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HomeMy WebLinkAboutCOM 0475.000 2004-2006 rtv os Nib Harry Kim William Takaba ,41uca. Unecmr Nancy E. Crawford De ni Ufrecmr ~~f DI~N~,~f / N County of Hawaii Finance Department 25 Aupuni Strcct, Room 118 • Hilo. Ilowoii 96720 (808) 9G1-8234 • Fax (808) 961-8?48 October 3, 2005 Stacy Higa, Chairman, and Members of the Hawaii County Council Hawaii County Council 25 Aupuni Street Hilo, HI 96720 Subject: Solid Waste Reduction RFP Staff of the Department of Environmental Management, Office of the Corporation Counsel, and Department of Finance have been meeting weekly with consultants from Hawkins Delafield Wood, LLP and R.W. Beck, [nc. to develop a draft of the procurement framework for the waste reduction technology RFP. Throughout this process, we have also been meeting with members of the County Council to obtain input. Based on these discussions and research conducted by oc~r RFP consultants, the consuhants have drafted the following documents for your review and further input: • Procurement Framework Summary (Exhibit A); Ownership and Financing Consideration in Solid Waste Reduction Facilities [mplementation (Exhibit B); • RFP Timeline (Exhibit C); and • EIS Preparation Notice (EISPN) Statement of Project Purpose and Need (Exhibit D). I~he purpose of the Procurement Framework Summcny is to provide guidance on a number of key procurement issues for the waste reduction facility. Establishing a clear direction for these issues will ensure a proper foundation for the design and implementation of the selection process and ultimate design-build-operate project. The Ownership and Financing exhibit (Exhibit B) presents a detailed analy_ xis of the Project Financing and Ownership section of the Proe«remenl Frameirnrk,Sumnmrl'. Comm. No._ ~~f 7 S Ref. To: Ra{. Uate OCT 4 ~~n~ Stacy Higa, Chairman Page "fwo October 3, 2005 Upon completion of the procurement framework, we will then be able to begin the second period of the RFP process, which is to prepare the procurement document itself (see attached RFP Timeline, Exhibit C). Our [2F'Y consultants, Rick Sapir, Bob Bingham, and Kyle Rhorer have scheduled a trip to Hilo on October 17, 2005 to discuss the draft RFP Framework Summary and the Ownership and Financing Considerations with the County Council. Ron Terry will join them in discussing the FLSPNSIalemen( of Project PurE~ose and Need (Exhibit D). We would appreciate it very much if you would allow our RFP consultants to meet on October 17 with your Environmental Management Committee to discuss the enclosed documents, and respond to questions that members may have. This information will be used to refine our draft Procurement Framex~ork ,Summary and, if satisfactory, begin preparing the procurement docwnent. Should you have any concerns prior to that, we will be happy to discuss them with you. Thank you very much. William T aba Director cc: Barbara Bell Enclosures APPROVED: C,~.~ Harry Kim U Mawr EXHIBIT A DELAFIELD &WOOD~~P PHONE 2121820-9300 6] WALL STREET NEW YARN FAX 12121514-p425 NEW YORK, NY 10005 WASHINGTON NNJW.HAWKINS.COM NEWARK HARTFORD LOS ANGELES SACRAMENTO SAN FRANCISCO MEMORANDUM To: William Takaba, Director of Finance Barbara Bell, Director of Environmental Management From: Rick Sapir Date: October 4, 2005 Re: Procurement Framework Summary Enclosed, please find the Procurement Framework Summary (the "Summuy'~) prepared by R.W. Beck and ourselves with input from County representatives and Rifer Environmental (collectively, the '`Project Team"). It is the intent of the Project Team that the recommendations contained in the Summary formed the basis upon which we will move forward to prepare the solicitation documents for the Waste Reduction Facility. We look forward to discussing the Summary with you and members of the Council on October 17, 2005. Of course, we are available to discuss any aspect of the Summary at your convenience. Enclosure(s) ~x~zza_i oasavi Nu.n~ County of Hawaii Waste Reduction Facility Design-Build-Operate Procurement Procurement Framework Summary: Executive Summary of Recommendations Key Procurement Issues • General Deal Structure Recommendation: The County should enter into along-term (I S to 25 year) Design-Build-Operate service agreement ("DI30 Service ContracP') with the most qualified integrated team ("DBO Team"). • Procurement Approach Recommendation: The County should utilize "two-stage' procurement processes to "short-list' the most qualified trms prior to seeking technical and pricing proposals. • Technology Limitations /Requirements Recommendation: R.W. Beck to recommend acceptable technologies based upon ongoing technicaUcost feasibility considerations. • Level of Demonstrated Effectiveness Recommendation: "fhe County should require all firms to "adequately demonstrate" the viability and effectiveness of their proposed technical approach by meeting specific minimum qualifications for proven successful application under similar module size and waste composition, including their project experience in the U.S. and abroad. • Project Financing and Ownership Recommendatir~n: The County should utilize the preferred public financing and ownership approach (see attached). If the County elects to move forward with less proven technology, private financing and ownership approach should be considered. • Project Residual Value Recommendation: "fhe County should ensure its ability to utilize waste reduction facility (residual value) following contract expiration by owning the facility. • Scope of Services Recomnrcndation: Scope of services should include design, construction, long-teen operation and maintenance (including all repair and replacements), regulatory permit acquisition and compliance, residue disposal, and monitoring and reporting Emphasis should be placed on the integration of design and construction with other County solid waste management facilities and processes. • Performance Requirements Recunnnendatinn: The Company should be required to comply with all applicable laws and permits, contractual guarantees relating to throughput, energy generation, residue quality and quantity, and other areas designuted b~ the County. I ~aaza3.i ozxa~r uttc • Environmental /Regulatory Permitting and Compliance Recummendahon: The County should allocate all permit acquisition and compliance responsibility to the DBO Team. However, the County should be responsible for all the permitting and regulatory responsibilities related to the Environmental hnpact Statement processes, with exception to any mitigation measures that will be allocated to the DBO Team. • Project Capacity (Short- and Long-Term) Recommendation: The County should require the DBO Team to design and construct the WRF based on a defined throughput identified in the RFP document which takes into consideration anticipated increases in waste flow over the term of the agreement. Operations period throughput guarantees should be structured to correspond to anticipated waste flows during the term. • Project Integration with Other Facilities Recomntendution: The County must ensure clear allocation of responsibilities among the operators of County solid waste management facilities. • Risk Allocation Recrnnnrendution: Risk allocation should be structured in a reasonable and cost effective manner. • Project Schedule Recommendation: l'he Company should be required to submit a guaranteed schedule (including a firm deadline for completion set by the County). The contract should provide for delay liquidated damages in the event the Company tails to meet the schedule. • Selection Process Recommendation: The County should require the DBO Teams to meet specific minimum qualifications prior to fwYher consideration in the evaluation of proposals. Should the minimum qualifications be met, the evaluation criteria should include both economic and non-economic factors. • Contract Tcrm Recomnaertdution: The County should set the initial DBO Contract term for 20 years and have a 5-year contract extension at its sole discretion, for a maximum of 25 years. The County should retain convenience termination rights throughout the DBO Contract term. • Projee[ Security Recommendation: "I~he County should require a separate project guaranty agreement to be signed by [he Project Guarantor tlta[ will unconditionally guarantee the performance of the WRb' project throughout the entire contract term. The County should require performance and payment bonds during the construction period. If County elects to move forward with the less proven nature of the technology. an in~evocable standby letter of credit should be considered. • Payment Methodology Rrconnnenduthm: The County should utilize a payment methodology based on an annual service Ice that is paid by the County to the DBO Team for processing of a ccrain quantity and quality of WRF throughput 2 ~R1241_ 102Rd9T UUt' County of Hawaii Waste Reduction Facility Design-Build-Operate Procurement Procurement Framework Summary /ntroduction This Procurement Framework Summary has been developed to provide guidance to County Council and Staff with respect to a number of "Key Procurement Issues" for the envisioned Waste Reduction Facility ("WRF"), enabling project stakeholders to make informed, appropriate decisions concerning overall project direction. While important in any capital project delivery effort, development of this framework is especially crucial under anon-traditional project delivery approach such as the design- build-operate ("DBO") methodology that is currently being contemplated by the County. Establishing a clear direction for the Kcy Procurement Issues identified in this document will ensure a proper foundation for the design and implementation of the selection process and ultimate DBO project. [t must be Holed that this document is no! intended to address all issues and decision points for this comprehensive DBO procurement process. It is a high level summary, intended only to assist in the development of the initial framework that will guide the process. As the project progresses, the County Council and Staff will be asked for additional input and direction throughout the design and implementation of the procurement. providing guidance for a number of key areas such as: Waste reduction technology requirements and limitations Financing and ownership considerations WRF DBO proposal evaluation criteria Allocation of responsibility and risk Ke}~ Procurement /sues A discussion of the Key Procurement Issues is presented below, containing: An identification and definition of the procurement issue; The standard industry approach for resolution of the issue; and The recommended approach for the County's resolution of the issue. I~hese items will form the foundation of the overall procurement strategy, solicitation document (Request for Proposals ("RFP")) and the DBO Service Contract. "fhe intent is to identify and resolve the most important issues related to the procurement process while addressing the less crucial items through the development of the solicitation documents. 1 as~~?a.i uzaa~~: ix~c General Deal Structure The overall general framework of the anticipated basic contractual relationship between the municipality and the integrated private sector team ("DBO Team") responsible for delivery of the project scope of services. (Specific componenl.c of the deal care identified Infer in this document.) Standard /ndusary Approach: Industry approaches vary widely. As each capital project is unique, the overall approach to contracting can vary with the municipality's specific needs and objectives. In general, contractual relationships between the municipality and the DBO service provider include: o A clearly defined scope of services o Specific performance requirements o Single-entity responsibility for delivery of the DBO services o Financial and operational guarantees o A reasonable and cost effective allocation of risk Recornmendatioaa: o The Co~mty eaters into along-term (15 to 25 year) Design-Build-Operate service agreement (`DBO Service Contract") with the most qualified integrated team ("DBO Team") for the design, construction and long-term operation and maintenance of the WRP. o The agreement shall include specific performance requirements and guarantees to adequately protect the County's interests. (Additional recon:mendalions regarding ahe h~ansaction are identified throughoua the remainder nfihis documnna.) Procurement Approach The selection method to be designed and implemented in order to execute a long term agreement with the most qualified team to provide integrated DBO services to the County. Sl undard lndush _v Approach: Depending on state and local procurement laws, most municipalities conduct "two-stage' procurement processes in order to `'short-list" only the most qualified DBO Teams for further consideration. This approach is implemented via issuance of two separate solicitation documents (e.g. Reyue~st for Qualifications ('RFQ"), and the RFP). Ry short-listing the DBO Teams prior to requiring them to spend axaza.i ozsa~>, nc,c significant amounts to prepare full technical and price proposals, a municipality is likely to attract the most qualified teams to its procurement, and, therefore, the municipality can be relatively contldent that the proposals it receives in response to the second solicitation document (RFP) are of the highest quality. Recornmendntiorr. o The County's Corporation Counsel is in the process of reviewing whether a two stage process is permitted under Hawaii law, either through the issuance of an RFQ, or by allowing the County to shortlist respondents to an RFP based upon their qualifications, prior to seeking full technical and price proposals. This is the recommended approach. Two-stage processes are most likely to provide the County with the best competition among the private sector DBO teams that are the most qualified to provide the requested services. o If a two stage process is not permitted under Hawaii law, the County should issue a single solicitation document (RFP) that incorporates the various requirements and minimum qualification criteria commonly found in RFQ documents. This approach will also help ensure the proposals received are only from qualified DBO Teams. Technology Limitations /Requirements The degree to which certain technical approaches to the design, construction and operation of the facilities are limited (or required). ,Slundurd Industry Approach: Industry approaches vary considerably, based on application of technology. Many DBO applications involve the development of enviromnental infrastructure that has not significantly evolved from a technical perspective in a number of years (e.g. biological wastewater treatment.) Most municipalities are comfortable that the technical approaches proposed for these types of projects have been well proven. Conversely, for those technologies that are less proven, such as certain waste reduction technologies, municipalities will often limit what will be considered a'`proveri' technology, or specifically preclude certain technical approaches. The process of identifying what is "proven" usually consists of comparative analyses and evaluations by third-party professionals, often with the assistance of regulatory bodies. Recommendnliun: v R.W. Beck is currently conducting a preliminary analysis ofthc various waste reduction technologies that will likely be proposed by the private 3 asazz t i n~x•~~~z u~~c sector community, evaluating the technical feasibility and viability of various processes as well as the cost considerations and competitive field. o The R.W. Beck team will evaluate the ability of various technical approaches to provide aself-sufficient solid waste management solution, reducing or eliminating the dependence on additional or secondary solid waste management options for the waste stream. o 'fhe technologies to be evaluated will include: • Anaerobic digestion • Bioreactor landfill • Thermal gasification • Waste-to-energy incineration o Based on our findings and coordination with County stakeholders, specific technologies will be deemed "acceptable', with the RFP requiring their utilization by the DBO Teams. • Level of Demonstrated Effectiveness The degree to which the proposed technology must be proven as effective in its application in order to satisfy the municipality. .Standard Induslrv Approach: Industry approaches vary considerably, based on application of technology. However, all DBO solicitations generally require the DBO Teams to demonstrate the. effectiveness and long-term viability of their proposed technical solutions. This requirement is often addressed via the inclusion of specific "minimum qualitication~' requirements wherein the DBO Teams must show a certain number of relevant project experiences of a given duration, under conditions similar to those anticipated for the current project. Usually, municipalities require that the relevant experience be from projects developed in the U.S. Reco~rrmenduNon: o In the RFP, the County should require all DBO Teams to "adequately demonstrate' the viability and effectiveness of their proposed waste reduction technical approach by meeting specific minimum qualifications fbr proven successful application under similar module size and waste composition. o "I~hc County should allow this requirement to be met through directly applicable project experience in the U.S. and abroad, as these newer technologies likely have a more proven track record in other countries. 4 asaz?a.i u~xae3 u~x~ o The ability of the DBO 'Ceams to demonstrate the effectiveness of their technology will determine the approach the County will take to the financing and ownership of the project. Project Financing and Ownership The methodology under which the project's capital components will be financed and the ownership structure that will be in place throughout the contract term. Standard industry Approach: Regardless of which entity is responsible for owning and financing the WRF, the costs borne by the DBO Team to implement the project will be passed through to the County and paid to the DBO Team either as a construction price followed by an operating fee, if publicly owned, or it will be included in the operating fee or "per-ton" fee, if privately owned. Generally speaking, municipalities prefer to finance large capital improvement projects via their own tax-exempt debt instruments (e.g. revenue bonds, general obligation bonds, special purpose bonds, etc.) as private sector financing is usually more expensive and can considerably complicate the structure of the deal. In addition, public financing and ownership approaches to environmental infrastructure, especially under the DBO model, can provide the mwicipality with greater flexibility from a contracting and asset disposition perspective. However, some municipal agencies consider private financing in certain special circumstances. Depending on the type of project, capital is sometimes privately financed using tax-exempt instruments. By allowing the private sector entity to assume "tax beneficial ownership" of the facilities, the premium of private financing over public debt can be minimal. Municipalities that have limited bonding capacity may pursue private financing options as would municipalities that are reluctant to assume the risks associated with a project that tails -under a private tuiancing scenario, the municipal agency need not worry about repaying its bondholders in this situation. This may be an amactive option for a municipality considering the implementation of a less proven technology. It should be noted, however, that under a private financing /private ownership approach. the facility will be owned by the private company at the end of the term of the contract and can only he sold to the mumicipality at fair market value. Including this purchase price in the life cycle cost analysis generally widens the gap between dte cost of public ownership /financing and that of private ownership /financing. Kecannierulaiiun: o Should the DBO'feam(s) be able to adequately demonstrate the effectiveness and long-term technical and financial viability of the aaa~?-t. i uzsa~~ i uuc proposed waste reduction technology (see above), the County should utilize the preferred public financing and ownership approach, taking advantage of more favorable financing terms, the benefit of the facility's residual value and the contractual flexibility associated with public ownership of the facilities. o If in the opinion of the County and its consultants, the technical approach as proposed is not adequately demonstrated, but the County still desires to move forward, the County should require private financing provided by the DBO 'T'eam for the WRF to better manage the contractual risks of utilizing a less proven technology. Project Residual Value The contractual approach utilized to transfer the project assets at the end of the DBO Contract term. Slundurd lnclusn~y Approach: As most DBO projects utilize public financing and ownership approaches, the transfer of residual value is not applicable as the public agency retains ownership of the project facilities throughout the contract term. In the case of private financing, the reversion approach is highly dependent on a number of variables including federal and state tax laws and the specific private sector ownership provisions indicated in the DBO Contract. Reco~nmendatio~r: o Assumurg the selected waste reduction technology has been adequately demonstrated (see above), the County should utilize a public financing and ownership and ownership approach that facilitates project residual ownership by the County. o Should the County elect to utilize a private finance and ownership methodology, the DBO Service Contract should include provisions to transfer ownership (and the eventual residual value) to the County once the waste reduction technology has been adequately demonstrated. Under the private finance /ownership option, tax law will dictate that the County will have to purchase the facility at fair market value. Scope of Services The specific services that will he provided by the DBO Team to the County under the long-term DBO Service Contract. 6 axaaz~. i nza~~~; uuc Standard lnduslry Approach: Under the DBO model, municipalities construct a "performance-based" solicitation that generally includes a scope of services for the integrated design, construction and long-term (I 5 to 25 years) operation and maintenance of the project. In addition, many agencies request additional ancillary services such as permitting, environmental mitigation, residual disposal, asset management, periodic financial and operational reporting, etc. Regardless of the specific scope of services requested, the RFP must contain sufficient detail to allow DBO 'reams to prepare thoughtful proposals and all-inclusive budget estimates. Recommendation: At a minimum, the County's RFP should request the following scope of services: o Single-entity responsibility for all services o Design of the WRF and its interfaces (as necessary) to the County's other solid waste management facilities and processes. This design will be based on specitic performance requirements and minimum design requirements developed for the project o Construction of the WRF and all interfaces (as necessary) to the County`s other solid waste management facilities and processes o long-term (I 5 to 25 years) operation and maintenance of the WRF o Repair and replacement of WRF components o Environmental and regulatory permit acquisition and compliance (acquisition assistance provided by County) o Guaranteed process residual and byproduct disposal (as necessary) o WRF O&M training for County staff o Periodic monitoring and reporting o Periodic lnancial reporting o Guaranteed short- and long-term financing and ownership of the WRF (should the waste reduction technology not prove adequately demonstrated -see above) o Olher.cervicac TBD a.c l1FP is developed Performance Requirements The specific standards of performance that will be required of the DBO Team for the design, construction and long term operation of the project. Rlandurd Indus7r,c!lpprouch: DBO Service Contracts are considered "performance based" as they are developed based on specific. measurable standards of performance to which the DBO "I'cam must adhere, as opposed to specitic desigu criteria. [n general, under the DBO model a municipal agency does not require the DBO "team to comply 7 asazza.i ozs~~e; n~x~ with a particular design and/or construction approach. Instead, performance requirements are carefully designed to ensure the project provides the environmental services needed for successful and compliant long-term processing of solid waste. Many performance requirements included in a DBO RFP (and subsequently the DBO Service Contract) are based on the local, state and federal regulatory requirements in place (e.g. Resource Conservation and Recovery Act, local/state/federal air permit requirements, etc.). In some cases these regulation- based performance requirements are augmented by various "enhanced standards' required by the specific municipality, such as stricter air emission controls, noise mitigation, etc. The primary performance guarantees which are not "regulation- based" relate to guaranteed throughput, electricity generation, and the quality and quantity of residue products. In addition, many DBO contracts contain performance requirements that are not directly related to the design, construction or operation of the project, such as financial performance requirements that require maintenance of specific credit worthiness, insurance coverages, bonding, etc. Recornmendalion: o 'Che County should develop a set of "primary" performance requirements based on all applicable regulatory laws as well as the County's specific throughput requirements. o Energy guarantees should be proposed by the DBO Teams. o Residue quality and quantity guarantees should be required. o The County should develop a set of "enhanced" performance requirements that are based on promulgated or anticipated changes in law, as well as noise and odor control and various financial guaranty requirements. o While the County should not prescribe the design of the facilities, it should limit the technical approaches that will be considered. (See above) 0 7~he County should require the DBO Team to provide guaranteed solid waste processing and/or disposal services at all times, should the WRP be unable to process waste at the quantities mandated. Environmental /Regulatory Permitting and Compliance ~hhe approach R>r allocating regulatory permit acquisition and compliance responsibilities to the DBO "team. H ~xazz-~. i ozsa~~s uuc Standard Industry Approach: Industry approaches vary considerably, based on application of technology. Municipal agencies often allocate the responsibility and risk of permitting to the DBO Team, requiring the private sector partner to conduct all activities necessary to acquire and maintain the necessary permits. Quite often, the private sector DBO community enjoys strong relationships with regulatory agencies and is better positioned to more efficiently secure the necessary governmental approvals than their public sector clients. Further, it is often the preference of the municipality to allocate permit acquisition responsibilities to the DBO Team in situations where less proven or advanced technologies are being implemented. [n nearly all cases. the DBO Team retains the responsibility (via the DBO Service Contract) for permit compliance and any associated fines and penalties for non- compliantoperations, despite the fact that the municipal owner is generally listed as the permit holder for the facilities. Inmost cases, the municipal owner retains full responsibility for permitting and regulatory requirements associated with the development of pre-project activities such as Environmental Impact Studies, Environmental Impact Reports, etc. Recomnzendutiun: o The County should allocate all permit acquisition and compliance responsibility to the DBO Team. o The County should be responsible for all the permitting and regulatory responsibilities related to the Environmental Impact Statement processes, with exception to any mitigation measures that will be allocated to the DBO Team. o llue to the possibility that the waste reduction technology proposed may be relatively unproven, the responsibility and risk for securing the necessary permits should fall on the entity best familiar with the processes. o The County should assist the DBO Team in permit acquisition only where appropriate and practical, but should bear no risk of permitting failures. o Fines, penalties and sanctions for non-compliant operation should be the responsibility of the DBO Team, regardless of the permit holder. Project Capacity (Short- and Long-'Term) The approach and parameters for processing anticipated waste stream quantities. 9 as~zz~.i o~xa~>; [xu~ Standard Industry Approach: In general, DBO RFPs and Contracts require the DBO 'Team to process, treat, supply, etc. a given "flow" of inputs (e.g. quality and quantity of solid waste). or deliver a certain quantity or quality of outputs (e.g. electricity, residuals). Obviously, this performance information becomes the basis of the team's facility design. In many cases, the service fee paid to the DBO service provider is not adjusted downward should the municipality wish to decrease facility throughput, although some DBO Contracts do contain "resets" that allow quantity and payment to be better matched. In all cases however, required increases to facility throughput beyond the contracted amounts result in higher payments to the DBO "Ream. Recommendation: o "I'he County should require the DBO Team to design and construct the WRF based on a defined throughput identified in the RFP document which takes into consideration anticipated increases in waste flow over the term of the agreement. o Operations period throughput guarantees should be structured to correspond to anticipated waste flows during the term. Project Integration with Other Facilities The technical, procedural and contractual approaches for integrating the DBO scope of services with other existing or anticipated facilities. ,4lundard Industry Approach: DBO Contracts arc best managed when the project can be designed, constructed and operated as independently as possible from other infrastructure not under the DBO Team's control Lessons learned by municipalities that have implemented DBO projects reflect the tact that the fewer interfaces with other facilities, the less chance that operational difficulties of the DBO project will be blamed on third parties. Additionally, operations and maintenance responsibilities must be clearly delineated between the DBO project and the facilities with which the DBO project interfaces. Recrnnmenda(inn: o "fhe County must design the solid waste processing methodology in such a way as to minimize the interface between existing or anticipated facilities (c.g. sort station), in order to ensure efficient operation and a clear allocation of responsibilities among the facilities. 1(1 ~txa?z~. i nzs~w? u~x~ o Depending on applicable law, the County should consider expanding the DBO t'eam's operations and maintenance responsibilities to cover the sort station facilities. • Risk Allocation The method by which project risk will be allocated between the public and private sector partners. ,Standard Indus7ry ~pprouch: The risks associated with design, construction and operation are allocated to the party best able to manage those risks. It is imperative that risk be allocated in an appropriate manner to ensure stakeholder interests are protected, yet the project remains financially attractive to the private sector. Recommendation: o Hawkins Delafield & Wood LLP and R.W. Beck will develop a preliminary risk allocation matrix to be distributed with the Draft version of the solicitation documents for comment by the private sector. • Project Schedule 1'he manner by which adherence to a project schedule is contractually mandated. fi[andard Indits7ry ~ ppr•ouch: One of the key reasons municipalities choose to utilize the DBO approach as a project delivery method is schedule efficiency. Through an integrated design- construct process based on operator input, schedule savings can be dramatic when compared to the traditional design-bid-build approach. For Chis reason, municipalities often contractually require the DBO Team to complete construction and reach project acceptance by a stated deadline. Failure to meet this deadline often results in delay liquidated damages. Recomnaendcrtio~r o 'fhc County should consider establishing a firm deadline for completion and acceptance of the WRF (although DBO "Teams will be allowed to propose a shorter schedule), however the deadline should be based on an accurate assessment of schedule need and should take into account other solid waste management options that may he available to the County should the WRF he operational as scheduled. Il as~zz-t. i ozs~<~~ uo<~ o The DBO Service Contract should include provisions for delay liquidated damages and requirements mandating the DBO Team to provide interim solid waste processing and/or disposal services at its sole cost. Selecfion Process The process by which the County will evaluate proposal submittals and select the preferred DBO Team. Standard Industry Appraar{~: As stated above. most DBO procurements involve the development of two distinct solicitation documents (c.g. RFQ / RFP), allowing the municipal agency to "short- list" or "pre-qualify" DBO Teams prior to issuance of the final solicitation document. Depending on applicable law, most DBO solicitations utilize both economic and non-economic evaluation criteria to rank proposals and select the DBO Team that provides the best overall value. Evaluation criteria generally include (life cycle) cost as well as non-cost factors such as the adequacy and viability of the technical solution, experience. financial qualifications, risk assumption, etc. 2ecommendation: o The County should require the DBO Teams to meet specific minimum qualifications (see above) prior to further consideration in the evaluation of proposals. o Should the minimum qualifications be met, the evaluation criteria should include both economic and non-economic factors. Contract Term The duration of the DBO Contract. ,Standard lndrestry Approach: Most municipalities and their private sector DBO partners prefer long contract terms, generally up to 25 years in duration. For a municipality, a longer teen better amortizes the transaction costs associated with developing the public- private partnership and in the case of public financing, better aligns asset utilization with bond repayment terms. Private sector DBO Teams prefer longer contract operation periods as well as they are better able to develop operational efficiencies and thus improve overall project profitability. Additionally, most DBO Service Contracts provide the municipality with convenience termination rights throughout the contract term. 12 ~is~?2a.1 o~sae; ixx' Recornmenclatron: o The County should set the initial DBO Contract term for 20 years and have a 5-year contract extension at its sole discretion, for a maximum of 25 years. o The County should retain convenience termination rights throughout the DBO Contract term. Project Security The financial and contractual instruments that protect the municipality against non-performance by the DBO "team. Stunclurd LndzASTry AhProuch: In addition to comprehensive insurance coverages, municipalities require various types of security throughout the DBO Contract term. During the construction period, payment and performance bonds are generally required in the amount of the capital cost of the facilities. During the operations and maintenance period, many municipalities will require performance bonds or letters of credit (LOC). Under many DBO Contracts, these instruments are required in addition to a separate guaranty agreement that unconditionally guarantees the performance of the project by its "Project Guarantor", often the parent company of the DBO "Team that possesses the adequate financial resources to provide such a guarantee. Recommenclulion: o The County should require a separate project guaranty agreement to be signed by the Project Guarantor that will unconditionally guarantee the performance of the WRF project throughout the entire contract term. o The County should require performance and payment bonds during the construction period. o Considering the less proven nature of the technology, an irrevocable standby letter of credit to be in place during the operations and maintenance. Payment Methodology The manner in which the project's capital and operations costs arc recovered by the private sector. 13 ~stz,-i.i uzx~~>; u~x~ Standard Industry Approach: Payment approaches vary widely in the DBO industry. As most DBO Service Contracts utilize public financing for the capital facilities, debt repayment is handled via traditional bond service techniques with the operations and maintenance costs being recovered by the DBO Team in the form of annual service fees. In the private financing model, many DBO Service Contracts contain payment methodologies that require a separate capital payment made to the private sector financier in addition to the service fee charges. In some projects, DBO 'beams recover costs via a "unit charge" for service (e.g. $X per gallon, $X per ton, etc.) Selecting an appropriate payment methodology is dependent on a number of political, legal and economic variables and is quite project-specific. Recnmrnendalion: o "1'he County should utilize a payment methodology based nn an annual service tee that is paid by the Cow~ty to the DBO Team for processing of a certain quantity and quality of WRF throughput. Subject to inflationary escalation, this fee should be all inclusive, covering all capital (if privately tinanccd), O&M, repair and replacement, permitting and other project- related costs incurred by the DBO Team. 1 ~4 aKaz2<4_i nzx~~~; u~x' EXHIBIT B DELAFIELD &WOOD~.~P HDW DRAFT 09/16/05 ATTORNEY WORK PRODUCT PRIVILEGED AND CONFIDENTIAL MEMORANDUM TO: Bill Takaba, Barbara Bell FROM: Rick Sapir Richard Chang DATE: September 16. 2005 RE: Ownership and Financing Considerations in Solid Waste Reduction Facilities Implementation INTRODUCTION Among the fundamental issues which must be addressed early in the development of a procurement for the County of Hawaii's Solid Waste Reduction Facility are the issues of which entity will be responsible for owning and financing the facility. While it is possible for a private entity to provide financing for a publicly otiemed facility, more commonly, the entity that will own the facility will also have financing responsibility. It should be noted that regardless of which entity is responsible for owning and financing the facility, the. costs borne by the Company to implement the project will be passed through to the County and paid to the Company either as a construction price followed by an operating fee, if publicly owned, or baked into the operating fee or `per ton" fee, if privately owned. PART I -OWNERSHIP CONSIDERATIONS Both public and private ownership models have been successfully utilized for solid waste reduction iaci(ities. Most of these precedents have involved proven waste-to-energy technology and companies evith strong financial credit. The primary considerations in determining ownership arc (i) value of; and right to utilize, the facility following the term of the service contract ("residual value"). (ii) initial and long term ]ifecycle costs. (iii) control of facility and site. and (iv) Flexibility. Other considerations include use of debt capacity, risk of perfbnnance, and security for perlormanee. Bach ownership structure has advantages and disadvantages relating to these considerations. A bulletined summary of these advantages and disadvantages follows a brief textual discussion. I o(~10 axnxi., ozs+e3 Nm:M RESIDUAL VALUE In those solid waste reduction facility projects that have been implemented on a private ownership basis, a primary driver for the private ownership decision was the lower initial costs that the private companies were able to offer based on the tax benefits that would accrue with private ownership. In order for a private company to take advantage of federal income tax benefits associated with having ownership of a facility, certain indicia of ownership must be present. The most signiticant of these indicators are: (1) the term of the service agreement between the private company and the municipality (including any renewals exercisable at the discretion of the municipality) may not exceed 80% of the useful life of the facility; (2) the municipality may not acquire ownership of the facility for anything less than "fair market value°; (3) if the site on which the facility is located is publicly owned, the private company must have the right to use such site for a teen at least equal to the useful life of the facility; and (4) the company must contribute equity to the project. Thus, despite the fact that the County may have extinguished the debt necessary to construct the facility during the term of the service agreement (?0-25 years) (a lender will require this be. so), the County will have to negotiate a fair market service fee or purchase price at the end of the term of the agreement to utilize the remaining life of the facility (approximately 15-20 years). As discussed below, the value of this "residual'" use could effect the life cycle cost analysis (over the useful life of the facility) between the two ownership models. Considerations of obsolescence, changes in technologies, and bargaining power of the private owner at the end of the term should be analyzed in determining the significance of the "residual value" issue. COSTS Initial Term As stated above, private ownership normally entails a sharing of the tax benefits afforded private owners in the form of an equity contribution. The equity contribution has the effect of lowering the amount needed to be borrowed, and therefore reducing the cost of the customer during the initial term of the contract (although sometimes companies seek "return on equity"). The amount of the cost reduction the County would forego with a public ownership decision (and the amount of the cost reduction it would receive by electing private ownership) is a function of the level of tax benefits available to the private owner, and of the degree to which those benefits would be "shared" with the County. The level of any private owner's contribution cannot be ascertained with certainty until actual proposals are received, and will be affected by the proposer's actual need for the tax benetts (projected profitability) and by the competitive vendor selectiun process. Our experience on projects implemented in the late 1980s and early 1990s was that public sponsors could expect a vendor equity contribution in the area of 5-10% of project capital costs. Life Cvcle Costs Including Residual Value While the Company~s equity contribution can lower the cost to the County during the term of the service contract, the County will not own the asset following the term. It would have to pay Fair market value to purchase the facilit}' at such time. When the net present value of 2of10 1817ft13 028193 MI{M the "residual value" is included in the cost comparison of life cycle costs between the two ownership models, such residual value may significantly affect the analysis. CONTROL AND FLEXIBILITY Public ownership would give the County basic control over most of the aspects of the project involving issues of use or change, especially when coupled with public financing. County control in publicly owned projects will manifest itself through ownership of the residual value, control over any excess capacity, unfettered discretion on facility expansions, and facility financing or refinancing. In addition, under public ownership, the County can usually negotiate a right to terminate the service agreement with the private company merely for reasons of convenience, and to issue change orders to reflect changed circumstances without limitation as long as the private company's performance guarantees are unaffected or are appropriately adjusted.~Che contractual opportunity to respond unilaterally to evolutionary change is absent with private ownership. In addition, in a public ownership model, the County will retain control of the site. so that if at the end of the term of the agreement it determines to utilize the site for another purpose, it would be fret to do so. Under private ownership, control over matters of project use and change would likely remain with the private company as the owner, although many matters could be subject to negotiation. The federal tax code requires that all of the facts and circumstances of the transaction be taken into account in determining whether the private company is the owner of the project Some of the matters of control that are likely to be at issue include the following: (1) control over excess capacity (if any); (2) construction of new capacity; (3) sale of the facility; and (4) right to undertake and benefit from a ref financing. Also, while it is possible to negotiate a convenience termination in a private ownership model, the convenience termination fee would likely include the Company~s unrecovered equity, outstanding debt and anticipated profit, making such a provision of little use, particularly in light of the fact that the County would not own the facility or control the site following such a termination. RISKS AND SECURITY [n general. under either model of ownership, risks that are controllable (and insurable) can be shifted to a private company. In contrast, risks that are "uncontrollable" (and uninsurable) cannot be shifted to a private company under either model of ownership without payment of a significant premium. Under public ownership and public financing, risks associated with responsibility for the debt, whether or not the facility is operational, would likely remain with the County. While the County could contractually allocate this risk to the Company in the service agreement, this issue becomes more critical when unproven technologies and/or companies with weak tinancial strength are considered for the project since acceptance of the facility may never occur and recovery against the Company may be expensive and drawn out, or impossible if the Company goes bankrupt In certain cases, however, these risks can be allocated to a private company through a structured tlnancing. Shifting the risk would entail a "split credif~ or "project' security structwe which would most likely result in higher borrowing and transaction costs. another way to shift the °acceptance' risk may be to implement a turnkey approach 3offo txnxi.3 nzs~~~z nuttif whereby the company finances and owns the facility until afrer it demonstrates "acceptance" at which time the County would be obligated to purchase the facility. Under a private ownership model, since the debt is the Company's, failure of the lacility to achieve'`acceptance" would be the Company's risk it would have to pay the bonds. [n addition, because the Company will have equity in the project, the Company~s desire not to lose such equity can be considered to be "security" for the County. In a private ownership model, the company will be responsible for financing the facility and the project implementation will be dependent upon the ability of the company to consummate the necessary borrowing arrangements. "Che company's ability to do so will be highly dependent upon the financial strength of the Company and the likelihood that the technology will perform as anticipated. In addition, the least expensive private financing would be in the form of tax exempt private activity bonds. The ability of the Company to borrow on a tax exempt basis will depend on its ability to obtain "volume cap" from the State Treasurer. The lailure of the Company to obtain financing on the basis it assumed when providing its proposal would adversely effect the implementation of the project. DEBT CAPACITY Use of general obligation bonds issued by the County to finance the facility would most likely result in the lowest interest rate and the lowest transaction costs. Such debt, however, may utilize a significant portion of the County's borrowing capacity which might otherwise be used for other important public purposes. Alternatives to general obligation debt may be utilized but with higher interest rates and transaction costs. SUMMARY OF OWNERSHIP CONSIDERATIONS I . Benefits of Public Ownership: - The County would own the facility afrer the bonds are retired and would receive the full benefit of the "residual value" of the facility. Such benefits will include a measure of cost certainty for future years. - Depending on the fair market cost of the "residual value", the calculation of the Tile cycle per ton cost may be lower with public ownership. - The County would have substantial control over the facility, including making any desired capital modifications. - Removes risk of Company's inability to obtain "aolume cap" or to otherwise meet its linancing obligations. - Avoids encumbrance (lease) of valuable site for long term. - County would have ability to Convcnience'fcrminatc. - Most lil<dv to obtain lowest interest rate and transaction costs. dot 10 is i ~s i.~ u~sa~zi hu~.~i - The County would realize any savings associated with refinancing opportunities. 2. Disadvantages of Public Ownership: - No private owner tax benefits to be "shared" with the County (lowering per ton cost during initial term). - The security, if any, associated with the company contributing its own funds towards the project is lost: this can be partially offset by requiring construction and operating guarantees from the vendor. - Public owner is generally responsible for the debt whether or not the facility is operational; it may be possible to structure the transaction so that the company would be responsible for the debt if the facility can not meet "Acceptanee° Standards. - Public owner will use portion of its debt capacity. 3. Benefits of Private Ownership - Private owner's equity investment to reduce the fees during the initial term of the contract. - Private owner and builder have invested substantial amount of their own funds towards financing; therefore, they have economic interests in preserving the facility and that it operates properly. - Private owner is responsible for debt if the facility is not operational. - Public owner does not use debt capacity. d. Disadvantages of Private Ownership - fhe County will have, in effect, retired the project debt through payment of the fees over the initial term of the contract; however, the County will not own the facility after this time period. The County may have little price certainty for the years following the initial term. - If County desires to continue to use facility after the initial teen of the contract, the lees must be negotiated with the private owner or the County must purchase the facility at its fair market value which could result in higher lifecydc costs. - The County may have less control over modifications to the f~lcility, including expansions or changes to the facility, which must be negotiated with the private owner. Sof10 axnsi.~ ozsa~~3 Nu.nt - Risks associated with need to obtain private activity bond allocation and/or other private financing - Borrowing rate more likely to be higher. - Necessitates long-term lease of site to private owner for period of years beyond term of service agreement. - County would not have right to terminate contract for "convenience". - The private owner would most likely realize any savings associated with refunding opportunities. PART II -FINANCING CONSIDERATIONS The Solid Waste Reduction Facility can be financed through a range of structures ranging from County issued tax-exempt general obligation government purpose bonds (interest rate in range of 5%) in a public ownership model to 100% equity contribution (pre-tax rate of return of 15-20'%) for a privately owned facility, with many alternatives in between. The following is a brief discussion of a few financing structures which might be considered by the County. GOVERNMENTAL OWNERSHIP CREDIT General Obligation ("G.O.") Bonds Assuming that the County has sufficient debt capacity from both a rating agency and State statutory perspective, the County could finance the solid waste reduction facility with G.O. bonds issued pursuant to Hawaii Revised Statutes ("HRS") Chapter 47. G.O. bonds, supported by the full faith and credit and taxing power of the County, have the advantages of simplicity and minimized transaction expenses and, generally, the lowest tax-exempt interest rates. The credit rating on G.O. bonds would not be dependent upon the credit standing of the private Company with whom the County contracts, such private Company's credit would likely be weaker than the County~s. In addition, G.O. bond financing creates the possibility of issuing several series of bonds (as opposed to a one-time project tina~xing) to raise money as required for project completion, and thus minimizes the need for capitalized interest (but with associated risks as to potential interest rate increases for subsequent incremental financings). A G.O. bond financing, however, does entail certain drawbacks. Most importantly, in the event the private company breaches the contract_ including if the facility does not achieve "acceptance", the Count}' remains obligated to make debt service payments on the bonds. In addition, the County may be tying up a portion of debt capacity which it may need for other projects. Split Credit Bonds The County may he able to limit its risk to bondholders relating to the Company's default by structuring a transaction in which the bondholders agree to look to the Company for 6of10 ~s nx i.3 o2a.t~~3 No-.n~ payment of bonds if a default arises due to "Company fault", and to look to the County's general obligation credit for defaults not due to the Company. In this "split credit" structure, the interest rate on the bonds will be highly dependent on the Company's financial strength and the likelihood of the technology working as planned. The debt would likely not have as high a rating as if the County financed it entirely with pure G.O. bonds and therefore will carry an interest rate premium. The authority to issue split credit bonds under Hawaii law must be examined in more detail should the County elect to pursue this alternative. Revenue Bonds Many solid waste disposal facilities have been financed with tax-exempt and taxable revenue bonds. In this structure, bondholders rely on covenants of the sponsoring municipality to cause solid waste to be delivered to the facility and to charge sufficient user fees to cover the costs of operation and debt service. The general credit and taxing power of the municipality does not serve as credit to the bondholders. It is our understanding that the County does not intend to charge user lees sufficient to cover all of the costs associated with the facility and, therefore, a purely revenue based financing would not be applicable to this project. If, however, the County will charge user fees, that will cover a portion of the debt service and operating costs, the County may be able to issue debt supported by both, a pledge of the user fees and a deficiency agreement of the County whereby the County agrees to pay. subject to appropriation, the shortfall between (i) the debt service and operating costs and (ii) the user fees. Tn such a financing model, depending on applicable law, the debt may not count against the County"s debt capacity. The credit rating on such obligations is typically one ratings level below the issuer's G.O. rating. [t should be noted that for revenue bonds, HRS 49-10 requires that rates and charges be sufficient to pay debt service, operation and maintenance costs, and reserves and that this financing structure has not been tested in Hawaii. Lease-Purchase Agreement Under alease-purchase structure, the County would create a public benefit corporation to be the owner of the facility. Such public benefit corporation could issue Certificates of Participation ("COPS") to finance the project Subsequently, the County would lease the facility from the public benefit corporation and make lease payments, subject to appropriation. Such lease payments would be structured to sufficiently cover the debt service. Depending on applicable law, this mode of financing may not count against the County's debt capacity. ~~he credit rating on such obligations is typically one ratings level below the issuer's G.O. ratin~*. TAX TREATMF.N'1' fhe County can issue tax-exempt governmental activity bonds, tas-exempt private activity bonds. and taxable or a combination of taxable and tax-exempt bonds to 13nance the solid waste reduction facility. Tax-F,xempt Governmental Activity Bonds Debt issued by the County can be tax-exempt governmental activity bonds. Tax- exempt governmental activity bonds are bonds issued by a municipality of which no portion 7of10 ~xi~si_3 ozx+2~ nor>i thereof consists of private activity bonds. Accordingly, state private activity bond "volume cap" (as discussed below) and `'public approval" requirements set forth in the Internal Revenue Code of 1986, as amended, (the "Code") do not apply under this model. Tax-Exempt Private Activity Bonds The County may issue tax-exempt private activity bonds if proceeds of bonds are to be used in an enterprise with a substantial involvement of a private entity (i.e. private business use, private security or payment, or private loan financing). Tax-exempt private activity bonds mean bonds that meet either (i) the private business use and private security or payment tests of Section 141(c) of the Code (collectively, the "private business tests") or (ii) the private loan financing test of Section l41(c) of the Code. fhe private business tests are met, generally, if (i) more than 10% of the proceeds of an issue is used in a trade or business carried on by a nongovernmental person (the "private business use test) and (ii) the payment of principal or interest of more than l0% of the issue is directly or indirectly (a) secured by property used or to be used for a private business use or payments in respect of such property or (b) to be derived from payments in respect of property used for a private business use (the '`private payments or security test"). These 10% limitations are reduced to 5% for private business uses that are not related or disproportionate to the governmental uses financed by the issue and for payments or security relating to such uses. The private loan financing test generally is met if more than the lesser of 5% or $5 million of the issue is to be used to make or finance loans to nongovernmental persons. If the financing model meets the "safe harbor" tests for leases and management contracts set forth in Section 142(b) of the Code, state private activity bond "volume cap" set forth in Section 146 of the Codc is not required. If the financing model does not meet the safe harbor tests, such volume cap would be required and the governmental issuer would have to meet the '`public approval" requirements for private activity bonds set forth in Section 147(t) of the Code. Under HRS Chapter 39B, the County is allocated 5.01% of Hawaii's annual private activity volume cap which reverts to the Slate if not used by the County by the end of each calendar year. ]n addition. tax-exempt private activity bonds require the bondholders to include the interest on such bonds in the calculation of the alternative minimum tax, regardless of the ownership structure, resulting in a slightly higher interest rate in the debt. Taxable or a Combination of Taxable/Tax-Exempt Bonds A combination of tax-exempt and taxable bonds is generally used to finance a project where a portion of the project does not meet tax-exempt bond requirements set forth in the Code. A solid waste reduction complex which includes both solid waste function and power generation function (a waste-to-energy facility) is a good example of such financing model. Let us assume that this project employs a technology in which the solid waste disposal facility produces steam to power uturbine-generator to produce electricity. In this case, the production of steam would likely be considered part of the solid waste disposal function. The further processing of it into electricity. however, would not be qualified as part of the solid waste disposal function. "therefore. such turbine-generator and related equipment of the solid waste 8of10 ~x i ~s i.3 o~s4~~3 n~i.n,i reduction complex is, generally, financed on a taxable basis while the rest of the project is financed on atax-exempt basis. PRIVATE OWNERSHIP CREDIT CorRorate Credit Privately owned solid waste reduction facilities can be financed with a combination of company equity, tax-exempt and taxable corporate credit debt. Corporate credit debt is secured by the balance sheet of the private company. The weaker the credit, the higher the borrower's rate would be, and the higher cost of debt associated with such transaction would be passed through to the municipality as part of a construction price or in a per ton disposal fee, depending on the ownership model. The credit and, therefore, the interest rate for such bonds can be enhanced by the presence of put-or-pay agreements with the "feedstock" supplier and take-or-pay agreements with the "output" purchaser. Nun-Recourse Debt Non-recourse debt is generally known as a debt that is not secured by the balance sheet of the facility owner but secured by revenues generated from the facility. Investors of such non-recourse debt are secured by the facility owner's pledge of revenues generated from such facility (e.g. service fee from a service agreement, tipping fees, sale of electricity generated from the facility or any other project related revenues). Such revenues must be sufficient to pay for the operation and maintenance costs and the debt service as it becomes due. Accordingly, there is no recourse to the Company or the municipality. TAX TREATMENT Tax-Exempt Private Activity Bonds Project debt issued by a governmental issuer for a private company as the private owner of the solid waste reduction facility can be expected to result in the debt being classified as private activity bonds. If the solid waste disposal components of the solid waste reduction facility qualify under the Code, it will then be necessary to obtain an allocation of the state's volume cap for tax-exempt private activity bonds, given the private ownership of the project. hl addition, the County would need to determine what entity would finance such debt in the State on behalf of the Company, and to comply with the "public approval" requirements set forth in Section 147(1) of the Code. Taxable Bonds fo the extent all or any component of the project does not qualify for tax-exempt financing, the private company may linance such project with taxable bonds. With taxable bonds, the cost of capital to the private company, and ultimately the cost of service to the municipality, will be higher than it would he under tax-exempt bonds. 9of10 4817813 U28J93 MI~.~I "TURNKEY" PRIVATE OWNERSHIP/GOVERNMENTAL OWNERSHIP The `°I'umkey" approach is an alternative project delivery method in which a single contractor takes overall responsibility for financing. design, permitting, construction and acceptance testing the project. Upon demonstration of acceptance, the County would be obligated to purchase the facility. Che County would be taking the risk of interest rate fluctuations in this model. If the associated risks in connection with implementing an unproven technology is too great and/or contracting with private companies with weak financial strength is not acceptable, the County may consider this approach. Under this approach, most of the project risks stay with the private contractor until "acceptance" or "performance testing" requirements are satisfactorily met Subsequently, the County would refinance the project with public financing. Accordingly, this hybrid form of private and public financing minimizes certain risks discussed above but would he more costly than a pure public financing alternative. TAX LAWS "the tax questions which arise in this area are numerous, and their resolution depends upon the wide variety of factors which may be present in this County project. As a result, if the County does decide to pursue one of the tax-exempt financing options set forth herein, we would recommend that the County consider requesting a tax attorney from Hawkins Delafield & Wood LLP, or from other tirms with similar public project tax experiences, to prepare a full overview of the tax law as it relates to tax-exempt financing of the solid waste reduction facilities. 10 of 10 ~xnsi 3 o~s.~e3 ~nr:ni ' RFP TIl4BLINE ERHIBIT C FHtST PERIOD TECHNOLOGY AND APPROACH ASSESSMENT SECOND PERIOD PROCUREMENT DOCUMENT PREPARATION THIRD PERIOD COMPANY PROPOSAL PREPARATION FOURTH PERIOD PROPOSAL CLARIFICATION AND EVALUATION FIFTH PERIOD NEGOTIATIONS First Second Third Fourth Fifth Period Period Period Period Period Pmjed Conhad Sorts Execlution Tedmology and Pmcurement Document Company Proposal proposal ClariRntion and Negotiation Period 1 1 Approach Assessmem Preparazion Period Preparation Period Evaluation Period Period 3 -6 Months 2 -3 Months 3 Months J Months 1 1 I _ _ 12 -1 S Months _ _ Identify: • Prepare RFQ (if applicable) • Meet rttgs • Review Proposals • Prepare Drag Contratl • Objectives • Receive SOQ's with Proposer • prepare Clarificazion and Appendices • Technologies and • Evaluate and determine Teams Questions • Negotiate Final Contract Approaches Qualified Respondents • Company's • Meeting with Companies and Appendices • Ste(s) Preparation of • Evaluate Proposals • Obtain County Council • Transaction SruR Ure • Prepare RFP (with con tray proposals .prepare Evaluation Approval •Pmcurement Sruct ure principles or draft contract) Re on •Prepare and Negotiate • Distribute Drag RFP P • Feasibility Issues • Assist Selection Guaranty Agreement • Receive Comments Commdtee with • Issue Final RFP Ueterm inazicn z DELAFIELD b WOODLLp ERBIBIT D ~/~~~~f~~~~~ DELAFIELD &WOOD L~~ PHONE 21b 820-9300 8] WALL STREET NEW YORK FPX QI2) 514-8625 NCW YORK, NY 10005 WASHINGTON NMhV.HAWKINS.COM NEWARK HARTFORp LOS ANGELES SACRAMENTO SAN FFtANCI5C0 MEMORANDUM To: William Takaba, Director of Finance Barbara Belh Director of Environmental Management From: Rick Sapir Date: October 4, 2005 Re: Statement of Project Purpose and Need Enclosed, please find a proposed Statement of Project Purpose and Need (the `'Statement'), prepared by Wayne Rifer and Ron Terry with input from County representatives, R.W. Beck and ourselves, in connection with the Environmental Impact Statement Preparation Notice. We look forward to discussing the Statement with you and members of the Council on October 17, 2005. Of course, we are available to discuss any aspect of the Statement at your convenience. Enclosure(s) 1R1333J 02R~93 Mh:M EIS PREPARATION NOTICE AND PUBLIC INPUT PROCESS FOR THE WASTE REDUCTION TECHNOLOGY PROCUREMENT Draft Statement of Project Purpose and Need The County is preparing an EIS Preparation Notice (F,ISPN) for a Waste Reduction Technology facility. The following Statement of Purpose and Need fulfills a State requirement of an EISPN by providing guidance for identifying and evaluating project alternatives. It will also be valuable in soliciting public comment on the Waste Reduction Technology implementation. Statement of ProjeG Purpose and Need Due to the imminent closure of the South Hilo Landfill, the County of Hawaii requires a method of long-term disposal of Fast Hawaii solid waste. "That method should: • Provide aself-contained Elawaii solid waste management system that minimizes social and environmental impacts. Provide reliable, long-term waste disposal at a reasonable cost. Maximize island sustainability by the beneficial utilization of waste through energy, soil amendments and/or reused materials.