INFRASTRUCTURE AND BUILDINGS

INTERSTATE 66 CORRIDOR IMPROVEMENTS Response to Request for Information Office of Transportation Public Private Partnerships Morteza Farajian 600 E. Main Street, Suite 2120 Richmond, VA 23219 INFRASTRUCTURE AND BUILDINGS 25 November 13 PROPOSAL > ORIGINAL Internal ref. 615923

Notice to Readers This submission and its attachments as well as the information contained therein are confidential and may be protected by SNC-Lavalin Inc. s intellectual property rights or any of its subsidiaries, affiliates or related companies. Such submission, attachments and information are destined exclusively for the Office of Transportation Public Private Partnerships ( OTP3 ), in coordination with the Virginia Department of Transportation ( VDOT ) and the Virginia Department of Rail and Public Transportation ( DRPT ) for the sole purpose of providing information and recommendations to assist in its developing a strategy for project development and implementing the procurement process for the I-66 Corridor Improvements Project ( Project ). Said submission, attachments and information are CONFIDENTIAL and cannot be disclosed to third parties nor reproduced, utilized or disclosed, in whole or in part, for other purposes, subject to the terms and conditions of an eventual contract which may be entered into between SNC-Lavalin Inc. or one of its subsidiaries, affiliates or related companies resulting from or arising out of this submission. The answers in this submission are provided for the information and assistance of the OTP3, VDOT and DRPT in response to its request, and that nothing contained in these responses shall be construed as being in any way binding upon the SNC-Lavalin as it moves forward through the procurement process.

5. INFORMATION REQUESTED a. General: 1. Please describe your firm, its experience in relation to public-private partnership projects, and its potential interest in relation to the Project (e.g., design/engineering firm, construction firm, operations and maintenance firm, lender, equity investor, etc.)? SNC-Lavalin is pleased to respond to the Request for Information for the Interstate 66 Corridor Improvement project. We view this project as an exciting opportunity and are keenly aware of the need to improve transportation options along the I-66 Corridor. SNC-Lavalin is a world leader in engineering, procurement, and construction and a prominent developer and equity provider for infrastructure and provider of operations and maintenance services. Founded in 1911, SNC-Lavalin (SNC-Lavalin Inc., its subsidiaries and affiliates) is acknowledged for its world-class engineering and technical expertise, project and construction management, procurement and financial arrangement services - all delivered locally to clients anywhere in the world through an extensive international network of offices, partners and suppliers. SNC-Lavalin s annual revenue for 2012 totalled over $7 billion. SNC-Lavalin has been active internationally for more than 40 years and has built a network that spans every continent. We combine first-hand knowledge of diverse geographical regions with respect for the cultures and customs of the countries in which we work. With our headquarters located in Montreal, Canada, and supported by regional offices in 40 countries - including across Canada and the USA, at any given time our 34,000 employees are engaged on challenging projects in approximately 100 countries across the globe. With all levels of government and public entities increasingly adopting the public-private partnership (P3) procurement method of project delivery, SNC-Lavalin is a market leader in concessions and Design, Build, Finance, Operate and Maintain (DBFOM) projects. Through our ability to fulfill all roles on P3 projects, SNC-Lavalin is able to prove our ability to deliver value and implement full-service solutions in this procurement model. We have invested and participated in P3 projects in various sectors including toll roads, bridges, mass transit, airports, healthcare and energy. Over the last 10 years, SNC-Lavalin has invested or committed to invest more than C$1.2 billion in equity in various projects. The SNC-Lavalin Group of companies is an integrated operation having world-class competency in a wide spectrum of disciplines. Under this umbrella we have specialist business streams that focus on the four core elements of the P3 delivery model. Our submission provides an integrated perspective incorporating the input of these key groups, all wholly owned SNC-Lavalin divisions: Concessionaire SNC-Lavalin Capital arranges equity investments and structures financing solutions including project financing, for all SNC-Lavalin business units globally, as well as for third parties. Our financial modeling, project assessment and financing team has structured more than C$7.0 billion in financing worldwide using a number of different financial instruments. SNC-Lavalin Capital has recently closed several P3 and infrastructure projects including the Ottawa Light Rail Project in Ontario, the Evergreen Rapid Transit Line in Vancouver, the Astoria II power plant in New York, the Highway 407 East Extension in Toronto, the Trans-Canada Highway Project in New Brunswick, the William R. Bennett Bridge in British Columbia, the Southeast Stoney Trail in Alberta, the Canada Line Rapid Transit Project in Vancouver and the McGill University Health Centre in Montreal. 1

Design SNC-Lavalin Inc. is recognized as one of the world s foremost international engineering firms and is well known for combining quality and safety principles with efficiency and innovation. With over 100 years of experience in designing and managing projects of every size and complexity, SNC-Lavalin s portfolio demonstrates an ability to successfully design integrated projects using innovative and sustainable technologies. Construction SNC-Lavalin Construction (SLC) is the design-build arm of SNC-Lavalin, offering strategic solutions for the planning, design, construction, testing and commissioning of many types of transportation infrastructure projects. SLC has extensive expertise in bridge and highway development and construction including development of a large part of the Trans-Canada Highway in New Brunswick Canada. Operations and Maintenance - SNC-Lavalin Operations and Maintenance Inc. (SNC-Lavalin O&M) is a wholly owned subsidiary of SNC-Lavalin Inc. SNC-Lavalin O&M and its affiliates globally services more than 1600 lane-miles of highway, including hundreds of bridges and structures, over 100 million sq. ft. of buildings in over 9,000 facilities, more than 120 MW of power generation plants, and over 50 naval vessels. SNC-Lavalin O&M is responsible for high profile transportation contracts, such as operating and maintaining the Canada Line in Vancouver, B.C., (a 12 mile automated light rail transit system); the William R. Bennett Bridge (the only floating bridge in Canada) and over 170 miles of the Trans-Canada Highway system. As an integrated team, we have specialized in P3 and infrastructure development across a range of infrastructure sectors and can assist the Office of Transportation Public Private Partnerships, Virginia Department of Transportation and the Virginia Department of Rail and Public Transportation (collective referred to as the Commonwealth) in finding value for money, whilst satisfying its goals and objectives for the project. Notably, we have worked with other agencies to find value for money and satisfy project goals on some of the largest recent P3 transactions in the North America, including: The Highway 407 East Extension, (an expansion of the existing 407 ETR) is the recently won project to design, build, finance, operate and maintain a 22 mile stretch of highways that will include electronic toll technologies. This project is in addition to our experience as the developer of the original 42 mile stretch of the Highway 407 ETR, running through the north end of the Greater Toronto Area, one of North America s busiest corridors. The Highway 407 ETR is the world s first all-electronic toll road of its kind, and from the day it was opened up to the present day it continues to fulfill its mission of relieving traffic on local highways and roads. South East Stoney Trail - SNC-Lavalin, in joint venture, was awarded a contract to design, build, operate, maintain, and partially finance the southeast section of Calgary s Stoney Trail Ring Road which consists of 15.5 miles of six-lane highway including nine interchanges, one road flyover, two rail flyovers and 27 bridge structures. The project also includes the additional O&M of 6 miles of existing highway. In terms of scope, it is the largest single highway project in Alberta s history. William Bennett Bridge SNC-Lavalin lead the project in all levels of the Design, Build, Finance and Maintenance contract. The construction of the floating bridge consists of 2 transitional spans, a 2,300 foot long floating pontoon segment, and 5 elevated spans. The project began construction in July 2005 and was substantially completed three months ahead of schedule and opened to traffic on May 31st 2008. The new bridge represents a unique engineering and construction achievement given that it is one of only several floating bridges in the world. Throughout the project limits the highway has primarily a five lane, divided, urban cross section with current peak traffic volumes of up to 75,000 vehicles daily. Canada Line Rapid Transit System - SNC-Lavalin Inc. was responsible for every project element, from execution of the EPC contract to operations and maintenance. The successful construction of the Canada 2

Line relied on SNC-Lavalin s ability to manage and coordinate over 400 design, supply and construction contracts simultaneously, and to organize a wide variety of subcontractors and sub-consultants working towards a common goal. The Canada Line was delivered 110 days early and, since inception, has averaged availability in excess of 99% and user satisfaction ratings in excess of 95%. Our past project successes have consistently been achieved through the successful integration of all project components into a cohesive and complimentary team. Through our experience we have learned that the commitment of capital and operations and maintenance solutions with long-term secure agreements has provided the highest and best value for our clients. We fully understand the need for accountability and transparency of actions when delivering government projects and the necessity to provide evidence of value for money to the constituents and stakeholders. At SNC-Lavalin, our We Care philosophy extends to the communities in which we work. We strongly believe that this project will only succeed through the efforts of the proponent coupled with the participation and support of the local community and project stakeholders. If the Commonwealth proceeds with this procurement under a P3 model, SNC-Lavalin will seek to partner with qualified local design and construction companies and assemble a premier team comprising local personnel, local businesses and minorities, veteran and women-owned businesses to provide a project that not only delivers an exceptional transportation corridor but that also contributes to the long term vitality of Virginia. 2. Are there any particular concerns with any of the information that has been provided in this RFI, the Detail- Level Project Screening Report or the DEIS? Please explain any concerns and provide any proposed solutions or mitigations to address those concerns. No, there are no concerns with the information provided thus far. 3. What, if any, advantages will the Commonwealth potentially gain by entering into an agreement in which operations and maintenance, lifecycle responsibility, and/or traffic and revenue risk are transferred to the private sector? How do you assess the likely magnitude of such advantages? What are the potentially offsetting disadvantages? The advantages gained by the Commonwealth if operations, maintenance services and lifecycle responsibilities are included as part of the Project, would be most effectively realised under a performance-based concession agreement or P3 arrangement. Contracting for long-term operations, maintenance and lifecycle services without the inclusion of long-term financing and performance-based contracting would limit the Commonwealth s ability to secure effective risk transfer for operations, maintenance and lifecycle services. The inclusion of these services into a single concession contract that also includes design, construction, and financing elements has numerous documented advantages for public infrastructure projects. Each of these advantages is discussed briefly below. Greater Efficiency and Reduced Costs The inclusion of operations, maintenance and lifecycle services into a long-term concession contract will enable the Commonwealth to secure competitive, fixed-priced services under a single performancebased contract. A performance-based contract would transfer associated risks to the concessionaire and as such, would require it to take a long-term view towards asset performance and efficiency during design, construction, and maintenance activities. Additionally, the inclusion of maintenance services will allow for the concessionaire to bring to bear innovations and experiences gathered on similar projects around the world, which has the potential to introduce significant cost savings to the Project. Reduced Overall Risk for the Project A key point behind any effective contracting structure on a project of this type is that project risks should be transferred to the party that is best able to manage and mitigate those risks. A single performance- 3

based contract for this project would allow for an effective distribution of risk between the Commonwealth and the preferred proponent. Effective risk transfer leads to value for money when the party taking responsibility for a particular activity is better able to manage the associated risks (e.g., the likelihood of the risk occurring is reduced, or the expected cost if the risk does occur is reduced), and when the ability to manage those risks are supported by the added incentive of a long-term, fixed-price, performancebased contract. More Holistic Approach to Project Design The inclusion of the responsibility for maintenance services into the contract for the Project will mean that early on in the proposal development, bidders will seek to optimize their designs (e.g., asphalt pavement or concrete) in order to meet the long-term performance requirements of a project. Undertaking a fully optimized design requires feedback and intensive deliberation from not only the designers, but also from construction and maintenance personal, enabling innovation and synergies to develop between cross functional disciplines. The transference of traffic or revenue risk to the concessionaire would mean that the principle sources of funding available to the private partner for the long-term obligations of the project would be through the anticipated toll revenue stream generated from the Managed Lanes. In a pure user pay model, the highway would be fully developed and operated by the private sector partner with funding support being solely provided through the tolling revenue stream. The most significant risk for the private partner associated with this scenario is the setting of toll rates by the Commonwealth, consequently the private partner assumes the revenue stream risk and has no control over the toll rates. Many projects of this kind are presently challenged due to the recent economic conditions and the ability to fully recover project costs under state set tolling rates. One of the key lessons from this as that a pure tolling risk model may not deliver the stability, predictability and ongoing quality that the Commonwealth desires from the project. The advantages and disadvantages to transferring revenue risk to the private sector are further expanded upon in our answer to Question 17. b. Procurement Process: 4. Do you have any particular concerns with or major observations about the milestone schedule provided in this RFI? Please provide your views on proposed solutions to address these concerns? The procurement of this Project will require a significant amount of work on both the public and private sector sides in a relatively short period of time. Based on our experience with previous concession projects (both availability and toll revenue) a total procurement schedule of just over one year should be sufficient to go from the release of the RFQ to Financial close. This typical procurement schedule can be broken down further into the following components: Project Phase Number of Months RFQ Response Period 1.5 RFQ Evaluation and Approvals Period 1.5 RFP Response Period 6 RFP Evaluation and Approvals Period 2 Commercial and Financial Close 2 Total 13 4

It should be noted that this schedule assumes that prior to commencing the procurement process, the Commonwealth has undertaken the required upfront work including but not limited to, initial design, preliminary geotechnical investigations, commencement of land acquisition process, selection and award of the Commonwealth s advisory team, stakeholder consultation, environmental studies and drafting of major project documents. Further, this timing does not consider any specific delays that may be due to land acquisition issues, environmental or other permitting or time required to obtain approvals of TIFIA or Private Activity Bond (PAB) issuance as may be applicable. We would like to highlight that the current milestone schedule provided in the RFI may be aggressive based on the period of time between the potential Final RFP issuance date (February 2015) and the Expected Commercial/Financial Close (Summer 2015). The timeline may not be sufficient to provide an optimized solution and pricing for the Commonwealth to realize the benefits of the procurement process. 5. What are the critical path items for the procurement of this Project and why? To ensure a successful and timely procurement process and project implementation, it is imperative that the Commonwealth meet some critical path items such as completing Project due diligence such as surveys, land acquisition (if required), permit applications and initial detailed design in advance of starting the procurement process. Other critical path items that need to be met to ensure the procurement process is as efficient and beneficial as possible are: Final release of the definitive specifications and contract requirements. This item is particularly important for our Design-Build and Operations and Maintenance Teams to develop a competitive, innovative and cost efficient proposal for the Commonwealth; Clear risk management and assignment of project risks through market tested project agreement documents; The development of clear and concise handback criteria, penalty clauses and lane availability restrictions, ongoing serviceability and condition requirements so that the teams are able to best assess the operations, maintenance and life cycle service requirements; and Developed timing of interactions with future transportation improvements and expansion. 6. Looking ahead over the next two to three years, do you believe your firm will be interested in submitting a committed proposal for the development of the Project (any or all of the build concepts)? Are there any particular concerns that may prevent your firm from getting engaged in the project development? How might those concerns be resolved? The I-66 Corridor Improvement Project is one of the largest potential P3 projects currently being discussed in the United States. The project has the right project characteristics: size, scope, complexity and room for innovation, to make it a viable candidate as a Public Private Partnership. This project has been identified internally within SNC-Lavalin as a priority project and we are very interested in submitting a committed proposal for the development of the project within the next two to three years. Our final decision on whether to pursue the project will dependent upon clearly understanding the following: The creation of a clear project arrangement that involves a toll or availability payment concession model; qnd Assignment of risk is critical in defining a successful project. Risks and associated penalties are often passed to the private partner that can in our perspective unnecessarily increase the overall costs or in extreme cases prevent us from participating in the process altogether. We recommend careful consideration and evaluation of the risk assignment at the initial RFP Phase of the Project. From an Operation and Maintenance perspective, we recommend the use of clear and reasonable operations, maintenance and lifecycle requirements, handback condition criteria, and penalty regimes. Such requirements should typically reflect best practices within the industry while maintaining consistency with current adjacent or adjoining facilities. 5

Such concerns can typically be mitigated by the following: Assembling a strong and experienced team of advisors and experts with expertise in P3 Transportation projects to optimize contractual documents and bid processes; The development of clear RFP and project agreements which address risk sharing and clearly define performance requirements according to industry practices; and Face to face meetings with proponents prior to the issuance of the final Project Agreements and prior to RFP submission to ensure the expectations are realistic and to resolve concerns. 7. What is the minimum amount of time that your firm requires to develop and submit a committed detailed proposal for the Project after issuance of potential RFP? Based on our understanding of the scope of work, our preferred response time to develop a robust, innovative and cost efficient proposal would be at a minimum six months. Please see our response to Question 4 which provides a typical breakdown for a procurement process. c. Technical Challenges and Alternative Solutions 8. Based on your experience in the development of similar projects and characteristics of the I-66 corridor, please explain the technical challenges that may be encountered with the highway and transit improvement concepts described in the Tier 1 DEIS. Please provide recommendations for mitigating or overcoming those challenges. Generally, any improvement concept or combination of those involving a third party operated infrastructure (Metrorail, Light rail or VRE extension) will be more challenging in terms of design requirements, integration and intermodal connectivity between transportation systems. Close coordination with third parties from the early stages of the design would be absolutely necessary for the successful development of the corridor. Although the two Managed Lanes concept would address demand on a more cost-space efficient fashion than General Purpose Lanes, the maximization of capacity would require fixed guideway solutions. Integration of metrorail, LRT or BRT with auto buses and alike would be more easily achieved with independent and parallel carriageways interconnected at designated connection nodes. Additionally, the following general technical challenges may present themselves in each of the 10 improvement concepts: Existing infrastructure; Geometry of the corridor, land use and wildlife habitat; Maintaining manageable traffic flow through the construction zone; Transmitting information on status of the project during construction; Phasing and scheduling; Air quality and noise; Toll method and collecting technique; Technical coordination, approval and consensus by different Agencies (due the consideration of multiple modes); and Technical approval and coordination with different authorities. 6

9. Do you believe a bifurcated highway system along the I-66 corridor is technically feasible? Please provide any experience and supportive information that you may be able to share from similar projects. Based on our limited understanding of the technical aspects of the project, we believe a bifurcated highway system incorporating high occupancy toll (HOT) lane systems is a technically feasible solution for the I-66 corridor to improve capacity and reduce congestion. However such a solution requires the consistent delivery of clear, pre-trip and real time travel information to users. Under such a system, the options to the highway users as we understand would be: Open use of all General Purpose lanes with no user fees (no tolls); Managed use of bifurcated HOT lane(s) which would provide a perceived higher level of service via; a variable, electronically collected user fee (toll) for Single Occupancy Vehicles (SOV), and simultaneously free access and travel for multi-passenger vehicles (High Occupancy Vehicles (HOV)) (with the passenger occupancy rate to be determined) We envision the effectiveness of such a system to be highly dependent on factors that rely on effective pre-trip information, real time communications and deployment of electronic toll collection (ETC) tags, safe highway design elements, and effective and non invasive enforcement. Such a system would allow the operator to provide pre-travel and possibly real time information to highway users on traffic flow, current and anticipated toll rates, and billing protocols. We would anticipate the user fees as variable within certain parameters to optimize the throughput capacity of the overall corridor and thereby ease congestion for all users. An essential component of such an operation would be the use of reliable and robust ETC technologies and strategically located variable message signage operated via an Operational Control Center with access to real time traffic volume data. Through the use of both ETC and Intelligent Transportation Systems (ITS) the operator would be able to identify congestion based on current and historical usage and apply either time of day based, established variable toll charges, or congestion based toll charges which could be dynamically displayed to users approaching bifurcation areas. Drivers approaching the bifurcation areas could then choose their route as follows: SOV users with ETC tags could elect to drive the HOT lanes at the specified user fees or alternatively remain in the general purpose lanes dependent upon their need/circumstance. HOV users equipped with an ETC tag could elect to use the HOV lanes without charge by selecting this option via their ETC tag. Vehicles without ETC tags would be required to use the General Purpose Lanes, when using the HOT lanes these users would be subject to violation payments; Based on the desired applied user fee policies it is also possible to provide for specific exemptions for specified and identifiable vehicles, such as motorcycles or busses. Our team has current experience with ETC and variable user toll pricing systems based on historical time of day usage as presently employed by the Hwy 407 ETR Project in the Greater Toronto Area. See http://www.407etr.com/tolls/rate-chart-2013.html for more details on the toll rates for this project. We believe the key challenges to a bifurcated lane HOT system as: Limiting the number of entrances and exits to strategic locations in order to minimize traffic weaving between the HOT lanes and the General Purpose lanes and between interchanges; Enforcement issues; Public education of the systems regarding use and the initial deployment; Coordinated O&M of the General Purpose and HOT lanes; and Coordinated Rehabilitation of the General Purpose and HOT lanes. 7

Upgrading HOV lanes with toll systems improves traffic flow and is a cost-effective alternative to additional road construction. Subsequently HOT or managed lane expansions may help to fund roadway expansion. We are aware of successful experiences in the USA such as the Houston Metro HOT system I-495 and as well as the previously mentioned Highway 407 ETR Project. 10. What are the most significant cost drivers in the development and operation of the ML and BRT concepts along the I-66 corridor? How can these concepts be implemented in such a way as to preserve the potential for rail extension? The main cost driver for this Project would be the size of the infrastructure, which will depend on the use of two Managed Lanes versus one lane in each direction and the use of separate or shared guideways for BRT and SOV and the number of Managed Lanes dedicated interchanges. The BRT is a flexible system and can be adjusted for different situations and extended easily to different locations. The ML s are also a flexible system that can operate in different toll modes at different windows time for different types of vehicle occupancy. In order to preserve the potential for a future rail extension, the development of the corridor should incorporate into the concept design a designated right of way and connectivity nodes to suit future intermodal traffic demands. In regard to the operation and maintenance cost drivers, the following are a consideration: Managed Lanes: Equipment and full time personnel required for the enforcement of HOV and BRT requirements; Combined versus coordinated OMR of the BRT, HOV & General Lanes by the Proponent or via the Proponent and third parties respectively. Coordinated OMR will invariably be more costly (require more personnel and resources); Resources required for Tolling Operations (administration, office space, billing, finance); and Rehabilitation of the facility over the operational term. The rehabilitation costs will be determined from the performance and handback requirements. (i.e. Serviceability requirements (IRI, rutting, etc)). BRT: Though we need further clarity on the operator responsibilities and timing in regards of this improvement concept, we currently understand the following to be major cost drivers: Timing and Phasing of the BRT implementation; Land acquisition if applicable; and Rehab responsibilities. Other significant cost drivers: Payment Indexation to the operator over the operating term; The responsibility for power costs for roadway and stations lighting, traffic lights, etc.; and Design of the BRT to current LRT standards - clearance, load, geometry, etc. 11. What, if any interoperability issues do you foresee with the current tolling system on I-495 Express Lanes. The I-66 connects with the I-495 at its east end, if the same E-Z-Pass system is to be used on the I-66 Managed Lanes then there will have to be consistency of the rules, operation, tolling systems and administration to provide clarity to users. 8

12. What suggestions do you have for better coordination between this Project and other projects currently under design or construction along the I-66 corridor? We believe that creating an agency responsible of the future development, management and maintenance of the I-66 corridor could help to facilitate integration and coordination with the stakeholders. 13. What challenges are associated with managing the lifecycle costs for the improvement concepts as described in the Tier 1 DEIS? What measures would you suggest to mitigate these risks? Managed lanes: One of the main challenges we foresee with managing the lifecycle costs of the MLs is with the closing of traffic lanes for the required preventative maintenance and rehabilitation work given the significant traffic load on this roadway. The measures we would suggest that mitigate the issues for the managed lanes is the Commonwealth allowing free lane closure time to the operator for safe and efficient maintenance work during off peak hours. BRT: The driving surface of the dedicated lanes for the BRT may require higher maintenance intervals due to the significant axle load of these vehicles. Stations will need to be upgraded on a regular basis to accommodate increased demand. A mitigation strategy for the BRT system would be to minimize high lifecycle costs and service disruption through the design of the project. 14. What adjustments to the Project scope, or development strategies (including potential phasing of project elements) would you consider/recommend to reduce the upfront capital costs and/or the lifecycle costs of the overall project costs? None at this time, but we would like to note that any potential phasing of the future work should coincide with the long term rehabilitation strategies of the project. 15. Please explain in detail any alternative technical solutions that may enhance the development of the Project. Identify the risks associated with the alternative technical solutions and discuss the potential cost of each technical solution. An alternative technical solution that may enhance the development of the project may be the construction of two lanes carrying traffic that can change direction at different time of the day and at different days (weekday and weekend) depending on the peak time. The cost is comparable for other lanes and it can save the construction cost of adding additional lanes and reduce the requirement of increasing the right-of-way of the project. The challenge would be in the level of entrance and exit of these lanes, however this can be managed through creative design and engineering. d. Commercial and Financial Structure: 16. Please explain your firm s interest in the improvement concepts discussed in the Tier 1DEIS. What is your recommended approach for financing the capital cost of each concept? SNC-Lavalin is a very active investor in infrastructure development and currently owns a portfolio of over 20 infrastructure concessions, which represents a market value of more than $3.0 billion. The I66 Corridor project fits well with SNC-Lavalin s ongoing infrastructure development strategy and as mentioned previously it has been identified as a project of strategic importance. SNC-Lavalin would be potentially interested in investing equity under both an availability and toll revenue concession though our current preference is for investments in availability concessions. With regards to the recommended approach to financing the costs of the project, we envision that financing for the ML and BRT components should be comprised of a mix of funding sources including 9

private debt and equity, contributions from the public sector through progress or milestone payments and potentially a TIFIA loan and/or authorization from FHWA to issue PABs. Sources and allocations of financing instruments may differ based upon contractual structure and the revenue risk taken by the concessionaire. Each of these potential financing tools is described below. Private Equity As seen in recent P3 projects, and more specifically toll road transactions, private equity may be provided from multiple sources. Sources may include strategic investors such as global construction companies or it may be provided by a number of institutional or financial investors such as infrastructure dedicated equity funds, sovereign wealth funds and other institutional investors. A variety of these sources are more thoroughly described below. Strategic Investors: Involvement of the large construction contractors and other industry participants as equity investors has been relatively commonplace in U.S. P3 projects. These strategic investors bring in-depth market insight which greatly assists in the development of project costs and optimization of the final proposal. Infrastructure Equity Funds: Multi-billion dollar infrastructure funds have been raised by several institutions over the past decade. Funds are focused on a variety of asset classes and geographic regions with varying levels of interest in brownfield and greenfield assets. Global Pension Funds: Pension funds have been active investors in infrastructure projects in the U.S. and are attracted to well structured, stable assets with a long-term investment horizon. In recent years, allocation toward infrastructure investment has increased at many of these funds given the nature of the infrastructure asset class. The funds have typically favored existing assets; however, examples exist in the U.S. of funds taking greenfield/development risk. Pension funds have historically provided a lower cost of capital compared to private equity funds. Private Debt Senior Bank Debt: A bank loan may be obtained to finance all or a portion of the project s debt component. Under current market conditions, it is likely this financing be provided by a club of lending institutions which will reduce the risk of syndication. In recent P3 transactions, lenders have been taking an average ticket size of $75 to $100 million but larger tickets in excess of $100 million are being seen on select transactions. Over the last several years bank debt has been typically limited in term of about 7 to 10 years; however financial market conditions have improved recently and we are beginning to see some lenders willing to lend with longer terms. Some lenders that are willing to underwrite will likely require a premium on the financing in the form of a market flex to cover for syndication risk as well as supplemental fees incorporated in the upfront costs. Capital markets: Privately financed infrastructure in the U.S. has used several forms of capital markets financing tools including taxable and tax-exempt bonds. Tax Exempt: Tax-exempt capital markets issuances for privately financed infrastructure in the U.S. has been commonly used by the transportation sector through the use of private activity bonds. This financing mechanism was used on both the North Tarrant and LBJ projects in Texas as well as the Capital Beltway HOT lanes project in Virginia. This financing mechanism is more thoroughly described below. Taxable: Taxable bonds have been used on a variety of infrastructure financings in the U.S. in recent years through issuances in the 144a private placement market. Examples of sectors which have used the 144a market include: parking, rail, transmission lines and military housing. 10

Private Activity Bonds (PABs) The U.S. SAFETEA-LU federal transportation funding reauthorization bill provides authorization for up to US$15 billion of tax-exempt Private Activity Bonds to finance qualified surface transportation facilities. These debt instruments present a potential financing solution to any private partner selected to develop the proposed project. PABs have been used several times on transportation projects in the U.S. (examples include the Capital Beltway HOT Lanes Project and the North Tarrant Express), and are contemplated for several more projects going forward. Although subject to the US$15 billion volume cap under the SAFETEA-LU legislation, it is not anticipated that funding will be constrained by the time it is required for this project. Federal Credit Support TIFIA credit assistance provides a low cost, long tenor, subordinate source of financing. The use of such TIFIA financing has become commonplace over the last few years due to bank market constraints, and the beneficial cost of financing. TIFIA financing is generally viewed as the most efficient form of finance available in the market and will help to ensure a long term source of debt capital without refinancing risk. 17. Please discuss your firm s interest in: a. Accepting traffic and revenue risk in a toll concession SNC-Lavalin would also be interested in pursuing the Project under a toll concession sponsored by the Commonwealth however we would need to have further detail regarding traffic forecasts, length of concession term and possible public sector funding commitments before making a final determinant on whether or not to pursue the project as a toll revenue concession. The benefits of a toll revenue concession are further detailed below: DBFOM - Toll Revenue Concession Under a toll revenue concession model the principle sources of funding available to the private partner for the long-term obligations of the project would be through the anticipated toll revenue stream generated from the operation of the managed lanes. This remuneration method is the most common and currently utilized structure for demand based transportation P3s in North America and globally. The benefit of this model for the Commonwealth is that it is able to transfer all tolling volume/revenue risk to the private sector partner. Further, the Commonwealth would not be required to secure its own long term financing of the project as the financing would be arranged by the private sector partner. In this model, assuming sufficient tolling revenues, the Commonwealth would not be obliged to pay any ongoing availability payments over the duration of the project term. In an ideal situation, the highway would be fully developed and operated by the private sector partner with funding support being solely provided through the tolling revenue stream in a pure user pay model. Subject to the economics of the projects and the Commonwealth s desire to maintain toll rates at a reasonable level, it is common in these projects that the Commonwealth would contribute some up-front funding in the form of milestone or completion payments. Additional benefits of the toll revenue model include the strong alignment of interests between the project parties, with the driver for the private partner being the maximization of revenue through the provision of a high quality and efficient highway system, while virtually all financial and operational risks are removed from the Commonwealth and passed to the private partner. Further, this model typically includes a performance management regime that ensures the highway is maintained at a specified standard, otherwise penalties would be imposed on the operator. 11

The most pronounced drawback of the full concession model is the premium that is usually assessed in lending rates due to the risk associated with full reliance on toll revenues for debt repayment and other costs. With only tolling revenue supporting the project, lenders are looking for high levels of certainty around traffic forecasts (actual verifiable history is best) and higher coverage ratios to offset the risk of impacts to the revenue stream putting the debt repayment at risk. Additionally, it is often difficult to fund the capital requirements for a large project like I-66 Corridor solely on the tolling revenue forecasted. Further, in toll revenue projects there is always a significant risk for the private partner associated with the setting of toll rates by the Commonwealth. While the private partner is assuming the risk for the revenue stream, it typically has little or no influence over the toll rates being levied. While this model has been used significantly in many jurisdictions globally, it is worthy of note that in a number of countries many projects of this kind are presently challenged. One of the key lessons from this as that a pure tolling risk model may not deliver the stability, predictability and ongoing quality that the Commonwealth desires from the project. b. Accepting performance risk in an availability structure Based on our experience, and our understanding of the requirements for this project, we strongly believe the best model for the project is a full DBFOM approach using availability payments or a hybrid model of availability payments supplemented by tolling revenue. The DBFOM availability style delivery model has been the most commonly used project delivery method in P3 projects in North America and has proven to efficiently maintain project budgets and schedules, optimize risk transfer and provide long-term value for money to the public sector. As an integrated provider of infrastructure development services we are in an exceptional position to leverage best value for the Commonwealth through our ability to take a whole-life perspective from initial design conception right through the operating period and to hand-back of the facility. The benefits of an availability structure and a hybrid structure are detailed further below: DBFOM Availability Concession An availability concession structure is based on the Net Present Value (NPV) of all of the project costs being paid by a counterparty (the Commonwealth) over the life of the project through a payment stream which is typically paid monthly once construction reaches completion. This structure has also been implemented extensively in the bridge and highway sector for both tolled and non-tolled roads. In the case of tolled roads, the revenue collections in this model would revert to the Commonwealth and the Commonwealth would thereby retain the volume/revenue risk. Conversely, the state would benefit from any upside revenue opportunities resulting from higher than anticipated traffic volumes. The benefit of this model is that with tolling risk removed from the private partner and with the Commonwealth as the counterparties guaranteeing availability payments, the private partner would be able to secure highly competitive borrowing rates for the project. These projects typically use a diligent performance regime, which will ensure that the expected quality, safety and performance standards are maintained throughout the concession term. Additionally, by retaining the right to toll revenues, the public sector maintains maximum future flexibility in setting the toll regime. Some of the projects in the U.S. currently under development utilizing an availability based payment model include the I-595, Port of Miami Tunnel and the East End Crossing. DBFOM Hybrid Concession A variant of the availability payment model could be a hybrid delivery model in which the private partner assumes the tolling risk for the project but also receives a partial availability payment stream from the Commonwealth. In cases such as the I-66 Improvement Project where there are very large capital costs, a hybrid model could be used to deliver the full scope of the project while potentially avoiding the need for excessively large interim construction payments. Furthermore, if the availability payment portion of the 12

total payment stream is in the order of the cost of debt servicing, the private partner would likely be able to secure better financing rates than would be achievable under a pure tolling revenue risk model, improving the overall project financial picture. 18. What is a reasonable concession term for a ML or a BRT concept? Why? SNC-Lavalin has experience with concession contracts ranging in length from 30 (availability) to 99-years (toll revenue). Typically, terms for availability P3 project agreements in North America have ranged from 30 to 35 years, with the operating and maintenance period being 25 or more years depending upon the front end design and construction term. Currently, such a period is well accepted by both the capital markets and bank community, and acknowledges that the concession term needs to be long enough for the private partner to undergo a full life cycle of construction, operations, maintenance and rehabilitation of the infrastructure. Under an availability concession framework, a timeframe of 30 years is usually long enough a period to enable the concessionaire to attain its target equity rate of return and fully rehabilitate the project infrastructure. If a toll revenue concession is implemented the term of the agreement will likely need to be longer and fall within the 50 to 75 year range. This longer concession term is a factor of the potential for volatility in toll revenues. Such a longer term provides comfort to lenders allowing for additional time to repay debt and added time for the private partner to achieve desired levels of return should initial traffic levels be lower than anticipated. The time frames may be adapted, especially if a hybrid structure is selected, or other repayment mechanisms are incorporated such as construction milestone payments or significant public sector grants, therefore reducing the amount of private financing required. e. Additional Considerations: 19. If your firm is a Disadvantaged Business Enterprise ( DBE ) or a Small, Women-owned, and Minorityowned Business ( SWaM ), please provide any suggestions or comments on how OTP3, VDOT or DRPT can help to develop teaming opportunities with prime contractors. Not applicable 20. Based on characteristics of the I-66 corridor, suggest the number of persons per vehicle that should be required to qualify as a high-occupant vehicle. Explain why selecting this number may be in public interest and beneficial to comply with the federal Clean Air Act of 1990? Please provide quantitative and qualitative evidence to supports your arguments. If there is to be continuity with the I-495 project, where 3+ people qualify as a high occupancy vehicle, then consistency with this interpretation should continue. However, we recommend periodically observing the traffic over the concession period and adjusting the number accordingly in order to optimize traffic throughput and revenues. 21. What additional challenges or risks should OTP3, VDOT, DRPT or CTB be aware of in regard to Project s scope, procurement process, delivery method, term of contract, technical and financial feasibility, etc.? In order to receive the required quality of proposals that the Commonwealth expects to receive in the RFP phase, proponents will be required to invest a significant amount of time and resources to undertake proposal development. Proponents undertaking this work will need to be assured of a reasonable chance of being successful on the Project. Limiting the number of proponents selected to participate in the RFP phase will provide comfort to proponents that they have a reasonable chance of receiving a return for the 13

intensive work required to submit a compliant and competitive proposal to the Commonwealth. The selection of the number of bidders to short list should take into account the amount of interaction between the bidders and the Authority during the RFP phase. To ensure that it receives proposals that meet its expectations, the authority should include reasonable opportunities for interactive discussions between proponents and the Commonwealth during the bidding process. Balancing the factors listed above, along with SNC-Lavalin s experience working on concession projects in North America and around the world, we would suggest that the Authority select a short list of up to three to four bidders to participate in an RFP phase of the Project. A further consideration for the Commonwealth is the inclusion of a reasonable stipend for proponents participating in the RFP phase of the procurement. As mentioned above, Proponents will be required to undertake a significant expenditure of time, resources and capital to submit a compliant proposal to the Commonwealth and the inclusion of a stipend will help to encourage competition and proper investment in innovative design concepts. 22. Other than the answers that you have already provided, what information would help your firm to make the business decision to engage in the development of the Project? Some information in regard to feedback from other operators in this type of project and experience of the client in similar projects. 14