1. Performance-Based Management for Brownfields - Best Practices and Approaches November 2006 Eliana Makhlouf, Ph.D., P.E. Marsh Environmental Practice

2. Marsh 2 Performance-Base Management – Focusing on the Goal Not the Process Brownfields redevelopment is first and foremost a Redevelopment Opportunity NOT a Remediation Project. Goals Brownfields Beneficial Reuse Remediation Site Closure = Exit Strategy

3. Marsh 3 Brownfields Are Complex Transactions Owner Developer Remediation contractor Regulators Redevelopment agency Lender Remediation costs Cleanup standards Indemnities Finance Interpretation Duration 3rd Party Liability Regulatory Re-openers Community Involvement Acceptance Finance Debt Equity Project Delay Diminution of Value 1st Party 3rd Party Fear … Uncertainty … Financing …Timing

4. Marsh 4 Environmental Risk for Brownfields Unique Risk Type  Difficult to quantify – cleanup of knowns and unknowns, 3 rd party liabilities  Long latency periods  Subject to significant regulatory scrutiny  “Open Door” to 3 rd party liabilities  Source of bad publicity (“bad” corporate citizens) Schedule Delay … Protracted Negotiations … Cost Uncertainty… Unexpected Risks…..

5. Marsh 5 Top 6 Drivers for Environmental Insurance Cleanup cost certainty – Adequacy of environmental site characterization – Ability to estimate cost of cleanup for “Known” pollution conditions – Discovery of “Unknown” pollution conditions Appropriateness of Reuse Plan Institutional and Land Use Controls – “Who’s minding the Store?” Surrounding land use – “What will the neighbors think?” Consensus between Stakeholders regarding risk allocation

6. Marsh 6 Cleanup Cost Cap Cost overruns Remedy failure Unknowns Disposal Sites

7. Marsh 7 Disposal Sites I’ll sue them. They made me sick, and my house value is lower... I was just putting the house on the market!. PLL – On-site Cleanup of unknowns Re-openers Property damage Bodily injury PLL – Off-site Cleanup of unknowns Property damage Bodily injury

8. Marsh 8 Guaranteed Fixed-Price Remediation (GFPR) Remediation Contractor Liability Buy-out (LBO) Entity Brownfields Developer GFPR Owner (Seller or Buyer) Redevelopment Agency Developer

9. Marsh 9 Owner/developer/redevelopment agency pays a fixed price to contractor in exchange for a contractual guarantee to achieve agreed upon performance objective, e.g., Site Closure. Insurance company provides Cleanup Cost Cap insurance to contractor for costs overruns and change in scope/remedy. If contractual guarantee includes re-openers and 3 rd party liabilities, Contractor can obtain Pollution Legal Liability insurance as well. Contractual Guarantee of SOW or Site Closure Remedial Contractor Owner Developer Redevelopment Agency Insurer Fixed $$ Price Cost Overruns and Change in SOW / remedy GFPR is a Best Practice for Brownfields Conceptual Risk Transfer Structure

10. Marsh 10 What Is the … Range of Possible Outcomes and Costs Probability that costs will NOT exceed 10%$14.7 25%$16.5 50%$19.2 53%$19.3 75%$20.6 90%$22.4 95%$23.3 96%$25.3 97%$28.0 98%$40.9 99%$47.1 Total Expected Remedial Costs

11. Marsh 11 HOW TRIAD HELPS Example- Soil Contamination at Major AOC First Round Field Analytical Samples

12. Marsh 12 TRIAD Reduces Soil Volume Cost Estimate and Improves Certainty Delineation Field Analytical Samples

13. Marsh 13 TRIAD Benefit- Cost Reduction Probability (%) Cost($) 20% 50% 10% 30% 40%  Shift in attachment point down  Uncertainty reduced

14. Marsh 14 Q TRIAD Benefits for Program Design Provides greater certainty to contractor and insurer. Attachment point certainty – Can be lowered if uncertainty is reduced based on results. – Could also increase based on results. Results in lower buffers and premiums in either case as a %. Minimizes or eliminates “exclusions” from the program. Use during investigation and remediation process to eliminate potential for remedy failure.

15. Marsh 15 TRIAD Insurance Pricing Benefits 1st Round 2nd Round Refinement Program Cost ($ US) Soil Removal Cost $ 5,000,000 $ 3,500,000 Buffer $ 1,500,000 (30%) $ 700,000 (20%) Premium (100% overrun) $ 650,000 (13%) $ 385,000 (11%) TOTAL Bid $ 7,150,000 $ 4,585,000 Sunk RI Costs $ 20,000 $ 50,000 Cost Benefit($ bid difference/$Sunk RI Difference) $51.3 saved for every dollar invested in TRIAD