The Profiteers

by Sally Denton

  The “Big Dig chain of command is shaped more like an hourglass,” reported Boston’s Phoenix newspaper. “Filling the bottom are a host of design and construction companies entangled in joint ventures with one another, and unions representing laborers across those ventures. At the top are a seemingly endless number of governmental bodies with oversight authority over the project but little direct control. And clogging up the middle is a solidified GLOB—the Giant Land of Bechtel.”

  For most companies, even other global behemoths, a project as large, complicated, and controversial as the Big Dig would have absorbed the lion’s share of corporate energy and resources. But for Bechtel, it was just one of dozens of megaprojects happening simultaneously by the late 1990s—many dogged by the same complaints of cost overruns. Bechtel had landed a gargantuan $20 billion Hong Kong deal that called for the construction of bridges, tunnels, railroads, and an airport. The largest civil infrastructure program in the world, it was built on a man-made 3,100-acre island connected with what would be the world’s largest suspension bridge and a planned community for twenty thousand residents. The company had also been tapped to complete the facilities in Barcelona for the 1992 Summer Olympics; a metro subway system in Athens, Greece; a 430-kilometer Greater Beijing Regional Expressway; and it began a decadelong relationship with a Motorola facility in Tianjin, China, to design and build a factory that produced pagers, semiconductors, and cellular telephones.

  Riley took stock of the geopolitical situation in search of new markets. Just as his father and grandfather had often moved the company forward in lockstep with the foreign policy of the US government, or at least with factions within the government, so too did Riley navigate the global environment. “Steve Sr. had so many times cast his eye around the globe to see what was needed and then shaped the job accordingly,” as company marketing literature put it. A corporate insider explained, “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.” Riley would personify this mantra. Like his father and grandfather, Riley saw government regulation as tyranny and was alarmed at global rebellions demanding liberation, especially for minorities.

  Bechtel prided itself on building the infrastructure for the free world—a free world that now included the resource-rich republics of the former Soviet Union as well as the burgeoning Association of Southeast Asian Nations (ASEAN). The collapse of Communism led to a global shift toward privatization, as countries released telephone, utility, and natural resources from nationalized state control. When the Soviet Union crumbled with world-shattering speed, democratic revolutions swept across the globe. “Ethnic, religious, and territorial conflicts, long subdued by the Cold War, erupted one after another. The world was remade, tossed, liberated—and reopened for international business,” as journalist Steve Coll put it.

  With an eye toward gaining a commercial foothold in these emerging nations, Riley was especially drawn to the powerful “tigers” of ASEAN: Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, and the rest. These countries’ governing elites were concentrating on nation building and economic growth. China too was attracting foreign manufacturing and investment in infrastructure and tourism, and Bechtel already had an advantage in that country, thanks to the diplomatic gestures by Bechtel consultant Henry Kissinger, and then by former Bechtel president George Shultz. At the same time, the company expanded its emphasis into one that it described as “human needs, such as agriculture, water, and housing,” and away from the major industrial undertakings that had defined Bechtel throughout its history.

  Just as Steve Sr. had modernized the empires in the ancient region of the Arab world—making Saudi Arabia “the largest American colony between France and the Philippines”—so too would Riley set his goals on modernizing and colonizing in far-flung lands. Many of these newly unstable countries had been off-limits to American political influence and economic trade throughout the Cold War. Now they beckoned, and Riley was eager to answer the call. Welcoming Bechtel had “become a signal of a foreign country’s willingness to cooperate with the United States, and even to support Washington’s interests abroad,” according to an account in Foreign Policy magazine. “There is a sense that, if you work with Bechtel, people in Washington will smile and think more positively about your country as a partner,” said Matthew Bryza, a US foreign service officer and later ambassador to Azerbaijan. “Working with Bechtel validates you as a country connected to the world where the big players operate.” It never hurt that a stunning number of Bechtel executives and employees had top secret national security clearances—providing implicit government “cover” for their activities abroad.

  CHAPTER TWENTY-SEVEN

  Some Found the Company Arrogant

  The four years of Bush 41’s presidency that ended in 1993 had proven fruitful for Bechtel and set the stage for even more government contracts to come. In Riley’s first two years at the helm, the company reported revenues of $7.8 billion, an eight-year high. New work booked rose from $5.4 billion to $9.4 billion—a whopping $4 billion increase. Still, Bechtel remained a private company with no public stockholders, no filings with the SEC, and no government-scrutinized annual reports. So, as always, any financial information released by the company was unverifiable. But judging from its protracted list of projects between 1990 and 1992, the company was growing at a frenzied pace. By now, an untold number of former legislators, legislative aides, and other onetime government officials were under contract as Bechtel lobbyists, consultants, or employees.

  During the Bush tenure, Bechtel had partnered with the Turkish giant Enka—one of the largest companies in the world—to design and build part of the $1.4 billion Trans-Turkish Motorway linking Europe and Asia. Bechtel and Enka teamed up as well to develop the Tengiz and Korolev oil fields in Kazakhstan. In addition to the mega–airport project in Hong Kong, Bechtel was also building seven new airports “from Dubai to Dallas,” as it touted on the company website. At Daya Bay, Bechtel helped build the first commercial nuclear power plant in China, and it was the first American company ever granted a construction license in both Japan and South Korea.

  Still, during the Bush era’s bounty, Riley’s management team also recognized the need to evolve into a more efficient enterprise. With Bechtel projects literally all over the map, the company’s interests had diversified and were no longer confined to the flagship endeavors related to fossil fuels and nuclear energy that had distinguished it for more than a half century. Tasking his “One Bechtel” crew to identify the company’s “core competencies” and then create a strategy to exploit them, Riley was determined not to let Bechtel spin out of control. “The engineering and construction business will always be our primary purpose,” he told an interviewer. “Most conglomerates ultimately falter for lack of a central purpose or core business . . . To me, designing and building projects is, and always will be, the spine of our business. We will never be a conglomerate. At least not on my watch.” But a quintessential conglomerate is what Bechtel had become, and Riley’s vow to narrow the focus of an already global phenomenon would prove empty.

  He formed teams throughout the company, led by “ ‘homegrown’ continuous improvement coaches”—presumably veteran Bechtel employees—to “formalize and clarify” the company’s new strategy of “eliminating corporate waste.” Proud of its Kuwaiti reconstruction project in the aftermath of the Gulf War, Bechtel executives felt the company had shown the world that it could respond faster than any other engineer-constructor to international hotspots. “The company now needed to improve its ability to decide much earlier how, when, and where to place its bets,” according to the company website.

  Riley inherited a corporate organization structured by his father in the 1960s based on what they called a “matrix fashion with an industry axis and, secondarily, a geographic axis.” In this model, the “business lines” controlled the allocation of company resources, and bore full accountability for p
rofit and loss. A risk-averse man of limited imagination, Steve Jr. insisted that the managers at corporate headquarters keep detailed records so that the chain of command and pattern of decision making were clear. Riley wanted a more flexible, less centralized management structure—described as a more balanced matrix in which the global business lines and regional offices would share decision-making authority. “Regions,” modeled on Bechtel’s European, African, Middle Eastern, and Southwest Asian operations, were given responsibility for profit and loss from the moment the work was awarded through its completion. Project managers began reporting to the regional leadership rather than to central headquarters back in San Francisco. By 1992, the new regions included the Americas and Asia Pacific, which were divided further into subregions. “The center of Bechtel’s decision making was now physically closer to the company’s customers,” according to corporate literature. Forbes magazine described the difference between father and son this way: while Steve Jr. ran the company in “more of a militarylike, command-and-control fashion Riley Bechtel has spent his tenure pushing power out to the field and abandoning the prior emphasis on industry groups in favor of more of a regional approach to management.”

  It had also become clear to Riley and his fellow executives that “the perception of Bechtel in many parts of the world was changing—and not always for the better.” The various scandals and negative publicity had taken their toll, and as closer public scrutiny of worldwide privatization occurred, Bechtel went on the defensive. “Bechtel, some thought, was a fair-weather player, maintaining a market presence only when opportunity abounded and pulling out during lulls,” company spokesmen explained. But the ubiquitous skepticism was fueled by Bechtel’s secrecy, if not paranoia. “Bechtel didn’t sufficiently understand many local markets and important relationships. Bechtel wasn’t maximizing the use of local resources to the benefit of its customers and itself. And some found the company arrogant.” In addition to refining its business “matrix,” the company set out to reform its image as well. But it couldn’t shed the ghosts of the scandals that had haunted it in recent years: the Aqaba pipeline, Iran-Contra, Iraqgate, the Big Dig. The hits kept coming.

  As the Bush administration was coming to a close, a federal grand jury indicted Cap Weinberger in the summer of 1992 on five counts of perjury and obstruction of justice for his role in Iran-Contra. He had resigned as secretary of defense in 1987, the year after the scandal had broken, and returned to private life—not to Bechtel this time but to become publisher of Forbes magazine. “The year 1992 was, in every way, a nightmare year for me,” he wrote. “I suppose I had been in some danger of succumbing to the Greek condition of hubris during the nearly five years that had passed since I had left the Defense Department. If so, 1992 was to dispel any pride I might have retained.”

  Accused of participating in the transfer of HAWK and TOW missiles to Iran, and of lying to Congress, Weinberger claimed to be “a pawn in a clearly political game,” calling independent counsel Lawrence E. Walsh a “vindictive wretch.” The special prosecutor responded that the case had nothing to do with policy or politics, but was about lying. “Weinberger gave a little glimpse of the knife he has always carried with him during his long career,” wrote syndicated columnist Mary McGrory, referring to his nickname, “Cap the Knife.” She described his attack on Walsh as “breathtaking and poisonous . . . Weinberger’s way with those who oppose him is viperish.”

  Bechtel whitewashed its long association with Weinberger, removing him from corporate propaganda. He faced a possible five-year sentence and a $250,000 fine on each of the counts. But, like most of his codefendants in the Reagan administration, he was spared the ignominy of a trial when Bush gave him a presidential pardon on Christmas Eve 1992, just weeks before leaving office. Walsh was stunned. “When confronted with scandals in their cabinets, Presidents Ulysses S. Grant, Warren G. Harding, and Calvin Coolidge had eschewed pardons,” he wrote. “I did not think that George Bush, who seemed to pride himself on his character, would be the first president to use his pardon powers in a cover-up.”

  Riley and Steve Jr. were initially disappointed in Bush’s loss to Democrat Bill Clinton in the 1992 presidential election, concerned that their long-standing alignment with the GOP might jeopardize their influence in Washington. But they need not have worried. By then, after more than a decade of Reagan and Bush rolling back the New Deal, sabotaging Nixon’s détente strides, and dismantling Carter’s domestic and foreign policies, the country had evolved into a bipartisan business venture. “Regulators and the regulated had fallen into a slothful embrace,” wrote Steve Coll, “reflecting a national political atmosphere that emphasized the benefits of light government oversight.”

  As it was, Bechtel fared as well under Clinton as it had under Bush, continuing to prosper as one of the country’s major defense and energy contractors, and with several senior Bechtel managers assuming positions in the administration. Bechtel, like the oil companies, “enjoyed access to the administration that was comparable to the halcyon years of the Reagan presidency,” according to Coll. Its influence at the highest levels of government continued. During Clinton’s eight-year administration, Bechtel would not miss a beat in receiving favored government contracts, gaining a foothold into several burgeoning new markets brought on by the end of the Cold War. The demilitarization of chemical and nuclear weapons in Russia was a particular boon. Russia had the most nuclear weapons and the largest stockpile in the world.

  Company press releases described its patriotic efforts to “help preserve the peace by decommissioning relics of the Cold War,” including abandoned or obsolete nuclear weapons factories in the United States and Russia. The company’s close relationships and connections to that country dated back decades to Steve Sr. and Armand Hammer, placing Bechtel in a singular position to develop a comprehensive chemical and nuclear weapons destruction strategy. As part of the Cooperative Threat Reduction (CTR) program—a State Department program aimed at nuclear nonproliferation and antiterrorism based on an intitiative sponsored by Sens. Sam Nunn (D-GA) and Richard Lugar (R-IN)—Bechtel obtained a multibillion-dollar Defense Department contract to dismantle and secure Russia’s nuclear warheads at a moment when its plutonium stores were virtually unguarded.

  Opportunities created by Clinton’s interventionist foreign policy in the Balkans resulted in gigantic nation-building projects in that region. Bechtel and the Clinton administration grew so chummy that a Bechtel executive accompanied Secretary of Commerce Ronald H. Brown on an OPIC trade mission to Croatia intended to benefit Bechtel. Their ill-fated air force jet crashed in Dubrovnik on April 3, 1996, killing everyone on board, including Bechtel’s Stuart Tholan. Tholan, who had been with Bechtel for thirty-three years, oversaw operations in Europe, Africa, the Middle East, and Southwest Asia from his London base. Brown had been Clinton’s most aggressive advocate for US businesses abroad; at the time of his death, the onetime chairman of the Democratic National Committee was under criminal investigation by an independent counsel for his role in a pay-to-play scandal in which he allegedly sold seats on OPIC junkets—such as his last trip to the Balkans—to corporate heavyweights.

  Two years after the air crash, Bechtel signed a $600 million fixed-price contract with the Republic of Croatia to build a seventy-four-mile motorway “as part of an ambitious government plan to link Croatia to the pan-European transportation corridors” for the purpose of bringing tourism and commercial opportunities to the region. The four-lane motorway would run from the capital city of Zagreb to the Slovenian border, and then on to the Croatian border with Bosnia. It was financed largely by US export credits, including loans from the Ex-Im Bank. Again, Bechtel partnered with Enka, as was becoming routine. Other Bechtel-led consortiums during this era included a $760 million contract with the government of Ukraine to rebuild a concrete shelter covering the reactor of the Chernobyl nuclear power plant that had been damaged in a catastrophic 1986 explosion—the worst nuclear disaster in history.
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  “In a world increasingly long on infrastructure needs and short on private capital and government funding, Bechtel’s financial leverage and entrepreneurial touch” proved to be “powerful competitive tools,” as the company saw it. Bechtel had long been in the business of arranging project financing for its customers. Through its Bechtel Financing Services Inc., formed in 1969, the company assembled international export credits, through Ex-Im and other government entities, and bundled them with commercial bank loans. But by the end of the 1990s, as privatization was sweeping the world, Riley wanted the company to expand beyond developing projects into acquiring equity positions in them—forming partnerships with its customers. “Don’t just build things. Own them and run them too,” was Riley’s new concept.

  CHAPTER TWENTY-EIGHT

  Global Reach with a Local Touch

  “Leading the Way to Change” is how Bechtel publicly defined the period between 1990 and 1998 in its eight-part ongoing narrative titled “Building a Century,” which would be published in glossy brochures and posted on the company website. Bechtel celebrated 1998 as its hundredth anniversary—designating 1898 as the company’s founding year, since that was when seventeen-year-old “Dad” Bechtel got his first job on a railroad construction crew.