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I-95/395 BRT/HOT Lanes System 1 AV20050123-162 -- 3.0 Summary.doc

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


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 $125-175 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


• 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.


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 3-15. 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.


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.


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


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 de-icing 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.


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

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.

Segment B Springfield Interchange I-95, I-395, and I-495

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.

Segment C Beltway to Quantico Creek


• 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 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.


Segment D Quantico Creek to Massaponax


• 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.


Table Q23-1. Tolling During an Emergency

Indicative Situation Draft Response Non casualty accident on GP lanes No change to BRT/HOT Lane operations and tolling

Major accident on GP lanes Suspension of BRT/HOT enforcement action to allow police to detour traffic around the accident scene and provide a safe environment to clear lanes

Chemical spill over several sections of the GP lanes

Suspension of BRT/HOT tolling and enforcement in the affected direction of travel

Declared emergency 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 3-21.


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 http://investor.fluor.com/Edgar.cfm 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 3-1 AV20050123-065 -- 3.a.doc

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).

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.



• 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


Table 3.a-1. Project Cost Summary

$ in Millions Phase I

Improvements Phase II

Improvements Total Traffic Control/MOT 10.0 2.0 12.0

Structures 203.0 70.0 273.0

Clearing and Grubbing 1.3 0.6 1.9

Earthwork 82.4 31.1 113.5

Drainage 14.0 12.0 26.0

Erosion Control 5.0 2.0 7.0

Pavement 55.0 20.0 75.0

Guardrails/Barrier 20.0 6.0 26.0

Striping, Signage, Lighting & Misc. 38.0 9.0 47.0

Bus Stations, Bus Stops, Park and Ride Lots 58.0 7.0 65.0

Sound Walls 26.0 16.0 42.0

Utility Relocations 11.0 3.0 14.0

Toll Systems 41.0 9.0 50.0

Design, Program Management, Quality Management 112.0 40.0 152.0

Right-of-Way - 9.0 9.0

Total Project Cost 676.7 236.7 913.4

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., 63-20 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


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 1 1 54 Senior Bridge Engineer 2 ½ 83 Senior Roadway Engineer 2 ½ 83 ITS/Toll Systems Engineer 2 1 106 Hydraulics/Drainage Engineer 1 ½ 53 Traffic Engineer 1 1 76 Project Engineer 6 192 Materials Engineer (Construction) 1 46


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

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.

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.

I-95/395 BRT/HOT Lanes System 3-5 AV20050123-066 -- 3.b.doc

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 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.




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 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 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.

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.


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.




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 2007.

3.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 63-20 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


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.

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.

Table 3.b-1. Summary of Sources and Use of Funds for Tax-Exempt, PPP Approach

Total %

Senior Toll Revenue Bonds (Private) 575.60 53.1%

TIFIA (Public) 305.49 28.2%

Fluor-Transurban Investment (Private) 135.00 12.5%

Investment Earnings during Construction (Private) 67.76 6.3%

Fund

ing

Sour

ces

Total Sources $1,083.85 100.0%

Project Costs 933.44 86.1%

Capitalized Interest 38.91 3.6%

Transportation Partnership Opportunity Fund Repayment 10.00 0.9%

Debt Service Reserve Fund Deposit 57.56 5.3%

Financing Costs and Reserves 43.93 4.1% Fund

ing

Uses

Total Uses $1,083.85 100.0%




Include the schedule of project revenues and ongoing project operating and maintenance costs.


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 97-13 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


including risk compensation. Costs of the Phase II scope of work are financed from proceeds of the second draw of the TIFIA loan in 2009.

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


• Private investment in the form of deeply subordinated debt is expected to be approximately 12.5 percent of project costs

• Rate of return on subordinated debt is expected to be 12.5 percent

• At financial closing, the development team will receive reimbursement of development expenses incurred through closing plus a compensation component equal to the amount deferred

• Residual cash flow to the department will be equal to all revenue after operations, maintenance and debt service expenses required under the indenture

• Toll revenue bond amounts are detailed in Table 3.b-1

• Toll rates will be established dynamically based on the objective of providing free flow travel conditions in the BRT/HOT Lanes. Based on our preliminary traffic and revenue study, we would expect that peak tolls in the year of opening will range from 15 to 28 cents per mile reflecting that over a 56 mile length the more heavily utilized sections of the project will need higher tolls to maintain target levels of service. During off peak period tolls will be lower and not expected to exceed 20 cents per mile. While estimating the toll for an ‘average trip’ in a dynamic system with differential pricing is difficult, we believe that in 2015 the average trip will be 5.54 miles and incur a toll of $1.50

• A schedule of projected revenues and expenditures is included in Exhibit 3-1 at end of Tab 3

3.b.3 Concession with VDOT Participation Plan of Finance

As the market for public-private transportation projects continues to mature in the U.S., it has become apparent that the preferred model for private sector involvement being used in many other countries can also be the preferred approach here. The Fluor-Transurban Team proposes to negotiate with the Department a long-term lease agreement that would establish the concession company’s (owned by Fluor-Transurban) responsibility to finance, construct, operate, maintain and ultimately hand back at the end of the concession term the I-95/395 BRT/HOT Lanes Project. VDOT would retain legal title to the asset, but most identified risks of operation of the facility would accrue to the concession company. Based on the current estimate of project cost (construction, O&M) and preliminary results of our traffic and revenue work, the Fluor-Transurban Team believes that the project can be financed as a concession and is projected to pay a concession fee of $250 million at financial close which could be used by VDOT for transit or other purposes. The lease and concession structure would assign all risks of operation to the Fluor-Transurban Team and be for a term necessary to qualify for depreciation for Federal Income Tax purposes. For purposes of developing our preliminary Plan of Finance, we have assumed a lease term of 60 years will result in the desired tax treatment.



• Amount and type of private investment • Amount of private development expenditures at-risk • Expected rate of return on

− Equity investment − Development expenditures


• Schedule of expenditures and revenues


This financial structure is consistent with the PPTA legislation of 1995, as amended, which originally envisioned primarily concession transactions based on the Dulles Greenway experience. With the recent completion of the Chicago Skyway Concession arrangement, ongoing construction of the SR-125 project in San Diego, and the experience of the SR-91 Express Lanes Project on Orange County, the use of a concession for the I-95/395 project would not be without precedent. Contrary to the Chicago Skyway transaction, the Fluor-Transurban Team is prepared to share with VDOT revenue in excess of a negotiated return on equity. We believe this provides VDOT with sufficient insulation from project debt, while preserving a share of the future value of revenues for other VDOT purposes.

The Lease and Concession Agreement for the project would contain the following concession obligations and key provisions to permit funding of the project:

• The concession company shall have the right to collect and enforce payment of tolls for the term of the concession, and will have the right to vary toll rates to ensure a minimum level of service at all times of day.

• The concession company will commit to construct the Project to VDOT’s specifications and within a specified timeframe. This commitment would be backed by Fluor’s parent guarantee.

• The concession company will operate and maintain the Project. O&M standards will be consistent with current VDOT standards. The concession company may elect to exceed these standards so as to provide customers with a premium facility as an inducement to use the toll lanes rather than the free competing general purpose lanes.

• The concession company will at the end of the concession term hand over the Project to VDOT in good order, condition and repair.

• The concession company will agree to a negotiated ROE, beyond which project revenues will be shared with VDOT for transit and other purposes.

An important consideration for the value created in a concession arrangement is the potential financial advantage of securing favorable tax treatment for the development entity under the terms of the lease agreement. Specifically, if the term of the lease agreement is of sufficient length to assure the developer that he will be treated as ‘owner’ of the project for tax purposes, the development company will be able to depreciate the cost of the improvements and significantly reduce any tax liability on operating profits that might be realized by the company. This is significant, as most bridges and roadways will qualify for 15-year depreciable life treatment with a 150 percent declining balance basis. The value of this tax treatment would result in a significant increase in present value represented in the concession fee or revenue sharing.

Table 3.b-2 summarizes the sources and uses of funding for the project. A detailed schedule of project cash flows is presented in Exhibit 3-1.


Table 3.b-2. Summary of Sources and Use of Funds for Concession PPP Approach

Total %

Senior Debt (Private) 859.0 64.0%

TIFIA (Public) 157.3 11.7%

Fluor-Transurban Investment (Private) 270.0 20.1%

Op. Cash Flow during Construction (Private) 55.3 4.1%

Fund

ing

Sour

ces

Total Sources 1,341.6 100.0%

Concession Fee 251.7 18.8%

Project Costs 933.4 69.6%

Capitalized Interest 114.2 8.5%

Transportation Partnership Opportunity Fund Repayment 10.0 0.8%

Financing Costs and Fees 32.2 2.4% Fund

ing

Uses

Total Uses 1,341.6 100.0%

Sources of Funds

Senior Debt

Senior debt would have the first claim on net revenue after payment of O&M expenses, and would restrict cash flows to equity unless minimum coverage ratios are met. Senior Debt is assumed to be bank debt, which can range in term up to 35 years, and all refinancing risk is borne by the concession company. Note that the Fluor-Transurban Team may elect to use taxable senior bonds as an alternative to bank debt funding.

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. We plan to submit the formal TIFIA Letter of Interest for this project during the FY2006 funding cycle.

Fluor-Transurban Investment

Fluor-Transurban proposes to own the concession company with Transurban as the majority investor and Fluor as a minority investor.


Operating Cash flow during Construction

Net operating cash flow from segments A and C in the years from 2009 to 2011, prior to completion of construction of all segments in 2012.

Uses of Funds

Concession Fee

The Fluor-Transurban team has assumed that VDOT’s preference is to receive 100 percent of the estimated concession fee at financial close. This would provide VDOT with maximum flexibility to immediately fund transit or other programs. However, should VDOT’s preference be for an annual revenue stream to fund transit or for other purposes, the concession structure could deliver the same annual subsidies as the tax exempt financing structure but prior to all debt service obligations and in addition still pay a substantial concession fee at financial close to VDOT.

Project and Costs

Proceeds are structured to cover the cost of both the Phase I and Phase II scope of work. This includes 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 including risk compensation.

Capitalized Interest

Interest on the bank debt during construction will be paid from funding sources.

Transportation Partnership Opportunity Fund Repayment

Repayment of the loan used to fund VDOT environmental approval activities.

Financing Costs and Fees

Includes financial advisory and underwriting fees, legal expenses and other transaction costs.

The Fluor-Transurban Team proposes to take responsibility for arranging for bank financing or capital markets debt issuance, take the lead in the negotiation of the TIFIA loan, if used, and fund the equity investment subject to final approval from VDOT. Notice to Proceed and financial closing will be contingent on final VDOT approval of the scope, schedule, cost, plan of finance and concession agreement. The legal structure proposed will involve a private corporation that will develop the project under the PPTA and will have the right to collect tolls on the facility. Net revenue sharing or payments at closing for the local bus/transit organizations will be structured based on VDOT’s objectives relative to the amount and priority of revenue sharing and the method used for distribution of bus/transit subsidies.


One of the advantages of this funding approach is that VDOT is fully insulated from project debt and operating expenses and any consequent impact on the credit rating of the Commonwealth. VDOT will, however, participate in the upside potential from the project in the form of Concession Fee payment at financial closing and sharing in revenue after an agreed return to the Investors. A potential disadvantage of this financial structure is the potential for public opposition to the use of a highway project for private sector profits. Clearly, the tradeoffs between a tax-exempt structure and a concession structure involve a number of considerations beyond those the Fluor-Transurban Team can put in a financial model In addition, the concession structure would require the satisfactory resolution of a number of legal issues related to the use and treatment of this structure. Please see Tab 4 for more detail on the Fluor/Transurban Plan and experience in dealing with these risks.

Consequently, we are prepared to develop preliminary plans of finance for both concession and tax-exempt structures for VDOT to evaluate. We are confident in VDOT’s ability to evaluate both the qualitative and quantitative differences between the two structures and in the ability of the Fluor-Transurban Team to deliver the structure VDOT selects.

Key details of the financing proposal for a concession follow:

• Capital cost estimates are presented in Table 3.b-2 and in Table 3.b-1.

• Private investment is expected to be approximately 20 percent of project costs.

• Rate of return is expected to be 12.5 percent assuming that Fluor-Transurban is in a first loss position and revenues in excess of this are shared with VDOT.

• At financial closing, the development team will receive reimbursement of development expenses incurred through closing, plus a compensation component equal to the amount deferred.

• Project debt amounts are detailed in Table 3.b-2.

• Toll rates will be established dynamically based on the objective of providing free flow travel conditions in the BRT/HOT Lanes. Based on our preliminary traffic and revenue study, we would expect that peak tolls in the year of opening to range from 15 to 28 cents per mile reflecting that over a 56 mile length the more highly trafficked sections of the route will need higher tolls to maintain target levels of service. During day time off peak periods the range will be smaller and not expected to exceed 20 cents per mile. Whilst estimating the toll for an ‘average trip’ in a dynamic system with differential pricing is difficult we believe that in year of opening a typical trip will be 5.54 miles and incur a toll of $1.50.

• A schedule of projected revenues and expenditures in included in Exhibit 3-1.



• Amount and type of private investment • Amount of private development expenditures at-risk • Expected rate of return on

− Equity investment − Development expenditures



3.b.4 Project Operation

Toll Systems Operations

Transurban will be responsible for the delivery of the transportation services in the operations phase and will manage the responsibility for the pre-planning and overseeing of these activities through all phases. Transurban, as part of this responsibility, will also plan and implement the critical element of Customer Service and Toll Systems Management in close coordination with the Capital Beltway HOT Lanes project to provide customers a seamless interface and a high level of customer service.

Customer Service and Toll Systems Management

Transurban defines customers in the broadest possible way to include all stakeholders, the general community affected by the project operations, the various agencies with a role in managing transportation in the corridor, and the ‘users’ of the services. The Transurban ‘customer philosophy’ for serving users and valuing the relationship is expressed in the following terms:

“We call users of the HOT lanes customers. This term implies that they have choice in whether and when to use the HOT lanes and in how to pay the toll. It also implies a range of views, opinions, emotions, preferences, and differences.

“We view customers as dynamic entities, who change their preference and attitude over time and with changes in their personal circumstances or the broader community.

“The relationship with customers is paramount to the success of any fully electronic tolling system. We believe that the better the overall customer relationship, the better the income stream. Management of the customer relationship is therefore a critical component of our submission. This relationship management covers the whole service experience—the driving experience and the service of their toll account, the signs and environment they see as they drive and how we treat their guests.

“Customers expect access to information on the range of issues surrounding HOT lanes, from driving conditions to their account, including how to access the road and services.

“Customers have a right to talk to their service provider. They have a right to be heard if they have a grievance, whether it is in relation to their account, their use of the road without paying the toll, or their driving experience.

“Customers read road signs, advertising material, and newspapers, and they talk to each other. Customers form attitudes toward their service provider based on a range of influences, from their account service experience, their driving experience, what they hear in the news and current affairs programs, and conversations with other people.

“We see customers as varying from one another. Understanding customer segments with varying needs and wants and translating this into appropriate products, service, and communications is an important consideration in the design and delivery of business applications.”


In order to meet the requirements of the philosophy outlined above, Transurban has developed an approach to customer service planning that ensures there is focus on the needs of the customer at all times and in all activities. This approach is referred to as Business Modeling, which in simple terms means that the delivery of service is the platform for the preparation of operating procedures, systems development, staff training, and organizational design. The key stages in the business modeling process are summarized in Figure 3.b-1.

Figure 3.b-1. Tolling System Business Modeling Process

The Fluor-Transurban Team is in the unique position to provide VDOT with an integrated HOT Lanes solution that incorporates the Capital Beltway and the I-95 BRT/HOT Lane Project. Critically, this means that we can provide common products and services, a fully transparent operation from the customer perspective, and a standard platform of business improvement into the future. There would, under this integrated approach, be no interoperability concerns, because the ‘tolling system’ would regard the projects as a single operation and customer accounts would reflect this simple arrangement. Looking beyond the benefits of a ‘single’ operation, VDOT would have the platform for bringing in other toll facilities to establish a regional toll management strategy. This approach has numerous long-term benefits for customers particularly as toll road facilities become more common, and there is more tag roaming from one region to another.

The approach above demonstrates that tolling systems design for the HOT lane project will be derived from an understanding of customer needs. Tolling system technical specifications will be based on operating requirements, required performance standards, and interface expectations, including interoperability with E-ZPass. Importantly, the process provides a structured template to manage the development of customer service strategies, define education and information programs, and link systems design to operating plans.


Roadside Tolling Equipment Operation and Maintenance

Transurban is aware that Roadside Tolling Systems are highly coupled systems of high complexity. They integrate precision-built, high-performance hardware with complex software code that facilitates the function of collecting tolling and enforcement data.

This rapidly evolving technology requires disciplined asset management practices based on system engineering techniques to guarantee:

• Compliance with regulations • Highly reliable and auditable enforcement • Optimum system performance • Low revenue leakage • Optimized life cycle costs

Transurban will develop, based on its experience, a comprehensive Operations and Maintenance program incorporating:

• Daily measurement and analysis of performance • Auditable testing and compliance activities • Routine reliability centered maintenance analysis • Regular software upgrades and technology refresh • System support planning

Roadside Tolling System Operations and Maintenance activities (see Figure 3.b-2) will encompass:

• Gantry Equipment • Technical Shelter Equipment • Support and Test Equipment (S&TE) • Maintenance and Performance Monitoring Systems • Data Transmission Network Equipment

Key Operations and Maintenance activities will include:

• 24/7 Roadside Tolling System monitoring

• Maximum 2-hour response to Tolling System failures

• Daily data collection and analysis

• Regular system calibration

• Routine inspections and maintenance in accordance with the planned maintenance schedule and standards

• Planned replacement and refurbishment work

• Unplanned intervention and repair

• Coordination of all maintenance activities

• System support planning, reviewed at least annually

• Reliability centered maintenance analysis

• Roadside Tolling System software updates and testing

• Prescribed device testing, audits, and documentation management

• Strategic technology upgrades


Figure 3.b-2. Scope of Roadside Tolling Operations and Maintenance

Transurban brings proven customer lead, technical, and business skills in tolling systems design, development, and operation. These skills are essential for the I-95 BRT/HOT Lane Project.

3.b.5 Bus Rapid Transit Subsidies

Given to the level of congestion in the corridor and the limitation on adding lanes due to ROW constraints, the Fluor-Transurban Team believes that increasing the capacity of the project must include and provide for increased bus/transit operations. While the HOT lanes will provide a safe and dependable way for customers and HOV’s to travel through the corridor and while HOT lanes provide greater additional capacity than construction of traditional lanes or HOV lanes, the additional capacity will not provide a long term solution to the congestion in the corridor without increased use of bus/transit. In order to move more travelers with fewer lanes, the Fluor-Transurban Team proposes that part of the financing proceeds in the Concession Approach and/or revenue from the annual subsidy in the Tax Exempt Approach be dedicated by VDOT to bus/transit operators.

Recognizing that this allocation for transit is subject to approval of the Commonwealth Transportation Board, we recommend that transit could be subsidized either up front or an annual basis depending on the financing structure selected by VDOT. Under a Tax Exempt Approach, our plan of finance is based on an allocation from the cash flow for transit or other purposes from the cash flow before return of the Developer Investment. Over the term of the Comprehensive Agreement we project that this would generate $510 million. Further, cash flows in excess of debt service and major maintenance reserve will be paid to VDOT for transit or other purposes. Under a Concession Approach, our plan of finance is based on payment of a concession fee to VDOT at closing in the amount of $250 million which would be


available to VDOT for transit or other purposes. Alternately, all or part of, the concession fee could be structured to be paid on an annual basis to provide on ongoing subsidy. We propose that these transit subsidy funds be distributed to the appropriate regional agencies who have responsibility for transit service within the corridor. (A list of such agencies or authorities is set forth in Tab 2 of this proposal.) The determination of which agencies will receive these transit subsidy funds and the proportion of funds allocated to each should be made by the Commonwealth Transportation Board and provided for in the Comprehensive Agreement.

I-95/395 BRT/HOT Lanes System 3-21 AV20050123-069 -- 3.c.doc

Key assumptions used in the conceptual finance plan include:

Estimated Traffic and Toll Revenue

In October 2004, the Fluor-Transurban Team engaged Vollmer to prepare time of day Investment Grade and Concession Traffic and Revenue Studies to support our implementation of the Capital Beltway HOT Lanes Project. This represents the commitment of a year’s study and investment in excess of $1.5 million in project development. While the development of the Capital Beltway model is not fully complete, the outputs of the model are the most reliable basis for estimating traffic and revenue on the I-95/395 BRT/HOT Lanes Project. A copy of the Vollmer Technical Memorandum is included as Exhibit 3-2.

Since toll system technology is rapidly evolving, it is premature to finalize the optimal toll setting mechanism at this time. However, we assume that at the time this project is available for service, we will implement an all electronic toll system that allows for dynamic toll setting. A conceptual range of tolls is presented in the Vollmer Technical Memorandum. Toll rates will be established dynamically based on the objective of providing free flow travel conditions in the BRT/HOT Lanes. Based on our preliminary traffic and revenue study, we would expect that peak tolls in the year of opening will range from 15 to 28 cents per mile reflecting that over a 56 mile length the more heavily utilized sections of the project will need higher tolls to maintain target levels of service. During off peak period tolls will be lower and not expected to exceed 20 cents.

Fluor-Transurban would negotiate the toll setting mechanism with VDOT with the objective of managing the BRT/HOT Lanes to maintain free-flow conditions by increasing tolls by designated increments directly dependent on real time traffic counts per lane. At this stage, it is not possible to quantify the impacts of the proposed toll structure on future slugging, transit, or rail modes. However, the extended project scope proposed by Fluor-Transurban will:

• Enhance BRT services in the corridor • Provide improved intermodal interchanges—including provisions for sluggers • Improve HOV levels of service, which will support carpooling including sluggers

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.

I-95/395 BRT/HOT Lanes System 3-22 AV20050123-069 -- 3.c.doc

The Vollmer Associates Technical Memorandum in Exhibit 3-2 provides advice in relation to the development of the strategic traffic model used by Fluor-Transurban to develop traffic and revenue forecasts. It is confirmed that the base information used in the traffic study is in conformance with current long-range plans from the MPOs and Vollmer has indicated that the platform for the new strategic model was developed with the COG FAMPO transportation models, which includes the I-95 corridor.

Structure of Project Debt Using Tax-Exempt Issuer

The proposed debt structure has been prepared by Bear Stearns with assistance from other finance professionals and consultants on the Fluor-Transurban Team. Important assumptions include:

• Average Interest Rate on Insured Senior Current Interest Bonds 4.29% • Average Yield on Senior Capital Appreciation Bonds 4.82% • Assumed Yield on TIFIA Loan 4.50% • Investment Rate on Construction Fund 3.75% • Investment Rate on Reserve Fund 4.50% • Minimum Debt Service Coverage on Senior Bonds 2.75X

Structure of Financing Using Concession Model

The proposed financing structure has been prepared by Transurban with assistance from other finance professionals and consultants on the Fluor-Transurban Team. Important assumptions include:

• Post ramp up (2014) bank debt coverage of 1.3X, escalating over time – more conservative than structure of closest comparable project financing structure (SR-125)

• 100 percent of debt service is hedged during construction and ramp up (identical to SR-125)

• Bank debt (LIBOR +150) and TIFIA (4.5 percent) priced at current market rates. Bank debt terms verified by several commercial banks.

• Bank debt is assumed to be refinanced prior to amortization of principal, consistent with market practice. Bank debt amortizes over the last 24 years of the concession period.

• Coverage on TIFIA averages 1.33x over first 5 years of the repayment period

• Equity invested 100 percent at financial close (more conservative than SR-125 where the equity investment was deferred)

• Equity IRR of 12.5 percent, with sharing of any excess revenues with VDOT

RFP Question 30 MPOs conformance

Provide documentation indicating that the traffic used in the proposal is in conformance with current long-range plans from the MPOs.

• Traffic data needs to be consistent with traffic data available from the COG and FAMPO transportation models for the I-95 corridor.

• Traffic data needs to evaluate the level of service in the corridor, at the proposed slip ramps and interchanges.

I-95/395 BRT/HOT Lanes System 3-23 AV20050123-067 -- 3.d.doc

The Fluor-Transurban Team has developed two alternate plans of finance for the I-95/395 BRT/HOT Lanes project based on the tried and proven experience of our team on similar projects in Virginia, throughout the United States, and in Australia. The project financing will be structured so that the principal risks associated with the transaction are allocated among Fluor as developer/design-build contractor/minority investor, Transurban as developer/operator/major investor, banks or bondholders, VDOT, and third parties who would be compensated for taking other risks.

Construction of Facility on Time and Under Budget

Fluor will assume responsibility for delivering the project through the Certificate of Completion. The construction contract will assign Fluor responsibility for scope and quality with a cost-certain and date-certain completion. Fluor’s obligation will include the liability for liquidated damages and be guaranteed by Fluor’s publicly traded parent company. Fluor deals with these risks using industry-leading risk management programs and systems, along with proven excellence-in-execution practices and proven project management systems and procedures.

Traffic and Revenue Risk

Transurban and Fluor as equity or debt investors, purchasers of the project debt, TIFIA, and potential credit enhancers bear the risk that project revenues may not be sufficient to pay scheduled debt service or achieve target returns on equity. VDOT will have absolutely no financial obligation to those investors. The risk of a payment default, however, is minimized by structuring the project debt with significant coverage and by funding reserve and contingency accounts. Similar to the Capital Beltway Project in which, for the first time in the PPTA program, we are making a substantial commitment of investment at risk to the success of the project which is in a first loss position for revenue shortfalls or operating cost overruns. Traffic risk including ramp-up will be dealt with in the structure of the plan of finance since the nature of a HOT lanes project has modest usage in the early years as capacity on the general purpose lanes reaches congestion levels on a regular basis.




3.d.1 Authorization to Toll Existing Facilities

Fluor-Transurban's plan for gaining federal permission for tolling I-95/395 would utilize the current federal Value Pricing Pilot Program authorized under TEA-21. VDOT has an FHWA approved value pricing program for Northern Virginia which would include both the Beltway HOT lanes project and the I-95/395 BRT/HOT Lanes System proposal.

Currently the reauthorization of the federal transportation program is being debated by both houses of Congress. Given the significant differences that currently exist between the House and Senate versions of the pending reauthorization it is difficult to identify a specific future program that would be utilized. If the value pricing pilot program survives the reauthorization in a form similar to the TEA-21 wording this would most likely be the method for gaining permission to toll I-95. If the value pricing is changed or limited in some manner in the reauthorization there is a chance that any pending projects could be grandfathered under the old pilot program.

Fluor-Transurban is monitoring the reauthorization and will identify the most appropriate program for gaining approval to toll I-95/395 once agreement is reached between both houses of Congress and the bill receives White House concurrence.

3.d.2 Operations and Maintenance Risks

Fluor-Transurban’s approach to minimizing operational problems is based on risk management principles. This commences at the Project Development phase and is continuous through to the end of the project. By incorporating a strong operational involvement throughout the project provides a formal process for managing risks across all activities including identification and reduction.

The approach to risk management is set out in seven steps as follows:

• Business and Project Objectives • Defining the Risk Management Plan • Identification • Assessment • Planning • Management • Feedback

As is evident from the headings above, the process is continuous and iterative and is part of management of the project.

In terms of the key risks identified relating to the project, Fluor-Transurban is keen to stress the following areas of importance relating to the operations and maintenance phase. The issues listed below are, we believe, mission critical and will feature highly on Fluor-Transurban’s risk management plan:

• Maintaining and building public confidence in the BRT/HOT Lanes as part of the corridor transportation system

• Providing adequate customer service standards and toll systems innovation


• Provision of a high level of service that supports regional economic, environmental and social development in the corridor

• Achieving the forecast traffic and revenue levels

3.d.3 Financial Feasibility Risk

Due to the relatively high capital cost of the project, the free use by HOV customers, and the availability of free competing general purpose lanes, facility revenues are expected to be modest in the early years growing over time to be robust in the later years of operation. There is a risk that forecast revenues less toll systems operations and maintenance and roadway maintenance will not produce enough cash flow to allow for a fully funded private development with a meaningful transit subsidy. The Fluor Transurban Team will manage the risk by driving for the lowest cost solution consistent with safety and life-cycle costing, by phasing the project where possible, by implementing pioneering financing techniques, and by backing that all up with a significant Fluor-Transurban investment.

3.d.4 Local Political Risk

There are a number of potential local political risks associated with the project. They include: adverse reaction from those currently using HOV lanes who fear some adverse impact from conversion to HOT lanes; reaction from localities that the project may induce traffic which will adversely affect their community; and adverse reaction by localities to the ownership or financial structure proposed for the project.

As set forth in detail in Tab 4, the Fluor-Transurban Team has, from the outset, been implementing a strategy to assure that local political risks are appropriately managed and further assure that negative reaction is turned into positive support for the project. Please see Tab 4 for more detail on the Fluor-Transurban Plan and experience in dealing with these risks, especially see 4.b, 4.c, and 4.c.

3.d.5 NEPA Environmental Approval Risk

Until execution of a final Record of Decision, there is risk that the locally preferred alternative will not include the project as proposed. While the Fluor-Transurban team will not try to influence the results of Environmental Impact analysis, we will support the process by providing timely analysis and responses to questions raised by the environmental assessment team. Upon execution of a Comprehensive Agreement, we will invest in project development expenses at risk to financial closing. We propose that a $10 million loan from the Transportation Partnership Opportunity Fund be provided to fund the work of an environmental coordinator to support an effective review and resolution of all environmental issues and to support the selection of a solution with the best solution to the congestion problem with the least negative environmental impacts.

I-95/395 BRT/HOT Lanes System 3-26 AV20050123-070 -- 3.e.doc

The following resources are needed to successfully implement the Fluor-Transurban plan.

NEPA Environmental Studies—VDOT will be responsible for leading and directing the independent tiered NEPA study effort. If acceptable to VDOT, the Fluor-Transurban team will provide an Environmental Coordinator to support VDOT in preparing the required documents. The financing of this activity would be a grant or loan from the Virginia Transportation Partnership Opportunity Fund.

Permitting—Fluor-Transurban will be responsible for all construction permits and other approvals needed to support construction including providing any required mitigation measures.

Right-of-Way—To the extent possible, the project will be constructed in existing right-of-way (ROW). For those segments of the project where new ROW is required, VDOT will use its right of eminent domain if necessary to secure the affected parcels.

Federal Value Pricing Pilot Program Approval—VDOT will be responsible for securing Federal Highway Administration final approval to impose tolls on the HOV portion of I-95/395 using existing the existing Value Pricing Pilot Program or any similar program reauthorized by Congress.

TIFIA Loan—The plan of finance may include a loan commitment from the Federal Highway Administration TIFIA loan program. The Fluor-Transurban Team will work jointly with VDOT finance management to secure the funding commitment. Part of the TIFIA funding may be reserved for Phase 2 of the project.

Law Enforcement and Maintenance of General Purpose Lanes—VDOT will be responsible for the cost of policing, and public safety on the toll road project and maintenance of the general purpose lanes.

Phase VIII of the Springfield Interchange—Phase VIII will be funded as part of the Capital Beltway Project or VDOT’s 6-year plan.

14th Street HOV Bridge and Beyond Options—VDOT will request that the pending FHWA 14th Street Bridge Study include several options for improving the operation of the 14th Street HOV Bridge. VDOT will initiate discussions with the District DOT to explore restoring restrictions to the Eads Street ramp methods to assist in maintaining the HOV Bridge and extending the plan’s transportation benefits into the District.

Recommended BRT/Transit Operating Subsidy—Prior to submitting the conceptual proposal members of the Fluor-Transurban team conducted numerous interviews with opinion leaders knowledgeable about the I-95/395 corridor transportation problems. The consensus of opinion was that l operating funds were essential part of assuring the success of the bus rapid transit system component. Many areas along the proposed 56 mile plan alignment, both inside and outside the Beltway, have no public transit service or very limited travel choices. As discussed in Tab 3-b.5 the Commonwealth Transportation Board will be responsible for determining the mechanism for allocation and what agencies will receive the recommended transit subsidy funds.

summary of changes for tab 3 - virginiadot.org › projects › resources › tab_3.pdf · i-95/395...

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