1. CSO’S: PARTNERSHIPS CAN SAVE MONEY AND PROVIDE SOLUTIONS Eric S. Petersen Partner Hawkins Delafield & Wood LLP New York, NY United States Conference of Mayors Mayors Water Summit Washington, DC December 9, 2010 Hawkins Delafield & Wood LLP

2. OVERVIEW Traditional Project Delivery and Alternative Delivery Design-Build 3 CSO Competitive Design-Build Success Stories The Business Case Approach to Selecting an Alternative Project Delivery Method

3. HAWKINS PERSPECTIVE 90 Attorney Municipal Contract and Finance Boutique Leading Special Counsel Law Firm Practicing Nationally in Alternative Project Delivery Water Contract Specialists Municipal Representation Exclusively Perspective of 80 Water Projects in 20 States

4. TRADITIONAL PROJECT DELIVERY: DESIGN-BID-BUILD Separate Design Contract Separate Construction Contract–Low Bid Owner Retains Design Liability Contractor Not Responsible for Project “Working” Dispute Prone No Collaboration

5. DESIGN-BUILD DESCRIPTION Single Entity Contracts For Both Design and Construction: One Contract Fixed Design-Build Price Competitive Proposal Process Multiple Evaluation Factors – Best Value Design Requirements Performance Standards 5-10% + Savings in Time and Money Growing Use in Public Sector

6. DESIGN-BUILD BENEFITS Qualifications-Based Selection Shortens Project Delivery Time Increases Collaboration Competition on Non-Price Factors Cuts Capital Costs Earliest Price Certainty Transfers Performance Risk Promotes Innovation One Point of Responsibility Minimization of Change Orders

7. DB CHALLENGES Less Control Over Design Details Less Familiarity Possibility of Smaller Number of Competitors More Complex Selection More Involved Negotiations

8. DESIGN-BUILD- OPERATE-MAINTAIN Single Entity Contracts for Design, Construction, Operation and Maintenance Design Requirements and Acceptance Test Long Term Operation and Maintenance Long Term Repair and Replacement Fixed Operation and Maintenance Fee Performance Guarantees Law Compliance

9. 3 PROJECT PROFILES

10. THE CSO DILEMMA CSO Projects Are Typically Procured Conventionally – DBB Extensive and Expensive Planning and Design Efforts Resistance to Regulators and Eventual Settlements Many Cities Are Facing Unaffordable CSO Costs

11. CAN PARTNERSHIPS SOLVE THE CSO DILEMMA AND SAVE MONEY? Yes! Design-Build, Design-Build-Operate-Maintain How? Design Competition Self-Selected, Collaborative D-B Teams Innovative, Lower-Cost Ideas Performance Guarantees Useful Even for “Buried Infrastructure”

12. LYNN (MA) CSO Judicial Consent Decree from 1990 “Storage, Pump-Back” Mandated DEP, EPA Active Assistance First In Nation “DBO” For a “CSO” All Technical Approaches Allowed Vendors Proposed Total Sewer Separation New Sewers, Not New Storm Drains Subsurface Risk Constrained Spread Out Construction Avoided “Rate Spike” DBO Saved $100 M

13. SAN DIEGO COUNTY WATER AUTHORITY (CA) Design-Build Contract Lake Hodges to Olivenhain Pipeline Project Design and Construction Requirements Competition As To Means and Methods, Layout Within Right-of-Way Cost Savings Against Design-Bid-Build Benchmark Differing Site Conditions Relief Based on Geotech Report Fixed DB Price; Concrete and Steel Adjustment Transfer of Design Liability Call-Back Warranty

14. HOLYOKE (MA) MA DEP-Mandated CSO Collection Facility CSO Solution Involved CSO Facility, Treatment Plant Improvements, and Operations Competitive, Collaborative RFP-Based Solution Contractor Guaranteed Maximum of Four CSO Overflows for a “Design Storm” Contractor Provided Partial CSO Financing

15. THE BUSINESS CASE APPROACH TO SELECTING A PROJECT DELIVERY METHOD

16. BENEFITS OF BUSINESS CASE Maximize “Value for Money” Allows Trade-Offs and Weighing of Qualitative Factors Ties Goals, Cost and Risk Considerations Together Involves, Educates Owner’s Senior Management and Staff Provides Strong Basis for Elected Officials and Managers To Support and Defend a Decision To Use Alternative Delivery

17. MULTIPLE CRITERIA ANALYSIS MCA Assesses Qualitative Considerations Pertaining to Each Selected Delivery Method Thorough Canvassing of All Goals and Objectives For the Project Weigh Each Goal Relative to the Others Determine Extent to Which Each Selected Delivery Method is Likely to Achieve Each Stated Goal Establish Ranking of the Selected Project Delivery Methods Based on Non-cost Factors

18. EXAMPLE BUSINESS GOALS (1) Use a Procurement Method Familiar To Owner Expedite Procurement Avoid Bid/Proposal Protests Expedite Design and Construction Assure a Sufficiently Competitive Proposer Market Meet Project Quality Objectives Promote Innovation Know the Construction Cost With Certainty As Early As Possible Avoid Construction Change Orders

19. EXAMPLE BUSINESS GOALS (2) Shield Owner From Disputes Between Designer, Builder and Equipment Supplier Maximize Effective Collaboration Between Designer, Builder, and Operator Maximize Competition Minimize Capital Maintenance Allocate Risk To Party Best Able To Manage and Control It Maximize Risk Transfer

20. COST PROJECTIONS Project Projections For Each Method Experience From Other Comparable Projects To What Extent Will Proposers Price Transferred Risk Life Cycle Cost Projections

21. RISK QUANTIFICATION For DBB and Each Alternative Option: Determine Whether the Risk is Likely To Be “Retained” Or “Transferred” Determine Likelihood Of Occurrence Estimate Percent Of Costs Impacted If Risk Occurs Calculate An Amount For The “Retained Risk” For Each Option Add The Amount For Quantified Risk To The Projected Cost For Each Alternative Option

22. RISK EXAMPLES Delay In Construction Delays Raise Construction Costs DBB Has Higher Delay Risk Burden DBB With Imputed Cost Of Delay Project Does Not Work As Intended Costs Will Be Incurred To Fix It In DBB, Owner Bears Cost In Alternatives, Contractor Bears Costs Burden DBB With Imputed Cost Of Fixes

23. EXAMPLE BUSINESS CASE SCORING TABLE (CLARK COUNTY) WeightWeighted Ranking DBBCMARDB Risk Allocation9365481 Project Quality106010090 Schedule10 50 60100 Regulatory Compliance1090 100 Level of District Control972 90 63 Market Viability220 Flexibility5405045 Predictability of Costs8568072 Legal Considerations85672 Procurement Considerations5264045 Relative Costs956 72 TOTAL561712760

24. OWNERS USING A STRUCTURED, FORMAL DECISION PROCESS Municipalities n Phoenix, AZ n San Antonio Water System, TX n Washington, DC States n California n New Jersey n British Columbia (Mandated)

25. CONCLUSIONS Consider Alternative Project Delivery For Your CSO Projects Alternative Project Delivery Can Deliver Better “Value for Money” In Schedule, Cost And Performance Make Sure Staff And Consultants Are Open To Alternative Delivery Use a “Business Case” Approach In Selecting a Delivery Option Conduct The Business Case Analysis Early In the Project Cycle

26. “All This, My Friend, Is Offered Merely For Your Consideration And Judgment, And Without Presuming To Anticipate What You Alone Are Qualified To Decide For Yourself.” Thomas Jefferson

27. THANK YOU Eric S. Petersen Hawkins Delafield & Wood LLP One Chase Manhattan Plaza New York, NY 10005 (212) 820-9401 epetersen@hawkins.com www.hawkins.com