COMMISSION AGENDA MEMORANDUM Item No. ACTION ITEM Date of Meeting DATE: April 14, 2025 TO: Stephen P. Metruck, Executive Director FROM: Eileen Francisco, Director Aviation Project Management Group Wendy Reiter, Director Airport Security 10d April 22, 2025 SUBJECT: Baggage Optimization Program Phase 3 Amount of this request: Total estimated project cost: $477,373,982 $1,074,638,982 ACTION REQUESTED Request Commission authorization for the Executive Director to take all steps necessary, including the execution of all contracts, including Public Works, Alternative Public Work procedures in accordance with RCW 29.10, Goods and Services Personal Services, Professional Services, other consulting services, and any other types of contracts or agreements to complete the Baggage Optimization Program Phase 3 for a total program budget authorization of $1,074,638,982. EXECUTIVE SUMMARY Baggage Optimization is an airport-wide public safety and security program that improves customer service for both airlines and passengers. This is a long-term, three-phase program that is anticipated to be completed in 2029. The program allows the flexibility for bags to be checked in from any ticket counter and be conveyed to serve any gate. The project is being constructed in three separate phases. Phase 1 and Phase 2 have been completed, and development of Phase 3 began in Q3 2022. Due to the lack of interconnectivity until the project is complete, near continuous operation, and a fixed footprint, this project has various constraints requiring detailed construction sequencing plans. A General Construction/Construction Manager (GC/CM) was selected for Phase 3 to leverage cost certainty early on during the design phase. This request is for full authorization to complete the last phase of the Baggage Optimization Program. To leverage cost certainty early on during the design phase, the project team worked with the Contractor to develop the Phase 3 estimate. During design, the project team negotiated pricing associated with scope and construction schedule and was able to negotiate the cost down; however, Phase 3 requires a budget increase to complete the overall program. Budget increases are attributed to lack of competition for the specialized baggage handling system installation and electrical work. Since 2022 there has also been a continued escalation in cost in electrical labor and equipment. The project budget was also impacted by the specialized baggage handling contractor and electrical contractors' fees. Construction duration also increased by a year due Template revised January 10, 2019. COMMISSION AGENDA - Action Item No. 10d Meeting Date: April 22, 2025 Page 2 of 7 to operational risk mitigation to keep the baggage systems functional during construction and minimizing downtime to Airlines operations. This duration has also impacted the overall project costs. The team analyzed alternatives to reduce scope and budget however the alternatives did not meet the overall project objective and Airlines expectations. JUSTIFICATION The highly utilized and aging Baggage Handling System (BHS) is one of the most complex systems in the airport. Originally the Airport's baggage system was not a single system, but rather six separate outbound systems. Phase 1 and Phase 2 have completed two thirds of the system; Phase 3 completes the program for an optimized system. 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. The existing 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; and 3. These separate systems lack interconnectivity between ticket counters and all 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. Diversity in Contracting Baggage Optimization Phase 3 construction contracts have a 4% Women and Minority Business Enterprises (WMBE) goal. DETAILS Scope of Work Baggage Optimization Phase 3 will conclude the Baggage Optimization Program allowing for complete baggage flexibility to check in any bag into any ticket counter and be delivered to any airplane. It also accommodates passenger volume growth and meets Transportation Security Administration (TSA) safety mandates. This phase will tie-in all the south end systems into the centralized screening, including the International Arrivals Facility (IAF), and finalize the sortation and ticket counter connections. Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 10d Meeting Date: April 22, 2025 Page 3 of 7 Schedule Phase 1 was completed in 2020. Phase 2 was completed in Q3 2024. Phase 3 is under way with GC/CM preconstruction activities and construction is scheduled to complete in Q4 2029. Phase Phase 1 Phase 2 Phase 3 Design Q3 2015 - Q1 2016 Q1 2020 - Q3 2020 Q1 2023 - Q1 2025 Construction Q1 2016 - Q2 2020 Q3 2020 - Q3 2024 Q2 2025 - Q4 2029 Activity Commission design authorization - All Phases Phase 3 Design start Phase 3 Commission construction authorization 2013 Q1 2022 Q2 2025 Q1 Phase 3 Construction start Phase 3 In-use date 2025 Q4 2029 Q4 Cost Breakdown This Request Total Project Design Construction Total $0 $477,373,982 $477,373,982 $80,731,152 $993,907,830 $1,074,638,982 ALTERNATIVES AND IMPLICATIONS CONSIDERED Alternative 1 - Non-integration of IAF would delete scope to fully integrate IAF into the optimized system keeping it as a separate airline and screening operation. Cost Implications: There would be an estimated $40,000,000 reduction in cost. Pros: (1) (2) (3) Cons: (1) (2) (3) (4) (5) (6) Operations for Airlines and TSA would not change from current condition. Decreases the overall construction cost and reduces the budget by an estimated $40,000,000. Provides limited screening redundancy for by about 15%. Not supported by Airlines and Port stakeholders. A split Airline operation for alarmed bags results in an increased labor cost. Safety concerns with higher tug congestion/traffic with a split operation. Increases connection times for international recheck baggage. Increased cost for TSA staff operating in two screening areas. Reduced flexibility for any bag to go anywhere. This is not the recommended alternative. Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 10d Meeting Date: April 22, 2025 Page 4 of 7 Alternative 2 - Integration of IAF - This option does not change the original scope to integrate IAF into the optimized system to provide complete flexibility. Cost Implications: This alternative has a budget of $40,000,000 that is included in the budget increase request. Pros: (1) (2) (3) (4) (5) (6) (7) Cons: (1) (2) Supported by the Airlines and internal Port stakeholders. Reduces the complexity of the control environment running the system and fixes issues with IAF controls. Provides a single operation for the Airlines and reduces staffing. Adds baggage makeup capacity and flexibility to IAF. Reduces TSA staffing to one screening area. Less tug traffic and congestion in the bagwell for safer conditions. Cost to complete the full integration of all baggage systems may be cheaper now that waiting for a later project. This is the more expensive option. Lose the limited screening redundancy. This is the recommended alternative. FINANCIAL IMPLICATIONS Estimated Project Cost Current Authorization Phase 1 $97,638,982 $101,375,000 Phase 2 $376,000,000 $415,675,000 Phase 3 $585,500,000 $54,715,000 Executive Management Reserve $0 $10,000,000 CCE Transfer $15,500,000 $15,500,000 Notes  Complete  Substantial completion reached Q4 2024  Design Complete  Authorized during Phase 2  Commission approval April 2022 TOTAL $1,074,638,982 $597,265,000 Cost Estimate/Authorization Summary COST ESTIMATE Original 2013 estimate Template revised June 27, 2019 (Diversity in Contracting). Capital $317,000,000 Expense $150,000 Total $317,150,000 COMMISSION AGENDA - Action Item No. 10d Meeting Date: April 22, 2025 Previous changes - net Current change Revised estimate AUTHORIZATION Previous authorizations Current request for authorization Total authorizations, including this request Remaining amount to be authorized Page 5 of 7 $637,134,000 $119,638,982 $1,073,772,982 $716,000 $637,850,000 $0 $119,638,982 $866,000 $1,074,638,982 $596,799,000 $476,973,982 $1,073,772,982 $466,000 $597,265,000 $400,000 $477,373,982 $866,000 $1,074,638,982 $0 $0 $0 Annual Budget Status and Source of Funds Project C800612 was included in the 2025-2029 Capital Budget and Plan of Finance with an allocated budget of $954,134,000. A budget increase of $119,638,982 will be transferred from the Aeronautical Allowance CIP C800753, with no net change to the Airport's capital budget. Budget increases are due to limited competition for specialized baggage handling and electrical work, rising electrical labor and equipment costs since 2022, and contractor fees. Phases 1 and 2 received prior Majority-in-Interest (MII) airline approval, and per SLOA V, Phase 3 no longer requires a ballot. The project funding sources include airport development and revenue bonds. Financial Analysis and Summary Project cost for analysis Business Unit (BU) Effect on business performance (NOI after depreciation) IRR/NPV (if relevant) CPE Impact $1,074,638,982 Baggage System NOI after depreciation will increase due to inclusion of capital (and operating) costs in airline rate base. N/A $0.34 in 2020, $0.96 in 2024 and $2.79 in 2029 ATTACHMENTS TO THIS REQUEST (1) Presentation slides PREVIOUS COMMISSION ACTIONS OR BRIEFINGS   March 26, 2024 - Request Commission authorization for the Executive Director to (1) authorize an early work construction contract for Baggage Optimization Phase 3 including construction of D1 and C94 transfer lines, (2) procure long lead items, and (3) increase the project authorization by $7,500,000. January 24, 2023 - Request Commission authorization for the Executive Director to: 1) execute an OTA with TSA for a 24-month time extension for the period of performance on the Baggage Optimization Program, 2) execute future Change Orders on the Baggage Optimization Project Phase 2 and Phase 3 construction contracts (C800612) up to the executed Commission authorization amount that exceed $300,000 and/or exceed 60 calendar days' time extensions, and 3) include a Project Labor Agreement (PLA) for Phase 3. Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 10d Meeting Date: April 22, 2025                  Page 6 of 7 July 26, 2022 - Request Commission authorization for the Executive Director to: (1) execute an agreement with the Transportation Security Administrative (TSA) to provide clear access to screening equipment for Phase 2, (2) authorize $34,215,000 for Phase 3 to complete pre-construction services, (3) utilize, advertise, and execute a General Contractor/Construction Manager (GC/CM) for Phase 3, (4) advertise and execute a project specific Construction Management (CM) and Airline Technical Representative (ATR) contract for Phase 3, (5) amend Service Agreement (SA) P-00317641 to add $18,340,000 for a total contract value of $49,500,000 to complete design services and provide construction support for Phase 3, and (6) utilize Port crews for Phase 3 activities, for Baggage Optimization Project at Seattle-Tacoma International Airport. The total amount of this request is $34,215,000. April 19, 2022 - Baggage Optimization Program Update - Quarter 2, 2022. January 28, 2020 - Commission Authorization to: (1) execute a construction contract with the low responsive and responsible bidder for the Baggage Optimization Phase 2 Project at Seattle-Tacoma International Airport, notwithstanding the low bid exceeding the estimate at time of bid by more than 10 percent, and (2) authorize an additional $190,737,800 for Phase 2 construction and Phase 3 design for a total program authorization of $540,050,000. April 23, 2019 - Commission Authorization 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. 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 and construction, to authorize $15 million to continue from 30% to 100% design and execute a consultant service agreement for program management support services. Template revised June 27, 2019 (Diversity in Contracting). COMMISSION AGENDA - Action Item No. 10d Meeting Date: April 22, 2025         Page 7 of 7 August 20, 2013 - Response to questions from Commissioners asked during the 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. Template revised June 27, 2019 (Diversity in Contracting).