Peter Kiewit Sons' Inc. Business Information, Profile, and History

History of Peter Kiewit Sons' Inc.

Peter Kiewit Sons' Inc. is one of the largest construction and mining companies in the United States. Although considered to be one of the major producers of coal in the nation, Kiewit's primary source of revenue comes from its general contracting business. Construction accounts for over 80 percent of its sales, followed by mining and telecommunications. A closely held, employee-owned company that has eschewed publicity throughout its existence, Kiewit nevertheless has gained notoriety and enjoyed considerable success by constructing many of the country's highways, bridges, dams, tunnels, public utility facilities, and defense installations.

The roots of Kiewit stretch back to 1884 when Peter Kiewit, the son of Dutch immigrants who had settled in Iowa, struck out on his own and opened a masonry business in Omaha, Nebraska. By 1912 two of Kiewit's six children, George and Ralph, had joined the business, and the company became Peter Kiewit & Sons. Having added general contracting to its business, Peter Kiewit & Sons completed small construction projects for Omaha residences and businesses. After the death of the elder Kiewit in 1914, George and Ralph took control of the company, changing its name to Peter Kiewit's Sons.

By 1920, the youngest of the Kiewit children, also named Peter, left Dartmouth College in his freshman year and joined the company as a foreman. After several years the young Kiewit--who would eventually run one of the largest construction companies in the nation--began estimating, bidding, and supervising entire projects. He landed the first million dollar contract for the company, the construction of Omaha's Livestock Exchange Building.

In 1930 Peter Kiewit suffered the obstruction of a blood vessel resulting from the chronic inflammation of his veins--a condition called phlebitis. His doctors informed him that he would be a semi-invalid for the rest of his life. Meanwhile family members began to pull out of the company, a move begun by George Kiewit in the mid-1920s. It appeared that the Kiewit legacy--nearly 50 years old--was at an end as Peter Kiewit remained confined to a hospital bed for nine months. The next year, however, only a few months after leaving the hospital, Peter Kiewit formed a new company, named in honor of his father, Peter Kiewit Sons'.

With total assets of roughly $100,000, Kiewit decided to expand into heavy construction, hoping to win contracts for the construction of highways, bridges, dams, and tunnels. The first of Kiewit's many gambles, the decision proved to be fortuitous. By moving in the direction of heavy construction, Kiewit placed the company in a position to win many of the large construction projects that characterized the construction industry of the 1930s.

Kiewit's first project in this arena--a Texas road-building contract--was not a tremendous success. He was unable to complete the work on schedule and had spent half of his working capital by the time the job was completed. The project was a valuable learning experience, however. By the time President Franklin D. Roosevelt's New Deal public works program began soliciting bids for Public Works Administration projects, Kiewit had honed his bidding and scheduling abilities. During this era of increased, federally-supported construction, Kiewit's projects included a canal and reservoir for the Loup River Public Power and Irrigation District in Nebraska and a similar project near the North Platte river. The budget for these two contracts exceeded $3 million.

The profits gained through Public Works Administration projects during the 1930s had provided a stable foundation for the company, although by 1940, with crews working in seven or eight states, Kiewit was still considered a small contracting company. It had, however, assembled a cadre of young men with the ability to undertake projects of formidable scope. This pool of talent proved valuable during the construction boom ignited by World War II, which provided the economic stimulus to dramatically increased Kiewit's size. Its first large defense project was the construction of the cantonments at Fort Lewis, Washington, for $8 million. This initial foray into defense contracts, the first of many to be awarded to Kiewit, was followed by the construction of Camp Carson in Colorado for $43 million, and military installations in Alaska for $35 million. In all, Kiewit completed nearly $500 million worth of World War II projects, placing the company among the nation's biggest builders.

The end of the war did not signal the end of Kiewit's involvement in military contracts, though. In 1950 the U.S. Corps of Army Engineers approached Kiewit for assistance in a joint venture to construct bomber and housing installations in Greenland. Known as "Operation Blue Jay," the project required the importation of 5,000 workers to build the facilities that later became Thule Air Force Base. In 1952 Kiewit was awarded a $1.2 billion Atomic Energy Commission contract to build a uranium plant in Portsmouth, Ohio. The project, which at that time represented the largest construction contract the government had ever given a single builder, demonstrated the strides Kiewit had made since its first experience with heavy construction in Texas 20 years earlier. The plant was completed six months ahead of schedule for $268 million below the original estimate. By the end of the decade, Kiewit had gained a reputation as the contractor able to build large facilities, no matter where they might be located. In 1958 the U.S. Army awarded Kiewit a $5 million contract to build Alaska's first nuclear facility. A year later Kiewit crews began the construction of two radar stations on the Greenland ice cap for a $13 million U.S. Defense Department contract.

Multi-million dollar contracts had quickly become the norm for Kiewit, but the company still continued to take on smaller jobs. While the massive uranium plant in Ohio was being constructed, another Kiewit crew worked in Wyoming to complete a $2,000 paving contract. It was Peter Kiewit's reasoning that the smaller projects provided excellent training for his project supervisors. A mistake made on a small project could prove costly, but a mistake made on a multi-million dollar project could prove disastrous. Accordingly, young supervisors were initially given smaller contracts to oversee. If they demonstrated the ability to successfully complete a project on schedule and, preferably, under the estimated budget, they were then given the opportunity to undertake larger contracts.

Kiewit believed in giving his project mangers almost full control over their projects, but by no means did he allow the reins of the company to be taken completely out of his hands. To ensure that Kiewit projects were progressing on schedule, he would often travel to job sites and supervise the proceedings from a distance through binoculars. A competitive atmosphere was created in which employees could quickly rise to the upper echelon of Kiewit management, and especially productive employees were rewarded with Kiewit stock. Peter Kiewit's approach to the construction business and to his employees, aside from striking some as overbearing, produced remarkable results. Under his watchful eye, the company had evolved from a small, family-operated business into a giant in the construction industry.

By the 1960s, the company had developed into an almost self-subsistent organization. Kiewit owned over 40 corporations involved in nearly every facet of enterprise related to construction and day-to-day operations. Global Surety & Insurance Co. handled the medical and health policies for Kiewit employees, while another company provided them with life insurance. Other subsidiaries leased earth-moving equipment and quarried rock and gravel, while still others mined coal to supply public utility facilities. By subcontracting and supplying much of its own construction operations, Kiewit was able to schedule different phases of a project and limit cost overruns. Consequently, the bidding for contracts could be done much more precisely and, as a result, profits were increased.

Unlike the early 1930s when few companies were capable of fulfilling the large-scale Public Works Administration contracts, by the mid-1960s, the competition for large construction contracts had become fierce. Although many cities required the construction of urban transportation systems, highways, bridges, tunnels, and public utility facilities, the volume of work was outpaced by the number of heavy construction companies vying for the contracts. This increased competition placed even more importance on the ability of a construction company to bid a price that would win and still earn a profit. Often construction companies were forced to bid at cost, then hope that the price of materials would drop sufficiently to realize a profit.

Kiewit, however, had learned through trial and error how to make the gamble of estimating a project less risky. Groups of Kiewit engineers were known to occupy entire floors of hotels near possible job sites while they astutely figured costs. Kiewit had suffered serious losses in some of its ventures, as evidenced by the company's construction of a dam and power facilities in California's Sierra Nevada mountains for the Sacramento Municipal Utility District. A miscalculation in the amount of soil needed to be excavated from the site eventually caused the project to be completed nearly a year behind schedule and millions of dollars over budget. However, such experiences served as lessons for future projects, and the wisdom built up over the past 30 years allowed Kiewit to remain in the black during a time when many big construction companies lost money.

Construction projects during the 1960s continued to focus on areas in which Kiewit had expertise. The U.S. Air Force awarded the company a $68 million contract in 1961 for the construction of Minuteman intercontinental ballistic missile launch bases near Minot Air Force Base in North Dakota. The same year Kiewit, along with four other general contracting companies, won a $40 million contract to construct a 300-mile paved highway in Afghanistan for the U.S. Army Corps of Engineers. Two years later Kiewit shared, in another joint venture, a $51 million contract for the construction of the Wells hydroelectric dam on the Columbia River in Washington State. Among other projects, Kiewit crews completed an $80 million contract for the Portage Mountain Dam in Vancouver, British Columbia, and a section of Toronto's subway system. In addition, Kiewit also undertook extensive construction of federal highways during the 1960s, winning contracts for more than half a billion dollars over a five year period--twice as much as any other contractor.

In 1962 Peter Kiewit, who normally shied away from publicity, surprised many observers by purchasing the World Publishing Co., publisher of the Omaha World-Herald, Omaha's daily newspaper. Vying with newspaper magnate Samuel I. Newhouse, Kiewit sought to keep ownership of the newspaper in Omaha. In a last minute bid, Kiewit offered $400,000 more than Newhouse and purchased the newspaper, its production plant, television station KETV--an Omaha affiliate of the American Broadcasting Association--and a medical building, for $40.5 million.

In 1970, Kiewit's coal mining operations experienced a boom in production. Growing public concern over air pollution had persuaded utility and manufacturing companies to seek cleaner burning types of coal. The low sulphur content of the coal mined by Big Horn Mining Co.--a Kiewit subsidiary located in a small Wyoming town aptly named Kleenburn--generated less pollution and became a highly sought-after variety of coal. Before air pollution became a general concern, Big Horn had shipped a few carloads at a time, but by the early 1970s three trains were shipping 60 to 65 cars of coal each week to such utility companies as Chicago's Commonwealth Edison Co. and Kansas City Power & Light Co. Kiewit's rate of coal production was further augmented when another of its subsidiaries, Rosebud Coal Sales Co., signed a joint agreement to mine low sulphur coal in Montana. Producing over 5 million tons of coal annually, Rosebud Coal supplied steam-electric generating plants in the Rocky Mountain and Midwest areas. The company gained an even greater share of the coal market in 1976, when Black Butte Coal Co., a joint venture with Rocky Mountain Energy, landed contracts to supply three million tons of coal annually to Idaho Power & Light Co. for 25 years, and to Commonwealth Edison Co. for 20 years.

In addition to experiencing dramatic growth in its coal mining concerns, Kiewit's construction operations continued to garner business. In 1971 the company was awarded a $50 million contract by the U.S. Army to begin preliminary work on building facilities at Malmstrom Air Force Base in Montana for the Safeguard anti-ballistic missile program. A year later, the army awarded an additional $110.9 million for the project, which entailed the construction of a wide array of facilities, including roads, fences, buildings, and a complex of underground concrete and steel missile silos. In 1978 Kiewit won yet another contract from the army for $245.3 million to build a powerhouse at the Bonneville lock and dam in Washington State.

In 1979, after nearly half a century of presiding over the operations of Peter Kiewit Sons', Peter Kiewit died. His immediate successor, Robert Wilson, died soon after of heart surgery complications, and Walter Scott, Jr. was named chairman, president, and chief executive that same year. The son of Kiewit's first chief engineer, Scott had joined Kiewit as an engineer after he graduated from Colorado State University.

Scott quickly took over where Peter Kiewit had left off by landing two giant contracts. The first was for the $426 million Ft. McHenry tunnel under Baltimore's harbor--the largest highway-building contract ever awarded at that time--while the second involved the construction of $400 million worth of facilities for the Washington Public Power Supply System. After this initial success, Scott directed the company toward several other large contracts during the early 1980s, including a $208 million dam and hydroelectric plant for Canada's Saskatchewan Power Corp. and a $129 million hydroelectric plant for the Alaska Power Authority.

By 1983, however, high interest rates had begun to severely limit the number of large public building projects. The U.S. Army Corps of Engineers, a major customer of Kiewit's throughout its existence, had not initiated any civil projects in the previous four years. Sensing the growing trend away from giant construction projects, Scott began to lead Kiewit toward further diversification and the pursuit of smaller construction jobs. That year the company acquired Empire Savings, Building & Loan Association--the largest state-chartered savings and loan in Colorado--for $65 million. The following year Kiewit and financier David H. Murdock purchased Continental Group Inc., a packaging, forest products, insurance, and energy concern, for $2.75 billion. Kiewit initially owned 80 percent of Continental, but fully acquired the company in 1985 after purchasing Murdock's stake. Continuing to diversify, Kiewit purchased Life Insurance Co. of Virginia the following year for $557 million, augmenting the insurance holdings of the former Continental Group, now renamed KMI Continental Inc.

After enlarging the breadth of its investments, the company was reorganized in 1986 to better reflect the more diverse nature of its businesses. Peter Kiewit Sons' Inc., as the parent company, would provide management, administrative, and financial services to its three business groups: Kiewit Construction Group, Kiewit Mining Group, and Kiewit Holdings Group.

By the end of the decade, roughly two-thirds of Kiewit's sales came from Continental Can Co., the major packaging component of the Continental Group acquisition. But Kiewit had sold off many of Continental's subsidiaries for a considerable profit, and as the company entered the 1990s it searched for a purchaser of its remaining unrelated holdings. Kiewit found a buyer for Continental Can in 1991, and the company returned to a more concentrated pursuit of its specialty--construction. By 1993 the average construction contract was for $5.3 million, with a typical year bringing in 200 to 300 contracts.

As the builder of over $2 billion worth of America's highways, in addition to the many dams, tunnels, public utility facilities, and military installations that dot the country, Kiewit has left an indelible mark on the American landscape. While contracting for construction projects entails considerable risk, especially for larger projects, Kiewit--one of the country's oldest and most experienced heavy construction companies--can draw upon its past to build toward the future.

Principal Subsidiaries: Kiewit Construction Group Inc.; Kiewit Diversified Group Inc.; Kiewit Mining Group Inc.