object the giving of full value for his services, his occupation is elevated to the dignity of a profession.

One of the easiest things to do is to find fault with things or with the way they are being done. Faults are always

PREFACE ix

more or less evident, and it is easy and natural to point them out, but if criticism stops there it does little good.

Constructive criticism differs from the fault-finding kind in the same general way that anything constructive differs from what tears apart or destroys. The one crushes and inhibits; the other elevates and helps.

The object of this book will be to show that it is for the best interests of all persons concerned in a building operation to co-operate and to treat each other openly and fairly, rather than to try to get ahead of one another by any of the thousand and one ways which are so common.

No claim is made for originality in the predominating idea that the only satisfactory way to attain real success is by the simple straightforward path of treating everybody in just the same way x PREFACE

one likes to be treated oneself. Everyone acknowledges this rule academically, but its practical application often appears difficult.

In addition to ethical considerations of various phases of the business of contracting, some constructive suggestions are here tendered that should be of benefit to the contractor and, it is hoped, to others with whom he has dealings. These ideas and recommendations will unquestionably make for more stabilized earnings in the business, instead of sometimes abnormal profits and sometimes unmerited losses. Above all, they are based on fairness and equity to both buyer and seller.

Contents

PAGE

Preface vii

1. The Owner and the Contractor . . 1

Appendix

The following remarks made by Mr. Eddy regarding an Open Price Society will give a clear idea of what the Open Price plan means, and how radically different it is from all other forms of trade associations :

The value of an Open Price association does not depend upon the rise or fall of prices. The effectiveness of old line associations, priceagreements, gentlemen's understandings, etc., etc., was tested by the extent to which the prices were maintained at a higher level than market conditions warranted. The Open Price plan is a fundamentally different proposition, and if prices fall and members become dissatisfied with market conditions they must not blame the Open Price plan.

I can best illustrate the thought I wish to convey by referring to the New York Stock Exchange which closes at three o'clock. The ma- 179 chinery of that Exchange does its work day in and day out, year in and year out, mechanically and methodically. It is quite immaterial to the machinery of the Exchange whether prices go up or down, whether there is a panic or not, whether times are good or bad. Unquestionably prices are more stable, fluctuations, both up and down, less violent with the machinery of the Stock Exchange in full public operation, just as prices are more stable and fluctuations less violent, both up and down, with the machinery of an Open Price association in full operation.

You all recall the very great uncertainty regarding prices which prevailed when the Stock Exchange was closed at the outset of the war. The very best of securities fluctuated violently in price. I know from personal experience that on the same day, and within the same hour, when I tried to buy a standard railroad stock I was quoted one price, and when I asked how much I could get for the same stock I was quoted five points difference, and was told that no one knew how much could be bought, or how much could be sold at anywhere near either price. As soon as the Stock Exchange opened these violent fluctuations disappeared, and a reasonable degree of certainty took their place.

The monthly meeting of an Open Price association to discuss generally actual market conditions is very like what would be a meeting of the members of the New York Stock Exchange to discuss actual stock market conditions. The meeting and the discussion, however valuable and interesting, would have no relation whatsoever to either the Open Price machinery or the Stock Exchange machinery. They would go on as methodically and mechanically as a time clock.

The value of an Open Price association, like the value of the Stock Exchange machinery or like the value of any Government statistical bureau, lies in the information it furnishes, in the systematic collection and distribution of reliable data, and whether prices rise or fall does not affect in the slightest degree the value of the Open Price association, the Stock Exchange mechanism, or the Government Statistical Bureau.

It goes without saying that men would not go to the trouble and expense of organizing and conducting an Open Price association if they did not expect to better conditions in their industry, but an Open Price association does not attempt to improve conditions and reap larger profits by arbitrarily controlling and fixing prices. If prices are better and more constant, it is simply because the Open Price mechanism furnishes information which enables men to better adjust their business to market conditions.

The Government crop reports instantly affect prices of all the crops covered. This is so true that these reports are guarded with the utmost secrecy until the precise hour for publication. They are gathered at great expense by the Government for the express purpose of enabling farmers to sell their products more intelligently — in other words to enable farmers to make more money year in and year out. All this work on the part of the Government is being rapidly developed and extended and yet is in its infancy. As a rule Government reports are too long delayed to be of much benefit. The time will come when they will come out as frequently as trade papers. The aim of the Open Price association is to do more thoroughly daily and weekly what the Government does monthly or yearly.

A natural question is, "If prices are better why don't customers object?" As a matter of fact buyers, when they understand the operation of an Open Price association, heartily approve it. This is a matter of record and of common knowledge in the associations. Buyers do not object to better prices or higher prices so long as the prices are not arbitrarily controlled. They do object to being victimized, but when they see that the Open Price policy tends to eliminate secret rebates, discounts, favours, and unfair discriminations between purchasers, and tends to place purchasers on a more nearly uniform basis, they heartily endorse the plan. The Federal Trade Commission Act now makes unfair competitive methods illegal. The laws of nineteen states and the Clayton Act makes unfair price-discriminations illegal. The tendency of the time is toward uniform treatment of buyers, large and small, toward giving the small competitor just as good a chance for success as the big, and toward giving the small buyer just as much for his money as the big buyer. The Open Price plan is a direct aid to the enforcement of these laws, inasmuch as it records daily all price variations. If there are any unfair competitive methods, or any unfair price-discriminations, the records of an Open Price society disclose same, hence they tend automatically to disappear.

Aside from any advance whatsoever in prices, the Open Price plan makes a good profit on the following items, — the elimination of secret rebates, secret discounts, secret terms, and unfair price-discriminations generally, all of which tend to the unfair advantage of one buyer as against all other buyers who do not receive these secret favors; the removal of opportunities for buyers to make false and market-demoralizing statements regarding quotations; it is frequently stated in meetings of Open Price associations that this feature alone justifies the existence of an organization, and more than pays for all the time and money spent.

Finally it may be stated that associations have voluntarily dissolved, and members have resigned, because they could not see any price-improvement, and did not have the patience to await the benefits that would certainly come from improved, franker, and more public methods of doing business.

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