Transcript: Key Things Owners Should Being Paying Attention in this Economy - w/ Economist Anirban Basu

Hello, I'm Brittany Campbell-Turner and this is the Constructor Podcast, episode number 32. Hello and welcome to, welcome back to the Constructor Podcast, the best way to build it. This podcast is dedicated to helping property owners have certainty in their decisions about their construction projects. We talk about fostering relationships with your construction teams, help you understand how to lower risk, be under budget and on schedule in your construction projects, and most importantly, exceed your end user's desire. This episode features Mr.

Anirban Basu, who is CEO and Chairman at Sage Policy. Let me tell you, this interview is really good. I was entertained by Anirban's charismatic style of speaking, but not only that, there of information that any type of company should be paying attention to. We touch on economic trends based on the current presidential administration. We talk about modular construction growth, the construction job market as it relates to millennials, and I ask for advice looking towards the economic future.

Without further ado, here is my interview with Anirban. Hello, good morning, Anirban. Thanks for joining the Constructor Podcast and talking with us today. I'm privileged to be with you. Awesome.

So, just so the audience has a good sense of what you're up to, who you are, please tell them a little bit about yourself. You're an economist at Sage Policy, but tell us how you got there. All right. I'm an economist by training. My company's name is Sage Policy Group, Inc.

It was founded in 2004. We have 11 people on staff. I also do a little teaching at Johns Hopkins University. I also serve as the chief economist for Associated Builders and Contractors and for the Construction Financial Management Association and many other organizations, but those two happen to be directly related to construction. I really got into construction economics in 2008.

I have been a macro economist my entire career, but during the financial crisis, folks in construction in particular expressed concern, a significant surge in demand for data and analysis coming from that industry. Associated Builders and Contractors was looking for a chief economist and that position was outsourced to my company. And so I have been the chief economist at ABC for around nine years. Subsequent to that, I became the chief economic advisor to the Construction Financial Management Association, basically the organization that represents the interests of construction from CFOs around the country.

And so we do a lot of construction economics, but I think that our analyses are enriched by the fact that it's not all we do. We also do a fair amount of healthcare economics. We do a lot of studies in energy. We do a lot of economic development work for communities. So I think all of that informs the broader narrative surrounding construction and decision making among construction stakeholders.

And so I'm privileged to be with you to talk about some of these issues today. Yeah, yeah. So thanks for providing to the audience a better understanding of who you are and basically how you've been contributing to the different organizations that you advise. I'm happy you can provide some insight to the constructor audience. The healthcare and energy, I think we might dig into those a little bit.

Well, first things first, let's get past the, I think maybe the largest thought that people have when it comes to investing, given the current political times. We'll just jump right in. What is the current administration encouraging as it relates to capital investment? Well, I mean, I think that there is a lot of encouragement of capital investment. Certainly one of the principal elements of the new president's platform has been stepped up infrastructure spending and the use of public-private partnerships as opposed to government debt to finance that infrastructure spending.

The problem, of course, is obvious. This is a week in which, or this is a period in which, or during which, you know, the newsmaking Donald Trump has been Donald Trump Jr. And so the issue is that much of this legislative platform or agenda is not being implemented. And so with respect to capital spending or construction spending in America, we're on autopilot that the level of spending that we have observed recently is roughly the same pattern of spending that we observed in 2015 and 2016, which isn't awful because construction firms will tell you that backlog is pretty healthy and that their principal challenge is finding enough good workers to get the work done.

So people are busy in general. I mean, obviously there's exceptions when a country is this large and a construction industry is so large, but in general, construction firms are busy. So to suggest that 2017 from a spending perspective looks a lot like 2016 and 2015 is not awful news. But I know that some people must be disappointed because they had expected that during the first 100 days of the new presidency that we would have made some progress in terms of creating an infrastructure-led stimulus package emphasizing the use of private capital.

And as we know, there's an abundance of private capital in America and controlled by American companies that operate abroad. And if we could bring some of that capital to bear on our infrastructure issues, you know, obviously that would be good for construction, but it would also be good for American job creation, American productivity. I think people would feel really good and we'd be doing it without state and local governments or the federal government taking on additional debt necessarily. So I think there's some frustration out there, I'm sure.

I think people still like the notion that there is this pro-business agenda in Washington, D.C. I mean, some people, business people often like that. Most of the people that I speak to are business owners or business operators. And they're still fans of the new president. But the spending trends have really not shifted very much.

That's really interesting that they haven't shifted notably. I think it's probably the perception that there still may be some upturn, like you said, from the business owners. And, you know, like you said, it's a business-minded administration. And I do think there is that positive mentality as it relates. I mean, yeah, that's what I'm getting.

Obviously, you're the one who's the expert watching the trends, right? But I mean, just based upon my conversations with my clients, it's just one of those things where that's the feeling that I'm getting too. Well, I think that some decisions were good for construction, right? I mean, if you're a pipeline construction firm, some of the decisions that have been made by the president benefit you, perhaps. At least if you're operating in the right part of the country and connected to the right projects.

And so, yeah, and, you know, this talk of deregulation of banking and deregulation of energy, it's not just about stimulus. But, you know, one of the things that Americans have agreed upon, actually, at a time when Americans seem to agree upon very little is that the need for corporate tax reform, for instance, you know, in 2012, when President Barack Obama was running for reelection, he actually ran on a platform of reducing the corporate tax rate from 35% to 28%. His Republican challenger, Mitt Romney, concurred basically, but said, you know, President Obama, I think we should go to 25%.

But the point is, the leaders of both parties at that time agreed. Now, nothing happened in the next four years in terms of corporate tax reform. But the notion was that, well, this president, this new president, who operates at the speed of business, not at the speed of government, is going to get this done very, very quickly, particularly because he has majorities in the House and the Senate, Republican majorities. You can see for yourself, you know, here we are in the summer of 2017. You know, we really haven't even seen what the tax proposal will look like.

There's discussion that Steven Mnuchin, the Treasury Secretary and others are working on it, but we haven't seen it. The administration is bogged down in health care. Obviously, these Russian issues continue to surface. And my guess is that an increasing fraction of businesspeople are at least silently becoming frustrated with the lack of momentum in this legislative agenda. So how does that affect the investment into health care from a capital spend perspective and then energy as well?

I think that in health care, there's a, you know, a wait and see attitude. And why is that? Because we do not know what the future of health insurance is in this country right now. We don't know, you know, what Medicaid is going to look like ultimately. You know, we don't know, you know, to what extent these private exchanges, these health care exchanges or health insurance exchanges in the individual market are going to continue to break down.

And in fact, there's some evidence to suggest that they're not breaking down. A recent report from Kaiser suggests that. So there's all kinds of uncertainty out there about how people are going to finance the health care that they receive. Now, a lot of us still get health care through our employer. So, you know, for that group, not much has changed.

But I think that for many medical systems, for instance, they're wondering what the financing environment is going to look like. And, you know, my very strong sense is that at least some construction projects have been put on hold until we have some certainty about whether or not Obamacare is going to remain in place, if it's going to be restructured, if it's going to be repealed and replaced with something completely different. And so, you know, people don't like uncertainty. You know, people who are in the investment world don't like uncertainty.

That's what is often said. And there's a lot of uncertainty if you're in the health care sector. With respect to energy, the issue is obvious, isn't it? I mean, as we're speaking, oil prices are around $46 a barrel. They're low.

You might remember that during the early summer of 2014, oil prices were at $107 a barrel. Guess what? There was a lot of investment in the U.S. energy sector when oil prices were at $107 a barrel. A few years ago, natural gas was at $5 per million BTU.

Today, as we're talking, it's at almost precisely $3 per million BTU. And so when you have such low prices in any sector, you're generally going to get less investment because lower prices mean that, you know, there's less need to increase supply. So that's oil and gas, for instance. What about sustainable energy? Lovely question.

That's a wonderful question. So we continue to see advances in wind and solar technologies. Obviously, when you have people like Elon Musk out in California working on these issues, you know, this dynamo, and he's not the only one, obviously. But it's just wonderful to see what's going on with respect to solar power and wind power and battery technology and so on and so forth. Some of this is hidden from view, and it's been hidden from view because natural gas has been the big market share winner during this moment in economic history.

You know, the advent of shale-related natural gas production has allowed for a massive outward shift of the supply curve, helping to bring down prices and helping to induce people to move away from coal, for instance, electricity generating processes, to natural gas. Natural gas has been the big winner. And so because of that, much of the progress that has been made in terms of advancing solar and wind, whether onshore wind or offshore wind, and we're going to hear more about offshore wind in the years ahead in North America.

Right now, offshore wind is largely concentrated in Europe and in Asia, China is the leader there. But we're going to see more of that, and more of our electricity is going to be generated by these renewable technologies, and that's very exciting. That's despite the fact that the new administration in Washington, DC is not that supportive, as people know, of some of these new technologies. Very interesting. Okay, so just moving on a little bit, could we talk a little bit about job trending as it relates to construction jobs as well?

Sure. I mean, it's been a good time for construction job creation. This nation has created 206,000 construction jobs on net over the past year. It's a fairly lofty total. We would have added even more construction jobs if we had more people available to hire, more people who could actually do the work because they're properly trained, more people who could do the work as they can pass a drug test, more people who could do the work because they're actually looking for work and are part of the US labor force.

But even with that, 206,000 construction jobs added over the past year, not bad. The latest data are for June, and the June data were splendid in terms of construction job creation. Maybe splendid is a bit too strong, but there's still evidence that more people are working in US construction. That's good news. And it speaks to an industry that remains busy, whether in the form of building apartments, as you know, multifamily construction continues to be very active, whether it's in the form of working on highway and street projects, even though there has not been a lot of growth in highway and street spending in recent years, there has been some growth.

And some of that occurred because of the passage of the FAST Act, the Fixing America Surface Transportation Act of 2015, signed by President Barack Obama, I believe on December 4th of that year. You know, some of this relates to the enormous increases in commercial construction that we have observed, by which I mean construction of distribution centers and fulfillment centers to drive the e-commerce economy, by which I mean hotel room construction, which is up about 80% over the last three years. If you look at construction spending, about 80% in just three years, May of 2014 to May of 2017.

And then a fair amount of office construction, and that shouldn't be too surprising. You know, because the number one sector adding jobs in this economy is professional business services, and a lot of the people who work in that sector sit in office buildings. Yeah, I remember actually watching one of your videos where you were saying that the hospitality and the commercial were definitely in the growth mode. So that's interesting to know that it's continuing in that direction, which is good, because at least that's something that's slightly predictable for this year.

Just because it's been trending that way. So that's great news. Well, okay, I guess moving on, I don't want to miss the opportunity to talk about modular construction. You spoke at the World of Modular Conference. I didn't get the opportunity to go, but I do want to see what the opportunities are in modular construction and what you're seeing.

So construction is an industry that is in desperate need of productivity enhancements. I mean, it's an industry where it is expected that a project will run over schedule and over budget, right? And one could argue that the last great revolution in US construction or world construction was the advent of structural steel. You know, that was roughly a century ago. If you look at construction work sites today, they look a lot like the construction work sites we saw growing up.

Not much has changed. It's largely men. The typical construction production worker is a male. 87% of all construction workers are men. It's one of the reasons the industry has a shortfall of talent is that women do not enter the occupational categories attached to construction in sufficient numbers.

The industry has not done enough to recruit women, in other words. But so the issue is that we don't do things much differently than we used to. And guess what? We don't see the productivity enhancements that we have seen in other industries, retail trade, manufacturing, financial services. I mean, you know, banking is done much more differently than it was a few years ago, just a few years ago.

And the way we buy things, I mean, think about Amazon, that did not exist before the 1990s and really didn't begin to affect our lives until probably the 2000s or the 20 teens. Retail has really changed. Hence the distribution center growth, right? Absolutely right. I mean, there's been sort of information technology.

We didn't have cell phones, at least growing up. And now we have that. We thought the plain paper facts was the end of history. You know, I mean, so that's where we've seen the productivity increases. Construction hasn't changed.

So the industry is in desperate need of a revolution. And, you know, before revolution, often comes evolution. And one of the things that we're observing is the ongoing establishment of this modular construction or modular building sector in which construction services are delivered in a manufacturing oriented setting. So basically, rather than conducting the construction outdoors, this construction takes place indoors. And then, of course, the output is transported ultimately to the job site.

But what is happening, therefore, is that we are able to do things increasingly in a controlled setting. And that takes out variability in the form of, let's say, humidity or slopes, you know, or significant increases or decrease in temperatures. It also allows for the retention of a workforce that's essentially doing similar things every day. One of the things about construction outdoors is that there are variables. There's a new group of subcontractors on site today.

There's a, you know, the temperature is different today. And so what that does is it really raises the need for critical thinking and problem identification skills. These critical analytical skills are in quite short supply in America, sadly. And that's one of the reasons that we have these, you know, skill shortfalls, because, you know, you need to be a critical thinker out in the field. But in a controlled manufacturing setting, you still need to be a thinker.

Don't get me wrong. But there's more predictability in a controlled setting. Fewer variables with which to deal. And so this is a way to expand productivity. This is a way to cobble together workforces that actually work.

Work well, are more productive. And, you know, it's part of the revolution. And I think modular building, modular construction will be one of the big winners going forward. Though it must be said that market share gains in recent years have been quite slow. Slower than I would have thought.

But I think that ultimately modular is going to make a major impact. Many people would say it already has, but I mean, a much more significant impact going forward. Hmm. Yeah, well, thanks. Thanks for that perspective.

I know that in Europe, it's definitely getting adopted way more often than it is here. And and I like that you talked about the controlled environment from a manufacturing perspective. What I what I'm privy to, maybe not a lot of people are doing this, but they're also doing construction in that controlled environment in sort of a warehouse. But they're doing it in typical construction patterns. Yes, they'll it's it's not a actual piece of equipment extruding the pieces.

It is their people, all the different trades within one roof, assembling the different modules, if you will. As if they were to do it in the field, but in part in order for them to easily assemble on site. Is there a difference when you think of modular construction? Do you think that we'll we're more trending to go the 3D printing route, if you will, or that we're looking to to have that ability to utilize all the different trays within one roof? Well, I think with respect to modular construction, I mean, it's true that I suppose you can do certain types of assembly indoors and outdoors, but that doesn't sound like much of a revolution.

You know what? What I think that modular construction can accomplish is mass production and economies of scale. If you think about it, you look at apartment buildings being built out there, right? A lot of apartment buildings under construction. Look at them.

They're all different. They're all different. And that's great. I mean, that makes that adds to the character of the built environment. And we like that diversity of construction styles, different windows, different glazing.

Fantastic. Different materials altogether. However, modular construction, what I'm talking about is the manufacture of standardized units, whether it's classrooms or whether it's whatever it happens to be that you have this consistency in terms of what the unit is. It's the same material. It is mass production.

Now, of course, when it goes into the field, it gets dressed up. And so it looks not like modular construction, not like sort of stereotypical views of modular construction. I mean, modular construction in part gained a bad reputation because modular classrooms became those classrooms that you learned in when your school board didn't care enough to give you really permanent construction. And so it was thought to be of inferior quality. But obviously, technology changes.

And if you look at some of the modular buildings of today, it's really quite remarkable what can be done. But the notion is that there's a certain amount of mass production taking place that creates economies of scale that drives down costs. And that lower cost is effectively higher productivity. It allows us to do more with fewer dollars. And so I think that's what I'm thinking about when I'm thinking about the economics and modular construction.

And again, it's a workforce in a controlled setting. And so guess what that does? I mean, one of the reasons I think young people don't enter construction to the extent that we would like or to the extent that one would expect, given how much construction workers make, is because young people seem to care about things like flex time. Well, in construction, you know flex time. I mean, in many cases, the construction is taking place overnight.

Many of us have driven late in the night and seen construction workers at work at 2 or 3 a.m. A lot of these young folks, they don't want that. And so they eschew construction. But if you're doing, and road work is perhaps a bad example, because it's not susceptible to modular activity. But if you're able to do some fraction of construction indoors, you can perhaps do, you know, you can perhaps supply some flex time.

Right? You don't need everyone there at the same time necessarily. You know, people can do their part separately. I mean, there's more scope for that than when you have to be on the job set with everybody else at the same time. And so, you know, I think it's a move into modernity.

It's a recognition that the younger workforce is different in terms of their tastes and preferences than the more senior workforce. And if we're going to recruit enough construction workers, we need to change our business models. And modular construction represents one of the ways that we can change the business model. Do you think that there are any other trends that incorporate innovative ways of building that would be attractive to the millennial? A 3D printing.

I mean, you mentioned 3D printing. And, you know, we are now delivering construction services worldwide, at least, using 3D printing. I mean, you can now 3D print a building. And, you know, we'll see more and more of that. And, you know, right now, these very sophisticated 3D printers are extraordinarily expensive.

But what we are observing is that the cost of 3D printers is plummeting year upon year upon year. Now, you may not see that in the data because it looks as if 3D printers are just expensive now as they were a year ago. But the thing is that the new 3D printer is just much more capable than the old one was. And so if you hold constant for capability, the price of 3D printing is really falling. And it'll continue to fall.

And so you can imagine what this means in a decade or two in terms of delivering construction services. And, you know, there's a downside to that too, isn't there? I mean, you know, construction creates a lot of middle income jobs. And, you know, in some sense, as with other jobs, middle income jobs, whether in financial services because of artificial intelligence or whether manufacturing because of robotics, you could imagine that a lot of construction firms would be jeopardized by things like 3D printing. And I think, in fact, that's exactly what's going to be the case.

And there is right now an urgency to find and install labor saving technologies because people can't find enough workers. Exactly. Yep. Ah, very interesting. Yeah, it just has my wheels turning a bit.

And I know you mentioned about recruitment is just not targeted enough towards the millennial. Is there any reason why you think that is? Oh, it starts right from elementary school, I think. So the mantra in American education, I think, you know, public education, at least, but probably, I think even perhaps even more so in among independent schools or private schools. The mantra is college preparedness.

Right from the get go, we're getting these kids to college. That's the path. And we're going to get these kids to pass their state standardized exams. So we need these kids to pass the reading test. We need their kids to pass math tests.

We need to have high graduation rates and we want to have high matriculation into college rates. And I don't think that's necessarily a bad thing, by the way. The problem is that one size does not fit all. We're very heterogeneous as a species. We have different passions, different interests, different destinies.

And so, yeah, I think the college is a fine thing for many folk. They really should go on to Arizona State. They really should go on to Stanford. They really should go to MIT or Georgetown or whatever it happens to be. Fine.

Or their local two-year college and if they want to be a paralegal or whatever it happens, that's fine. Great. Terrific. But there are a group of people out there, they're amongst us, who if they went into carpentry, would be splendid carpenters. There are a group of people out there amongst us who, if they went into pipefitting, would be spectacular at that.

But they may not come to realize their ability to excel in those fields because they're never introduced to those fields in school. A lot of the construction from owners who I talk to, some of whom who are rich in their late 20s, and by their 30s, tell me that they discovered their love of construction, meaning working with their minds and hands at the same time, in shop class. There's no shop class in school for the most part. I mean, if you're trying to get kids to pass tests in reading and math and maybe social studies and some other subjects, you're not going to take them out of those classes to put them into a shop class, an elective, because the administrators are graded on what?

The administrators are graded on matriculation rates, graduation rates, how many kids went on to college. You're not going to pull them out to go into shop class. In fact, the school building doesn't have the facilities to go into shop class. It doesn't have the facilities for there to be a shop class. So I think that what's happened is that we just have not introduced enough young people to all of the possibilities, and they're given one sort of path.

It's college preparedness. That's your path. And if they don't go down that road, they are lost. It's one of the reasons that we have millions of so-called opportunity youth in our country, who are not working nor in school. Can you imagine being a 21-year-old and you're not either working or in school?

What does your future look like? But it's true. At the same time, America is home to six million job openings, a record high. And construction supplies a reasonable fraction, a meaningful fraction of those job openings. And people complain about the quality of jobs.

They say, oh, there's so many low-waste jobs available and seasonal jobs and part-time jobs. Yeah, that's true. But there's also a lot of job openings for carpenters and mechanics and welders and machinists and hegan air condition professionals and pipe fitters and all the rest of it. And a lot of those are middle income jobs and interesting work, work of which one can be proud. So there's a lot that has to change societally for us to deal with these issues.

And as you know, it's not just construction, it's trucking and many other industries that simply cannot locate, cannot secure technically qualified personnel. That reminds me of a discussion I had previously about donations from construction sites to local schools just for the mere capability of having materials for people to do something like a shop class elective. There's no funding for that at all in schools anymore because like you said, it is not the goal of the administrators at all. But I do think that there is a concern generally just based upon people that I'm talking to, you know, that there's not that level of labor force available.

And we're adaptable. Millennials are adaptable, right? The moment they do something in shop class, they're going to look at an innovative way of doing it again, you know, using technology at that. So I think that's really interesting. I agree.

It's not at all exposed. You know, they're not exposed to that early on. And I think that companies need to look at that broader perspective. Even if it's a property owner, say for instance in, I don't know, the banking industry, and they're doing construction in their particular space, it's workplace, right? What needs to take place in order for their workplace environment to be improved and incorporate technology?

Construction. Those are the things that people don't think about. They think that, oh yes, we're going to have this TV display and we're going to be able to connect seamlessly because of Bluetooth or Wi-Fi. Guess what? You need infrastructure.

And so it's a really interesting thing that, you know, the two things aren't paired. At all. When people think about, you know, the utilization of technology. Okay. Well, just to kind of get your thought process on, you know, if there's a property owner or a developer or even, like I mentioned, like a banking institution looking to, you know, either decommission their space or expand their space, you know, they're hiring more.

What should they be looking for? I know that's a many different size of the industry, but even so, what are the types of things that you would recommend an investor, somebody who's investing in capital investment, what should they be looking for? I mean, I think, you know, I'm an economist. I talk to audiences all the time about where the economy seems to be headed. And I'm nervous about 2019.

I see some bubbles or mini bubbles forming in commercial real estate, meaning that asset prices have become too high. You know, the Dow Jones recently hit a new record. I mean, that's something I could have said for many weeks, you know, right? That Dow Jones recently hit a new record. But as it turns out, you know, based on the time of this conversation, it happened yesterday.

And an all-time record. We've seen these surging stock prices. Bonds seem very expensive. Capitalization rates are extremely low. We have a lot of office construction taking place.

We have a lot of hotel construction taking place. And it just feels as if there are some excesses building up in the economy. And that's, you know, often that's what sows the seed. That is, in fact, almost always what sows the seeds for the next downturn. Excesses in some major segment of the economy.

Those who remember the 1990-1991 recession will note that that really occurred because of a bubble in commercial real estate and excess capital going into commercial real estate during the 1980s. People who remember the 2001 recession, of course, maybe you'll remember the 2001 recession, will note that that happened because of the bursting of the dot-com bubble and the collapse of the NASDAQ market in particular. Those who remember, almost all of us remember the great recession, of course, that was because of excesses in the US housing market.

And I'm starting to see some excesses in certain segments of the economy, and that makes me nervous about where the economy is headed in 2018, but particularly 2019 and 2020. The longest recovery in American history is 10 years. That was March of 1991 to March of 2001. We have now just begun our ninth year of economic recovery. And that doesn't mean anything, right?

Because it's often said that recoveries don't die of old age. So that's just maybe that's a meaningless point to have made. But the recovery is getting long in the tooth. I am seeing some excesses. Asset prices seem very high to me, and when asset prices are very high, sometimes they stop being very high, right?

They come back down, and that destroys wealth, that destroys confidence, and that can set the stage for the next economic downturn. And so I'm nervous. And so when I talk to people who are trying to deploy capital, I'm trying to remind them that we are probably late in the cycle, and that it might make sense to take some chips off the table, that it might make sense to raise a bit of cash, and not to be too aggressive in terms of developing the next ultra luxury super hotel, that this might be a time to dial down risk in the portfolio just a bit.

And I could turn out to be dead wrong. I'm an economist, so the chances that I'm wrong are very, very high. But all cycles come to an end, and they often come to an end because some bubble bursts. And I think we do have some asset bubbles building out there in the economy. Okay, that's great advice.

Is there anything that you would recommend the listener do right now if they were to take an action? Who should they be following outside, of course, the SAGE policy, of course? And then any resources they should be paying attention to? Well, I mean, I think that first you look inwards. You ask yourselves, if you're a business operator, you always ask yourselves, do I really have the right people on the bus?

And one of the things that happens, it's a natural thing that happens, particularly when there aren't that many skilled people to hire, is that sometimes you accept the wrong people on the bus, and you live with it. Because there's just too much bother to try to say to that person, you know what, your service is no longer required here because you're a mediocre performer. I'm going to go in a different direction. But it's just too much bother, particularly when you're busy day after day after day.

And so as it turns out, what happens is a lot of wrong people get on the bus and stay on the bus, people who are not particularly productive, people who are not necessarily really wedded to the organizational mission. And that's what you want. You want people who... We're human beings. We make mistakes all the time.

But you can tolerate that when you know someone is absolutely wedded to the organization's success, to its mission. But there's a lot of people out there in organizations who are not wedded to those organizations. And you know how I know this? Facebook. And the way that people talk about their bosses, the way that people talk about their organizations, you can see it on social media.

Why are those people still at work at those places? And so I think the first question is people. Do we have the right people? And second question related to that is how do we get the right people? What would make us more attracted to the best and the brightest, including the best and the brightest millennials?

Is it nicer office space? Is it a shift in schedules? Is it a willingness to pay a certain amount for tuition? What is it that would allow us to attract the best and the brightest? And then the best and the brightest, if we bring them on board, can also use the latest technology.

So how do we map our improving human capital to our improvement in the use of technologies that are emerging? And that's often what I see. And there are some construction firms out there that basically operate like technology firms. And if you go to their offices, they don't look like they're in construction. They're not in some one story, sort of abandoned looking building where someone named Gladys is answering the phone and someone named Jimmy is sort of smoking a cigar.

They have really beautiful offices. They have young people running all over the place. They deliver construction services. A lot of their talent is out in the field. It's absolutely true.

But when that talent is not in the field and they come back home, they come back home to someplace really nice and filled with technology and meeting rooms. And I think that's what people need to think about. Yes, it's an expensive proposition, but those are often the firms that gain the most market share. They have the largest profit margins. And the rate of return on that kind of investment can prove to be very high.

And from a property owner's perspective, being aligned with those type of companies, putting on RFPs to those type of companies that are having that mindset where they're targeting those right type of employees. I think that that's a huge concept to kind of just wrap your head around. There may be people who've been doing the work well, obviously construction execution. You hire subcontractors, they do the work. But it's the question of what's the mindset behind the people that you're hiring, even if it's a contractor that you're hiring or an architect that you're hiring, right?

Well, yeah, that's the thing right now is that it's very easy to settle. And it's tough. I mean, some of this is sort of academic talk, right? Because I think if you're a construction firm operator, you're saying, I got a job right now. And I just do not have the time to figure out whether these people should be on the bus.

I got to have the bus full. These are the people who are available to me. So you can talk all you want about the right people on the bus. I got to get this job done by September 15th. So then the question becomes, what are you trying to do here?

Are you trying to create a system that's going to be able to do that? And I think that's a very important question. And I think that's a very important question. And I think that's a very important question. Then the question becomes, what are you trying to do here?

Are you trying to create a series of temporary staffs that go from project to project to project? Where there's a sort of shifting names and faces. So you're never working with the same group on two consecutive projects. Or are you trying to create a permanent splendid workforce that's going to be there for every project and that's going to deliver very high level of service and keep you away from the next lawsuit? What is the theory of action?

And I think ultimately the best construction firms are those that are going to have basically the same faces year after year after year or similar faces. People who can do the job at a very high level. And care about the organizational mission. And because they care about the organizational mission, they're going to constantly market the firm. They're going to go to meetings, they're going to talk with friends, they're going to be on Facebook and say, oh, I work for a great employer, maybe you should join us.

Or I work for a great employer, you know, maybe you shouldn't bid this project out. Maybe you should just give it to us because I'll tell you, I'll introduce you to our construction superintendents. They're fabulous people. They've been working with us for 15 years. Ultimately, I think that that's the kind of firm that succeeds.

Not the firm that has to scramble for a new construction superintendent every time they win a project. And so again, what is the theory of action? Yeah. Yeah. No, that's great advice.

Thanks for sharing that. And well, just overall, thanks for taking the time out to take part in this interview. I'm sure it's going to be valuable for the constructor audience. I do want to ask you, what is the best way to contact you if somebody wants to reach out, find out more about Sage Policy? So our website is www.sagepolicy.com, our, we're in Baltimore, Maryland, lovely town of Baltimore, Maryland, [phone number removed] is our office number, [phone number removed].

Reach out. We do a lot of public speaking around the country, sometimes in other parts of the world. And, you know, hopefully we'll be in your area soon. Great. Thanks so much again.

Thank you so much for the opportunity. I hope you enjoyed this podcast interview as much as I did. If you like this podcast, please don't forget to subscribe at constructor.com. That's construct-r.com to get email updates from me about upcoming podcasts. If you haven't already subscribed at iTunes or Stitcher, you can find me there.

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