Small Investment Pays Off Big for Construction Management Firm

It began with a $15,000 investment in a small niche in the building trade--prison construction. A dozen years later, that investment has returned $73 million.

The investor was Kitchell Inc., a privately held firm in Phoenix, on behalf of its subsidiary, Kitchell Capital Expenditures Management. Kitchell won the contract to serve as program manager of California’s new prison construction program in July, 1982.

In the years since, no contractor has forged a closer relationship with the Department of Corrections. Although other contractors have been paid more, Kitchell’s contract has been lucrative.

Since 1982, Kitchell’s contract has been amended and extended 35 times. Prison officials say payments to Kitchell this year will be $9.5 million.

“It’s a significant project. That’s an understatement,” said George Denk, president of Kitchell CEM. “When the project started, I don’t think anyone really anticipated the growth.”

Kitchell assigns 72 employees to its Sacramento office. Those employees write yearly updates to the department’s five-year master plan for prison construction. They also oversee design and construction work by other companies.

Denk said Kitchell’s innovations have saved the state millions of dollars and have helped ensure that construction is done on time. “We have to prove ourselves every day,” Denk said.

Kitchell works from a leased office building six blocks from the Capitol, three floors above the Corrections Department’s planning and construction division. The proximity “has allowed us to create an unusually close and strong working relationship,” the firm says in its promotional material.

Kitchell has used its prison design experience to win jobs building jails in Los Angeles and Orange counties, and prisons in other states. Last year, Hochtief of Germany, one of the 30 largest construction firms in the world, purchased a 35% stake in Kitchell.

Kitchell started its work with the Department of Corrections as a sort of junior partner to Paul Rosser, an Atlanta engineer who specialized in prisons.

In an interview, Rosser said he invited Kitchell into the project. Each put up $15,000, documents show.

They were hired in July, 1982, in the final days of Gov. Edmund G. (Jerry) Brown’s tenure, and Rosser began designing small prisons, housing about 500 inmates, with ample space for inmate programs and education. As he envisioned it, guards would not carry guns.

Then, in 1983, Gov. George Deukmejian took office. To cut costs, his aides designed larger prisons with less program space. Correctional officers would keep their guns.

Rosser was concerned that the prisons might not meet Supreme Court standards, and by 1984, he cut his ties to the program. Kitchell remained.

“It has been a rather tragic series of events,” Rosser said. “The decisions that were made were absolutely counter to the practices of what was accepted as the norms. California went in one direction. The rest of the country went in another direction.”

In the Deukmejian years, Kitchell was a target of criticism. “As CDC expanded its staff and acquired expertise,” said an internal memo from the state controller’s office, “the role Kitchell played was to diminish. To date, CDC has increased its planning and construction staff from roughly 15 to 200, but the Kitchell contract has not declined.”

However, an auditor general’s report found no major irregularities.

The Department of Corrections put the program manager contract out for bid in 1989. Kitchell won the contract out of a field of three firms. G. Kevin Carruth, head of the department’s planning and construction division, said he intends to put the contract out to bid again in the coming years.

“It is not a good strategy to change often,” Carruth said.