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1980 - 1989: Surviving a Global Downturn

The new decade got off to an auspicious start as Bechtel posted $11.3 billion in new bookings for 1980, more than double the previous year and the highest ever, to that point. Crews were at work on 132 major projects in 20 countries. Anticipating further growth and expansion, the company underwent a major corporate restructuring at the end of 1980. With new work at an all-time high and a new management team in place, Bechtel seemed well-positioned for the future. But tough times lay ahead.

In 1981, the economy slid into the sharpest and deepest recession of the post–World War II era. A December 1981 cover story about Bechtel in Forbes magazine laid out an ominous scenario: “A sharp worldwide recession can hurt an engineering company with its high overhead in salaries. The potential for losses, as competition heats up internationally and customers demand fixed-price bids, is haunting. Losses can quickly erode the thin capital bases found in this, or any other, service industry. . . . There is daily risk, hourly risk all across the globe.”

Many business leaders, Steve Bechtel Jr. among them, worried that the economic difficulties of the early 1980s were exacerbated by a rising tide of overregulation that increased project costs at every turn. For the construction industry, the impact of this potent mix of political forces in the midst of a worldwide economic downturn was devastating. 

Shifts in Leadership and Management

To meet the new challenges, a new holding company, Bechtel Group, Inc., was formed. As the twin pillars of this organization, Steve Bechtel Jr. assumed the title of chairman and CEO and George Shultz was named president. Shultz made his own major contributions to changing the way Bechtel viewed its business. Since his arrival, he had been educating the senior managers at Bechtel, convincing a tight-knit group of project-oriented executives that they had to work as hard at managing their cash flow and financial investments as they did at managing their construction projects. He helped reorganize Bechtel’s investment schemes, including Sequoia Ventures, which was active in real estate and energy projects. Little acorns, Shultz called them. “We can afford,” he said, “as a private company, to make investments we have to be patient with.”

Shultz returned to government as secretary of state in 1982, setting off a fresh round of media speculation about Bechtel’s influence in Washington. Steve reflected on the attention brought to Bechtel: “It bothered me for awhile, particularly the insinuations about our supposed influence with the government. It’s unfortunate that we don’t have all the power it’s alleged we have. If we did, we could help fix some of the problems that exist around the country.” The following May, after Shultz’s departure, Steve announced that Alden Yates would succeed him as president of Bechtel Group, Inc. and a member of Bechtel’s executive committee. “A partner in the company ever since he got out of school,” is how Steve introduced Yates, whose father, Perry, was a close associate of Steve Sr. and an original executive committee member. 

Global Challenges

The economy continued to wreak havoc on business regardless of who was in charge. BART and the Washington Metro jobs had led to major construction management contracts in Atlanta, São Paulo, and Caracas, but no more big transit projects followed. Hotel construction tailed off, and the power market, which had been Bechtel’s biggest moneymaker, collapsed. New utility awards fell from 233 gigawatts during the 10 years from 1965 through 1974 to 55 gigawatts in the 13 years from 1975 through 1987. Not a single new U.S. nuclear power plant had been ordered since 1973. Bechtel’s power workload, which had been increasingly dominated by nuclear, plummeted as Three Mile Island, and later Chornobyl, heightened public concern about nuclear power, and increasing government regulations sent capital costs through the roof. At the same time, North Sea oil, the Alaska pipeline, and price-sensitive conservation measures combined to reverse the rise in oil prices and doom a variety of alternative energies and synthetic technologies. Finally, a host of less-developed countries had become so mired in debt that servicing existing loans became problematic and taking on additional debt for new projects was out of the question. Future growth for Bechtel would come from smaller, more diverse projects such as cogeneration, toxic cleanup, and power plant maintenance.

As the U.S. recession spread to the global economy, Bechtel faced tougher competition for overseas work from non–U.S. firms that were often supported by their own governments. The industry suddenly had a number of new players, new companies, new countries, and new governments that wanted to take on work themselves, seeking outside help to train local workers and to transfer technology.

Bechtel became increasingly multinational. Senior managers, each of whom had spent years traveling and working around the globe, understood that they were outsiders and had to make some attempt to help develop the countries where they worked. The company increased the number of foreign nationals in the organization and opened regional offices to develop local engineering competency. “We have to look at ourselves as a truly international organization,” said Steve Jr. “We have to approach projects as a multinational organization with a multinational staff and multinational sources.” 

Three Mile Island Cleanup

With few megaprojects in the offing, Bechtel established bailout teams—flying squads of engineers, scientists, and other specialists who could be rapidly deployed to emergency situations to assess what needed to be done and to do it. The teams were an outgrowth of the company’s decontamination and cleanup business, which expanded after the company had taken on the billion-dollar cleanup of the nuclear accident at Three Mile Island.

In March 1979, the Unit 2 reactor core of the nuclear power station at Three Mile Island (TMI) experienced a partial meltdown that damaged the fuel rods and possibly other internal reactor components. Radioactive materials were released from the core into the reactor coolant system and into the reactor building. An avalanche of frightening questions came crashing down in response. What were the true dangers of the accident? How close could one get to the reactor without being exposed? What were the conditions in the reactor?

The first studies of the reactor revealed that radioactive isotopes had been flushed from the reactor vessel into the basement, and the levels of radioactivity in the 600,000 gallons of floodwater were higher than in the water of the reactor vessel. Before work could begin in the containment building, the atmosphere had to be cleared, the water cleaned out, and surface decontamination performed. In the summer of 1980, krypton gas was safely removed. Despite an extensive decontamination effort, it was 16 months before a person could venture into the building. By 1987, engineers from Bechtel and TMI owner General Public Utilities had succeeded in decontaminating the site, lowering radioactivity levels to establish a stable and secure facility. 

Other Projects

Despite an overall decline in its workload, Bechtel was still able to win important projects in the U.S. market and around the world. Bechtel Energy Corp., specializing in public power projects, continued to make appreciable gains, as did Becon Construction in open-shop construction. New power contracts included:
    – A coal-fired plant for Gulf States Utilities near Lake Charles, Louisiana.
    – A massive oil-fired generating complex for CADAFE, a government-owned utility company, on Venezuela’s Caribbean coast.
    – A coal gasification combined-cycle plant for Southern California Edison and Texaco near Barstow, California.

Increasingly, new work resulted from Bechtel’s technological prowess:
    – In New Zealand, the world’s first commercial facility for converting natural gas to gasoline was built.
    – A refuse-to-energy plant at McKay Bay near Tampa, Florida, was the first to employ Danish combustion technology for converting waste to energy.
    – SEMASS, a Rochester, Massachusetts, waste-to-energy plant that incorporated innovations in cooling-tower technology to reduce water consumption.
    – A California plant was the first to use coal-derived gas to drive gas and steam turbines in tandem.
    – The first production-scale laser-isotope uranium enrichment facility was developed by Bechtel. 

Prudhoe Bay

Two of the more demanding projects of the period were the design and construction of an offshore seawater treatment plant for Arco (Atlantic Richfield Co.) and a low-pressure separation facility for Sohio (Standard Oil Co. of Ohio). Both projects would boost crude oil recovery at Prudhoe Bay on Alaska’s North Slope, a resource-rich area containing an estimated 9.4 billion barrels of oil and 26 trillion cubic feet of natural gas.

The seawater treatment plant was designed by Bechtel and built at a shipyard in Korea before being towed across the Pacific and Arctic oceans in mid-1983. It was the largest piece of equipment ever transported to Prudhoe Bay. The 26,000-ton, 610-foot-long plant was designed to treat 2 million barrels of sea-water daily, which would be injected into Arco’s oil reservoir to maintain its pressure and enhance production levels.

The $600 million low-pressure separation plant consisted of a series of prebuilt modules, some the size of 10-story apartment buildings. The modules were built in Richmond, California, loaded onto barges, and shipped to Alaska. Once installed and operational in 1984, the facility separated gas and water from crude oil recovered from Sohio’s Prudhoe Bay oil field.

Because the harsh weather conditions at Prudhoe Bay made on-site assembly prohibitively expensive, each module had to be a fully constructed, enclosed building before being shipped to Alaska. Timing of the shipments was crucial, as the waters around Prudhoe Bay are navigable for only a few weeks each summer; they are completely frozen over the rest of the year. 

Ok Tedi

In 1981, Bechtel still found other mountains to climb, or mine—as was the case with the $1.5 billion Ok Tedi gold and copper project in Papua New Guinea. Here was a massive logistical problem, but the taming of hostile environments had been a part of the company’s work since its earliest days. The problem in this case was getting supplies and equipment into the isolated region. So remote and forbidding was its geography that the local people had had no contact with the outside world until 1963.

The job for Bechtel was to build a gold processing plant and mine the gold and copper ore atop (and beneath) Mt. Fubilan, which was more than a mile above sea level. Despite wretched conditions and unprecedented drought, which evaporated Bechtel’s 500-mile river-based logistics route, gold and copper ore were harvested in May 1984. 

Remaining Responsive

While interest rates soared, plummeting energy and commodity prices continued to reduce demand for major oil, gas, and mineral projects. Bechtel’s top management responded on a number of fronts. In one important move, Steve created a new Group Strategy Committee, a rapid-response cluster that included himself and the heads of the three principal operating committees, to identify and react quickly to shifts in the changing construction market.

Throughout the company, developing new markets and carving new niches in old markets became major concerns. With utility construction stalled, Bechtel Power vigorously pursued operations, maintenance, cogeneration, and geothermal work. With nuclear power construction withering on the vine, Bechtel helped troubled power plants find third-party financing to complete construction. Bechtel Civil & Minerals upgraded its nuclear fuel operation into an Advanced Technology Division that could compete for toxic waste management projects, decontamination work, and advanced engineering for military and space programs. That organization would soon be folded into Bechtel National, Inc., led by Bill Friend. Overseas, Bechtel had joined with a Taiwanese firm to establish Pacific Engineers and Constructors, Ltd. and formed Bechtel China with headquarters in Beijing.

Underscoring the value of technical excellence, Bechtel established a Fellows program in 1984. Bechtel Fellows advise the company’s senior management on policy issues and report to them on key developments in their fields—from geophysics and hydraulic engineering to computer animation and environmental remediation.
A major effort was launched to fine-tune competitiveness, and prices were pared to maintain market share. This was a different mindset. “From the mid-1960s until the early 1980s, we had an unprecedented period of prosperity for the construction industry throughout the world,” noted Executive Vice President Harvey Brush.

“There was a lot of money and very high demand for extractive industry, manufacturing, and infrastructure.” The customer’s major incentive was to get the job done as quickly as possible and a kind of laissez-faire attitude had developed toward total project cost. “Schedule became all-important,” added Brush. “It dictated how you structured the job. Customers were concerned about technology transfer and training nationals, so that became part of the cost picture. People weren’t paying as much attention to overall costs because they had other priorities.”

Having developed much of its capability and senior management doing lump-sum work prior to 1967, Bechtel spent the following 15 years in a cost-plus world. Now, in the mid-1980s, construction was entering a new fixed-price era as markets tightened, and Bechtel found it could compete better by controlling the costs of labor and material. Howard Wahl, Bechtel Eastern Power Corporation’s president, converted two major jobs from construction-management to direct-hire construction because he could better manage the cash flow and keep Detroit Edison within its budget. “It was a real learning process for both of us,” said Wahl. “We had to learn to manage the project to the cash available and adjust the schedule instead of making the schedule and adjusting the budget accordingly.” 

Keeping the Wheels Turning

There were other lessons to be learned as well. Through much of the 1960s and 1970s, business had come to Bechtel not because of major sales development efforts, but because Bechtel had available a very large, very effective, and very efficient system to get work done. “People looked at us as doers,” said Harvey Brush. “That reputation was deserved, and we capitalized on it.”

In the 1980s, division managers and business development people alike would discover that markets were adjusting. There would be more infrastructure work in the Third World. But increasingly, in places like Algeria and Indonesia, the emphasis was shifting from major industrial undertakings, such as LNG, oil, and gas, to human needs, such as agriculture, water, and housing. In Saudi Arabia, a new five-year plan (1986–90) marked a significant departure from the three that had preceded it, shifting emphasis from civil engineering to social development, from spectacular physical accomplishments to equally important human needs. The transformation reflected not only Saudi satisfaction with what had been accomplished thus far, but their realization that lower oil prices were going to be a fact of life for the foreseeable future.

Given the new constraints in the market, Bechtel clearly had to be more aggressive in its marketing. Once again, past was prelude. Steve Sr. had so many times cast his eye around the globe to see what was needed, and then shaped the job accordingly. In the 1980s, this practice was renewed with vigor. Said one executive: “If we don’t have a client, we find one. If there’s no project, we assemble one. If there’s no money, we get some.” But even that approach could not protect the company from the declining world markets. Bechtel, like many other companies, would learn a terrible new word: downsizing. 

The Trans-Turkish Motorway

In 1986, the Turkish government commissioned Bechtel and its local partner, Enka, to build a section of a high-speed toll road across the Republic of Turkey that would be part of a transcontinental highway system linking Europe with Asia. Turkish highways were so jammed with cars and oxcarts that produce was perishing in transit, a loss that could be ill afforded by an economy half built on agriculture. The new roadway would contribute immeasurably to Turkey’s economic development, permitting the transport of goods to Middle Eastern markets and to its own people. In October 1992, Bechtel and Enka completed the first phase of their work, a 70-mile, six-lane road connecting Gerede with Ankara. The second phase, a 70-mile ring road around Ankara, will be completed in 1998. 

Reorganization

On May 27, 1986, Steve Bechtel Jr. announced an organization-wide realignment. Cordell Hull and John Neerhout Jr. were named executive vice presidents of Bechtel Group, Inc., seven new operating companies were created, and the London division was made a separate subsidiary called Bechtel Limited. The technical manager of the London operation became managing director of the new subsidiary. His name: Riley P. Bechtel. Noted Bechtel’s terse announcement on the Business Wire, “He is a son of Chairman Stephen Bechtel Jr.”

Over the next two years, Bechtel would continue to adjust to the new, more competitive world it was living in. “There’s less work available,” Steve said in 1988. “There are fewer megaprojects, more small projects, and tougher competition. And we anticipate the tough competition is going to last for several years, maybe longer.” Even so, there were still the bell-ringer projects:
    – In 1983, Bechtel was called in to complete the venues for the Los Angeles Summer Olympic Games. It was a last-minute plea from the Olympic organizing committee for Bechtel to help pull off the impossible and bring everything together after the process had begun to lag dangerously. At one site, workers had only 33 days to renovate an entire stadium.
    – Between April 1985 and March of the following year, Bechtel constructed the Colombia pipeline on an extraordinary schedule. The 300-mile, 24-inch pipeline stretched across the Andes, including some of the most rugged terrain in South America. Engineers also had to construct an offshore loading terminal on the Caribbean while stationed on a converted supertanker. When completed, the pipeline provided a much-needed boon to Colombia’s economy, tapping approximately 1 billion barrels of crude—enough to transform the nation from an oil importer to a major oil exporter. 

Riley’s Bechtel

The business climate was still changing dramatically. And in 1989, that tumultuous external change would be reflected in a pair of significant internal events that would once again affirm Bechtel’s ability to adapt to change through continuity. The year was not even three months old when, on March 14, Stephen D. Bechtel Sr. died at the age of 88. A builder for more than 70 years, he had shaped the worldwide enterprise that his son now managed. Two weeks after the death of its senior director, Bechtel named a new president and chief operating officer. At the age of 37, Riley Bechtel became the fourth generation of his family to serve as president of the 90-year-old international engineering and construction firm. “Riley has grown up in our organization on job sites around the world, and comes to this position having served throughout the company for a number of years,” said Chairman of the Board and Chief Executive Officer Stephen Bechtel Jr. “I know he has the spirit, the vision, the will, and the capacity to lead our operations into the next decade.” With that endorsement, Riley Bechtel took charge of the family firm in his mid-30s, as had his father and grandfather before him.

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