Template revised January 10, 2019.
COMMISSION
AGENDA MEMORANDUM
Item No.
8l
ACTION ITEM
Date of Meeting
December 10, 2024
DATE: November 25, 2024
TO: Stephen P. Metruck, Executive Director
FROM: Rick Duncan, Director, Aviation Business & Properties
Eileen Francisco, Director, Aviation Project Management Group
SUBJECT: Concourse A Building Expansion for Lounges – CIP C801205
Amount of this request:
$16,800,000
Total estimated project cost:
$143,307,000
ACTION REQUESTED
Request Commission authorization for the Executive Director to (1) increase the authorized total
project budget by $16,800,000 and (2) increase the Tenant Reimbursement Agreement (TRA)
budget from $112,248,000 to $121,723,439. This results in a total estimated project cost of
$143,307,000 for the Concourse A Building Expansion project.
EXECUTIVE SUMMARY
Under the TRA, the Port contracted Delta Airlines Inc. (Delta), to complete the design and
construction of an approximate 52,000 square-foot Concourse A building expansion. The project
is currently 75% complete with a targeted lounge opening of Q2 2025 and a substantial
completion of Q3 2025.
From June 2023 to present, the project encountered substantial varying site conditions,
additional unanticipated regulatory requirements, and multiple impacts resulting in schedule
delays. These circumstances have accelerated the need to expend project contingency earlier
than anticipated and extended the overall project duration. Additional funds are needed to reach
substantial completion.
JUSTIFICATION
Upon completion, this expansion will resolve the increased passenger demand for viable lounge
space on Concourse A and add two new premier lounge experiences, a two-story Delta passenger
lounge (with a Delta One experience) and a new Port common use lounge (Club SEA).
COMMISSION AGENDA – Action Item No. 8l Page 2 of 9
Meeting Date: December 10, 2024
Template revised June 27, 2019 (Diversity in Contracting).
Over the last 16 months, the project has worked to mitigate two formidable challenges 1) the
varying site conditions associated with underground utility work and, 2) the resolution of
numerous design discrepancies. First, the severity of these varying site conditions has required
substantial redesign efforts to accurately as-built the underground conditions and relocate
existing critical infrastructure to alleviate utility conflicts for the new building. Secondly, these
design discrepancies resulted in a considerable amount of rework and resequencing of critical
path construction activities. While these mitigation measures have focused on solutions that
prioritized reducing impacts, the project has incurred both schedule delays and increased costs
associated with the necessary Change Orders (CO) to address these challenges.
It is important to note, the project has yet to exceed the current authorized budget; however, if
the ongoing analysis determines all proposed COs are eligible for reimbursement under the terms
of the TRA, it will fully commit both the TRA ($3.8M) and ($5M) project contingencies and still
require additional funds to reach substantial completion.
The project is at a pivotal stage in construction where forward progress is needed to maintain
both the preferred Delta lounge opening in 2025 and the projected Club SEA opening for FIFA
World Cup 2026. As such, the Port is requesting to secure the necessary funds to cover all
anticipated cost increases in advance of completing our detailed analysis. Currently, the Port does
not dispute the validity of COs associated with varying site conditions or those pertaining to
discretionary changes; however, the Port has informed Delta of potential disputes regarding COs
associated with design discrepancies, constructability issues, or items for which the Port and
Delta are still negotiating responsibility.
Under this scenario, any funds associated with disputed items or items needing further
evaluation would be held under a Port-controlled allowance until the evaluation of eligibility has
been determined. Per the terms outlined in the TRA, Delta must provide sufficient proof of
eligibility, demonstrate all items are Port responsibility, and/or seek recovery from their
designer/General Contractor (GC) for any items resulting from insufficient designs and/or
constructability issues thereof, before any funds are transferred from the allowance into the TRA.
Diversity in Contracting
This project is currently exceeding all Diversity in Contracting goals as follows:
• Women & Minority Business Enterprise | 10% goal, currently reporting 11%
• Female Apprentice Hiring | 12% goal, currently reporting 16.6%
• People of Color Apprentice Hiring | 21% goal, currently reporting 39.1%.
DETAILS
Since construction commenced, the predominant risk threatening the overall project budget has
been CO management. From June 2023 to September 2024, the project reached nearly 75%
construction completion. During that period, the Port received over 220 COs. These COs
COMMISSION AGENDA – Action Item No. 8l Page 3 of 9
Meeting Date: December 10, 2024
Template revised June 27, 2019 (Diversity in Contracting).
addressed: relocating existing underground utilities, removal of contaminated soil, a building
redesign to accommodate existing underground utilities that couldn’t be relocated, design
development for critical smoke control systems that were deferred at permit, and discretionary
changes. The impact of these circumstances is a six-month schedule delay and cost increases.
This request is to increase the overall project budget to incorporate additional project funding
needed to resolve the current and forecasted COs, complete a necessary discretionary change
that would alleviate future impacts to the newly constructed Delta lounge, and provide the
project with sufficient funds to reach substantial completion.
The table below outlines the type, percentage of COs, value, and are not categories disputed by
the Port.
Category
Value
Varying Site Conditions
$4.1M
Redesign Efforts/Regulatory Requirements
$1.5M
Discretionary Changes to Date
$1.7M
Club @ SEA Ductwork Discretionary Change
$4.0M
WSST
$1.2M
TOTAL
$12.5M
One notable element of this budget increase is a $4M discretionary change for the Club SEA. This
addition provides specific necessary HVAC infrastructure for the new Club SEA that will be housed
within this building. Waiting to install that infrastructure as part of the Club SEA contract will have
a significant negative impact, requiring the Delta Club to close in the future while the HVAC
infrastructure is installed and potentially delaying the opening of the Club SEA. This is work that
is outside the original scope of work for the Concourse A Building Expansion for Lounges but will
benefit both projects if executed now, prior to the opening of the Delta Club.
Port soft costs will increase by $3.3M for continued project management and support due to the
six-month schedule extension.
Additionally, the project team completed a reconciliation of currently authorized contingencies
to offset both construction and soft cost increases because of the quantity COs and schedule
extension. As part of this request, the project team is required to notify Commission when
previously authorized project funds are transferred to the TRA. As such, the project team intends
to transfer $1.7M of the $5M existing contingency into the TRA to cover forecasted Eligible TRA
cost increases. The Port will use the remaining $3.3M to cover forecasted Port soft cost increases.
Of the 220 current COs, a total of $6.3M remains in negotiation between the Port and Delta and
requires further evaluation to determine eligibility, per the terms outlined in the TRA. If approved
by commission, these funds would be withheld from the TRA under a Port-controlled allowance
strictly for this purpose and utilized only for those items deemed eligible.
COMMISSION AGENDA – Action Item No. 8l Page 4 of 9
Meeting Date: December 10, 2024
Template revised June 27, 2019 (Diversity in Contracting).
Lastly, the project is requesting an additional $3.5M of new program reserve to secure a
reasonable level of cost certainty for the project moving forward.
The table below provides the full breakdown of the requested $16.8M by category and allocation
of existing contingencies.
Item
Value
Construction Costs Increases
$12.5M
Soft Costs Increases
$3.3M
Contingency Reconciliation
$1.0M
TRA Contingency
$(3.8M)
Existing Contingency
$(5.0M)
New Program Reserve
$3.5M
New Port-Controlled Allowance
$6.3M
TOTAL REQUESTED INCREASE
$16.8M
If Commission approves this request to increase the total project budget by $16,800,000, the
value of the TRA will be increased from the previously authorized amount of $112,248,000 to
$121,723,439. If approved, the Port will issue Delta a revised reimbursement letter that reflects
an updated maximum reimbursement.
Scope of Work
(1) Construct a building addition of approximately 52,000 SF that will provide shell space for
two lounges (one for DL, one for the Port) and associated building systems.
(2) Reconfigure approximately 13,500 SF of existing space to provide additional leasable
office area, an entry foyer, a replacement restroom, and vertical circulation.
(3) Demolish an existing airport building deemed unfit to renovate and construct a new 3,000
SF standalone building in its place to house the relocated Aviation Maintenance
Department Passenger Loading Bridge shop that was displaced by this project. The
expense cost to move the shop is included in the budget. Construction was completed in
2023.
(4) Provide temporary restrooms for the Port common-use lounge to keep the lounge
operational during construction of the building expansion. Construction was completed
in 2023
Schedule
Below is the revised project schedule based on the six-month delay noted earlier.
Activity
Commission design authorization
2021 Quarter 2
Design start
2021 Quarter 2
Commission construction authorization
2021 Quarter 4
COMMISSION AGENDA – Action Item No. 8l Page 5 of 9
Meeting Date: December 10, 2024
Template revised June 27, 2019 (Diversity in Contracting).
Construction start
2022 Quarter 3
In-use date
2025 Quarter 2
Substantial completion
2025 Quarter 3
Cost Breakdown
This Request
Total Project
Design
$0
$6,300,000
Construction
$16,800,000
$137,007,000
Total
$16,800,000
$143,307,000
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Do not increase the total project budget or TRA value.
Cost Implications: Approximately $126,507,000 (current authorized budget).
Pros:
(1) Avoids additional $16,800,000 cost to the Port.
(2) Port already received new Aviation Maintenance PLB Shop and new concourse
restrooms on concourse level, as part of the project’s enabling work.
Cons:
(1) Tenant would have to choose to pay for base building scope beyond the agreed-upon
TRA amount or walk away and not complete the Project.
Alternative 2 – Increase the project budget by $10,500,000. Increase the TRA value to
$121,723,439. Under this alternative, the project would not receive additional funds for the
$6.3M under negotiations until the final amount and all eligibility has been determined.
Cost Implications: An additional $10,500,00. Total estimated costs $137,007,000
Pros:
(1) Lower total project budget and reduced Commission request.
(2) Cost increases account for all known and forecasted cost exposure, excluding items
under negotiation.
Cons:
(1) May require additional Commission asks for final resolution of disputed items pending
final determination of eligibility.
(2) Additional funding requests would delay project schedule and further increase soft
costs to manage the project.
COMMISSION AGENDA – Action Item No. 8l Page 6 of 9
Meeting Date: December 10, 2024
Template revised June 27, 2019 (Diversity in Contracting).
Alternative 3 – Increase the project budget by $16,800,000 for the project. Increase the TRA
value to $121,723,439.
Cost Implications: An additional $16,800,000. Total estimated costs $143,307,000
Pros:
(1) Passenger lounge spaces will be expanded to accommodate passenger demand.
(2) New lounge will support Delta’s operations on Concourse A.
(3) Expanded lounges (Delta’s and the Port’s common use) will provide passengers an
alternative to waiting for flights in crowded hold rooms and the existing Club at SEA.
Cons:
(1) Additional contingency funds are unavailable for other uses, until the Project is
complete, and the true cost is known. Contingency funds not required to be spent
would ultimately be returned for other uses if it is determined to not be needed to
complete the Project.
(2) This is the higher cost alternative.
This is the recommended alternative.
FINANCIAL IMPLICATIONS
Cost Estimate/Authorization Summary
Capital
Expense
Total
COST ESTIMATE
Original estimate
$60,000,000
$0
$60,000,000
Previous changes – net
$65,774,131
$732,869
$66,507,0000
Current change
$16,800,000
0
$16,800,000
Revised estimate
$142,574,131
$732,869
$143,307,000
AUTHORIZATION
Previous authorizations
$125,774,131
$732,869
$126,507,000
Current request for authorization
$16,800,000
0
$16,800,000
Total authorizations, including this request
$142,574,131
$732,869
$143,307,000
Remaining amount to be authorized
$0
$0
$0
Annual Budget Status and Source of Funds
This project, CIP C801205, was included in the 2024-2028 capital budget and plan of finance with
a budget of $125,774,131. A budget increase of $16,800,000 will be transferred from the
COMMISSION AGENDA – Action Item No. 8l Page 7 of 9
Meeting Date: December 10, 2024
Template revised June 27, 2019 (Diversity in Contracting).
Aeronautical Allowance
1
CIP (C800753) resulting in zero net change to the Aviation capital
budget. The funding sources will include the Airport Development Fund and revenue bonds. This
project was approved by Majority-In-Interest (MII) with the airlines on December 7, 2021. With
the budget increase, Port management elected to utilize the MII Management Reserve
2
provision
within the Signatory Lease Operating Agreement (SLOA) without requiring additional MII
approval from the airlines.
Financial Analysis and Summary
This project is an investment in additional terminal space that is intended to be used for both
aeronautical and non-aeronautical purposes. As a hybrid project, the financial analysis looks at
the project as both a standalone non-aero investment and a terminal investment that flows
through airline rates and charges.
Aeronautical Rate Base Impacts
With the Concourse A expansion, the net terminal square footage distribution has a minor impact
on the analysis as the existing project space allocation is reasonably close to the existing
allocations.
The table above shows that before Concourse A expansion, 76.55% of the terminal costs are
allocated to the aeronautical rate base, which equates to incremental revenue of $9,522,000.
After adding the incremental square footage of this project, the percentage of terminal costs
1
The Aeronautical Allowance is included in the Capital Improvement Plan to ensure funding capacity for
unspecified projects, cost increases for existing projects, new initiatives, and unforeseen needs. This ensures
funding capacity for unanticipated spending within the dollar amount of the Allowance CIP.
2
The Signatory Lease and Operating Agreement (SLOA) requires airline’s approval for New Projects meeting the
Majority-In-Interest (MII) threshold. The Port may increase the budgets of New Projects up to an aggregate
additional $210,000 million dollars in Management Reserve without further MII review.
Airlines rates and charges impact
($000s) Aero
Non-aero Total
Rentable sqft without Conc A sqft 76.55% 23.45%
100%
Rentable sqft WITH Conc A sqft 77.09%
22.91% 100%
Project cost
109,910$
32,664$ 142,574$
Incremental Revenues WITHOUT Conc A SF 9,522$
Terminal distribution 68
Incremental Revenues WITH Conc A SF 9,590
Incremental Debt Service
9,590
2,850
12,439
Incremental Amortization
2.9
0.9 3.7
Incremental CPE 0.35
Incremental Terminal Rental Rate 6.79
2026
COMMISSION AGENDA – Action Item No. 8l Page 8 of 9
Meeting Date: December 10, 2024
Template revised June 27, 2019 (Diversity in Contracting).
increases to 77.09%; this reflects an $68,000 increase to Aeronautical revenue. Thus, in 2026 the
net impact of the Concourse A expansion project is to contribute $9,592,900 in incremental
revenue to the aeronautical rate base.
Terminal rents are established based on the total cost center costs. The project would be
completed in Q2 2025. The full year of debt service and equity amortization begins in 2026. The
incremental terminal rent would be $6.79 and CPE of $0.35 in 2026.
Non-aeronautical Investment Analysis
The purpose of this section is to demonstrate that the Port has a compelling business case as a
non-aero investment. The non-aeronautical investment includes both the cost of new space
included in this authorization request and cost of the interior build-out and furnishings ($29.6
million) included in CIP C801207.
The table below shows the allocation of capital costs based on rentable square footage. For non-
aero purposes, 18.17% of the rentable square footage, equating to $55.6 million in capital cost,
establishes the basis of the non-aero portion of the project. The lower part of the table identifies
an incremental revenue increase of $7.4 million in 2031. This new revenue, attributed to the
airport lounge which generates the negative Net Present Value of $10.4M. Given that the existing
space is currently generating revenues, the NPV is netted against a base case (do nothing).
Non-aero Investments
Non-aero Aero Total
Concourse A rentable sqft 6,499
29,264
35,763
Concourse A rentable sqft %
18.17% 81.83%
$ in 000s
Base Building, C801205 25,909$ 116,665
$ 142,574$
Furnishings, C801207,
assumed 20% cost increase 29,671$ -$
29,671$
Total Capital 55,580$ 116,665$ 172,245$
Non-Aero Analysis
Payback (years from opening)
10
NPV (through 2043) 26,550$
NPV Incremental to Base
(10,380)$
2026 2031 2036
Incremental Non-aero Revenue 974$ 7,436$ 11,398$
Incremental Non-aero O&M 64$
(2,376) (4,126)
Debt service TERMB to Non-aero (2,850)$ (2,850)
(2,850)
Debt Service Furnishing 100% Non-aero (2,451)$ (2,451)
(2,451)
Non-aero Net Cashflow (4,262)$
(240)$ 1,972$
COMMISSION AGENDA – Action Item No. 8l Page 9 of 9
Meeting Date: December 10, 2024
Template revised June 27, 2019 (Diversity in Contracting).
Future Revenues and Expenses (Total cost of ownership)
The tenants would pay operating and maintenance annual costs in their space since maintenance
of exclusive premises is the responsibility of the lessee. Those costs are not included in the
amount shown below. This project provides 29,264 SF of aeronautical rentable space, as well as
6,499 SF of rentable non-aeronautical space.
Facility elements outside of or supporting the exclusive premises, such as custodial services,
domestic water, power, and HVAC will generate some additional demand for Aviation
Maintenance services, and those annual operating and maintenance costs for the new space are
estimated to be $340,000, according to the cost breakdown below:
Custodial services $275,000
Facilities services 30,000
Electrical systems 18,000
Mechanical systems 17,000
ATTACHMENTS TO THIS REQUEST
(1) Presentation slides
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
June 27, 2023 – The Commission authorized a budget increase for the project and an increase
to the reimbursement amount to Delta.
May 10, 2022 – The Commission authorized a budget increase for the project and an increase
to the reimbursement amount to Delta.
December 14, 2021 – The Commission authorized construction and reimbursement to Delta
Air Lines and utilization of Port crews for construction and support.
April 27, 2021 – The Commission authorized design and execution of a TRA for this project.