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					    APPROVED                                                         AUGUST 26, 2002

PROPOSED MINUTES OF THE SPECIAL MEETING OF THE PORT
COMMISSION OF THE PORT OF SEATTLE

The Port of Seattle Commission met in a special meeting at 12:00 p.m., Monday, August
26, 2002 in the Commission Chambers at Pier 69. Commissioners Davis, Miller, Molloy
and Nordquist were present. Commissioner Edwards was absent.

        1.       CALL TO ORDER

The regular meeting was called to order at 12:05 p.m. by Patricia Davis, Vice-Chair and
Vice-President.

        2.       EXECUTIVE SESSION

The meeting was immediately recessed to an executive session for approximately one
hour and five minutes to discuss real estate, litigation, and personnel matters.

        3.       APPROVAL OF MINUTES

Commissioner Miller moved approval of the proposed minutes of the regular meeting of
June 25, 2002, without reading into the record. Motion carried. (Commissioner
Nordquist was not in attendance at the subject meeting.)

Commissioner Nordquist moved approval of the proposed minutes of the special meeting
of August 13, 2002, without reading into the record. Motion unanimously carried.

        4.       SPECIAL ORDER OF BUSINESS

        None.

        5.       UNANIMOUS CONSENT CALENDAR

        None.

Marine Item 7c was advanced on the agenda as follows:

        7.       MARINE ITEMS

       c.    Request for authorization for the Chief Executive Officer and the Acting
Seaport Managing Director to close all warehouse operations by year-end 2002.

Presenter: Mark Knudsen, Acting Managing Director, Seaport Division.

Request Document: Mr. Knudsen‟s Commission Agenda Memorandum dated August
23, 2002.



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As reported in the presentation document, the Port currently operates a warehouse and
distribution business for inbound ocean containers, performing devanning, storage, and
outbound order consolidations via truck. The Port has been involved in this operation for
over 35 years. The current total square footage of all five buildings involved in
warehousing now exceeds 1.3 million square feet. The Port employs approximately 170
warehousemen, clerical positions, truck drivers, and management employees. The Port
supports these facilities by operating its own terminal trucking fleet.

Beginning in September 2000, the Port invested in a warehouse management system
(WMS) at a total cost of $4.2 million in order to reduce operating costs and to respond to
customer requests for more efficient processing and better inventory information.

In May 2002, Hasbro notified the Port they would terminate their use of the Port
warehouse facilities within six months and move to another distribution facility in
Ontario, CA. Hasbro has been aggressively reducing costs in their logistics/distributions
system, and consolidation to a single distribution center helps them achieve this goal.
Hasbro has generated approximately 90 percent of Port warehouse revenues in recent
years.

It was necessary to further evaluate the Port‟s entire pricing and cost position after
Hasbro‟s notification. The Port authorized an overall evaluation of the warehouse
operation using an outside consulting firm to measure Port performance against
established industry practices and benchmarks in the warehouse and distribution industry.
Specifically, the goals were to review the financial results, operating parameters
(productivity), rate structures, and organizational elements of the warehousing and
distribution business in order to provide a comparison of Port results against established
Third Party Logistic (3PL) industry standards (Port competitors in the marketplace) in
each of the areas listed. Tompkins and Associates, one of the top two nationally
recognized firms in warehouse and distribution consulting, was selected through the
Request for Proposal process to make that analysis.

On August 13, 2002, staff presented the Tompkins Associates‟ (Tompkins) analysis to the
Commission. The study points to three obstacles the Port would have to overcome to run
a financially viable warehouse and distribution system, including repositioning within a
changing marketplace, increasing productivity, and significantly reducing costs of
operation. The Commission took the report under consideration at that time and called for
a special meeting on August 22, 2002 to take public testimony on the issue before making
a decision.

On August 22, 2002, public testimony was taken at the special Commission meeting.
More than 20 people took the opportunity to express their points of view to the
Commission.

FINANCIAL IMPLICATIONS



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There will be costs associated with closing the warehouse that include severance
packages for affected employees. The specifics of the severance packages for represented
employees are outlined in their respective collective bargaining agreements. The
International Longshore & Warehouse Union Local 9 Clerical employees and the
Teamsters Local 174 Truck Drivers are entitled to one week of pay per year of service.
The collective bargaining agreement between the Port and International Longshore and
Warehouse Union Local 9 covering Warehousemen has expired and is currently in
negotiations. Severance for salaried employees is governed by Port Policy/Procedure
HR-10 - Reductions in Work Force of Salaried Employees. In addition, there may be
costs associated with the pension trust fund and with some asset write-offs.

Mark Knudsen, Acting Managing Director, Seaport Division, reviewed the position of the
Port‟s warehouse operations in the marketplace and the competition of Third Party
Logistic (3PL) providers, noting many of the 3PL services are not what the Port
warehouse operation provides. Mr. Knudsen referenced the independent assessment of
the warehouse operation that was completed by Tompkins Associates, the results of
which indicate the Port‟s wages and benefits are two times the market and productivity is
one-half. He advised marketing efforts over the last two years have found that potential
customers are using 3PL or have their own proprietary system.

Mr. Knudsen reported alternatives for the future of the warehouse operation include
remaining in the business managing existing accounts, that is, finance staying in the
business under current conditions, which is a net operating income loss of approximately
$850,000 before depreciation and allocation, approximately $4 million after allocation
and depreciation. He advised, however, it is staff‟s recommendation that the warehouse
operations be closed by the end of 2002.

In response to Commissioner Miller, Mr. Knudsen reviewed the process, criteria, and
reason for selecting Tompkins Associates to perform the analysis of the warehouse
operation, and noted that to the best of his knowledge Tompkins works on behalf of the
manufacturer in matching them to the right 3PL, primarily looking at the full suite of
logistics from manufacturer to delivery.

Tony Hutter, Secretary-Treasurer and Business Agent, International Longshoremen‟s and
Warehousemen‟s Union, Local 9, appeared before the Commission to present public
testimony on Item 7c. An audiotape of the public testimony is on file in Port offices.

Commissioner Miller clarified and confirmed her understanding with Mr. Hutter that for
the employees who have been temporarily laid off in relation to the Hasbro account where
the Port knows it is not going to have another customer willing to pay rates for that
service, it is Mr. Hutter‟s preference that a determination on the status of the warehouse
be made soon so that those individuals can move forward for benefits, job re-training, etc.




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Commissioner Miller also confirmed with Mr. Hutter her understanding that with respect
to the employees remaining in support of the remaining customers, he would like
bargaining sessions to see if those jobs and that business could be retained.

Commissioner Miller referenced the Commission‟s recent experience with a similar
business situation where the unions had said „we do not want to get out of the business,
we want to bargain in good faith‟ and the negative outcome of having followed that
request. Ms. Miller expressed her view if the Commission were to go through that
process again, there would need to be identified objectives, and she believes at the very
least the warehouse operation would have to have enough income to pay operating
expenses, not including allocations or depreciation, which aligns with what other
operations within the Port must do. She stated if the negotiations could not get to that
point, she is not sure the effort should be undertaken. Commissioner Miller noted even
with break even on operating costs, there is still a long way to go with respect to the
warehouse pro forma.

Public testimony was then received from Scott Sullivan, Secretary-Treasurer, Teamsters
Local 174. An audiotape of Mr. Sullivan‟s comments is on file in Port offices.

M. R. Dinsmore, Chief Executive Officer, advised he, Commissioners, and staff have
grappled with the future of the warehouse operation and the treatment of employees for a
number of years and especially since Hasbro's decision to leave Seattle. He stated he is
not sure about the future of the remaining 10% of the warehouse business at Terminal
106 or the respective 20-30 exempt and labor jobs, but he suggested no one should be
misled about the status of the operations. He noted the warehouse operation is no longer
competitive, which, he suggested, is not the fault of only the Port or only labor. Mr.
Dinsmore advised the Port could not go forward losing $867,000 a year in operating
costs, reminding that figure takes out of play the $3.5 million in allocation and
depreciation. He suggested getting the $867,000 to zero would be a challenge and would
require negotiating a new paradigm for the operations. He stated there is nothing for the
Port to market and stated consideration of whether the Port should stay in the business
would be a decision of the Commission.

Mr. Dinsmore expressed his view if it is the decision of the Commission to go the path
discussed by Commissioner Miller, there needs to be some absolutes set and a time frame
established for an agreement to be reached and implemented. He noted the challenges of
that effort and suggested even if the negotiations were given a 30-day time frame, the
work would need to begin soon. He advised unless the result is a business plan that is
doable, there would be nothing to market. Mr. Dinsmore noted the debate and discuss
comments made during the public testimony and suggested the efforts to find a way to
eliminate the $867,000 would take a team approach with the participants immersed in the
negotiations for the set time frame. He advised if Mr. Hutter, Local 9 representative, is
committed to making the negotiations work, it would be the decision of the Commission
whether or not to proceed in that direction.



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In response to Commissioner Miller's questions, Mr. Knudsen noted examples to reach
the target of zero net operating income before allocations and depreciation might include
a 50% cut in wages and benefits, and a wholesale change in work rules and the contract
document. He advised work rules that affect the bottom line are hours of work and
overtime, and the contract rule related to 'leave without pay' (LWOP). He referenced the
3% industry average for overtime compared to the 14% in the Port's warehouse operation
and the number of LWOP hours guaranteed per year without prior arrangement required
or management approval. Commissioner Miller expressed her view those arrangements
make it difficult to run a business successfully.

Commissioner Molloy advised he would support the alternative to negotiate with the
union, within 30 days, an agreement that gets the operation to break even. Mr. Molloy
referenced, in the context of negotiations, the Port having already removed the $3.5
million in depreciation and allocations.

 Commissioner Nordquist referenced the recent experience with attempting to negotiate
an agreement with the unions on a similar issue and the outcome of that effort which, he
advised, damaged relationships on both sides of the negotiations. Mr. Nordquist noted
the number of telephone calls he received from union members during that period in
which they stated to the effect 'did you really expect us to give something up?' and
suggested any negotiations on the warehouse operation would have to go a different
direction. He noted both the Port and the union would have to give a lot in order to reach
agreement, and emphasized if that was not agreeable to the union, then the negotiations
being discussed should not start. Commissioner Nordquist also referenced the jobs that
have been lost due to Hasbro's decision to leave Seattle and suggested the need for
formalizing that closure for those affected employees. Mr. Nordquist stated the decision
on the remaining business and jobs should not be a drawn out process.

Commissioner Nordquist then moved that the Chief Executive Officer be authorized to:
1) close the warehouse operations associated with the Hasbro use of the facility,
determine which jobs are permanently gone, and provide notice to those affected
employees; and, 2) enter into negotiations with the International Longshoremen's and
Warehousemen's Union, Local 9, for a set time period, in an attempt to preserve and
make profitable the remaining business at Terminal 106.

Commissioner Miller offered, and Commissioner Nordquist accepted, a friendly
amendment to the motion wherein she suggested a 30-day time period be defined for the
negotiations; the objective be established of getting the remaining warehouse operations
to break even status, that is, revenue minus operating and maintenance expense is at zero,
or better, otherwise the Chief Executive Officer is authorized to close the warehouse
operations; and for the Chief Executive Officer to report back to the Commission in 30
days, or before.

Mr. Dinsmore confirmed his understanding the directive is to define and resolve the
issues and determine whether or not a solution can be implemented.


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Commissioner Davis advised Commissioners did listen to the public testimony that was
received on August 22, 2002. Ms. Davis reported she had also personally spoken with
attorneys representing Local 9, Steve Williamson, King County Labor Council, and
others, noting their comments were forthcoming. Commissioner Davis stated she does
not want to repeat the events of the negotiations referenced earlier by Commissioners
Miller and Nordquist and inquired of Mr. Hutter whether or not, in his view, the objective
outlined in the motion could be achieved.

Responding to Commissioner Davis, Mr. Hutter stated for the record that he has
successfully negotiated a number of labor agreements with the Port. He reported that he
is committed to the negotiations and the union will place effort into the discussions but
clarified that collective bargaining requires 50% or more of those represented to accept
any agreement. Mr. Hutter acknowledged there are some major working rule changes
that will need to take place in order to achieve the objective outlined in the Commission's
motion. He expressed his view there has been a recent change in the direction of
negotiating labor contracts with the Port shifting to a more adversarial role versus
collaborative bargaining. Mr. Hutter suggested that if the Port is committed to the
proposed negotiations, the process return to collaborative bargaining using the assistance
of Rhonda Hilyer, Agreement Dynamics, if necessary. He also requested assurance that
Port Labor Relations staff be made available for as many meetings as necessary during
the negotiation period.

Responding to Mr. Hutter's comments, Commissioners Miller and Nordquist suggested
the effort should begin immediately, noting the Port is continuing to lose money in the
warehouse operation. They stated the effort cannot afford to follow a path of not much
happening during the first two or three weeks of negotiations with a flurry of activity the
last week and not finishing within the prescribed time frame. Commissioner Nordquist
stated he would not support an extension of the 30-day time frame, noting further that if
during the discussions it is determined the objective cannot be reached, the Commission
be advised at that time.

Mr. Dinsmore clarified that a meeting between the Port and the union already scheduled
for August 27, 2002 would not be the start of the 30-days outlined in today‟s motion. He
noted that both the Port and the union need to make sure that what is on the bargaining
table is precise and well thought through. He advised a meeting would be scheduled with
the union during the week of September 2, 2002 and the 30-day clock would start at that
time.

Commissioner Davis noted Mr. Hutter's comments about his successful past negotiations
with the Port and suggested to Mr. Hutter that what is being proposed is a paradigm shift,
requesting those negotiating to 'think outside the box' in looking at ways to salvage any of
the warehouse business. Ms. Davis expressed her hope that at the end of the negotiations,
if the objective cannot be met, the Port and the union can say 'we tried and we were not
successful' and that will be end of the issue.


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On call for the question, Commissioner Nordquist's motion authorizing the Chief
Executive Officer to: 1) close the warehouse operations associated with the Hasbro use of
the facility, determine which jobs are permanently gone, and provide notice to those
affected employees; and, 2) enter into negotiations with the International Longshoremen's
and Warehousemen's Union, Local 9, for a 30-day period, with the objective of getting
the remaining warehouse operations to break even status, that is, revenue minus operating
and maintenance expense is at zero, or better; otherwise the Chief Executive Officer is
authorized to close the warehouse operations; and for the Chief Executive Officer to
report back to the Commission in 30 days, or before, was unanimously carried.

Commissioner Miller advised the process for the negotiations would be left to Mr.
Dinsmore to determine.

The agenda was returned to Policy and Staff Briefing Item 6a as follows:

        6.       POLICY AND STAFF BRIEFING

        a.       STATUS OF PORT CONSTRUCTION SERVICES

Presenters: Larry McFadden, General Manager, and Rob Price, Manager, Project
Operations, Port Construction Services.

Presentation Documents: Mr. McFadden's Commission Agenda-Policy and Staff
Briefing Memorandum dated August 21, 2002 and Power Point document entitled, "Port
Construction Services Presentation to the Port of Seattle Commission August, 2002,
'Review of Port Construction Services History, Mission, and Strategic Opportunities'".

As reported in the presentation document, in 1996, as part of the Port‟s continuing effort
to streamline the delivery of small works capital projects, Port Construction Services
(PCS) was created. As part of the PCS charter, the Port reached agreement with the
Association of General Contractors (AGC) that PCS would never complete more than
one-third of its work with its own crews and the remaining two-thirds would be made
available to the contracting community. Details of the following topics are included in
the presentation document:

PORT CONSTRUCTION SERVICES - A 5 YEAR HISTORY

       Yearly Cost Summary
       Port Small Works Contracts Awards 1990 - 2001
       2001 Contractor Payments by M/WBE code
       2001 PCS Construction Costs
       PCS Mission
       Strengths



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       PCS Advantages
       PCS Strategic Initiatives
       Potential Opportunities
       PCS Program Forecast

A summary of topics reviewed by staff and Commission/staff discussion is as follows:

            PORT CONSTRUCTION SERVICES (PCS) YEARLY COST SUMMARY
            PORT OF SEATTLE SMALL WORKS CONTRACTS AWARDS 1990-2001
             (INCLUDING MWBE PARTICIPATION)
            2001 CONTRACTOR PAYMENTS BY MWBE CODE
            2001 PCS CONSTRUCTION COSTS

In response to Commissioner Molloy, Mr. McFadden advised that PCS solicits five
contractors requiring one to be a Minority/Women Business Enterprise (MWBE). He
also reported that PCS works with both the Seaport and Aviation Divisions to identify
projects that could be better defined for MWBE firms to qualify to do the work.

Commissioner Molloy and Mr. McFadden discussed the differences between professional
services and small works contracts.

            PCS MISSION

Commissioner Davis and staff discussed the contract community's support of PCS.

Commissioner Molloy and staff discussed the allocation of PCS projects in terms of
Aviation and Seaport dollars, average time to localize crews, distinction between PCS
and Seaport and Aviation Maintenance Departments.

            STRENGTHS
            PCS ADVANTAGES
            STRATEGIC INITIATIVES
            POTENTIAL OPPORTUNITIES
            PCS PROGRAM FORECAST

In response to Commissioner Miller, Mr. McFadden advised there are approximately 100
employees in PCS including full-time equivalents and outside crafts.

Commissioner Miller and Mr. McFadden discussed the ratio of apprentice positions to
journeymen on projects.

        b.       AVIATION 2003 BUSINESS PLAN PRESENTATION

Presenter: Mark Reis, Deputy Director, Aviation Division.


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Presentation Documents: Commission Agenda-Policy and Staff Briefing Memorandum
dated August 21, 2002 from Steve Queen, Corporate Budget Manager.

A summary of topics reviewed by staff and Commission/staff discussion is as follows:

            INTRODUCTION
            SEA-TAC AIRPORT BUSINESS ASSESSMENT AND CHALLENGES

                100% baggage screening requirement

In response to Commissioner Molloy, Mr. Reis advised a long-term solution would
require in-line systems in the bagwell. He reported space issues at Seattle-Tacoma
International Airport make it difficult for this to be completed quickly.

Mr. Reis and Commissioners discussed meetings with the Transportation Safety
Administration regarding the baggage screening requirement at Seattle-Tacoma
International Airport, interim options to protect the safety and security of the Airport, bag
map system as it relates to originating and connecting airports, awareness of work
involved to meet the requirement at the federal level.

            SEA-TAC AIRPORT STRATEGIES
            CREATE AN EXTRAORDINARY NORTHWEST CUSTOMER SERVICE
            PLAN AND IMPLEMENT HIGH DENSITY DEVELOPMENT
            DEVELOP AND MAINTAIN A SUPPORTIVE COMMUNITY

In response to Commissioner Molloy, Mr. Reis advised none of the programs are behind
schedule, advising that many are demand management driven. He reported the Noise
Remedy staff would brief the Commission in the fall on the process for the transition
from the old program to new programs. Commissioner Molloy suggested the importance
for targeting non-English-as-a-first-language residents in the area advising them about
their eligibility for the Noise Remedy Program.

            MAXIMIZE FINANCIAL RESOURCES

Commissioner Molloy and staff discussed airline bankruptcy as it relates to tenant
improvements, Passenger Facility Charges; airline notification to airports; surety.

            FOSTER AN EXCITING, HIGH PERFORMANCE WORKPLACE
            AERONAUTICAL LINE OF BUSINESS -
              BUSINESS ASSESSMENT AND CHALLENGES
              STRATEGIES
            LANDSIDE LINE OF BUSINESS -
              BUSINESS ASSESSMENT AND CHALLENGES


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                Parking revenue down due to increased competition and fewer short-term
                 parkers (impact of security)

Commissioner Nordquist encouraged staff to look at inducements for getting people back
to using the parking garage noting there is still space available and include price changes
in that analysis. Commissioner Miller suggested the issue is how much of the market is
wanted and at what point does greater market share bring greater revenue; i.e., higher
price versus market share. Ms. Miller recommended staff think long term, suggesting a
pattern for attracting people back would be difficult.

                PROGRESS ON 2002 INITIATIVES

Commissioner Molloy and Mr. Reis discussed energy savings related to lighting in the
parking garage.

              STRATEGIES
            BUSINESS DEVELOPMENT -
              BUSINESS ASSESSMENT AND CHALLENGES
              PROGRESS ON 2002 INITIATIVES

                Issued Request for Qualifications for new retail concessionaire

Commissioners Miller and Miller and Mr. Reis discussed the schedule for selecting
finalists, who would be involved in that work, implementation plan, etc.

            STRATEGIES
              Wireless
              Revenue Development - Investigate shared tenant services (e.g. telephone)
               on fiber backbone

Commissioner Nordquist and Mr. Reis discussed Port financial investment in these
strategies, business model, who performing the work.

            SUMMARY

Commissioner Nordquist requested information relative to number of passengers and
revenue with respect to their relationship to Full-Time Equivalent employees for the years
2001, 2002 and 2003, excluding the Project Management Group and the capital program.

Commissioners Davis and Nordquist and Mr. Reis discussed airport operations post-
Basic Airline Lease Agreement, need for a flexible budget as airline revenues decrease
and changes required throughout the year, uncertainty for the airlines and which will




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survive the economic downturn, increased security, behavior of the flying public with
respect to security changes, etc.

Separate from the Aviation Division briefing item, Commissioner Davis requested Dan
Thomas, Chief Financial Officer, brief the Commission at one of the upcoming budget
workshops on the kinds of things happening in other agencies and organizations with
respect to off-balance sheet accounting; that is, capitalization of costs, depreciation, third
parties, what is expensed, etc., and audit procedures and oversight.

        c.       SEAPORT 2003 BUSINESS PLAN PRESENTATION

Presenter: Charles Sheldon, Managing Director, Seaport Division.

Presentation Document: Commission Agenda Memorandum dated August 21, 2002 from
Steve Queen, Corporate Budget Manager, and Power Point slide presentation entitled,
“Seaport Business Plan, Commission Presentation August 26, 2002”.
A summary of topics reviewed by staff and Commission/staff discussion is as follows:

       SEAPORT BUSINESS PLAN
       CURRENT SITUATION
       PROGRESS TOARDS 2002 GOALS
       SEAPORT TRIPLE BOTTOM LINE

            Financial Sustainability

Commissioners Davis and Miller each expressed their respective views regarding
financial sustainability as it relates to the maritime industrial base, and ability to do
projects that relate to the other two elements of the Triple Bottom Line; i.e., Community
and Environmental Benefits and Economic Benefits.

Commissioner Molloy expressed his view there is a lack of clarification related to the real
estate side of the equation.

       FINANCIAL SITUATION
       SEAPORT RESPONSE TO BUSINESS CHANGES

            Major reorganization

Commissioner Molloy complimented Seaport Division leadership for the way the
reorganization effort within the Division was handled.

       SEAPORT BUSINESS PLAN GOAL
       CARGO AND CRUISE SERVICES PRIORITIES




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            Set strategic direction for East Waterway

Commissioner Molloy and Mark Knudsen, Acting Managing Director, Seaport Division,
discussed issues related commitment to Hanjin, long term decisions related to East
Waterway, etc.

       HARBOR SERVICES PRIORITIES
       PROPERTY MANAGEMENT PRIORITIES

            Improve alignment with Seaport Maintenance

Commissioner Molloy and Mr. Knudsen discussed the alignment of responsibilities for
facility and/or property maintenance; i.e., Port/Seaport Maintenance and tenant, with
respect to the recovery of costs; potential for future shift in skill levels with Seaport
Maintenance as it relates to the Seaport real estate portfolio.

       BUSINESS DEVELOPMENT PRIORITIES
       SEAPORT PROFESSIONAL AND TECHNICAL SERVICES PRIORITIES

Mr. Sheldon noted another priority not listed in the presentation document is monitoring
profit centers consistent with consolidated work and management.

       SEAPORT BUSINESS PLAN GOALS
       SEAPORT PRELIMINARY CAPITAL - PLAN KEY PROJECTS 2002-2011

            Dredge Fill $61 million

Commissioner Molloy and Mr. Knudsen discussed the Harbor Maintenance Tax, eligible
projects and uses for that funding, amount collected, how much spent, etc.

       OTHER KEY PROJECTS 2002-2011
       RISKS
       OPPORTUNITIES
       SEAPORT KEY INITIATIVES
       SEAPORT SUMMARY

        7.       MARINE ITEMS

        a.     Request was presented for authorization for the Chief Executive Officer to
execute an agreement with Columbia Hospitality Inc. for the management of the Port of
Seattle‟s World Trade Center Seattle.

Presenter: Jim Schone, Director, Seaport Professional and Technical Services.



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Request Document: Commission Agenda Memorandum dated June 19, 2002 from Mark
Knudsen, Acting Managing Director, Seaport Division.

As reported in the request document, on August 13, 2002, the Commission requested
further financial information about the proposed management agreement with Columbia
Hospitality Incorporated for management of the World Trade Center Seattle. Staff has
prepared a five-year projection of a Consolidated Income Statement (2003 through 2007)
based on a pro-forma provided by Columbia Hospitality Incorporated in February 2002.
The Incentive Management Fee projection is included in the document.

On April 28, 1998 Commission authorized the Executive Director to execute an
agreement with Columbia Resource Group (CRG), now Columbia Hospitality
Incorporated (CHI), for the management of the Port‟s World Trade Center Seattle
(WTCS). The four-year term of the original agreement expired on April 30, 2002.
During this period, the WTCS gross operating profits consistently exceeded pro forma
expectations and CHI returned over $500,000 in net operating income to the Port of
Seattle

SCOPE OF WORK

Based on the outstanding financial and operational performance of CHI, on November 28,
2001, Port staff initiated discussions with CHI regarding the continued management of
WTCS. Port staff and CHI have negotiated terms for the future management of this
facility.

The proposed agreement with CHI will be for an initial term of five (5) years and includes
one (1) five-year option for a total of ten (10) years. The management fees under this new
agreement will include a base management fee to CHI of 10% of total gross revenues and
an incentive management fee of 40% of gross operating profit (GOP) – 60% to Port of
Seattle - until the management fee reaches a defined breakpoint per annum, at which
point the incentive management fee will change to 30% of GOP – 70% to Port of Seattle -
for the remainder of that calendar year. The management fees of the original agreement
included a base management fee of 25% of gross membership revenues and 8% of gross
operating revenues (revenues other than membership revenues) and an incentive
management fee of 5% of GOP.

This changed compensation structure is based on the significant change in this business
since the original management agreement was signed. In 1998, the WTCS was in start-up
mode and given the uniqueness of the facility and its mission, there was need for focus on
building the business. The management fees were structured to foster this growth.

Now, five years later, the WTCS is clearly a success: it is a focal point for international
trade promotion activities, the non-profit trade organizations that have co-located in the
World Trade Center-West building benefit from a centralized location that encourages
collaboration and enables economies of scale through shared facility and operating costs,


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and it is profitable. Based on this success, the emphasis of the proposed management
agreement is on improving the bottom line through greater compensation tied to the GOP.
There is a significant shift in risk to CHI with this new fee structure as well as increased
reward for strong performance. Pro forma financial information for the period of 2003
through 2007 is an attachment to the request document. The terms of the new agreement
are consistent with the five-year business plan objectives for the Seaport by focusing on
maximizing long-term financial performance.

Additional information is contained in the request document.

In response to Commissioner Molloy, Mr. Schone advised the responsibility for
membership resides with CHI.

Commissioner Davis and Mr. Schone discussed the relationship of Total Gross Revenue,
Total Direct Expenses, Incentive Management Fee and POS Net Operating Income/Loss
within the new management agreement proposal. Commissioner Davis confirmed with
Mr. Schone that the kitchen project for Pier 66, authorized by the Commission on August
13, 2002, is not specifically related to the new management agreement with CHI.

Commissioner Molloy moved approval of Item 7a. Motion unanimously carried.

Mr. Schone referenced Commissioner Davis‟ August 13, 2002 request for improved
signage in the Wall Street parking garage and advised that a team, including Port and CHI
staff, is looking at immediate steps that can taken for improvement and that staff will
schedule with the Commission a follow-up discussion, including associated costs.

        b.      Resolution No. 3490, "A RESOLUTION of the Port Commission f the
Port of Seattle amending Unit 20, (a portion of Terminal 115) of the Comprehensive
Scheme of Harbor Improvements of the Port of Seattle Declaring Certain Real Property
located inland from the Seattle Waterfront surplus and no longer needed for Port purposes
and authorizing its sale", was presented.

Request Document: Commission Agenda Memorandum dated July 30, 2002 from Jim
Schone, Director, Seaport Professional and Technical Services

Commissioner Miller second reading and final passage of Resolution No. 3490. Motion
unanimously carried. Thereupon Resolution No. 3490 was declared passed and the
same then duly authenticated in open public session by the signatures of the
Commissioners voting in favor thereof and the seal of the Commission.

         8.      AVIATION ITEMS

       a.      Request was presented for authorization for the General Manager,
Aeronautical Line of Business, and the Director of Engineering Services to reject all bids
and re-advertise for bids and award a major construction contract for Project 100373,


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Airport Surveillance Radar (ASR-9) and Mode Select (MODE-S) Beacon Relocation
Structure and Facility.

Presenters: Michael Ehl, General Manager, Aeronautical Line of Business, and Raymond
Rawe, Director, Engineering Services.

Request Document: Commission Agenda Memorandum dated August 19, 2002 from
Messrs. Ehl and Rawe.

As reported in the request document, Resolution No. 3245 authorized full construction of
the third runway which included relocation of existing Federal Aviation Administration
(FAA) facilities impacted by runway construction. This project to relocate the existing
Airport Surveillance Radar (ASR) is required to maintain FAA air traffic operations at
Seattle-Tacoma International Airport (Airport). The relocation project is being completed
through a cooperative effort between the FAA and the Port of Seattle.

The project was advertised for bids on June 21, 2002 with a bid opening date of July 23,
2002. Sealed bids were received and opened on July 23, 2002 with the following results:

Contractors                                           Bid
PCL Construction Services                            $3,397,500.00
Berschauer Phillips Construction Company             $3,488,717.00
M.D. Moore Co., Inc.                                 $4,720,000.00

All bids were reviewed for compliance with contract requirements. All bids were
determined to be non-responsive for not meeting the established 10% Disadvantaged
Business Enterprise (DBE) Requirements noted in Document 00200 - Instructions to
Bidders, and Document 00830 – Equal Employment and Affirmative Action
Requirements. All bidders also failed to demonstrate Good Faith Efforts required by the
Code of Federal Regulations. Based on our analysis of the bids and the availability of
DBE contractors to participate in this type of work, we conclude that a contract should
not be awarded to the above bidders. Therefore staff recommends that all bids be rejected
and the project be re-advertised for competitive bids with increased emphasis on DBE
participation.

ALTERNATIVES CONSIDERED/RECOMMENDED ACTION

The Port has taken measures to enhance bidders‟ abilities to easily verify the DBE status
of potential subcontractors. We have improved electronic access to the Washington State
DBE certification information by providing a link in the Port of Seattle website to the
Office of Minority and Women Owned Business Enterprise website. In addition, we will
contact Washington State Registered DBE firms in the major work categories (Standard
Industrial Classification [SIC]) and notify them of this opportunity to participate in this
construction project.



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SCOPE OF WORK

This project includes fabrication and erection of a 160 foot non-standard FAA structural
steel tower for relocation of the existing ASR-9 and Mode-S Beacon and associated
electronic equipment, UPS and EG enclosures. Miscellaneous construction includes
replacement of the mechanical, electrical and communication systems, as well as, site
utility work.

PROJECT SCHEDULE

The project would be re-advertised upon receipt of Commission authorization and will be
completed without impact to the overall Third Runway schedule.

In response to Commissioner Miller, Mr. Rawe advised possible reasons for the non-
responsive bids include the contractors not being use to bidding work with DBE
requirements, subcontractors representing themselves as being certified when they were
not, number of DBEs did not bid the work because not aware of the work even though
outside workshops announcing the work were held, prime contractor did not follow
through in verifying the DBE requirements, etc.

Mr. Rawe, responding to Commissioners Molloy and Nordquist, reported two of the three
listed contractors have bid successfully on Port work in the past noting, however, that one
of the two had not previously bid on work that had DBE goals included. He advised the
Port would continue to identify opportunities and provide workshops for the DBE
contracting communities for this kind of work.

Commissioner Nordquist moved approval of Item 8a.

Commissioners Davis, Molloy and Miller and Mr. Rawe discussed the impacts of
Washington State‟s Initiative 200 on DBE and W/MBE certifications and the value of re-
certifying with State; federal and state requirements; etc.

Commissioner Molloy commended staff on their due diligence with respect to contract
requirement compliance.

On call for the question, Commissioner Nordquist‟s motion for approval of Item 8a was
unanimously carried.

        9.       GENERAL BUSINESS

       a.     Request was presented for authorization for the General Manager, Port
Construction Services, to amend the existing Professional Services Agreement with Lease
Crutcher Lewis Contractors, Inc., for an additional 16 months of Construction
Management services for a not to exceed amount of $750,000; and to amend the existing



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Professional Services agreement with Olympic Associates Company for an additional 16
months of Construction Management services for a not to exceed amount of $500,000.

Presenter: Larry McFadden, General Manager, Port Construction Services.

Request Document: Mr. McFadden‟s Commission Agenda Memorandum dated August
21, 2002.

As reported in the request document, Port Construction Services (PCS) attempts to
combine the best of the public and private sectors by working with local contractors and
consultants. In 1998, PCS conducted a Category C competition for eight (8) year,
annually renewable contracts, and selected Lease Crutcher Lewis and Olympic Associates
Company, local contractors, to support PCS construction management efforts. These
companies supplement PCS staff by providing professional construction management
with support, superintendent and foreman training, flexible staffing, industry processes
for construction means and methods, and “for profit” motivation.

Since these contractors were retained in 1999, PCS‟ total revenues have grown, and roles
and responsibilities have increased dramatically as the Airport Capital Improvements
Program (CIP) ramps up. In response, PCS has utilized Lease Crutcher Lewis services to
the full extent of their current authorization on Aviation work, has utilized Olympic
Associates Company to support Seaport work, has retained additional support from other
consultants, and has hired additional permanent staff. However, current permanent
staffing levels will not support ongoing work without supplemental resources from both
consultants. In addition, anticipated CIP related peak workload could not be supported by
the existing combination of authorized permanent staff and consultant resources. After
the third year PCS is pleased with the services from both consultants. To supplement
permanent staff resources without extensive short-term hiring, PCS is seeking
authorization to continue the use of resources from both consultants through additional
work authorizations under the existing eight year agreements, which are renewable
annually based on the needs of the Port and the consultant‟s performance during the
previous year.

SCOPE OF WORK

The scope of work for Lease Crutcher Lewis Contractors and Olympic Associates
Company includes, but is not limited to, providing project management, construction
management, estimation, quality assurance and field superintendent services for the Port
and PCS.

Project Management/Construction Management, Estimation and Quality Assurance

Construction managers will be responsible for project management and construction
management, including scope control, schedule control, budget control, quality control
and quality assurance, including:


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       Construction project scoping
       Project coordination
       Construction project schedules, budget and contracting philosophy
       Construction permitting
       Stakeholder satisfaction

Work will include design and construction for projects in the $20,000 to $500,000 range.
Estimation and Quality Assurance will be provided in support of the construction
management effort.

The field superintendents shall be responsible for the daily management of a five to seven
person construction crew and will:

       Make daily decisions on how much and what type of equipment will be needed on
        construction projects.
       Determine project schedule, material quantities and labor requirements.
       Make decisions related to extra work.
       Manage and solve daily construction issues.

FINANCIAL IMPLICATIONS

Lease Crutcher Lewis Contractors and Olympic Associates Company staff work on
projects previously approved by the Commission. With the anticipated growth in staff
and consultant services, there should be no unanticipated increase in budgets for CIP
projects.

Source of Funds

Most projects are funded by the Airport Development Fund and from airline landing fees.
Additional work comes from Seaport projects.

PROJECT SCHEDULE

Based on current utilization rates and projected workloads, this work authorization
amendment will provide adequate funding through December 31, 2003.

Commissioner Nordquist moved approval of Item 9a. Motion unanimously carried.

        10.      NEW BUSINESS

        11.      ADJOURNMENT

There being no further business, the regular meeting was adjourned at 4:00 p.m.



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