MEDIA RELEASE: FORA Responds To Litigation Allegations

[FORA ESCA Remediation Program]

MEDIA RELEASE

CONTACT: Michael A. Houlemard, Jr., FORA Executive Officer,
831.883.3672

FOR IMMEDIATE RELEASE: Thursday, March 8, 2012

FORA RESPONDS TO LITIGATION ALLEGATIONS

Over the past several days, media attention has been generated based
on interviews and a media release issued by a party which has filed a
lawsuit against the Fort Ord Reuse Authority (FORA). The litigation
was filed within the context of the California Public Records Act and
alleges that FORA has not properly applied or accounted for public
funds being expended to complete the required munitions and explosives
clean-up process at the former military base. Such publicity creates
confusion for the public and obviates the important purpose of the
cleanup activity --- to protect public health and safety and our
environment.

Under an agreement with the U.S. Army, FORA received a $97.7 million
federal grant to clear dangerous munitions from approximately 3,340
former Fort Ord acres - and to secure regulatory approval of that
cleanup. FORA subsequently entered into a guaranteed fixed-price
contract with LFR (now ARCADIS) to complete the work required to
obtain regulatory approval that the property would be protective of
human health and the environment for its intended use, including, for
some parcels, residential use. LFR, in turn, as part of the contract
between FORA and LFR, secured an insurance policy from AIG (now
Chartis) for which FORA paid $82.1 million from the federal grant
funds. This policy funds the cleanup activities, with Chartis
overseeing the expenditures and the regulators overseeing the work
performed (the U.S. Environmental Protection Agency and the California
Department of Toxic Substances Control). The insurance policy covers
costs for cleanup up to $128 million to address increased remedial
costs that may occur due to both known and unknown site conditions.

The reason for buying this insurance was threefold:

(1) if the cost to complete exceeded the Army grant to FORA, there
would be extra funds to assure that the scope of work was completed to
the satisfaction of the regulators;
(2) with AIG at risk for the funds above what they received, they had
every incentive to assure that LFR spent the money wisely; and
(3) LFR would not be in a position to pay itself and would have to
seek the verification approval of AIG.

By assuring adequate funds would be available, the community was not
subject to the annual congressional appropriations process; instead it
received a guarantee of adequate funds to complete the cleanup. Most
importantly, the insurance contract addressed uncertainty of the
cost to complete the project since the amount of explosive material
that might be encountered was estimated based on previous studies with
associated uncertainties.

What then happened to the remaining $15.6 million difference between
the Army grant and the Chartis insurance contract? 1) FORA retained
approximately $900,000 for self-insurance in the event that an
unsatisfied claim was sought from FORA by injured persons or for
property damage to private property. To date, no such claims have been
filed. 2) Because the regulators required that they be paid for their
oversight work, FORA held $4.7 million to reimburse the regulators and
to date, has paid $1.5 million for that purpose. 3) In addition, LFR
was paid approximately $6.1 million for Surplus Lines Taxes payable to
the State of California for the purchase of the environmental
insurance and associated risk transfer and mobilization fees, and
$500,000 to purchase a contractor’s pollution liability policy which
is standard coverage in the industry for such a project. 4) FORA
retained $3.4 million to cover 7-8 years of this project’s
administrative costs, which are continuing. To date, AIG has paid LFR
$44.3 million for work performed on the Fort Ord project. Use of the
funds described above was approved by the Army before any of the funds
were transferred.

The regulators have confirmed their approval of the progress to date,
the performance of all parties, and FORA’s satisfaction of the
obligations ensuring protection of human health and the environment.
The Monterey Bay community has been actively and intimately involved
in the project through an aggressive outreach program conducted under
the Environmental Cooperative Services Agreement (ESCA) project and
should be confident that public funds have been spent wisely and for
their intended purpose.

It is unfortunate that this Public Records Act litigation and one
entity’s related press release results in misleading representation
about fiscal responsibility. The ESCA cleanup project is highly
successful and all funds are accounted for and reported on a very
regular basis.