November 17, 2020

HONOLULU RAIL TRANSIT PROJECT

CITY CENTER GUIDEWAY AND STATIONS / PEARL HIGHLANDS

RECOMMENDED PATH FORWARD

1. Introduction
2. Executive Summary
3. Design and Construction of CCGS/PHPTR – Current Challenges and Opportunities
4. Design and Construction of CCGS/PHPTR – Options Considered
5. Design and Construction of CCGS/PHPTR – A Phased Approach
6. Procurement Method
7. Recommendation

1. INTRODUCTION

On July 23, 2020, Priority-Listed Offerors ("PLOs") submitted their proposals ("Proposals") for the City
Center segment ("CCGS") of the Honolulu Rail Transit Project ("HRTP") and the Pearl Highlands facilities
("PHPTR"), under a Design-Build-Finance-Operate-Maintain (DBFOM) project delivery procurement,
commonly referred to as the Public-Private-Partnership procurement ("P3 Procurement"), in order to
complete the full scope required under the Full Funding Grant Agreement ("FFGA").

The P3 procurement was organized as a joint procurement, due to the split responsibilities between
HART and the City as mandated by the Article XVII of the Revised Charter of the City and County of
Honolulu 1973 (2017 Edition) ("Charter") and Charter Amendment Question No. 4 ("Charter
Amendment 4").

On September 25, 2020, the City announced its formal withdrawal from the P3 Procurement. HART
elected not to immediately cancel the P3 Procurement and in accordance with advice received from
Corporation Counsel, it proceeded to conduct meetings with the PLOs as permitted under the terms of
the P3 Procurement, with the purpose of improving its understanding of the Proposals received to enable
it to determine if the P3 Procurement from a proposal perspective was viable to proceed, or whether it
should be cancelled and replaced with a new procurement.

The HART team has been analyzing how best to address the challenges that have arisen and to take
advantage of the opportunities that exist, in order to identify a viable path forward for completing the
scope of the obligations under the FFGA in a manner that offers the best value to the public. The
purpose of this report is to set out HART's recommended path forward to completion of the CCGS and
PHPTR, taking into account information obtained from the PLOs (both in their Proposals and the
subsequent meetings held in accordance with the terms of the P3 Procurement) and HART's further
analysis.

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2. EXECUTIVE SUMMARY

Challenges and Opportunities

In 2020, the HRTP has simultaneously experienced a number of challenges (see Section 3) including:

 An increase in the overall cost of the HRTP (i.e. the projected estimate at completion ("EAC"));

 Reduced funding projections associated with COVID-19;

 An inability to build a consensus with the City and all utility owners on a design for the utility
relocations in the CCGS, leading to a need for HART to re-engineer its utility design for CCGS;

 Withdrawal by the City from the P3 Procurement; and

 The risk of the lapsing of FTA funds at the end of 2020, if HART and the City are not able to secure
an extension.

However, there are also the following opportunities for the HRTP (see Section 3):

 If HART is able to resolve the counterparty challenge, the HRTP would be eligible to receive a TIFIA
loan with a rate of 0.78% offering significant cost savings;

 HART and the City received proposals from highly qualified PLOs despite challenging market
conditions and these PLOs remain actively engaged and committed to working collaboratively with
HART and the City to solve the challenges that arose in the late stages of the P3 Procurement; and

 HART anticipates completing trial running and safety certification of Segment #1 (the Western
segment), which is the 10 miles of guideway and 9 stations between East Kapolei and Aloha Stadium
in the first half of 2021. On completion of Segment #2 (the Airport segment), which is the 5.15
miles of guideway and 4 stations between Aloha Stadium and Kahauiki (i.e. Middle Street), the
construction of the HRTP will be 77% complete.

Recommendation: A Phased Approach under the P3 Procurement

As described further in Section 4 of this report, HART recommends adopting a phased construction
approach that would enable the award of the full scope for CCGS and PHPTR required to comply with
HART and the City's obligations under the FFGA under a single procurement, but with the introduction
of incremental certification of funds to allow HART time to resolve the uncertainty with respect to its
funding challenges. Under this phased approach, the certification of funding would align with the
developer's construction schedule. HART recommends that the initial certification for funding (of $200-
250m) be for an extended preconstruction / early works period that would include the design of all CCGS
facilities; with certification of the funding for the subsequent scope being phased in accordance with one
of the approaches described in Section 5 below, subject to further guidance from policy makers and
alignment with the expected timing for certification of funding.

The adoption of this phased construction approach is necessary regardless of delivery method as based
on current funding projections and cost estimates, a funding gap would exist whether the work is
performed under a P3 delivery method or a design build ("DB") delivery method.

After weighing the advantages and disadvantages of implementing the phased approach
under the P3 Procurement or under a DB re-procurement and based on what we learned in
the meetings with the PLOs (as further detailed in Section 6), HART recommends
implementing the recommended phased approach under the existing P3 Procurement rather
than a cancellation and re-procurement as the cost will be lower, there will be greater

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schedule certainty due to the ability to get started on early works in early 2021 and a greater
shifting of risk. In particular:

 FTA: Continuing the P3 Procurement enables the demonstration of a committed path forward to the
FTA far earlier than under a cancellation and re-procurement and therefore provides a path to
preventing the lapsing of funds;

 Risk: The P3 Procurement shifts greater risk to the private sector than under a single or multiple
DB procurements, particularly core systems integration risk and long-term maintenance risk for the
entire system;

 Schedule: Under a request for BAFO, PLOs will re-submit committed schedules (based on revised
CCUR dates) and will continue to work collaboratively with HART on schedule interfaces during the
early works period, which could begin in early 2021; and

 Procurement: We have well-qualified PLOs who understand the project and are capable of
delivering it. There is no certainty as to the level of interest under single or multiple DB re-
procurements. The P3 PLO teams are ready to work with HART and the City to get the CCGS/PHPTR
design and construction started.

The City is not precluded from rejoining the P3 Procurement, agreeing to issue a request for a BAFO or
a notice of award and/or executing the project agreement for the P3 Procurement. However, the City's
participation is required to continue with the P3 Procurement. To this end, HART requests that the
City re-join the P3 Procurement and cooperate with HART to implement the phased approach.

3. DESIGN AND CONSTRUCTION OF CCGS/PHPTR – CURRENT CHALLENGES AND

OPPORTUNITIES

In this section HART sets out the reasons for considering a phased approach including the challenges
that have arisen and the opportunities that HART seeks to take advantage of.

3.1 Funding

Over the course of 2020, it has become clear that HART is facing a funding gap with respect to
completion of CCGS and PHPTR. The reason for this funding gap is two-fold:

First, the broader HRTP program has experienced: (i) an increase in the projected EAC cost (described
further in Section 3.4 and the HART Board reports); and (ii) reduced funding projections (GET/TAT) as
a result of COVID-19 (as outlined in further detail in HART's Financial Plan and Revenue Projection
(dated August 20, 2020) and presented to the HART Board on September 10, 2020).

Second, as described further in Section 3.4, the anticipated cost of completing the CCGS and PHPTR
has increased primarily as a result of: (i) COVID-19 and its effect on supply chains, material prices, and
assumed construction schedule risk; (ii) the ongoing schedule challenges on CCUR and the assumed
risk of access delays to CCGS as a result; (iii) escalation of material and labor prices as the construction

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schedule, and therefore expenditures, are pushed out as a result of CCUR delays; and (iv) overall
logistical challenges and risks of constructing in the dense urban city center corridor.

The net effect being that the estimated capital cost for the final segment has increased and the forecasts
for the funding available to HART have become less certain.

HART has identified a target early works budget of $200 - 250 million that could be certified upon award
to cover (as further described in Section 5) anticipated design and other project costs over an initial 7-
11 month project development period before construction materials will need to be purchased and
construction will commence in earnest. HART has also analyzed costs for the remaining project
construction and developed a series of options for project phases that can be priced by the PLOs and
incrementally certified (as further described in Section 5). This phasing approach provides a means
of:

 continuing to advance construction for the full FFGA scope;

 obtaining market-based pricing for cost to the complete the CCGS and PHPTR as a single unified
contract to enhance economies of scale; and

 providing time to solve the funding gap for the entire HRTP.

In order to secure funding to complete the HRTP, HART is, in parallel, undertaking detailed analysis of
the additional funding needed to complete the full scope and is considering a range of options to pursue,
including additional federal funding and an extension of the dedicated GET/TAT allocation.

The Transportation Infrastructure Finance and Innovation Act ("TIFIA") is a federal program through
USDOT offering low-cost loans to transportation projects. The HRTP is eligible to receive a loan for 33%
of total costs (e.g. $3 billion+ of the $9 billion+ total cost). As of today, the TIFIA loan rate would be
0.78% (assuming a ten year loan). TIFIA loans are available to public entities or private borrowers and
may be structured as follows:

 Full public funding – refinance existing and remaining project financing needs;

 Private financing – if the P3 Procurement is continued, the P3 developer would be the single borrower
for the CCGS and PHPTR; or

 Hybrid – both a public and a private financing component not to exceed the eligible $3 billion.

The TIFIA process was initiated by HART in 2019 but efforts were paused until the path forward for the
completion of the HRTP is confirmed. As an additional measure to introduce cost savings and
reduce the funding gap, HART recommends pursuing TIFIA financing for use by the private
developer and/or by HART and the City themselves.

3.2 City Center Utility Relocations

HART decided in late 2017 to proceed with an advanced utility relocation contract (City Center Utility
Relocations or "CCUR") with the goals of starting utility relocation work in advance of awarding a
contract for the subsequent guideway construction and reducing the utility-related risk premium that
would likely be included in bids for a guideway construction contract.

The City Center corridor is extremely congested with existing underground utilities in close proximity to
each other. The congestion of underground utilities is further exacerbated by the need for many existing
overhead utilities (e.g. multiple HECO 138kV, 46kV, and 12kV circuits) to be relocated underground (i.e.
out of the path of the guideway), in a corridor which is already space constrained. Relocating utilities in
this congested environment requires either: (i) compromising on standard utility-to-utility clearance

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distances, or (ii) extreme cost/schedule impact solutions such as significant private property acquisitions
or moving the rail alignment to other streets (either of which would require HART to repeat the federally-
mandated environmental process and could threaten the viability of completing the project to Kālia (i.e.
Ala Moana)).

HART and its utility design engineer have redesigned the CCUR utilities multiple times over the past
eight years. As of late 2020, several utility owners (e.g. HECO, Hawaiian Telcom) have granted
variances to standard utility-to-utility clearances. However, some City departments have refused to
consider such variances, even on a case-by-case basis. As such, HART continues to reconfigure utility
layouts in pursuit of unanimous approval of CCUR designs by over a dozen public and private utility
owners.

CCUR must be completed prior to construction of the guideway in each corresponding area. The lack of
unanimously-approved CCUR designs has significantly delayed the start of guideway construction in the
City Center corridor.

3.3 Schedule

The schedule for completing CCUR, particularly on Dillingham Boulevard, currently drives the schedule
for Full Opening of the rail line to Kālia (i.e. Ala Moana) station. Based on the current CCUR schedule
(revised since submission of the Proposals by the PLOs), the projected full opening date is either late
2027 or early 2028.

3.4 EAC Updates

As of October 2020, HART is performing a refresh of the cost EAC for the entire HRTP. The current draft
EAC is $9.131 billion which exceeds the total revenue projected to be collected through existing capital
funding sources. HART intends to increase the draft EAC to reflect recent market data on the current
anticipated costs for the HRTP and following the request of some HART Board members.

4. DESIGN AND CONSTRUCTION OF CCGS/PHPTR – OPTIONS CONSIDERED

In this section HART sets out the options considered for addressing the funding challenges as further
described in Section 3.1 above.

4.1 Scope Reduction

HART periodically performs value engineering and secondary mitigation reviews to identify opportunities
to reduce or contain the cost of the HRTP. These mitigation measures are consistent with FTA processes
and are specifically discussed in the approved Recovery Plan. HART has implemented (and continues
to implement) many such cost-saving opportunities on CCGS and Pearl Highlands. However, the
magnitude of the associated savings will not be sufficient to "close the gap" between estimated capital
costs and projected revenues.

HART has also considered significant scope reductions (e.g. eliminating the Pearl Highlands facilities
from the HRTP). However, the City and HART are committed to completing the scope included in the
FFGA. Eliminating FFGA scope, such as Pearl Highlands, would breach the terms of the FFGA and could
trigger the revocation of all FTA-provided funding, which would only exacerbate the current funding
challenges.

4.2 Scope Deferral (Multiple Procurements)

Since HART's existing funding sources do not enable the certification of the entire estimated cost of the
CCGS and Pearl Highlands scope, HART must determine a way to phase the certification of funds for the
remaining HRTP scope such that contract authorizations never exceed total projected revenues.
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One way to "phase" the CCGS and PHPTR scope would be to split the remaining scope into multiple
contracts. For example, the 4 miles and 8 stations comprising CCGS could be bid out separately as two
contracts, each with 2 miles and 4 stations. However, doing so would reduce the overall economy of
scale for the CCGS scope. Two contracts would require the mobilization of two contractors, two project
offices, two management teams, two sets of major construction equipment, and other redundancies
that would decrease cost efficiency. Multiple contracts (and multiple contractors) would also introduce
significant additional interface risk, that would be retained by HART, require multiple interfaces between
the core systems contractor and the contractors which risk would again be retained by HART and would
result in an increased administrative burden (i.e. overhead costs) for HART. Depending on the relative
timing of such multiple contracts (e.g. if the two contracts are to be executed in series, rather than in
parallel), this approach could also impose significant schedule impacts to the overall completion of the
program. For these reasons, HART does not recommend adopting this approach.

4.3 Phased Scope (Single Procurement)

The preferred approach is to continue to award the full CCGS and PHPTR scope under a single
procurement and to phase the incremental certification of funding for the design and construction of
CCGS and PHPTR as further described in Section 5. In doing so, the majority of costs associated with
mobilization, a project office, a management team, and construction equipment would be covered in
the base scope but would not be re-priced in subsequent phases as the funding is incrementally certified.
Further, HART would avoid the duplication of costs on multiple contracts and would avoid the cost of
retaining the significant additional interface risk that would be introduced under multiple procurements.
In contrast to multiple contracts, a single-procurement approach would also allow for administrative
efficiencies that would result in lower HART overhead costs.

4.4 Recommendation

For the reasons set out above, HART recommends addressing the funding challenges, in part, by
implementing a phased approach (as further described in Section 5) under a single procurement (either
the current P3 Procurement or under a re-procurement following cancellation of the existing P3
Procurement, as further described in Section 6).

5. DESIGN AND CONSTRUCTION OF CCGS/PHPTR – A PHASED APPROACH

5.1 Considerations for Identifying Phasing

In order to implement a phased approach HART must identify the certifiable funding and associated
scope for each phase.

5.2 Options for Phasing

Early Works / Preconstruction Activities

The current P3 Procurement contemplates an early works period commencing on commercial close
(NTP1) and the remaining scope commencing on financial close of the P3 agreement (NTP2). As a
threshold question, HART considered whether the current early works scope should be retained or
increased, with the remaining work being separated into phases.

For example, on the basis that $200 - 250 million could be certified upon award as described under
Section 3.1, the early works/ preconstruction activities could include:

 design of all guideway, stations, and core systems facilities for the CCGS;

 community station design workshops;

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 design interface with elevator, escalator, fare systems and core systems contractors;

 geotechnical and utility investigations;

 coordination with HART’s utility relocation designer;

 utility relocations for stations (i.e. those not included within the CCUR scope);

 identification of laydown areas;

 permitting and third-party approvals; and

 potentially, load test shafts.

The benefits of contemplating a broader scope for the early works in a phased approach include: using
available funds on valuable design that could be utilized whether or not future phases are certified; to
allow the private sector developer to work collaboratively with the CCUR team to mitigate further
schedule delays related to CCUR in the design process; provide an earlier start on final design and
permitting activities than may otherwise be provided, which takes these activities off of the critical path
of the schedule and creates additional float to account for issues that have yet to be identified.

Remaining Scope

Due to the current uncertainty in the schedule for identifying funding for work beyond the early works
phase discussed above, HART has considered a number of options to phase the remaining design and
construction work for CCGS and PHPTR into two or more subsequent phases (see Attachment A to this
report). The intent of this phasing is to remain flexible and preserve the ability to proceed with
construction if future funding sources suffice to construct a substantial portion of the CCGS and PHPTR
but do not fully enable the completion of all FFGA scope. Broadly, the additional phasing options
considered fall into two categories:

Approach A (refer to options 1 through 5 in Attachment A):

Phase 1: Construction of the guideway from Kahauiki (i.e. Middle Street) eastward to a terminus station
such as Kuloloia (i.e. Downtown) or Ka‘ākaukukui (i.e. Civic Center), construction of the terminus
station, and potentially construction of other interim stations if funding allows;
Phase 2: remaining guideway and stations to Kālia (i.e. Ala Moana).

Approach B (refer to option 6 in Attachment A):

Phase 1: Construction of the guideway from Kālia (i.e. Ala Moana) to Kahauiki (i.e. Middle Street) (East
to West) or an interim station such as Iwilei (depending on CCUR access and sequencing considerations);
Phase 2: remaining guideway and stations to Kahauiki (i.e. Middle Street).

Under each of the options listed above, the design and construction of the Pearl Highlands facilities
would be part of "Phase 2" or a subsequent phase, depending on the timing of funding.

Approach A above would maximize the utility of the earliest phases and result in an operable system if
the funding challenges were not resolved. However, phasing the CCGS and PHPTR scope in this manner
could significantly increase the schedule for construction and overall capital costs. Conversely, Approach
B above would allocate the earliest certifiable funding to the areas with earliest access and would
therefore be more likely to enable continuous construction, minimize the resulting schedule for
completing the CCGS, and minimize overall construction costs.

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5.3 Commercial Terms for Phasing

A number of precedent projects in North America and internationally have incorporated a phased
approach to design and construction and there are multiple commercial mechanisms through which
phasing can be implemented. Broadly, whether implemented under the existing P3 Procurement or via
a DB, the contractual structure will follow the multiple NTP approach that is already contemplated in the
RFP. Each NTP will be contingent on a number of conditions precedent including HART's certification of
funding for the phase. Following issuance of each NTP, pre-defined adjustments to schedule, cost and
other commercial terms will be implemented. The PLOs (in response to a request for BAFO) or offerors
(in response to a re-solicitation) would bid back their construction schedule for the full scope and define
the dates by which HART and the City must issue each NTP to ensure continuous construction. The
contract will set out the rights and obligations of each party if a NTP for a later phase is not issued, such
as intellectual property in the design vesting in HART.

5.4 Phasing Recommendations

For the reasons set out above, HART recommends increasing the early works scope to include additional
design and the other scope items described above and, if the timing of funding so dictates, separating
the remaining design and construction work into phases under a single procurement package, with each
phase subject to incremental certification of funding. The scope of each phase could follow any of the
approaches described in this Section 5, subject to further guidance from policy makers and alignment
with the timing for availability of funding for future certifications.

6. PROCUREMENT METHOD

The phased approach under a single procurement described in Section 5 could be adopted under a
request for BAFO under the existing P3 Procurement (subject to further discussion with Corporation
Counsel as described below) or under a re-procurement following cancellation of the existing P3
Procurement. The advantages and challenges of each approach are considered below.

HART understands that key City and Council objectives are that the procurement method should lower
costs; shift certain important risks away from the City; and provide schedule certainty and therefore
the analysis below considers the advantages and challenges against these objectives and the more
detailed project goals agreed by HART and the City. In addition, we have assessed options against the
ability to deliver on HART and City's FFGA obligations, the release of FTA funding and solicitation risk.

6.1 Status of the P3 Procurement

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6.2 Continue under existing P3 Procurement

(a) Advantages

 Cost: Continuing under the existing P3 Procurement would allow the City to lock-in
long-term pricing for the operation and maintenance of the HRTP, going far beyond
the core systems operation and maintenance pricing under the DBOM to give long-
term pricing that includes the maintenance of all civil infrastructure also. We note
that the concerns raised by the City appear to have been with respect to the
affordability of the design and construction elements and not the operation and
maintenance pricing.
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Further, from a design and construction perspective, although the price ultimately
reached under a BAFO may be higher than anticipated in the Independent Cost
Estimate and the affordability limit, it would inevitably be lower than the prices
received under any DB re-procurement as: (a) prices will continue to rise over time;
(b) there will be less of competition in any future procurement(s) as we have heard
from a number of contractors (including local contractors) that they would be
reluctant to participate in another procurement; and (c) future bidders may include
a premium in their pricing to account for a negative project reputation and/or
political risk. CCGS was the subject of two previous procurements that were
cancelled in 2014 and 2017 for multiple reasons including lack of competitive interest
and budget challenges. Continuing under the existing P3 Procurement would lock-
in the pricing and forego potential future risk premiums.

 Risk: Continuing with the P3 Procurement would allow HART and City to shift the
risks that the private sector is best placed to manage to the private sector developer
including critical integration/interface risk (for HART, on design and construction)
and long term O&M risk, including long term maintenance risk for civil infrastructure
(for City, on O&M). It would, therefore, satisfy the objective raised by the City and
Council for the procurement to shift important risks away from the City. In addition,
shifting of the long term operation and maintenance risk to the private sector
developer encourages the private sector developer to connect the design and
construction with the long-term operations and maintenance resulting in higher
quality of the assets for the benefit of the public over the long-term. This was a
project goal agreed by HART and the City. Finally, the adoption of the phasing
approach as described above into the P3 Procurement under a request for BAFO and
extending the time for early works and financial close, would allow sufficient time to
resolve the private financing and HART counterparty risk that was previously a
concern for the City;

 Schedule: Continuing the existing P3 Procurement has the lowest schedule impact
relative to a DB re-procurement although it is acknowledged that the value of this
advantage is impacted by whether a solution to the CCUR delays is identified. In
terms of schedule certainty, P3 provides a higher degree of schedule certainty due
to equity/private finance pressures on contractors to perform. Continuing the P3
Procurement also offers the ability to award earlier than under a re-procurement
(the PLOs engaged in the current procurement have two years of familiarity with the
project and HART's and the City's requirements and will likely be able to respond to
a request for a BAFO quickly, even one incorporating the phased approach, allowing
HART and the City to proceed to an award early in 2021) and to work collaboratively
with the private sector developer and contractor during the early works phase to
mitigate further schedule delays related to CCUR etc. To the concerns raised
regarding a delay in awarding the P3 impacting or delaying commencement of
passenger service on the western portion, those concerns will not be addressed by
cancelling the P3 and re-procuring but could be addressed in the early works phase
if the existing P3 Procurement proceeds to BAFO and an award.

 FTA: Continuing the existing P3 Procurement would allow HART and the City to
demonstrate a committed path forward for the completion of the HRTP in accordance
with the FFGA before the end of 2020 and offers the most credible path forward to
meet the criteria for the release of federal funds.

 Solicitation: A key advantage of continuing under the P3 Procurement and adopting

the phased approach under a request for BAFO is that it would allow HART and the
City to leverage the PLOs' active engagement and the two-years of investment to

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date of qualified PLOs who have a detailed understanding of the project. We have
active and well-qualified PLOs still engaged in the P3 Procurement with the capability
to complete the project and who have submitted Proposals and would be willing to
participate in formal Discussions and a request for BAFO. HART does not consider
that the introduction of the phased approach as described above in a request for
BAFO would result in a significant change to the procurement requiring cancellation
as:

- the full scope would remain within the P3 Procurement, the only amendment
would be to introduce incremental certification of funds and phased issuance of
related notices to proceed through a suitable contractual mechanism;

- the private developer would remain responsible for the schedule of the design
and construction work and would assume incremental certification of funds at
the times required to allow for continuous construction (noting that as has
always been the case, the private developer's schedule will be driven in part by
the dates upon which HART can give access to the various parts of the CCGS
site);

- an early works period (under NTP1) followed at a later date by financial close
(and NTP2) is already contemplated within the P3 Procurement. The changes
proposed are to extend the length of the existing early works period (and
increase the related maximum payments during that early works period) and
include an additional condition precedent to financial close regarding the
incremental certification of funds (with adjustments to the financing process to
allow for a later financial close);

- no material scope reduction that would trigger a supplemental environmental is

contemplated. HART is aware of the delay that may be incurred if changes were
required to the environmental documents and the scope under the phased
approach will remain within the current environmental documents;

- the incremental certification approach is permitted under HAR 3-122-102(c);

and

- policy matters regarding the phased construction approach are being discussed
with key stakeholders to ensure transparency.

However, this remains subject to further discussion with and validation by

Corporation Counsel if the phased approach is adopted.

(b) Challenges

 Cost: Continuing under the P3 Procurement does raise the potential for higher cost
of claims during design and construction phase if HART doesn't deliver on obligations
(the cost of claims will be higher due to the inclusion of private financing). However,
the risk of claims is lower as PLOs have gained extensive knowledge of the project
risks through the interactive procurement process and will appropriately price such
risks, and the risks have been appropriately allocated as part of this iterative
process.

 Risk: As is usual the P3 Developer and its financiers will not take funding risk. In
other words, the P3 Developer and its financiers will not take the risk of HART or the
City having insufficient funding to meet their payment obligations. This risk would

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therefore need to be addressed. The phasing approach described above is intended

to provide sufficient time in the early works phase to resolve the challenges and put
in place the mechanics needed to proceed with the base scope and then further time
to resolve the challenge for the purposes of the later certifications of funds.

 Schedule: There will be less certainty as to the CCUR completion dates at the time
of award. However, HART would be able to work with the P3 developer during the
early works period to mitigate future schedule risks.

 Solicitation: As described above, as at the date of this report, the City has
withdrawn from the P3 Procurement. As the City has responsibility and authority for
the operation and maintenance of the HRTP, HART cannot proceed with the existing
P3 Procurement unless the City is willing to re-join the P3 Procurement and award
together with HART.

6.3 Cancel and Re-Procure the Design and Construction as a DB/DBF

(a) Advantages

 Cost: Due to the absence of private financing, procurement under a DB delivery

method has the potential for a lower cost of any claim that might arise during the
design and construction phase if HART does not meet its obligations under the
project agreement. However, this advantage has to be balanced against, and is
outweighed by the disadvantage of the overall higher cost and higher likelihood of
claims (particularly given the risks that would be retained by HART under a DB-
model) as described under the DB re-procurement challenges under Section 6.3(b)
below.

 Risk: As noted below, there would be less opportunity to shift risks under a DB or
DBF procurement. However, there may be greater capacity to mitigate HART's
retained risk with respect to completion of the CCUR (which exists under either
procurement model) under a re-procurement if the CCUR has progressed sufficiently
by the time of pricing of bids under a re-procurement to provide greater certainty
and reduce the likelihood of later claims.

 Schedule: Under a cancellation and re-procurement the schedules and pricing

submitted under any proposals responding to the DB procurement will be provided
at a later date than under a BAFO under a continuation of the P3 Procurement and
some may see an advantage in this in that there should be greater certainty with
respect to the CCUR completion dates at the time of preparing schedules and fixing
the pricing. However, this perceived advantage has to be balanced against the
overall impact to schedule of a re-procurement and the lost benefit of working
collaboratively to manage the schedule interface during the first half of 2021, as
described in the P3 Procurement advantages under Section 6.2(a) above.

 Solicitation: Cancellation and re-procurement is in line with the City's withdrawal.

There is therefore a clear path to taking this step.

 Clear lines of responsibility: A joint procurement will not be required. HART's

responsibility for design and construction and the City's responsibility for operations
and maintenance will be clearly delineated under separate contracts. However, this
will likely result in handover issues and leads to a potential for disagreements
between HART and the City.

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(b) Challenges

 Cost: As noted above, from a design and construction perspective, the design and
construction cost under the P3 Procurement will inevitably be lower than the prices
received under any re-solicitation as: (a) prices will continue to rise over time; (b)
there will be less of competition in any future procurement(s) as we have heard from
a number of contractors (including local contractors) that they would be reluctant to
participate in another procurement; and (c) future bidders may include a premium
in their pricing to account for a negative project reputation and/or political risk. In
addition:

- HART would incur stipend and other cancellation costs and would re-incur a
substantial portion of the sunk costs already expended on the P3 Procurement;

- HART’s level of oversight for a DB procurement would be more costly relative to

the current staffing planned for P3 due to the additional inspection and interface
responsibilities that would be retained by HART; and

- City would lose the benefit of locking-in the very favorable long-term operation
and maintenance costs received and in fact would not lose the benefit of locking-
in long-term operation and maintenance costs altogether.

 Risk: Under a DB or DBF procurement, less risk would be shifted to the private
sector than under the P3 Procurement. HART would retain a far higher degree of
risk, particularly the critical systems integration and interface risk between the civil
contract and the core systems – one of the major risks for the project. In addition,
the City would retain the risk of re-procuring the core systems operation and
maintenance at the end of the 13-year term of the DBOM and would retain the risk
of long-term maintenance for the civil infrastructure. Common with a P3
Procurement, DB contractors will not take funding risk and will need to be confident
in HART's ability to meet its payment obligations.

 Schedule: In ideal market conditions, a re-procurement could be completed in 8

months. However, given the present challenges, a more practical timeline for
awarding a new contract could likely be more than 12 months from the point of
decision to proceed with a re-procurement. An appropriate schedule should also
consider potential new market entrants and associated licensing requirements.
Relative to continuing the P3 Procurement, a DB provides a lower degree of schedule
certainty without equity/private finance oversight. Common with a continuance of
the P3 Procurement process, progress of both CCUR works and CCGS design and
construction work will requires City support in solving CCUR issues together and in
enabling the efficient progress of the works (in maintenance of traffic etc.). HART
will need to ensure that this support exists in order to mitigate this risk.

 FTA: A re-procurement will delay the demonstration of a committed path forward

until late 2021 which may put at risk the release of funds and risks the potential
lapsing of funds, unless the FTA agrees to a further extension.

 Solicitation: There is no certainty as to the level of participation under a DB or DBF

procurement, especially given the perceived political risk and past cancellations.

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7. RECOMMENDATION

Following careful and thorough analysis of how to complete the full FFGA scope in a fiscally responsible
manner that would achieve best value for the tax payer, HART recommends:

1. a phased approach under a single procurement for the remaining FFGA scope, with a longer and
more substantial early works period followed by incremental certification of funds for completion of
the CCGS and PHPTR; and

2. implementing such phased approach by continuing the P3 Procurement, with Discussions and a
BAFO to incorporate the phased approach into the terms of the P3,

as the most pressing funding and CCUR challenges must be resolved under either procurement approach
(P3 or DB), and:

 Cost: awarding under a single procurement will result in a lower overall cost than awarding under
multiple procurements due to locking in pricing for design and construction earlier, avoidance of
unnecessary cost duplication and lower oversight and contingency costs (for change orders and
claims due to increased retention of interface risk) over the life of the construction phase. Awarding
under a P3 Procurement will result in a lower cost than under cancellation and re-procurement and
will enable the City to lock-in the favorable long-term O&M pricing;

 Risk: awarding under awarding under a single procurement rather than multiple procurements will
shift key interface and oversight risk and responsibility to the private developer or contractor.
Awarding under the P3 Procurement rather than re-procurement under a DB delivery method will
enable HART and the City to shift greater risk to the private sector, particularly core systems
integration risk and long-term operation and maintenance risk for the entire system;

 Schedule: awarding under a single procurement with incremental certification of funds will provide
flexibility to enable continuous construction. Under a request for BAFO under the P3 Procurement,
PLOs would re-submit committed schedules (based on revised CCUR dates) and will be able to work
collaboratively with HART on schedule interfaces during a critical period for CCUR;

 FTA: proceeding with the P3 Procurement demonstrates the clearest path forward to the FTA for
completing the full FFGA scope, and would enable a shorter extension request to prevent the lapsing
of funds, than under a cancellation and re-procurement;

 Procurement: we have well-qualified PLOs who understand the HRTP and are capable of delivering
the remaining FFGA scope, of managing the core systems contractor and of operating and
maintaining the HRTP in the long-term. There is no certainty as to the level of interest under a DB
re-procurement and no certainty as to the level of interest in the long-term operation and
maintenance scope. The PLOs under the P3 Procurement are ready to work with HART and the City
to get the CCGS and PHPTR design and construction started.

HART requests the City's agreement to re-join the P3 Procurement and cooperate with HART
to reach contract award under a phased approach, so that we can get started on CCGS and
PHPTR and move forward with interim opening.

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ATTACHMENT A

PHASED CONSTRUCTION APPROACH: ALTERNATIVES CONSIDERED

Option 1: Kuloloia (i.e. Downtown) Terminus, No Other Stations

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Option 2: Kuloloia (i.e. Downtown) Terminus, with All Stations

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Option 3: Kuloloia (i.e. Downtown) Terminus, Guideway to Ka‘ākaukukui

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Option 4: Ka‘ākaukukui (i.e. Civic Center) Terminus

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Option 5: Kālia (i.e. Ala Moana) Terminus

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Option 6: Build ASAP Where Access Allows

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