Second Avenue Subway Project Execution Strategy Presentation to November 2007 FTA Engineer’s Meeting 11/8/07 Michael P. Wetherell, P.E. URBAN ENGINEERS OF NEW YORK, PC

SAS Project Execution Strategy Objectives: Establishment of the technical and commercial risk baseline, based on cost estimates, cost forecast and project schedule planning Minimum Cost and Schedule contingencies, and cost and schedule risk management capacity developed, and implemented as needed to achieve targets. Secondary Mitigation Strategies developed, to be implemented as necessary to offset cost contingency drawdown inside the Cost Mitigation Buffer Zone as described below. These mitigation strategies will be applied on a dollar for dollar match to contingency expenditures within the Mitigation Buffer Zone. Secondary Schedule Mitigation Strategies developed, to be implemented to offset critical path or near critical path activity schedule slippage.

SAS Project Execution Strategy Results: Agreement by all parties to increase the project budget to reflect changes to the Real Estate Estimates, to add $160 million in cost contingency, and to add 6 months in schedule contingency. Graphs showing the minimum cost and schedule contingency requirements were developed as well as minimum secondary cost mitigation capacity Gantt chart. The result of these was the basis for a revised Baseline Cost Estimate (BCE) of $4.05 billion with a total contingency level of $550 million and a schedule contingency of 6 months, revising the schedule to complete in June of 2014.

SAS Project Execution Strategy Scoping Document: The Project Management Plan (PMP), as required by 49 U.S.C. Section 5327 for all project activities, plays a key role in FTA’s determination of whether an applicant has the technical capacity and capability to build, operate, and maintain a new starts project. The Scoping Document is the result of a series of working sessions between the FTA, Grantee and PMOC to develop data and information to support the PMP scoping effort in the areas of Project Delivery Method, Contract Packaging Strategy, Project Cost and Schedule, Risk and Contingency Management. In addition to the minimum requirements specified in 49 CFR Part 633, FTA and Grantee agree that the PMP requirements for the SAS project include Risk, Schedule and Contingency Management Plans.

SAS Project Execution Strategy COST CONTINGENCY MANAGEMENT: Cost contingency reference is interpreted as “total cost contingency” Total contingency is segregated into reserved and unreserved contingency: The amount of total reserved contingency must be above the minimum, at the FTA Hold Points. At the end of these specific time periods, MTA and FTA anticipate conducting a joint review of the project implementation with respect to the contingency management plan and its update. MTA will seek concurrence from FTA for the release of the next increment of reserved cost contingency.

SAS Project Execution Strategy MARKET RISK MITIGATION CAPACITY Limited competition on large MTA projects and tighter surety qualifications for contractors are market conditions may lead to higher than expected bid prices. The Grantee will develop a market risk capacity to account for primary market risk mitigation as follows: Perform contract level risk assessments for specific Contract packages. Develop source selection materials and explicit contract language that will become part of the source selection plans. Develop source selection plans that incorporate risk assessment data and identify a process for establishing and negotiating transfer of specific risks and associated financial resources.

Additional Contingency to offset bidding of Major Contracts in 2008: 20% 15% 10% 550 mil 475 mil (14%) +75 mil Q2 2007 Q42008

Cost Contingency Analysis Hold Point # 1 $375 mil Hold Point #2 $200 mil Hold Point #3 $100 mil Mitigation Zone

SAS Project Execution Strategy SCHEDULE CONTINGENCY MANAGEMENT: Schedule contingency in the form of critical path float for the project schedule shall at all times be above the minimums at the designated time periods. A minimum float of 60 calendar days is to be maintained between a contract package’s critical path and any ROW/Real Estate activities associated with that contract. Minimum differences between the critical path and the next “near critical” shall be 45 calendar days. Should the float associated with any path fall below 45 calendar days, it will also be reported on each month, as an addition to the Monthly Report requirements. In the event that any of the above three requirements are not met, Grantee shall immediately implement appropriate mitigation strategies to bring the subject float or requirement to the agreed upon levels within 90 calendar days.

Hold Point #1 Hold Point #2 Hold point #3 SAS Latent Critical Path Float Near Critical Path Float Minimum Critical Path Contingency Float

SAS Project Execution Strategy RISK MITIGATION PLAN Grantee shall implement and maintain throughout the project, an acceptable risk management plan for the following: Assessing (identifying and analyzing) project cost and schedule risk; Developing risk-handling options inclusive of primary risk mitigation; Develop a secondary mitigation plan to handle risk events or “triggered” mitigation activities; Monitoring risks to determine how risks have been handled or changed; and Documenting and reporting to the FTA the Grantee’s risk management program. This plan shall include the specifics on what is to be done, when it should be accomplished, who is responsible, what is the associated cost and schedule, how will its effectiveness be measured or tested, as well as how the most appropriate risk management strategy will be selected from those options.

SAS Project Execution Strategy SECONDARY COST MITIGATION CAPACITY Separate and above the mitigation scope required by the Grantee’s primary cost mitigation effort, the Grantee shall also develop a capacity to effectuate secondary cost mitigation as follows: Grantee shall develop a minimum capacity of $170million for the duration of the project. Grantee shall develop such capacity to apply secondary mitigation in the following time periods at or above the specified amounts: After completion of the construction procurement program, there will be no need for secondary cost mitigation requirement.

SAS Project Execution Strategy SECONDARY SCHEDULE MITIGATION CAPACITY Separate and above the mitigation scope required by the Grantee’s primary schedule mitigation effort, the Grantee shall develop and maintain a capacity to effectuate secondary mitigation as follows: Grantee shall develop an aggregate minimum capacity of 280 calendar days of schedule compression for the critical path of the project. Such aggregate capacity shall be further limited within the following time periods at or above the specified minimum amounts:

SAS Project Execution Strategy COST CONTINGENCY MANAGEMENT ACTIVITIES: As a part of the FTA Quarterly Meeting, the Grantee will report on the level of available contingency as compared with the predicted levels on the minimum reserved contingency balance curve. At each Cost Contingency Hold Point, the Grantee and PMOC will review the Risk Model to examine potential risks remaining and to update the minimum contingency drawdown curve. The Grantee will update the Risk Mitigation Strategies on a regular basis and review with the PMOC at each Hold Point for Reserved Contingency. Grantee will review the cost for individual construction contracts at each design deliverable (60% and 100%) to see how the most current estimates compare with budget values. Likewise, an analysis of awarded contracts to budget will also be made. During construction, the Grantee will review monthly the likely estimated cost at completion of each contract including all executed, pending or potential contract modifications (change orders) in comparison to the budgeted value. In all cases, use of contingency, below the minimum reserved contingency balance curve, will require documented review and written approval by the Grantee, and the FTA as applicable.

SAS Project Execution Strategy SCHEDULE CONTINGENCY MANAGEMENT ACTIVITIES: Grantee shall coordinate its Risk Management plans and activities with its Schedule Contingency Management plans and activities in order to ensure that the Schedule Contingency minimums are preserved throughout the duration of the project. As a part of the FTA Quarterly Meeting, the Grantee will report on the level of available contingency as compared with the predicted levels on the schedule contingency balance curve. At each Schedule Contingency Hold Point, the Grantee and PMOC will review the Risk Model to examine potential risks remaining and to update the minimum contingency drawdown curve. The Grantee will update the Risk Mitigation Strategies on a regular basis and review with the PMOC at each Hold Point.

SAS Project Execution Strategy TANGIBLE RESULTS: Grantee increased the amount of cost and schedule contingency in order to better manage the contract Grantee has functional cost and schedule management plans in place that force regular management reviews of project status and risks Grantee has initiated a repackaging effort on its largest contracts in order to reduce the level of market forces risk impacts FTA/PMOC integrated into project status reporting process Increased level of comfort for Grantee and FTA