Balancing and Managing Risk From the Design Builder’s Point of View P3C Balancing and Managing Risk From the Design Builder’s Point of View February 26, 2018 February 3, 2017

Panel Moderator Panel Paul Monte, Partner, Peckar & Abramson Daniel Filer, Vice President of Business Development, Ferrovial David Boss, Project Director, Skanska Infrastructure Development Carol Stark, Director, Construction Services Group, Aon Jack Callahan, Partner, Construction Practice Leader, CohnReznick Karla Pascarella, Partner, Peckar & Abramson

Value for Money PM intro point: Gov’t retained risk drops by 13 but the concessionaire and DB risk doesn’t seem to be fully captured in the costs they are carrying. Are DBs fully pricing and managing the risk? Carol Jack

Risk Transfer This slide shows the types of risk that Gov’t wants shift to the private partner. Question to Dan and David: When choosing a P3 to pursue, how does a DB (contractor) examine the risk profile? Dan David

Flow Down Or FLUSH Down? The contracting model in P3 has always been to transfer risk to the private partner, and within the developer team to transfer risk from the SPV to the design-build team. Karla Is there a breaking point? Describe Are DBs pushing that risk to their designers, subs and suppliers?

Latent Defects in Existing Structures "Concessionaire shall be solely responsible for all costs, including Extra Work Costs and Delay Costs, associated with Structural Latent Defects in Pre-existing Bridges, except that … - the first $2M of Extra Work Costs ("Structural Latent Defects Deductible" directly attributable to repairing physical damage to Pre-existing Bridges caused by Structural Latent Defects shall be borne by Concessionaire … - Owner shall compensate Concessionaire for 100% of Extra Work Costs attributable to Structural Latent Defects in excess of the Structural Latent Defects Deductible … - Concessionaire shall not be entitled to Extra Work Costs covered by insurance … nor for Delay Costs of any kind …" This is a standard clause a private party will see, asking the private partner to take a set dollar risk for latent defects in an existing structure, without compensation for the Delay Costs Is that fair? Who wants to take this? Carol Dan David

Delay costs “… the risk of financial loss to the Developer arising out of a delay between the Baseline Substantial Completion Target Date and the Substantial Completion Date should be borne by the Construction Contractor …” Within the private team, the SPV typically doesn’t retain the full risk of Delay Costs Why Jack can you speak to this point? Dan? David?

What's the warranty and indemnity period? Defect in DB Work "DB Work Defect means any Defect with respect to the DB D&C Work attributable to the Design-Builder, except a Defect a Defect due to improper O&M Work" "Defect means a defect or deficiency in the condition or performance of any component of the Construction Project, whether by design, construction…" What's the warranty and indemnity period? This is another typical clause – the design builder is responsible for all Defects in its work – that seems like a fair point the DB designed and build it. But for how long? Karla Carol – for how long is the risk insurable?

Design & construction oversight culture There are several points of tension in a design – build relationship, including The reluctance of the public owner’s designer to give up control and limit oversight to checks The reluctance of the private partner’s designer to take on risks that are not insurable. When deciding what projects to pursue, how does the constructor evaluate the risk? Dan David

Professional Liability Insurance "For a total period of [___] years from the Financial Close Date … professional liability insurance, which may be written on a claims made form, with limits of liability not less than $[____] per claim and $[____] annual aggregate for engineering and design …" This is a standard flow down clause, requiring the private partner to secure professional liability insurance. Carol – what’s the current standard in the market? Is it fully covering the design risk?

Designer Limit of Liability "Designer's total aggregate liability to DB arising under this agreement … shall not exceed the maximum sum of [$___] …" What is the current market with respect to the Designer’s cap? Limits of Liability in the Concession Agreement Don’t Match On I-69, in the agreement between IFA and the concessionaire, there was a 50% liability cap (with 35% more common) and a 10% cap on liquidated damages, did that have an impact? Karla

Index Insurance? "All Dollar figures in the Insurance Policy requirements … shall be indexed annually …" Carol This is a clause that was used on a recent P3 Is it standard to Index Insurance? How can that be priced by the private party?

Who carries the cost of the risk? Differing Site Conditions Type 1 - Conditions different than indicated (in plans, geotechnical documents, and specifications) or anticipate based on local experience. Type 2 - Conditions different than normally encountered in the type of environment and work under consideration. Type P3 – Who carries the cost of the risk? Karla On I-69, you learned about Karst sinkholes in Indiana How did it impact the project? Did subs share the risk? Dan David

3. Utility Owner Delays that could have been mitigated" Utility Delays "Concessionaire shall be entitled to seek compensation and a time extension under the Contract Documents for a Utility Owner Delay, provided that … Notwithstanding, Concessionaire shall not be entitled to any relief relating to a Utility Owner Delay for the following: 1. Extra Work Costs 2. Delay Costs of any kind 3. Utility Owner Delays that could have been mitigated" Utility Owner Delay means a Delay directly attributable to a Qualifying Utility Owner in performing its obligations …” David Dan Karla Who bore the utility risk on i-69? Was there any obligation on the part of IFA to control?

DBE Safety Local Hires Prevailing Wage Community Benefits Don’t forget you’re other responsibilities DBE Safety Local Hires Prevailing Wage Community Benefits Jack

Choices This chart is a standard risk analysis How do DB’s analyze Entire Panel

Risky Business Questions