Template revised January 10, 2019.
COMMISSION
AGENDA MEMORANDUM
Item No.
8b
ACTION ITEM
Date of Meeting
April 23, 2019
DATE: April 17, 2019
TO: Stephen P. Metruck, Executive Director
FROM: Jeffrey Brown, Director Aviation Facilities and Capital Program
Wendy Reiter, Director, Aviation Security
Wayne Grotheer, Director, Aviation Project Management
SUBJECT: Baggage Optimization Project Phase 2 (CIP #C800612, WP #U00424)
Amount of this request:
$213,000,000
Total estimated project cost:
$445,050,000
ACTION REQUESTED
Request Commission authorization for the Executive Director to (1) advertise, award, and
execute a construction contract for the Baggage Optimization Phase 2 project at Seattle-
Tacoma International Airport; (2) employ a project labor agreement (PLA); and (3) utilize Port
crews and small works contracts to perform construction work. The total amount requested
under this authorization is $213,000,000.
EXECUTIVE SUMMARY
Baggage Optimization is an airport-wide project that improves customer service for both
airlines and passengers. This is a long-term, three-phase project that will be completed in 2025.
This project was initially cost estimated and scheduled in 2013. Phase 1 is under construction,
within budget, and will be substantially complete in early 2020.
The Baggage Optimization project replaces six individual baggage screening systems with a
centralized system that optimizes operation of the checked baggage system at Seattle-Tacoma
International Airport. The purpose of this project is to optimize the baggage system to achieve
the maximum outbound baggage capacity within the current airport footprint. The project
increases screening capacity for greater baggage volumes, increases flexibility to allow bags to
be checked in from any ticket counter and be conveyed to serve any gate, meets the
established minimum-connect-time goal, and increases energy efficiency. Additional benefits
include increased reliability, redundancy, and security. Meeting travelers’ baggage needs will
significantly contribute to increased customer service, and address growing passenger demands
of the region. The project is currently scoped to accommodate 60 million annual passengers
(MAP).
COMMISSION AGENDA – Action Item No. __8b__ Page 2 of 9
Meeting Date: April 23, 2019
Template revised September 22, 2016; format updates October 19, 2016.
Phase 2 is now fully designed so estimated costs, construction sequencing, and duration can be
compared to projections from 2013. Since then market conditions have changed for the
following reasons: baggage equipment prices have raised, tariffs have been imposed which
drove up steel prices, airline customer reviewers have added scope, and a hot construction
market has escalated labor and material costs at a rate faster than general inflation. A
sensitivity analysis using 100% Phase 2 design documents and 70% Phase 3 design documents
indicates the increase in overall project cost ranges between $40 and $80 million atop the 2017
estimated cost of $445 million. The Baggage Optimization schedule tied to that estimate was
also set in 2017. Since that time the project has experienced a nine month delay. The schedule
duration increases also contribute to the potential budget concerns by driving increased soft-
costs and additional escalation costs.
The project budget is currently sufficient to cover Phase 2 costs but will likely require a budget
increase prior to Phase 3 construction in 2022. The current budget will carry the project four
years into the prior approved year capital plan of finance. The soonest that staff would be able
to reevaluate overall cost ranges is mid-2022 when the latest costs and local construction
economy can be assessed.
Port staff has met with contractors to gather market information and to increase the number of
bidders for Phase 2 to reduce market conditions impacts on construction costs. Staff will return
to request authorization of additional construction funds prior to Phase 3.
The cost associated with the requested action is $213,000,000. The total Phase 2 construction
estimate is $247,673,000. The project has previous unused authorizations of $34,937,200
which will offset this request so that the total amount of this authorization request at this time
is $213,000,000. Including this request, the total Baggage Optimization project authorization is
$349,312,200.
Following the Final Design of Phase 2, the construction sequencing was revised, adding
approximately 3 months to the original Phase 2 construction duration. Phase 2 is currently
scheduled to be complete Q2 2023. Phase 3 will follow with an estimated completion date of
Q4 2025.
This project, C800612, was included in the 2019-2023 capital budget and plan of finance with a
budget of $444,900,000.
JUSTIFICATION
The highly utilized and aging baggage handling system (BHS) is one of the most complex
systems in the Airport. All baggage screening systems were modified in rapid fashion
immediately after the events of September 11, 2001 events; however, there are remaining
portions of the systems that are over 25 years old.
COMMISSION AGENDA – Action Item No. __8b__ Page 3 of 9
Meeting Date: April 23, 2019
Template revised September 22, 2016; format updates October 19, 2016.
In its current state, the Airport’s baggage system is not a single system, but rather six separate
outbound systems. After the events of September 11, modifying the separate systems was the
best way to rapidly increase security. At the time, each separate system was designed to
include a nominal amount of passenger growth. Over the ensuing years as specific airline needs
emerged or as airlines were relocated, the separate systems have been updated to meet the
carriers’ specific operating needs. Although various baggage projects have been implemented
to address operating needs over the years, the systems continue to have limited capacity to
meet both near and long term growth needs of the Airport.
The Airport baggage system is faced with three problems: 1) existing separate systems have
major subsystems, such as controls, that are aging and must be replaced; 2) there is limited
ability for the current systems to be expanded in their current configuration to adequately
meet growing passenger demands; 3) separate systems lack interconnectivity between ticket
counters and all of their aircraft gates. Passenger growth has increased in unprecedented
amounts and is expected to continue. This is a major and near-term challenge for the Airport
due to both the complexity of keeping operations ongoing during construction and major space
constraints on expanding the systems’ capacity to meet future growth.
DETAILS
The purpose of this project is to optimize the BHS to achieve the maximum outbound baggage
capacity within the current airport footprint.
When complete, this project will have achieved the following outcomes:
Increased outbound system capacity up to 60 MAP;
Increased system reliability, redundancy, and security;
Flexibility in Airline ticket counter use and related gate assignments;
Reduced minimum connect times where possible; and
Long term energy savings.
Scope of Work
The Phase 2 scope of work will expand the centralized baggage screening area in the airport’s
Central Terminal by adding more Explosive Detection Systems (EDS) machines and increasing
the Checked Baggage Resolution Area (CBRA). This phase will also replace conveyor systems to
the north portion of the bagwell, construct the final baggage sortation matrix, and add more
capacity to the South Satellite baggage system. Concession storage and the conveyance
maintenance shop will be relocated to their final locations. The following activities support the
Phase 2 construction:
(1) Demolish and replace existing C1, C25, C88 and C96 Baggage Handling Systems (BHS);
(2) Construct the final BHS sortation matrix;
(3) Install, test and certify Transportation Security Administration (TSA) provided EDS
machines in the Basement Level. This consists of two (2) new EDS pods with two (2)
machines in each pod;
COMMISSION AGENDA – Action Item No. __8b__ Page 4 of 9
Meeting Date: April 23, 2019
Template revised September 22, 2016; format updates October 19, 2016.
(4) Demolish and replace the entire C25 BHS from the underground tunnel to the Ramp
level at the South Satellite. This adds additional outbound lines in the existing
baggage tunnel, replaces two (2) makeup units, provides future availability for
manual encode and demolishes the existing claims in the Federal Inspection Services
(FIS) area;
(5) Construct the new North-End odd-size BHS (Zone 7);
(6) Demolish C22 odd size BHS;
(7) Construct C92 BHS final connections;
(8) Remove and decommission various existing BHS components;
(9) Demolish and install BHS make-up devices;
(10) Construct a new tenant storage area in the C1 building basement;
(11) Relocate the existing tenant storage area from the Central Terminal Expansion (CTE)
basement level to the new area in the C1 building;
(12) Relocate, modify and add new structural, architectural and utility systems;
(13) Construct a new maintenance conveyor shop;
(14) Relocate and demolish the existing maintenance conveyor shop;
(15) Construct, modify and demolish various construction elements, such as wall, ceiling,
flooring and finish work; and
(16) Perform various Regulated Material abatement.
Schedule: Phase One
Based on the most current contractor schedule, Phase 1 is approximately 3 months behind
schedule. Holding this schedule would place Phase 1 Substantial Completion in 2019 Quarter 4.
The contractor delay can be attributed to late conveyor submittals and lagging equipment
fabrication, along with further delay caused by a failed factory acceptance test, and water
damaged EDS machine replacement.
While the contractor schedule shows the project approximately 3 months behind schedule, the
Port project team feels that the project is six months behind schedule due to the contractor
delays. This does not include any delays resulting from the damaged EDS machines. These
delays are being assessed and are critical to the project schedule. Delays will be added to the
project schedule once they are determined.
While the current delay to the project is likely unrecoverable, the project team is working to
eliminate further delay. To address the performance and schedule concerns, the team has
implemented the following:
Three additional design review meetings were held to help the contractor understand
the project requirements.
Port staff was sent to Denver to meet with both the contractor and designer in order to
speed up critical submittal reviews.
Multiple letters have been issued documenting the delay caused by the contractor.
The project team now meets on-site with the contractor’s executives quarterly to
discuss ways to mitigate the schedule delays. Actions resulting from these meetings:
COMMISSION AGENDA – Action Item No. __8b__ Page 5 of 9
Meeting Date: April 23, 2019
Template revised September 22, 2016; format updates October 19, 2016.
o Baggage handling system (BHS) installation foremen were swapped with other
projects to help speed production,
o Night shift hours were adjusted to provide for more Port oversight,
o The contractor added a field engineer to assist with field layout,
o BHS subcontractor field staff were increased to speed installation and improve
quality,
o Three additional BHS installation crews were added (total of five) to mitigate
submittal and fabrication delays,
o Work days were extended from Monday through Friday to include Saturday, and
o BHS manufacturer added a crew to help with conveyor installation quality
control.
To avoid further delay resulting from another failed factory acceptance test, the team
required the contractor to provide a recovery schedule showing weekly milestones
leading up to the re-test. Beginning September 19, a Port representative along with a
member of the design consulting firm traveled weekly to the BHS contractor
headquarters in Michigan to verify successful completion of the designated milestones.
This extra attention allowed all the required tests to be demonstrated ahead of the
official factory acceptance test and greatly contributed to a successful retest.
Laydown area to store uninstalled conveyor had become a point of contention. The Port
secured and provided warehouse space to the contractor to free the area of stored
conveyor and speed installation at the site. This has resulted in a more organized and
efficient work area.
Schedule: Phase Two
Phase 2 design efforts started on October 31, 2017, 100-percent design documents were
received August 2018 and are currently being reviewed by the Airport Building Department.
Planned Phase 2 construction advertisement in Q3 2019 was contingent upon on-time Phase 1
completion and will now be delayed for three to six months to avoid overlapping of Phase 1 and
2 work. The South Satellite portion of Phase 2 cannot begin construction until the International
Arrivals Facility is fully operational. The Baggage Optimization project will need to be advertised
with the latest IAF completion date shown in the bid documents, which may be a Baggage
Optimization change order risk should there be a delay to the IAF completion date.
2020 Quarter 1
2023 Quarter 2
2025 Quarter 4
COMMISSION AGENDA – Action Item No. __8b__ Page 6 of 9
Meeting Date: April 23, 2019
Template revised September 22, 2016; format updates October 19, 2016.
Diversity in Contracting
The project manager, along with the Diversity in Contracting Department determined a Woman
and Minority Business Enterprise (WMBE) participation aspirational goal for this project of two
percent. These affirmative efforts are in accordance within the Diversity in Contracting policy
directive that was established by Resolution No. 3737 and may be amended from time to time.
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Delay Phase 2 with the hope that market conditions become more favorable
due to slowing economy.
Cost Implications: Potential decrease in construction costs.
Pros:
(1) Potential decrease in Phase 2 and Phase 3 expenditures.
(2) Potential to increase project interests with bidders.
(3) Abandoning project at the end of Phase 1 does not negatively impact the existing
system.
Cons:
(1) This option will cause an overall project delay.
(2) Potential TSA OTA funding expires and the project would lose the funds.
(3) Due to the aging system and lack of capacity to keep up with Airport growth, the
existing baggage system will experience increased operational demand and stress that
will likely cause older subsystems to fail causing impacts to airlines and passengers.
This is not the recommended alternative.
Alternative 2 – Proceed with constructing Phase 2 as originally planned and prepare for Phase
3.
Cost Implications: Requested amount of $213,000,000.
Pros:
(1) Deliver a baggage system with increased capacity and higher reliability.
(2) Prepare for Phase 3 to complete the intended design that will meet the growing
Airport demands.
Cons:
(1) BHS market conditions are likely at its peak. Budget increase to complete Phase 3 is
likely, if market conditions do not change.
This is the recommended alternative.
COMMISSION AGENDA – Action Item No. __8b__ Page 7 of 9
Meeting Date: April 23, 2019
Template revised September 22, 2016; format updates October 19, 2016.
FINANCIAL IMPLICATIONS
The total cost of Phase 2 construction is estimated at $247,673,000; of which $24,937,200 was
previously authorized, in June 2017, to provide project management and design support, and
small works early construction. The Phase 1 Estimate at Completion (EAC) is projected to have
a savings of $10,000,000, which was included in the Phase 1 Construction authorization request
in July 2016. The available previous authorizations (totaling $34,937,200) will offset this
request so that the total rounded amount of this authorization request at this time is
$213,000,000.
Capital
Expense/ERL
Total
COST ESTIMATE
Original estimate
$317,000,000
$150,000
$317,150,000
Previous changes
Budget Transfer (SSAT Make-up) $14,000,000
Budget Transfer (CTE Elevators) $1,900,000
Savings Returned ($24,000,000)
Additional Capacity Budget $136,000,000
$127,900,000
$0
$127,900,000
Current request
($220,000)
$220,000
$0
Revised estimate
$444,680,000
$370,000
$445,050,000
AUTHORIZATION
Previous authorizations
$136,162,200
$150,000
$136,312,200
Current request for authorization
Phase 2 Estimate $247,673,000
Transfer Auth from Ph 1 ($10,000,000)
Previous Authorization ($24,937,200)
$212,780,000
$220,000
$213,000,000
Total authorizations, including this request
$348,942,200
$370,000
$349,312,200
Remaining amount to be authorized
$95,737,800
$0
$95,737,800
Annual Budget Status and Source of Funds
This project, C800612, was included in the 2019-2023 capital budget and plan of finance with a
budget of $444,900,000. The $220,000 Regulated Materials was transferred into the
Aeronautical Allowance C800753. The funding sources will include the Airport Development
Fund, TSA funding, existing revenue bond funds and future revenue bonds.
Financial Analysis and Summary
Project cost for analysis
$445,050,000
Business Unit (BU)
Baggage System
Effect on business performance (NOI after
NOI after depreciation will
COMMISSION AGENDA – Action Item No. __8b__ Page 8 of 9
Meeting Date: April 23, 2019
Template revised September 22, 2016; format updates October 19, 2016.
depreciation)
increase.
IRR/NPV (if relevant)
N/A
CPE Impact
$1.18 by 2026
ADDITIONAL BACKGROUND
The Baggage Optimization project was scoped in 2012 to accommodate 45 MAP with an
expandable design to accommodate future growth. At the time, growth forecasts were flat and
predicted that 45 MAP would be adequate through 2027. The decision was made to proceed in
building an expandable 45 MAP system with the expectation that an expansion would occur in
the future in time to accommodate growth up to the 60 MAP level. Due to unprecedented
growth at the airport, the 45 MAP threshold was met in 2016, over ten years earlier than
anticipated. In June 2017, the Commission authorized the project to incorporate a capacity
expansion of the Baggage Optimization project in order for the new outbound baggage system
to accommodate 60 MAP. The additional capacity will be incorporated into Phases 2 and 3 and
added 14 months to the overall project schedule and a net budget increase of $126 million.
The $126 million increase is included in the overall budget of $445 million.
ATTACHMENTS TO THIS REQUEST
(1) Presentation slides
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
February 26, 2019 – Baggage Optimization Quarter 4 Project Briefing
October 23, 2018 – Baggage Optimization Quarter 3 Project Briefing
June 12, 2018 – Baggage Optimization Quarter 2 Project Briefing
January 9, 2018 – Baggage Optimization Quarter 4 Project Briefing
September 26, 2017 – Baggage Optimization Quarter 3 Project Briefing
June 27, 2017 – Commission authorization to (1) authorize additional design and project
management funds to expand the capacity to 60 million annual passengers (MAP); (2) use
Port crews and small works contracts to perform additional construction work; and (3)
amend Service Agreement P-00317641 to add $10,160,000
October 25, 2016 – Baggage Optimization Quarter 4 Project Briefing
July 12, 2016 – Commission authorization to advertise and execute a contract for
construction Phase 1
June 28, 2016– Baggage Program Briefing
May 17, 2016 – Checked Baggage Optimization Project Briefing
March 8, 2016 – Commission authorization for the Chief Executive Officer to amend the
Baggage Optimization Design Services contract
June 23, 2015 – Checked Baggage Optimization Project Briefing
September 10, 2013 – The Commission authorized the execution of an Other Transaction
Agreement (OTA) with TSA for reimbursable costs for design; construction, and to authorize
COMMISSION AGENDA – Action Item No. __8b__ Page 9 of 9
Meeting Date: April 23, 2019
Template revised September 22, 2016; format updates October 19, 2016.
$15 million to continue from 30% to 100% design; and execute a consultant service
agreement for program management support services
August 20, 2013 – Response to questions from Commissioners asked during August 6, 2013
Commission Meeting
August 6, 2013 – The Commission was briefed on the near-term and long-term challenges
related to handling checked baggage at the Airport
January 22, 2013 – The Commission authorized $5 million for staff to begin design through
30%, and to enter into an agreement to allow reimbursement from the federal government
to the Port for eligible elements of the 30% design effort
January 8, 2013 – Baggage Systems Briefing
August 14, 2012 – Baggage system recapitalization/optimization was noted in the 2013
business plan and capital briefing as a significant capital project not included in 2013-17
capital program
August 7, 2012 – Baggage system recapitalization/optimization was referenced as one of
the drivers for the need to develop an Airport Sustainability Master Plan
June 26, 2012 – The Airport’s baggage systems were discussed during a briefing on terminal
development challenges
May 10, 2012 – TSA’s interest in a national recapitalization/optimization plan for all
baggage-screening operations was referenced in a design authorization request for the C60-
C61 Baggage Handling System Modifications Project