Summary of Changes for Tab 3

Transcription

1 Summary of Changes for Tab 3 Since submitting our Conceptual Proposal, Fluor and Transurban have continued to refine our plan of finance to achieve the best mix of features and benefits for VDOT, taxpayers and the traveling public. While in the recent past it was assumed that a tax exempt privately developed public project offered the most effective financial structure, a number of DOT s have shown a strong interest in evaluating the taxable concession structure. Spreads between tax exempt and taxable interest rates have closed significantly as recently demonstrated on the new Dulles Greenway bond issue. The ability of the private sector to commit true equity for long terms at modest return on equity levels was recently demonstrated on the Chicago Skyway sale. Choosing which approach is better depends on non-financial objectives and constraints of the DOT s as well as the financing capacity of the financing structures. In recognition of these developments, Fluor has teamed with Transurban as a co-developer of the project as well as an investor and operator. Fluor will be an equity investor, co-developer, and design-build turnkey contractor. Transurban will be the majority investor, co-developer, and operations and maintenance manager. This structure is consistent with the teaming arrangement in the Capital Beltway BRT/HOT Lanes Project Comprehensive Agreement. As a result, Fluor-Transurban is presenting two alternate financing structures including a tax exempt plan refined from our Conceptual Proposal and a new concession plan. Upon selection of the Fluor-Transurban Team, VDOT will be able to evaluate the tradeoffs between the two approaches and select the one that best meets the needs of VDOT and the traveling public. We will work with VDOT to customize the plan of finance to best accomplish VDOT s objectives while minimizing those risks VDOT wants to avoid. Another significant change from our Conceptual Proposal is a revised toll revenue projection based on output from a new strategic traffic model and an updated plan of finance that now allows us to propose a net revenue pledge. This enhancement from our Conceptual Proposal allows payment of all toll systems I-95/395 BRT/HOT Lanes System 1 AV Summary.doc

2 and roadway operations and maintenance expenses prior to debt service and eliminates the assumption that VDOT will be responsible for these expenses. Rather than specifically identifying all of the changes to Tab 3 resulting from these enhancements, the Fluor-Transurban Team has rewritten this section in its entirety. To respond to the specific questions provided in the March 1 Request for Detailed Proposal, we have inserted the required information in the text of Tab 3 and identified the questions in comment boxes next to the text that answers the questions. Detailed cash flow projections are presented in Exhibit 3-1 and a Technical Memorandum from Vollmer Associates is presented in Exhibit 3-2 at the end of this Tab. A cross reference guide for VDOT Questions providing either complete answers or brief answers and a cross reference to the location in the Proposal where more detailed discussion on the subject is provided below. Response to RFP Questions for Tab 3 RFP Question 15 cost estimate A cost estimate shall include the following details: Amount and type of private investment Amount of private development expenditures at-risk Expected rate of return on Equity investment Development expenditures Public financial participation Capital related costs (6-Year Plan) Toll revenue bonds Anticipated toll rates Schedule of expenditures and revenues Summarize the total project costs VDOT or other public agency participation including risks allocated to VDOT and contingency funds VDOT s role in the planning and permitting process VDOT s role in oversight and quality assurance Amount and type of private investment Answer: Approximately $135 million in the concession plan of finance and $ million in the tax exempt plan of finance. See Tab 3.b, page 3-8 Amount of private development expenditures at-risk Answer: Initial commitment is $10,000,000. See in Tab 3.b, page 3-7 I-95/395 BRT/HOT Lanes System 2 AV Summary.doc

3 Expected rate of return on equity investment Answer: 12.5 percent. See Tab 3.b, page 3-15 development expenditures Answer: An amount equal to qualified expense through closing. See Tab 3.b, page3-11 Public financial participation capital related costs (6-year plan) Answer: EIS costs only toll revenue bonds Answer: See Sources of Funds on page 3-8 of Tab 3.b anticipated toll rates Answer: Variable depending on congestion. See Tab 3.c, page 3-21 Schedule of expenditures and revenues See Cash Flow summary in Exhibit 3-1. Summarize the total project costs: Answer: Our conceptual cost proposal for this project is $913.4 million. See Tab 3.a for an itemized cost breakdown and a discussion of Agency related costs. RFP Question 16 cost estimating methodology Provide information regarding the project cost estimating methodology. Provide the cost estimate in current dollars and inflated dollars to year of expenditure (indicate the inflation factor(s) used). All items should have a rough estimate. Provide a breakdown of the project cost estimate by phase. Address the need for items, excluded from the cost estimate provided in the conceptual proposal including but not limited to right of way, weight and rest areas, abatement of hazardous materials, contaminated soils, sound walls, utility relocation, permanent lighting and replacement of existing under-crossings. Answer: Fluor-Transurban has developed a preliminary cost proposal which is in conformance with the Virginia Department of Transportation Road and Bridge Specifications, 2002, English. Cost and completion schedules assume construction will commence in May 2007, and costs have been escalated to date of expenditure. Estimated right-of-way costs have been included, but are subject to refinement during preparation of the detailed design and completion of the EIS process. Utility relocations, as well as the effects of integrating the Beltway Phase VIII interchange into the I-95/395 project, have been included. An itemized breakdown of costs as well as a list of items not considered in the preliminary cost estimate is presented in Tab 3.a.2. I-95/395 BRT/HOT Lanes System 3 AV Summary.doc

4 RFP Question 17 preliminary plan of finance Provide a preliminary plan of finance, including transit funding, for the project for all work necessary for the completion of the project including assumptions where VDOT is responsible for the work and/or the funding. Provide pro forma schedules detailing the preliminary plan of finance including debt amortization, project draw schedule, deposits to fund reserve accounts, and anticipated cash flows. Plan of Finance presented in Tab 3.b, pages 3-7 through Detailed cash flows presented in Exhibit 3-1. RFP Question 18 evidence of surety Provide evidence from a surety or insurance company (with a Best s Rating of A minus and VIII or better by A.M. Best Co.) stating that the proposer is capable of obtaining a performance and payment bond in the amount of the anticipated cost of construction per phase, which bonds will cover the project and any warranty periods. Based on VDOT s request for a performance and payment bond in the amount of the anticipated construction cost, approximately $1 billion, the Fluor-Transurban Team contacted our insurance broker, Marsh, to inquire about the availability of such a bond in the market. Marsh contacted the largest sureties in the industry and received responses from 8 of the top 10 sureties on the SAA top 100. These responses indicated that only the largest of the top 10 firms would be willing to provide bonds up to $250 million, for a project of this size and duration. As the construction is for one project divided into four sections, it is not possible to obtain smaller separate bonds for each section independently. Marsh s inquiries also determined that sureties were comfortable writing policies for warranties in the 2- to 3-year range. They stated that some sureties would be willing to write slightly longer warranty policies, if the policies were limited to certain aspects of the project. See Tab 3.d for evidence of the Fluor-Transurban Team s surety and insurance standing. I-95/395 BRT/HOT Lanes System 4 AV Summary.doc

5 RFP Question 19 business plan Provide a business plan which details the risks and contributions proposed to be made by all parties participating in the project, including bondholders, members of the proposer s team, and the VDOT. Discuss your proposed approach to assignment/assumption of various project risks. Business plan is for the Fluor-Transurban Team to take responsibility for the development, financing, design, construction, and operation of a tolled express lanes facility which accommodates HOV use. See Tab 3.b, page 3-6. RFP Question 20 guarantees and warranties Provide a detailed listing of all firms that will provide specific design, construction, and completion guarantees and warranties. Include a brief description of the guarantees and warranties as well as the value and cost of the guarantees or warranties. Fluor will provide single-point responsibility for project completion. See Tab 3.b, page 3-6, and 3.d, page 3-23, and Tab 2.g. RFP Question 21 HOV law enforcement needs Provide a discussion of the anticipated HOV law enforcement needs in the corridor. Enforcement Enforcement is a key functional requirement of all electronic fully tolling systems. It is part of the customer service strategy and is linked to (customer and community) education plan and engineering design standards. The objective of the enforcement strategy is to achieve the required customer behavior. In this sense, enforcement needs to represent a significant risk (of a citation) while at the same time allowing customers to learn how to properly use the BRT/HOT facilities. Fluor-Transurban proposes that all users of the BRT/HOT lanes will be provided with a transponder. This will provide a simple means identification of gross violations and help in the education and marketing of the lanes. Fluor-Transurban will in an operational sense follow the relevant practices of VDOT in relation to enforcement practices. However, image processing and follow up will in the first stage be undertaken by our operations staff. This allows an integrated approach to account management and exception processing and the ability to monitor the success of campaigns to reduce inappropriate use of the BRT/HOT Lanes. I-95/395 BRT/HOT Lanes System 5 AV Summary.doc

6 RFP Question 22 documentation of anticipated commitments and obligations Provide documentation regarding any anticipated commitments/obligations from all parties, equity, debt or other financing mechanisms, appropriations, highway allocations or any other public sector resources. Include the schedule of project revenues and ongoing project operating and maintenance costs. See Plans of Finance presented in 3.b, pages 3-7 through 3-15, and Exhibit 3-1. RFP Question 23 maintenance responsibilities Address the following maintenance responsibilities that were not described in detail in the conceptual proposal: Snow removal operations, especially inside the Beltway with the 2 foot shoulders need to be addressed. Evaluate current maintenance practices, level of service and costs for the corridor with future maintenance practices, level of service and costs incurred with the implementation of the proposal. Discuss the possibility of the removal of tolls during emergency situations by the District Administrator. Snow and Ice Control Plan for the I-95/395 BRT/HOT Lanes Introduction Background Snow and ice control operations is one of our highest priorities. Effective snow operations depend upon (1) detailed planning, (2) immediate and widespread implementation of snow and ice control response procedures before and as snow is falling, and (3) the employment of adequate numbers of modern equipment. This plan of operations is flexible and recognizes that no two storms are the same. The allocation of equipment and personnel to meet the requirements for chemical-abrasive spreading and plowing routes anticipates the worst case and provides for the maximum effort required should that be necessary. It also places emphasis on proper training of personnel and preventive maintenance activities prior to the winter season and/or a storm event to assure a favorable outcome of snow and ice control operations. Level of Service Fluor-Transurban has adopted the principles contained in VDOT s draft document Best Practices Manual for Snow and Ice Control as basic guidelines. These will be supplemented with American I-95/395 BRT/HOT Lanes System 6 AV Summary.doc

7 Association of State Highway and Transportation Officials, Guide for Snow and Ice Control Manual and with the experience of Fluor-Transurban personnel. The goal of Fluor-Transurban s snow and ice control operations is to provide for the movement of traffic during periods that pavements are covered with snow and ice. This will be achieved by plowing during snowfalls with a concentration of plowing during periods of heavy snowfall; by using anti-icing and deicing materials to prevent the formation of a snow/ice bond with the pavement; and by providing a bare pavement condition within 6 hours following the end of storms and completion of storm clean up within 12 hours of the cessation of falling precipitation. Snow Data Fluor-Transurban will utilize historical regional records from the National Weather Service, private weather services, and VDOT records to anticipate a typical winter. A more precise model can be constructed using details regarding geographical location, calendar dates of storms, duration of storms and snow accumulations. As such details become available, they will be used in future models. Our team has researched winter storm planning models including seasonal reports of Significant Snow Storms, Northeastern United States prepared by Weather Services Corp., Bedford, Massachusetts, data presented at the annual American Public Works Association sponsored Snow and Ice Control Conferences, and through communications with VDOT personnel in the southwest corridors. This and our past history models reveal that the vast majority of storms (about 90 percent) take place in the evening, thereby falling on two consecutive calendar days. Approximately 10 percent fell on a single day and only about 2 percent of all storms lasted 3 consecutive days. Information shows that western Virginia receives an average of 40 to 60 inches of snow per year, depending on location, in approximately 10 to 15 measurable storms. This data has been used in the development of this plan. Planning Pre-Storm Planning Safe travel, efficient movement of goods, the preservation of the highway infrastructure are the result of detailed and sound planning. This planning includes, but is not limited to, the following: the availability of adequate contractor resources; the training of Fluor-Transurban and contractor personnel and the development of salting and plowing plans. Contracts Fluor-Transurban will contract with subcontractors to furnish privately owned equipment to be used in snow and ice control operations during the winter season. These contractors have sufficient equipment, a qualified labor force, and the geographical presence to accomplish snow and ice control at the required level of service. I-95/395 BRT/HOT Lanes System 7 AV Summary.doc

8 Plowing and Salting Route Plans The salting and plowing routes will be developed using the following assumptions: Mainline spreading and plowing speed of 30 mph Interchange ramp spreading and plowing speed of 25 mph Spreader reload time will not exceed 30 minutes Salt application rate of 200 pounds per lane mile Plowing routes lengths of approximately 10 miles Segment A North of Route 7 to Beltway 10 miles of 3 lane reversible road with 3 ramps 2 feet to 5 feet of left shoulder 9 feet to 10 feet of right shoulder Segment B Springfield Interchange I-95, I-395, and I-495 Segment C Beltway to Quantico Creek 18 miles of 3 lane reversible road with 5 ramps 4 feet to 10 feet of left shoulder 10 feet to 11 feet of right shoulder This section will consist of one loop of 4 mainline trucks and one ramp truck with all trucks having reversible blades. Due to shoulder restrictions, plowing directions will be alternated according to traffic direction as follows: Plowing northbound (morning traffic) all trucks will plow to right side shoulder (10 foot shoulder). Plowing southbound (evening traffic) all trucks plow to left side shoulder (same shoulder as above) Snow blower and dump trucks would remove snow from shoulder as needed during severe storm events. The snow blower will blow the snow behind it into following dump trucks. This will keep all snow removal equipment all on the shoulder and not in any lanes. For safety a TMA should stay behind the entire operation of blower and trucks. Sufficient trucks will be used to plow all snow into the northbound right shoulder and be removed with snow blower and dump trucks during severe winter weather events. This section will consist of one loop of 4 mainline trucks and one ramp truck with all trucks having reversible blades. Due to shoulder restrictions, plowing directions will be alternated according to traffic direction as follows: Plowing northbound (morning traffic) all trucks will plow to right side shoulder (10 foot shoulder). Plowing southbound (evening traffic) all trucks will plow to left side shoulder (same shoulder as above) Snow blower and dump trucks would remove snow from shoulder as needed during severe storm events. Snow blower should blow the snow behind it into following dump trucks. This will keep all snow removal equipment all on the shoulder and not in any lanes. For safety a TMA should stay behind the entire operation of blower and trucks. I-95/395 BRT/HOT Lanes System 8 AV Summary.doc

9 Segment D Quantico Creek to Massaponax 28 miles of 2 lane reversible road with 15 ramps 4 foot left shoulder with 6 foot unpaved area 4 foot right shoulder with 18 foot unpaved area This section will consist of three loops of three mainline trucks and one ramp truck per loop with all trucks having reversible blades. Plowing directions will be alternated according to traffic direction as follows: Due to the wide shoulders on both sides of this section of road, Option 1: Plow the left lane onto the left shoulder and the right two lanes onto the right shoulder and leave the snow to melt. Option 2 (Severe Events): Plowing northbound (morning traffic) all trucks plow to right side shoulder (10 foot shoulder). Plowing southbound (evening traffic) all trucks plow to left side shoulder (same shoulder as above) Snow blower and dump trucks would remove snow from shoulder as needed during severe events. Snow blower should blow the snow behind it into following dump trucks. This will keep all snow removal equipment all on the shoulder and not in any lanes. For safety a TMA should stay behind the entire operation of blower and trucks. In the event that the VDOT District Administrator wishes to declare an emergency and request removal of tolls, provisions would have to be made to fund lost net revenues equivalent to a negotiated fraction of the projected value of average revenues for a comparable recent time period. Terms to be negotiated in the financing documents. Tolling During an Emergency The I-95 BRT/HOT Lanes will form part of the major road network of Northern Virginia. It will provide seamless travel for customers and provide material benefits to the community. Fluor-Transurban therefore understand that in exceptional circumstances such as declared emergencies, the emergency response agencies will need to be able to enlist the capacity of the BRT/HOT Lanes and the resources of the project operations groups in the best interests of public safety. Fluor-Transurban has faced this requirement on other projects. In these instances, a hierarchy of responses and policies has been developed to allow the respective parties to respond in a coordinated and appropriate manner. This approach is planned for the I-95 BRT/HOT Lanes and would be expected to involve a range of actions as outlined in Table Q23-1. I-95/395 BRT/HOT Lanes System 9 AV Summary.doc

10 Table Q23-1. Tolling During an Emergency Indicative Situation Non casualty accident on GP lanes Major accident on GP lanes Chemical spill over several sections of the GP lanes Declared emergency Draft Response No change to BRT/HOT Lane operations and tolling Suspension of BRT/HOT enforcement action to allow police to detour traffic around the accident scene and provide a safe environment to clear lanes Suspension of BRT/HOT tolling and enforcement in the affected direction of travel Suspension of BRT/HOT tolling and enforcement in both directions of travel The table above is not intended to be exhaustive but serves to outline the principles for developing operating policies and practices relating to the various types of emergencies. RFP Question 24 assumptions for user fees Include a detailed discussion of assumptions about user fees or toll rates, and usage of the facility such as traffic forecasts and assumptions. The discussion should document the time of the toll rates upon the users, the methodology in changing the rates to affect traffic flow based upon traffic forecasts. How are the toll rates managed to ensure that the HOT lanes continue to be free flowing? Evaluate the impact of the implementation of tolls in the corridor on current and future slugging, transit and rail modes. Answer to this and previous question is that tolls will be set dynamically based on actual levels of congestion. See Tab 3.c, page I-95/395 BRT/HOT Lanes System 10 AV Summary.doc

11 RFP Question 25 Liquidated damages/claims Describe any project that the lead contractor or lead designer were involved in within the past 5 years that resulted in: (a) the assessment of liquidated damages against one of such parties; (b) claims being submitted by or against one of such parties that involve the project owner; (c) one such parties having received a notice to cure a default due to the party s non-performance or poor performance of the underlying contract; or (d) one of such parties being terminated for cause. For any such situation, explain the circumstances and identify the project owner s representative and its current telephone number. Fluor has annual revenues of approximately $10 billion, with as many as 2,000 active projects at any given time. We do not track the data requested in this inquiry across all business lines and/or geographic regions. With respect to Fluor s transportation business unit, however, our response is none with the exception of the following matter: Fluor was managing partner of FD/MK, LLC, the developer, and design-builder, of the Route 895 Connector in Richmond, Virginia. The LLC incurred approximately $2.4 million in LDs on that project due to late completion by a subcontractor. All of the damages were passed on to that subcontractor, and no claims were asserted against VDOT. RFP Question 26 outstanding litigation Disclose any outstanding litigation that could materially and adversely affect the financial condition of the lead contractor and the lead designer, and other primary participants. Any litigation matters that are material to Fluor are disclosed in its annual report and other regular SEC filings, which are available online and are attached hereto, in Appendix 3 of the Conceptual Proposal. Transurban is not involved in any outstanding litigation that will impact the project. I-95/395 BRT/HOT Lanes System 11 AV Summary.doc

12 3.a.1 Preliminary Cost Estimate Fluor-Transurban will develop, design, construct, and operate the I-95/395 BRT/HOT Lanes System for a fixed price and deliver it on a date-certain schedule under a design/build agreement similar to that used on the Pocahontas Parkway (Route 895). RFP Question 15 cost estimate A cost estimate shall include the following details: Summarize the total project costs VDOT or other public agency participation including risks allocated to VDOT and contingency funds VDOT s role in the planning and permitting process VDOT s role in oversight and quality assurance Our conceptual cost estimate for this project is $913.4 million. This estimate includes all costs associated with the project description in Tab 2.a. Construction costs are escalated to the date of expenditure based on inflation factors for the major cost components of the scope. Table 3.a-1 summarizes the assumed cost for various project components. I-95/395 BRT/HOT Lanes System 3-1 AV a.doc

13 $ in Millions Table 3.a-1. Project Cost Summary Phase I Improvements Phase II Improvements Traffic Control/MOT Structures Clearing and Grubbing Earthwork Drainage Erosion Control Pavement Guardrails/Barrier Striping, Signage, Lighting & Misc Bus Stations, Bus Stops, Park and Ride Lots Sound Walls Utility Relocations Toll Systems Design, Program Management, Quality Management Right-of-Way Total Project Cost Total Preliminary Agency Related Costs Public Agency Participation. The Fluor-Transurban Team recognizes to maintain a reasonable cost approach to the project, certain risks will need to be allocated to VDOT and a contingency fund account established from financing proceeds to fund the account. Examples of these type risks are: Overruns in the Departments Oversight budget Overruns in the right-of-way (ROW) allowance Department Caused Delays Force Majeure events not covered by insurance Safety Directed changes as a result of new standards At this point in the process, the type of financing plan has not been selected, i.e., versus concession. Each of these has a different risk profile which could impact the amount of the contingency fund to be established. Once the financing plan is selected, Fluor-Transurban commits to the establishment of the appropriate amount of contingency to be available for payment of risks as outlined above. At this time, we have not included an owner s contingency in our preliminary plans of finance. Planning and Permitting Phase. As outlined in Tab 2.c, Fluor-Transurban is willing to engage a consultant to perform the NEPA activities under the direction of VDOT. The Fluor-Transurban Team s role in this process will be limited due to the level of independence the statutes and overseeing agencies I-95/395 BRT/HOT Lanes System 3-2 AV a.doc

14 require for these items. As outlined in Tab 2.c, Fluor-Transurban will acquire the environmental permits with limited oversight by VDOT. Based on our experience on previous projects, like Pocahontas Parkway and ROC 52 in Minnesota, we are familiar with these activities and have outlined the levels of manpower we anticipate VDOT will need for each phase of this work, in Table 3.a-2. Our estimate of the staffing needed to complete the planning and permitting process is based on the roles we outlined in Tab 2.c. These staffing requirements are provided in-lieu of a dollar cost for this activity to allow VDOT to develop an accurate cost for this work based on their current and projected labor costs, and administrative support requirements. Table 3.a-2. Estimated Manpower Requirements Planning and Permitting Phase Planning and Permitting Phase (FTE) Total (FTE Man Months) Project Manager 1 32 Senior Engineer 2 64 Senior Environmental Scientist 1 ½ 48 Staff Engineer 2 64 Oversight and Quality Assurance. The Fluor-Transurban Quality Plan, outlined in the response to RFP Question 9, presents a plan where the Fluor-Transurban Team takes primary responsibility for ensuring that both its designers and contractors are producing a quality product. As outlined in the plan, VDOT will review various aspects of Fluor-Transurban, our designer, and our contractor s work. These reviews may take the form of attending design meetings, auditing quality reviews, construction inspections, or reviewing Non-conformance Reports (NCR). To carry out this work, VDOT will assign staff during the Design, and Construction phases of the project. Drawing on our previous experience working with VDOT on the Pocahontas Parkway, as well as other agency led design-build projects, we have estimated staffing requirements for the duration of the project in Table 3.a-3. Again, these staffing requirements are provided in-lieu of a dollar cost for this activity to allow VDOT to develop an accurate cost for this work based on their current and projected labor costs, and administrative support requirements. Table 3.a-3. Estimated Manpower Requirements Design Phase (FTE) Construction Phase (FTE) Total (FTE Man Months) Project Manager Senior Bridge Engineer 2 ½ 83 Senior Roadway Engineer 2 ½ 83 ITS/Toll Systems Engineer Hydraulics/Drainage Engineer 1 ½ 53 Traffic Engineer Project Engineer Materials Engineer (Construction) 1 46 I-95/395 BRT/HOT Lanes System 3-3 AV a.doc

15 3.a.2 Estimating Methodology The proposal for the Fluor-Transurban Team was developed using our analysis of the best and most efficient way to move vehicles in and out of the Washington, D.C. area. These ideas were turned into the sketches found in Exhibit 2-1 of Tab 2 of the proposal and rough quantities were derived from the sketches applying industry standards for lane width, acceleration/deceleration distances, sight lines, stopping distances, bus station dimensions, parking lot design, etc. Estimated construction costs are in conformance with Virginia Department of Transportation (VDOT) Road and Bridge Specifications, 2002, English. Cost and completion schedules assume construction will begin May 2007, and costs are inflated to date of expenditure. The estimate is based on conceptual geotechnical information with consideration of team members experience with other similar projects in the area. Please see Tab 2.a for a complete list of assumptions. A schedule was developed based on the permitting processes, the volumes of work required and other projected and expected time constraints. The Fluor-Transurban Team then applied an escalation factor for the projected work. Our analysis indicates that bridge and structure work will escalate at about 5 percent per year, and road and paving work at about 3 percent. Estimated right-of-way costs have been included. Fluor will manage the project design effort to minimize the right-of-way takings as the plans are developed. This aspect will be studied in more detail as part of the detailed proposal preparation and resolved during the EIS process. Our design concepts for Phase I improvements, which will be completed after Tier 1 NEPA approval, currently do not require any ROW acquisitions. Utility relocations will be required and are included in the fixed price. These costs will be refined as a more thorough analysis is performed as part of the detailed proposal. The estimated construction costs do not at this time include consideration for such items as: Hazardous materials abatement Contaminated soils Historical/archaeological site resolution RFP Question 16 cost estimating methodology Provide information regarding the project cost estimating methodology. Provide the cost estimate in current dollars and inflated dollars to year of expenditure (indicate the inflation factor(s) used). All items should have a rough estimate. Provide a breakdown of the project cost estimate by phase. Address the need for items, excluded from the cost estimate provided in the conceptual proposal including but not limited to right of way, weight and rest areas, abatement of hazardous materials, contaminated soils, sound walls, utility relocation, permanent lighting and replacement of existing undercrossings. During the negotiations between VDOT and Fluor-Transurban, changes to the conceptual/preliminary configurations desired by VDOT and mitigation measures required by the NEPA process will be addressed in terms of responsibility and cost. I-95/395 BRT/HOT Lanes System 3-4 AV a.doc

16 Introduction As industry experience with public private partnerships for transportation project implementation has increased, it has become apparent that the financing approach should not be cast in a one size fits all manner. The respective objectives of both the public and private partners can be achieved in more than a single contractual framework and, based RFP Question 17 preliminary plan of finance Provide a preliminary plan of finance, including transit funding, for the project for all work necessary for the completion of the project including assumptions where VDOT is responsible for the work and/or the funding. Provide pro forma schedules detailing the preliminary plan of finance including debt amortization, project draw schedule, deposits to fund reserve accounts, and anticipated cash flows. upon industry experience, may ideally change over the lifespan of a project. The ongoing dialogue between the Fluor-Transurban Team and the management of the Department over the past several years in the context of a number of projects has led to a better appreciation of both the priority of objectives and the potential difficulties we believe the Commonwealth has in entering into project contracts under the PPTA. Under the direction of the Fluor-Transurban Team, Vollmer Associates has developed a new strategic traffic model for the Metropolitan Washington Council of Governments region. Based on the preliminary results of this model, there appears to be sufficient revenue potential to fully fund the project scope without the need for any public sector investment. In addition to confirming our ability to fund capital costs, we have revised our plans of finance to fund both toll systems and roadway operations and maintenance (O&M) over the life of the Comprehensive Agreement. As a result, we are proposing to commit to a fully-funded project development approach including O&M. While there are numerous variations possible, the Fluor-Transurban Team offers VDOT two principal alternatives, a tax-exempt, privately developed public project and a taxable privately operated concession project. Both structures are non-recourse to the Commonwealth, offer turnkey design-build, and insulate VDOT from O&M responsibilities. We will work with VDOT to develop the financing structure that best meets VDOT s objectives for the project. Assuming release of the Capital Beltway HOT Lanes Project currently under development, the Fluor- Transurban Team will integrate this I-95/395 scope with the Capital Beltway HOT Lanes as the foundation for a regional HOT Lanes system to provide Northern Virginia customers with consistent operations and customer service programs. A key element of our proposal is providing funding to VDOT for transit or other purposes either from net revenues in a publicly owned structure or from up-front payment in a concession structure. Such funding could be used by VDOT to support transit or other improvements to facilitate transit in the Capital Beltway and I-95/395 corridors. Based on our preliminary plans of finance, annual subsidies totaling of $510 million could be generated using a tax exempt structure or funding could be provided at closing from a concession fee in the amount of $250 million. I-95/395 BRT/HOT Lanes System 3-5 AV b.doc

17 The business plan proposed by the Fluor- Transurban Team is to offer VDOT a turnkey transportation facility at a fixed cost and guaranteed schedule financed in a public-private partnership, where our team takes responsibility for cost, schedule, scope, financing, operations, maintenance, customer service, and public relations. We propose to offer that in either the form of a tax-exempt structure or in a concession structure. In either case, the Fluor-Transurban Team will have significant funds invested at risk to the successful operation of the project. Consistent with a public-private partnership, VDOT will remain responsible for key elements of project development including environmental assessment and approvals, negotiation of contracts to support the financing, approval of plans and specifications, and integration of the project into the existing highway system, including law enforcement. Our approach to assignment/assumption of risk is that each risk should be assigned to the party in the best position to manage that particular risk. Fluor will take primary responsibility for design/build risk, Transurban will take primary responsibility for operations, maintenance, customer service, and business and investment related risks, and VDOT will take primary responsibility for environmental approvals and representing the interests of the Commonwealth and traveling public. Certain other risks will be assumed by third parties including banks, bond investors, insurance companies and service providers. The Fluor- Transurban Team, as developer, will take primary responsibility for overall risk assignment and management. Fluor Virginia Inc. will provide warranties and a guaranty of all design, construction, and completion, similar to the contracts used to finance Pocahontas Parkway. The obligations of Fluor Virginia will be guaranteed by Fluor Corp., the publicly traded investment RFP Question 19 business plan Provide a business plan which details the risks and contributions proposed to be made by all parties participating in the project, including bondholders, members of the proposer s team, and the VDOT. Discuss your proposed approach to assignment/assumption of various project risks. RFP Question 20 guarantees and warranties Provide a detailed listing of all firms that will provide specific design, construction, and completion guarantees and warranties. Include a brief description of the guarantees and warranties as well as the value and cost of the guarantees or warranties. grade parent of Fluor Virginia. Transurban Limited will provide a guaranty of all Transurban O&M obligations, and Transurban Holdings will guarantee all investment obligations. 3.b.1 Project Development Upon execution of a Comprehensive Agreement with VDOT, the Fluor- Transurban Team will mobilize the resources needed to develop a fixed construction price and guaranteed schedule. In addition, we will upgrade the traffic and revenue model we are using for the Capital Beltway HOT RFP Question 22 documentation of anticipated commitments and obligations Provide documentation regarding any anticipated commitments/obligations from all parties, equity, debt or other financing mechanisms, appropriations, highway allocations or any other public sector resources. Lanes Project to develop Investment Grade and Concession traffic and revenue models. Concurrently, we will support VDOT through the NEPA process and recommend that the funding for that process be secured from the Transportation Partnership Opportunity Fund in the form of either a grant or loan. I-95/395 BRT/HOT Lanes System 3-6 AV b.doc

18 Upon completion of the Tier I NEPA process, the Fluor-Transurban Team will offer VDOT a scope, fixed cost, schedule, and plan of finance consistent with the Tier 1 ROD for that Phase of work, along with a proposed plan of finance for what is expected from the Tier 2 ROD. Since the final scope, cost, and timing of the project cannot be determined prior to a ROD, we are, at this time, unable to provide documentation regarding commitments from equity or debt sources other than the offer of Transurban to participate as lead investor and for Fluor to participate as minority investor in project equity or subordinate debt. Other key participants include Bear Stearns as bond underwriter, a lead arranger, TIFIA, and possibly a bond insurer. No significant public sector sources other than TIFIA are anticipated in the capital structure for the project. The Fluor-Transurban Team will work at risk through the development phase of the project deferring compensation for development activities until financial closing. While our current estimate for private development expenditures at risk is approximately $10 million, these costs could be significantly greater if financial closing slips beyond the current expected financial closing date of July b.1.1 Alternative Funding Approaches for the Project The Fluor-Transurban Team believes that either of the following funding strategies could be implemented to facilitate a 100-percent private project development with downstream revenue sharing for the Department: Tax-Exempt Public Private Partnership(Tax Exempt Approach) Use of a combination of traditional tax-exempt bonds and subordinated private sector investment by Fluor-Transurban, with residual cash flow accruing to the Department. Private sector at risk investment subordinate to TIFIA (if used) provides a greater level of funding than a traditional tax-exempt structure and allocates the first risk of loss to Fluor-Transurban. Concession with VDOT Participation(Concession Approach) Use of a concession legal structure whereby the concession company would receive all net revenues until an agreed-upon return has been achieved and would share residual cash flow above this threshold with the Department. Again, Fluor- Transurban as concessionaire would be in a first-loss position. VDOT would receive a concession fee at closing and share excess cash flows after a negotiated return is achieved on project equity to use for transit or other purposes. The Fluor-Transurban Team would reserve the right to supplement either of these structures with a loan from TIFIA, if it is determined to be financially advantageous at the time of funding. 3.b.2 Tax-Exempt Public Private Partnership Plan of Finance Using this approach, the Fluor-Transurban Team would establish a funding vehicle, such as a private corporation in the manner of the Pocahontas Parkway Association, to serve as issuer of the debt that will fund the project. This debt will be issued as tax-exempt toll revenue bonds secured by a pledge of project revenues after provision for O&M costs of the Project. Some of the project debt could potentially be issued to the USDOT under their loan program. These funds would be supplemented by an investment in the project by the development team that would be the most subordinate loan in the final debt structure, and, as such, will carry a higher rate of interest than conventional project loans. The amount of the developer investment in the Project is anticipated to be in the range of $135 million. This is I-95/395 BRT/HOT Lanes System 3-7 AV b.doc

19 consistent with the financing structure presented in our Conceptual Proposal. Transurban would be the lead investor, and Fluor would participate as a minority investor. Fluor will be responsible for a turnkey design/build construction of the project, and Transurban will be responsible for toll systems, start-up, toll operations, customer service, and for arranging ongoing O&M contracts. A transit subsidy payable after O&M expenses and debt service on publicly traded and TIFIA debt (but ahead of return on the Fluor- Transurban Investment) would be transferred to VDOT. This is projected to generate up to $510 million for that purpose. In addition to the priority $510 million, residual cash flow after funding a major maintenance reserve and repayment of the Developer Investment will be transferred to VDOT for transit or other purposes in the Capital Beltway/I-95/395 corridor. RFP Question 17 preliminary plan of finance Provide a preliminary plan of finance, including transit funding, for the project for all work necessary for the completion of the project including assumptions where VDOT is responsible for the work and/or the funding. Provide pro forma schedules detailing the preliminary plan of finance including debt amortization, project draw schedule, deposits to fund reserve accounts, and anticipated cash flows. Table 3.b-1 below is a summary of the sources and uses of funding for the project. A detailed schedule of project cash flows is presented in Exhibit 3-1. RFP Question 22 documentation of anticipated commitments and obligations Include the schedule of project revenues and ongoing project operating and maintenance costs. Table 3.b-1. Summary of Sources and Use of Funds for Tax-Exempt, PPP Approach Total % Funding Sources Funding Uses Senior Toll Revenue Bonds (Private) % TIFIA (Public) % Fluor-Transurban Investment (Private) % Investment Earnings during Construction (Private) % Total Sources $1, % Project Costs % Capitalized Interest % Transportation Partnership Opportunity Fund Repayment % Debt Service Reserve Fund Deposit % Financing Costs and Reserves % Total Uses $1, % I-95/395 BRT/HOT Lanes System 3-8 AV b.doc

20 Sources of Funds Senior Toll Revenue Bonds This represents the par amount of tax-exempt toll revenue bonds issued with claim on net revenue available after payment of toll system and roadway O&M expenses. The total includes current interest bonds that pay investors interest every six months and capital appreciation bonds, where interest accrues until maturity. TIFIA Loan In order to secure the lowest possible cost of project financing, the Fluor-Transurban Team may seek a TIFIA loan commitment for up to the maximum of 33 percent of eligible project costs. TIFIA proceeds from the first draw at financial closing for Tier I scope would be used to fund Phase I improvements and the remainder would serve as the sole source of financing for the longer-term Phase II improvements to be drawn upon ROD for Tier II scope. If the environmental analysis does not result in a ROD including our proposed Tier II scope, the remaining TIFIA commitment would not be drawn. Drawing the TIFIA Loan in phases eliminates the need to access the capital markets more than once. We plan to submit the formal TIFIA Letter of Interest for this project during the FY2006 funding cycle. Fluor-Transurban Investment Fluor-Transurban has proposed to negotiate an investment in bonds subordinate to TIFIA of $135 million, contingent upon Transurban having responsibility for toll systems development (as a subcontractor under the Fluor design-build contract) and for tolls systems operations and customer service (via a long-term contract to operate the facility that meets IRS requirements as a qualified management agreement). The investment would be structured with repayment subordinate to TIFIA and to the proposed allocation to VDOT for transit or other purposes. Investment Earnings Anticipated earnings on bond proceeds will be deposited into the construction fund, the capitalized interest account, and debt service reserve fund. Uses of Funds Project and Costs Proceeds from bonds, TIFIA Loan (if used), and Developer Investment are structured to cover the cost of the Phase I scope of work. Phase I costs include reimbursement at closing for funds spent at-risk during the development phase, including costs associated with preparation of the traffic and revenue analysis, preliminary design, environmental study support, and preparation of the guaranteed maximum price I-95/395 BRT/HOT Lanes System 3-9 AV b.doc

21 including risk compensation. Costs of the Phase II scope of work are financed from proceeds of the second draw of the TIFIA loan in Capitalized Interest Interest on the bonds during construction will be paid from bond proceeds and associated investment earnings. Transportation Partnership Opportunity Fund Repayment Repayment of the loan used to fund VDOT environmental approval activities. Debt Service Reserve Fund A portion of bond proceeds will be deposited to the debt service reserve fund at closing. Financing Costs and Fees Legal expenses, underwriting fees, and other transaction costs are assumed to total 2.5 percent of the par amount of senior debt issued. The Fluor-Transurban Team proposes to take responsibility for the capital markets debt issuance, take the lead in the negotiation of the TIFIA loan, and fund the deeply subordinated debt, subject to final approval from VDOT. Notice to Proceed and financial closing will be contingent on final VDOT approval of the scope, schedule, cost, and plan of finance. The legal structure proposed will involve a private corporation that will serve as the Private Entity under the PPTA and will have the right to collect tolls on the facility. We will investigate all applicable alternatives for issuance of the project debt, including having the private corporation issue the debt directly, in a manner similar to the role of the Pocahontas Parkway Association for the 895 project, and issuing through an appropriate local conduit. We will then develop a plan for the most effective legal structure for VDOT approval prior to financial close. One of the advantages of this funding approach is the alignment of public and private interests that can be achieved by ensuring that the development team has a financial interest in the project revenue generation. The Fluor-Transurban Team recognizes that the benefits of developer-direct investment in PPTA projects has been accorded a higher priority as the public-private project delivery option has become more familiar to the Department. An additional benefit of this tax-exempt option is maintaining the public sector claim to residual cash flow after payment of debt service. Key details of the financing proposal follow: Capital cost estimates are presented in the, Summary of Sources and Uses for Tax-Exempt PPP Approach, and in Table 3.a-1. Construction of Phase VIII of the Springfield interchange is assumed to be funded by the Capital Beltway HOT Lanes Project and/or in VDOT s six year plan I-95/395 BRT/HOT Lanes System 3-10 AV b.doc