Alacrity Housing - Ethics First

Details

Themes: Coporate Governance
Period : 1990 - 2001
Organization : Alacrity Foundations Pvt. Ltd.
Pub Date : 2001
Countries : India
Industry : Housing and Construction

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Case Code : CGOV002
Case Length : 12 Pages
Price: Rs. 300;

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Background Note Contd...

Despite the uncertainty and high risks of the construction business, Karnad sensed an opportunity. Initially, the company built housing complexes for its employees and their friends. The houses were priced economically, without any reference to the market rate. The price struck a balance between a reasonable return to the business and a fair price that the people could afford. As a result, the price was about two-thirds the prevailing market price.

Alacrity introduced many new, value-added features. The company offered its customers a one-year warranty and after sales service. During the warranty period, Alacrity offered free maintenance to the house owners. After the warranty period, any services required by the owners were charged reasonably.

To maintain a good relationship with its customers, Alacrity bore any price escalation caused by project cost overruns or increase in the prices of raw materials. The company also tried to get its suppliers to commit to a particular rate.

The customers had to pay only the price that was agreed on when they signed the contract. Alacrity also promised to pay customers the rent they would have to pay for living elsewhere, if there was a time overrun.

By building a reputation for honesty, Alacrity attracted people who wanted to invest their money with a builder they could trust. Alacrity offered a fixed price and also underwrote all cost overruns thereafter. The company also compensated by way of liquidated damages for any delay in the delivery of a project, even if the delay was beyond the control of the company. People seemed to appreciate these considerate policies. In a survey conducted by an independent agency that required resondents to prioritise the builders preferred by them, more than 60% named only Alacrity.

However, because of its ethical policies, company faced many problems. In one particular case, the company's project was held up because it could not secure electricity supply for its housing complex. Though Alacrity's Government Relations Team actively pursued the matter with the concerned department, it was not successful. Because of this delay, the liquidated damages to be paid to customers added up to several million rupees. Customers became impatient and started questioning Alacrity's policies. But, Alacrity stood by its priniciples.

To pressurize the electricity departments, one of the customers wrote to the Governer, asking him to intervene to help an honest builder. However, the Governer was unable to influence the department. Fortunately, after several days, electric supply was provided and the apartments were handed over to their owners. This episode ended with the customers of the project releasing an advertisement in a newspaper publicly thanking Alacrity.

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