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Chapter 2: Executing Design-Build, 1963–1971
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77 Unlike the founders of Hewlett-Packard, Charlie Pankow did not establish his company in a garage. But one had to walk through the garage of his Altadena, California, home to get to the basement, where he set up shop not more than 10 miles to the west of his former Kiewit office. Here off-site managers, accounting staff, and wife Doris Pankow, the sole administrative assistant, worked until early 1965, when the company leased office space in a building on Walnut Street in downtown Pasadena, a couple of miles to the south. Two years later, Pankow relocated his firm’s corporate offices near his residence, to a building on North Lake Avenue that once had housed the Altadena post office; there they would remain until his death.1 In terms of size, staff, and work, Charles Pankow, Inc. (CPI), remained in its early years essentially a replica of the Kiewit building division, reflecting in part the conservative course that Pankow charted for the new firm. This chapter considers how Pankow and the group of men who joined him fared in a competitive marketplace without the resources of a parent corporation behind them. Charlie Pankow was now free to market design-build as he wished. Moreover, he could be confident that his men could complete projects to owners’ satisfaction, as they had done the previous six years. Yet he faced a “Catch-22.” Building a reputation largely on the basis of word of mouth rather than on the tools of modern advertising, as Pankow would choose to do, would require the successful completion of projects delivered through design-build. Yet he faced the challenge of convincing owners to Chapter 2 Executing Design-Build, 1963–1971 CHAPTER 2 78 hire his firm over any number of large and established contractors with commercial building divisions. To court the local building community, Charles Pankow, Bob Carlson , Lloyd Loetterle, and Ralph Tice announced at the outset that they “plan[ned] to continue the same type and size [of] work with which they were previously identified” at Kiewit. “Industrializing” the construction of tall concrete commercial structures, they explained, would enable CPI to estimate construction costs and establish schedules. The new company aimed to do business in San Francisco, Los Angeles, and remote locations on a project-by-project basis: “A mobile system with which [we were] well experienced” at Kiewit.2 Charlie Pankow articulated a business model that he would not modify, even when changing market conditions threatened to undermine it. Negotiated ,lump-sumcontractsonprivatesectorcommercialprojectsconstructedof concrete would be the norm. That is, Pankow would avoid bid work (though, as this chapter elaborates, several early projects were bid). He would avoid cost-plus contracts, too, arguing that they created incentives that reduced the level of trust that an owner could invest in the contractor. Above all, he would rely on repeat clients to stay in business.3 Charlie Pankow sought gross margins of 15 percent in his contracts, although he normally did not achieve this goal. This bar was relatively high for the industry. It reflected both the execution risk that CPI assumed as a designbuild contractor and the compensation that it expected to receive from performingworkthatitmightotherwisesubcontract .NotesRussOsterman,CPI’s lead estimator in these early years, a subcontractor typically would demand a margin of 15–20 percent for performing tasks like precasting and slipforming. Ultimately, Charlie Pankow would limit the growth of the company by pressing for higher margins than potential clients were willing to concede and by constraining sales staff in other ways. Yet the conservative financial approach allowed him to control CPI and preserve its independence.4 ForCharliePankow,CPIwashisfirmandhewoulddonothingthatmight jeopardize his firm grip on it. He started the firm with minimal capital. Yet he never countenanced a public stock offering. Pankow had no interest in managing a company according to the expectations of stock market analysts and outside investors. Anyone who bought stock in CPI had to agree to sell it upon leaving the firm. The company would grow only through retained earnings. This approach helped him to insulate the company from the busi- [44.222.249.19] Project MUSE (2024-03-28 14:24 GMT) EXECUTING DESIGN-BUILD, 1963–1971 79 ness cycle, which publicly held contractors, such as Perini and Turner, found difficult or impossible to manage.5 SecuringabondingcommitmentfromFederalInsuranceCompany(now part of Chubb) was an important moment in the history of CPI. Charlie Pankow sought to secure a bonding capacity commensurate with building structures like the American Cement Building. Lacking the net worth...