Bechtel Group, Inc. History

Company Perspectives:

We will be the engineer-constructor of choice for customers, employees, and key suppliers in every industry we serve by: delivering exceptional value to our customers, earning a fair return on our delivered value, and working closely with our customers, key suppliers, and communities to help improve the standard of living and quality of life.

Company History:

Bechtel Group, Inc. is one of the leading construction and engineering firms in the world, building everything from roads and bridges, to dams and pipelines, to power plants, and even entire cities. One industry analyst has noted that Bechtel's more than 19,000 projects over the course of a century have reshaped more of the earth's landscape than virtually any other human effort in history. As a private and predominantly family-controlled company, Bechtel has long been averse to publicity, an attitude which has sometimes been problematic in light of the firm's numerous links to prominent U.S. government officials.

Early History

In 1884 when he was 12 years old, Warren A. Bechtel moved with his family from a farm in Illinois to the frontier area of Peabody, Kansas. After graduating from high school, Bechtel ventured unsuccessfully into a music career. When "The Ladies Band" failed, Bechtel's father wired return fare to the stranded slide trombonist. The disappointed musician went back to work on the family farm. Some years later, poor farming conditions left Bechtel virtually without any possessions other than a team of 14 healthy mules. When the Chicago Rock Island and Peoria Railway Company pushed westward in 1889, Bechtel gathered up his mule team and worked his way across the continent grading railbed for frontier train lines.

Bechtel eventually sold his mule team, but he continued working for the rail industry in a variety of manual-labor positions. He managed to accumulate a small fortune and formed the W. A. Bechtel Company with his three sons and his brother. The young company began many new ventures, including construction of the Northern California Highway and the Bowman Dam, which was at the time the second largest rock-fill dam in the world. By the time the company was incorporated in 1925, Bechtel was the largest construction firm in the western United States. When a six-company consortium received the $49 million contract for construction of the Hoover Dam, Warren Bechtel became president of the group. Work on the enormous dam lasted from 1931 to 1936. Warren Bechtel did not live to see the project completed, however; he died suddenly in 1933 at age 61.

Stephen Bechtel, one of the founder's three sons, took over the presidency in 1935. He had previously been a vice-president. The young executive directed the company to new financial and industrial heights, supervising completion of the Hoover Dam as well as work on the San Francisco-Oakland Bay Bridge, a hydrogeneration plant, and the Mene Grande Pipeline in Venezuela.

As the United States entered World War II, an already established partnership between Bechtel and John McCone, a steel salesman, grew to encompass a syndicate of companies participating in the construction of large shipyards. McCone and Stephen Bechtel had met at the University of California and had become business associates during work on the Hoover Dam. As an employee of Consolidated Steel, McCone secured the supply of necessary support structures for Bechtel. The business association proved so successful that after the dam was finished the former classmates formed a partnership. By 1940 McCone secured contracts for the partnership to build ships and tankers, and to modify aircraft for the war effort. Later the partnership developed the syndicate that built the Calship and Marinship yards in California, as well as a total of 500 ships. When McCone took a postwar position as undersecretary of defense, it was revealed that the directors of Calship earned 440 times their initial investment of $100,000--a profit of $44 million.

Pipeline and Nuclear Power Plants Highlighted Postwar Years

Bechtel's operations continued to expand in the years following the war. The 1,100-mile Trans-Arabian Pipeline, completed in 1947, is regarded as the first major structure of its kind. The South Korean Power Project effectively doubled that nation's energy output. In 1951 the pioneering company developed the first electricity-generating nuclear power plant, in Arco, Idaho. Later the company built a nuclear fuel reprocessing plant there. By the end of the 1950s Bechtel had construction and engineering projects on six continents and was ready to take advantage of the emerging market for nuclear power.

In 1960 Stephen Bechtel became chairman of the board, and Stephen, Jr., a Stanford Business School graduate and grandson of the founder, stepped into the chief executive officer post. A 1978 estimate suggested that the two men controlled at least 40 percent of company stock. In the likely event of the younger Stephen one day inheriting his father's wealth, it was estimated that he could become the richest person in the United States. The other 60 percent of Bechtel stock was held by some 60 top executives who agreed to sell back their shares when they left the company or died.

With a new generation of leadership in place, the company sought to gain hegemony in the emerging nuclear power industry. In 1960 Bechtel completed the nation's first commercial nuclear station in Dresden, Illinois. Two years later the company built Canada's first nuclear power plant. Construction in foreign markets began to increase almost immediately thereafter. Although the nuclear power industry subsequently ran into difficulties such as cost overruns, questions about environmental safety, and stiff regulatory measures, Bechtel continued to promote nuclear energy as a necessary option to conventionally generated power.

Bechtel's construction projects in the 1960s and 1970s included the San Francisco Bay Area Rapid Transit system (BART), the subway transit system in-and-around Washington, D.C., a slurry pipe in Brazil, and an innovative tar sands project in Alberta, Canada.

In the 1970s two former Nixon cabinet members took executive posts at the company. Later both men, George Shultz and Caspar Weinberger, would leave Bechtel for positions in the Reagan Administration. Bechtel has actively cultivated its ties to the federal government, and employs several former high officials--a fact that has led to criticism of the company.

Plan to Build Jubail Industrial City Unveiled in 1976

In 1976 Bechtel unveiled plans for its Jubail Project, the largest undertaking ever attempted by a construction company. The company spent more than 20 years building a futuristic industrial community on the site of an ancient fishing village on Saudi Arabia's Persian Gulf coast, at an estimated cost of more than $40 billion. The new city became the home of Saudi Arabia's integrated petrochemical industry. A 1973 meeting between Stephen Bechtel, Jr., and King Faisal was the catalyst for the project, which hauled off about 370 million cubic meters of sand and built a modern city complete with a five-million-gallon desalination plant, a national airport, a hospital and clinics, modular homes, mosques, a sex-segregated swimming marina, and a number of factories.

Due in part to a broad-based political effort to halt the use of nuclear power in the United States, in the 1970s and early 1980s Bechtel turned away from nuclear energy to less controversial markets. Nevertheless, problems in the nuclear power industry persisted. A 1978 lawsuit concerning malfunctions at the Palisades nuclear generator in Michigan cost Bechtel $14 million in settlement fees. In addition, a 1984 Mother Jones magazine article suggested that the company's use of irregular payments in attempting to secure nuclear power contracts in South Korea may have violated the 1977 Foreign Corrupt Practices Act. The article also argued that certain Bechtel executives, who later became top U.S. government officials, may have known the payments warranted investigations by the Federal Bureau of Investigation and the Justice Department but said nothing. The company issued a point-by-point rebuttal of the article to its employees.

The company was the subject of negative publicity several times during the 1970s. A 1972 class-action suit alleging sex discrimination at Bechtel was settled out of court for $1.4 million. A bribery scheme involving construction of a New Jersey pipeline led to convictions for four Bechtel employees. Further unwanted publicity arose from the revelation that Bechtel had installed a 420-ton nuclear-reactor vessel backward. Finally, in 1975 the U.S. Justice Department sued Bechtel for allegedly participating in an Arab boycott of Israel, a charge the company denied.

The decade was also a turning point for Bechtel's traditional business in construction and engineering. Prompted by increased government regulation and changing economic conditions, Bechtel embarked on a new program of financing and operational services. Soon after they began, the new divisions contributed 66 percent of total revenues. To defray increasing construction costs, Bechtel began securing financing for its customers, in some cases even putting up the company's own money. Bechtel's diversification program also included acquiring a 15 percent share of the Peabody Coal Company and a major interest in the prestigious Dillon, Read & Company investment firm. By 1982 over half of the company's business involved overseas markets.

During the Reagan presidency Bechtel's ties to the federal government increased considerably. Shultz left the presidency of Bechtel Corporation to become Secretary of State after Alexander Haig, former chairman of United Technologies, left the post in 1982. Weinberger, previously the Bechtel general counsel, was Secretary of Defense for the first seven years of the Reagan administration. By 1984 Bechtel's connections in Washington also included CIA director William Casey, Middle East special envoy Philip Habib, and former CIA director Richard Helms, all of whom had worked for the company either as employees or as consultants in the past.

Lack of Big Projects in the Mid-1980s

By the mid-1980s, Stephen Bechtel, Jr., was chairman of the board. Alden P. Yates, who was Bechtel's president, led the firm into numerous projects previously regarded as too small for Bechtel. These included finishing jobs abandoned by the company's competitors and actively seeking contracts, even those as small as $2 million. Furthermore, remodification and modernization efforts at existing plants offset the lack of contracts for new construction. Finally, the company's operating services division kept skilled experts at work in their fields, mostly in ongoing maintenance of existing facilities.

Despite measures to locate new sources of income, Bechtel had to cut its workforce in 1984 to 35,000 (from 45,000 in 1982). The smaller projects that the company had been forced to take on were no replacement for the megaprojects of the past. The dearth of large projects stemmed from multiple developments. The U.S. nuclear power industry was virtually at a standstill in terms of new plants. In the Middle East, a traditional Bechtel area of strength, big construction projects were no longer the norm, thanks largely to significantly lower oil prices; in fact, the company suffered a severe blow when Saudi Arabia suddenly halted construction on a $1 billion refinery being built by Bechtel in Qasim. Bechtel and other American engineering companies also faced increasing competition from European, South Korean, and Japanese construction firms. U.S. companies saw their share of the world's large construction projects fall from 50 percent in 1980 to 25 percent in 1988.

Bechtel's revenue fell from $14.13 billion in 1983 to $6.55 billion in 1986. New orders, meanwhile, dropped from $13.05 billion to $3.54 billion over the same period. One of the company's responses to this crisis was to reorganize into a more decentralized structure. In July 1986, its two main operating companies, Bechtel Power Corp. and Bechtel Inc., were restructured into five new units: Bechtel Western Power Corp., Bechtel Eastern Power Corp., Bechtel Civil Inc. (civil engineering projects), Bechtel Inc. (petroleum and mineral activities), and Bechtel National Inc. (advanced technical and research areas). At the same time, a separate Bechtel Inc. subsidiary was created, called Bechtel Ltd., which took over the company's British-based activities. These included one of the company's major projects of the later 1980s, the construction of the Channel Tunnel connecting England and France that began in 1986.

By early 1988 continuing difficulties forced the company to further slash its workforce to less than 18,000. That year Bechtel was once again the subject of negative news coverage after it was revealed that in 1984 and 1985 the company had been involved in an abortive effort to build a $1 billion pipeline from oil fields in northern Iraq through Jordan to the Red Sea. Although the pipeline project had been scuttled when the Iraqi government began construction on an alternative pipeline, the special prosecutor investigating Attorney General Edwin Meese looked into an allegation that individuals acting on Bechtel's behalf tried to bribe Israeli officials into promising not to bomb the pipeline. Although no charges were ever filed against Bechtel in the case, this was another instance of unwelcome publicity for the company.

In 1989 Riley P. Bechtel, son of Stephen Bechtel, Jr., became president of Bechtel Group. That year also saw work begin on a major project in downtown Boston, the Boston Central Artery/Tunnel, which was the largest urban highway redevelopment effort in U.S. history. The project was a joint venture between Bechtel and Parsons Brinckerhoff.

Rebound in the 1990s

Bechtel rebounded strongly during the 1990s under the direction of Riley Bechtel, who became chairman and CEO following Stephen Bechtel's retirement in 1991. After the Gulf War, Bechtel led the effort to restore the oil fields of Kuwait, putting out 650 oil-well fires and rebuilding the country's upstream oil and gas installations. Work on airports was significant in the 1990s as the company provided project management services for a $20 billion airport in Hong Kong and worked on the King Fahd International Airport in Saudi Arabia. From 1990 to 1993 Bechtel expanded a natural-gas pipeline in the western United States owned by Pacific Gas Transmission Company. The end of the Cold War brought work to Bechtel in the form of the demilitarization of weapons for Russia. In 1993 the company began providing management, engineering, and support services for the $2.8 billion Athens Metro subway system.

Bechtel was also boosted in the 1990s by emerging markets in Asia, particularly China. In 1995 Bechtel became the first U.S. company to be granted a construction license by the Chinese government. The company had been active in the country since 1978 through a joint venture with the government-controlled China International Trust & Investment Corp. Among the venture's achievements was the building of a manufacturing complex for Motorola in Tianjin, China, which was due to open in 1999. Also in the mid-1990s, Bechtel helped to raise the funds for, and began supervision of, construction on a 430-kilometer toll road in China, the Greater Beijing Regional Expressway. In May 1998 the government of Ukraine selected a Bechtel-led consortium to stabilize a concrete shelter covering the damaged Unit 4 reactor of the Chernobyl nuclear power plant. Other consortium partners for the $760 million project were Electricité de France and the Battelle Memorial Institute.

From 1993 to 1996, annual revenues for Bechtel were no lower than $7.34 billion and no higher than $8.5 billion. After this steady performance, 1997 was perhaps a breakthrough year with revenues surging to $11.33 billion. New orders remained very strong as well, with $12.25 billion booked in 1997, following figures of $11.32 billion in 1996 and $12.47 billion in 1995. It appeared that Bechtel would continue to maintain an impressive presence within the international construction industry.

Principal Subsidiaries: Bechtel Civil, Inc.; Bechtel Enterprises, Inc.; Bechtel Financing Services, Inc.; Bechtel National, Inc.; Bechtel Petroleum, Chemical & Industrial Co.; Bechtel Power Corporation; Bechtel Savannah River; Bechtel Construction Company, Inc.; The Fremont Group; Coldwell Banker Corporation.

Further Reading:

• "Bechtel Group Inc. Will Reorganize into Five Concerns," Wall Street Journal, May 28, 1996, p. 26.
  The Bechtel Story: Seventy Years of Accomplishment in Engineering and Construction, San Francisco: Bechtel Group, Inc., 1968.
  Building a Century: Bechtel, 1898-1998, San Francisco: Bechtel Group, Inc., 1997.
• Crow, Robert Thomas, "The Business Economist at Work: The Bechtel Group," Business Economics, January 1994, p. 46.
• Dwyer, Paula, et al, "Bechtel's Iraqi Pipe Dream Could Land It in Hot Water," Business Week, February 22, 1988, pp. 33-34.
• Kahn, Joseph, "Bechtel Tests Waters for Big Jobs in China: Financing Arrangements for Projects May Be Model," Wall Street Journal, May 1, 1995, p. A10.
• Labaton, Stephen, "Bechtel Faces Lack of Big Projects," New York Times, February 24, 1988, pp. D1, D4.
• McCartney, Laton, Friends in High Places: The Bechtel Story: The Most Secret Corporation and How It Engineered the World, New York: Simon and Schuster, 1988.
• Shao, Maria, "A Bonanza for Bechtel? Well . . .," Business Week, May 6, 1991, p. 36.
• Zachary, G. Pascal, and Susan C. Faludi, "New Blueprint: Bechtel, Hurt by Slide in Heavy Construction, Re-Engineers Itself," Wall Street Journal, May 28, 1991, pp. A1, A16.

Source: International Directory of Company Histories, Vol. 24. St. James Press, 1999.