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DRAFT SERVICE CONTRACT

FOR THE

DESIGN, CONSTRUCTION AND OPERATION

OF THE

SPOKANE COUNTY

REGIONAL WATER RECLAMATION FACILITY

between

COUNTY OF SPOKANE, WASHINGTON

AND

CH2M HILL CONSTRUCTORS, INC.

Dated

______________, 2008
TABLE OF CONTENTS

ARTICLE I

DEFINITIONS AND INTERPRETATION

SECTION 1.1. DEFINITIONS ............................................................................................. 3


SECTION 1.2. INTERPRETATION .................................................................................... 25
(A) References Hereto ................................................................................................. 25
(B) Gender and Plurality............................................................................................. 25
(C) Persons................................................................................................................. 25
(D) Headings .............................................................................................................. 25
(E) Entire Agreement.................................................................................................. 25
(F) Technical Specifications........................................................................................ 26
(G) Standards of Workmanship and Materials ............................................................ 26
(H) Technical Standards and Codes ............................................................................ 26
(I) Liquidated Damages ............................................................................................. 27
(J) Causing Performance............................................................................................ 27
(K) Party Bearing Cost of Performance........................................................................ 27
(L) Assistance ............................................................................................................ 27
(M) Interpolation ......................................................................................................... 28
(N) Applicability and Stringency of Contract Standards .............................................. 28
(O) Delivery of Documents in Digital Format............................................................... 28
(P) Severability........................................................................................................... 28
(Q) No Third-Party Rights ........................................................................................... 28
(R) References to Treatment ....................................................................................... 29
(S) References to Days ............................................................................................... 29
(T) References to Including......................................................................................... 29
(U) References to Knowledge....................................................................................... 29
(V) Counterparts ........................................................................................................ 29
(W) Governing Law...................................................................................................... 29
(X) Defined Terms ...................................................................................................... 29

ARTICLE II

REPRESENTATIONS AND WARRANTIES

SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF THE COUNTY ...................... 30


(A) Existence and Powers ........................................................................................... 30
(B) Due Authorization and Binding Obligation............................................................ 30
(C) No Conflict............................................................................................................ 30
(D) No Approvals Required.......................................................................................... 30
(E) No Litigation ......................................................................................................... 30
(F) County Ownership Interests in the Site................................................................. 31
(G) Information Pertaining to the Site ......................................................................... 31
SECTION 2.2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 31
(A) Existence and Powers ........................................................................................... 31
(B) Due Authorization and Binding Obligation............................................................ 31
(C) No Conflict............................................................................................................ 31
(D) No Approvals Required.......................................................................................... 32
(E) No Litigation ......................................................................................................... 32
(F) Claims and Demands............................................................................................ 32
(G) Applicable Law Compliance................................................................................... 32

(i)
(H) Practicability of Performance................................................................................. 32
(I) Patents and Licenses ............................................................................................ 33
(J) Information Supplied by the Company .................................................................. 33
(K) Guaranty Agreement............................................................................................. 33
(L) Required Design/Build Period Insurance .............................................................. 33

ARTICLE III

TERM

SECTION 3.1. EFFECTIVE DATE AND INITIAL TERM ..................................................... 34


SECTION 3.2. RENEWAL AND EXTENSION OPTION ....................................................... 34

ARTICLE IV

PERMITTING, DESIGN AND CONSTRUCTION OF THE FACILITY

SECTION 4.1. DESIGN/BUILD WORK GENERALLY. ....................................................... 35


(A) Commencement of Design/Build Work ................................................................. 35
(B) Construction Practice ........................................................................................... 35
(C) Sequencing and Staging of Design/Build Work ..................................................... 35
(D) Schedule and Reports ........................................................................................... 36
(E) Monthly On-Site Meetings and Design and Construction Review........................... 36
(F) Engagement of County Engineering Representative............................................... 37
(G) Title and Risk of Loss............................................................................................ 37
(H) Encumbrances ..................................................................................................... 38
(I) Utilities................................................................................................................. 38
(J) Payment of Costs .................................................................................................. 38
(K) Quality Assurance and Quality Control................................................................. 38
(L) Certificates and Reports........................................................................................ 38
(M) Notice of Default ................................................................................................... 39
SECTION 4.2. ACCESS TO AND SUITABILITY OF SITE. .................................................. 39
(A) Site Familiarity ..................................................................................................... 39
(B) Independent Verification ....................................................................................... 39
(C) Site Access ........................................................................................................... 40
(D) Regulated Site Conditions and Differing Site Conditions ....................................... 40
SECTION 4.3. SURFACE AND SUBSURFACE GEOTECHNICAL CONDITIONS................. 40
(A) General................................................................................................................. 40
(B) Differing Site Conditions ....................................................................................... 40
(C) Regulated Site Conditions - Company Obligations................................................. 41
(D) Regulated Site Conditions - County Obligations .................................................... 41
SECTION 4.4. DESIGN WORK......................................................................................... 42
(A) Performance of the Design Work ........................................................................... 42
(B) Design Risk .......................................................................................................... 42
(C) County Review and Comment on Design Documents ............................................ 42
(D) Changes to the Technical Specifications................................................................ 43
(E) Documents at Site ................................................................................................ 43
(F) Licensing Requirements........................................................................................ 43
SECTION 4.5. SUPPLEMENTAL TECHNICAL INFORMATION. ......................................... 43
(A) Relation to the Design and Construction Requirements ........................................ 44
(B) Permissible Variations .......................................................................................... 44
SECTION 4.6. CHANGES TO THE DESIGN AND CONSTRUCTION
REQUIREMENTS. ..................................................................................... 44
(A) Changes Made at Company Request ..................................................................... 44

(ii)
(B) Changes Made due to Uncontrollable Circumstances............................................ 45
(C) Changes Required by Governmental Bodies .......................................................... 45
(D) Changes Required by the County .......................................................................... 46
SECTION 4.7. DESIGN/BUILD WORK CHANGE DIRECTIVES. ....................................... 46
(A) Generally .............................................................................................................. 46
(B) Disagreement with Terms of a Design/Build Work Change Directive..................... 47
SECTION 4.8. COMPANY CONSTRUCTION PERMITTING RESPONSIBILITIES................. 47
(A) Applications and Submittals ................................................................................. 47
(B) Data and Information ........................................................................................... 48
(C) Non-Compliance and Enforcement........................................................................ 48
(D) Reports to Governmental Bodies ........................................................................... 49
(E) Potential Regulatory Change ................................................................................. 49
(F) Assistance to the County ...................................................................................... 49
(G) Company Assumption of Permitting Risk .............................................................. 50
(H) Relief from Certain Permitting Obligations ............................................................ 50
(I) Assumed Approval Issuance Dates........................................................................ 51
(J) Failure of a Governmental Body to Comply with Applicable Law ........................... 52
SECTION 4.9. COUNTY PERMITTING RESPONSIBILITIES. ............................................. 52
(A) County Permitting Responsibilities Generally........................................................ 52
(B) Ecology Requirements and the NPDES Permit....................................................... 53
SECTION 4.10. COMPLIANCE WITH APPLICABLE LAW. ................................................... 53
(A) Compliance with Applicable Law Generally ........................................................... 53
(B) Compliance with Conditions in Governmental Approvals ...................................... 53
(C) Governmental Approvals Necessary for Continued Construction ........................... 53
(D) Fines, Penalties and Remediation ......................................................................... 53
SECTION 4.11. ENVIRONMENTAL MITIGATION MEASURES ............................................ 54
SECTION 4.12. CONSTRUCTION MONITORING, OBSERVATIONS, TESTING AND
UNCOVERING OF WORK.......................................................................... 54
(A) Observations and Design/Build Work Review Protocol.......................................... 54
(B) Tests..................................................................................................................... 54
(C) County Observations, Inspections and Tests......................................................... 55
(D) Taking Apart, Uncovering and Replacing Design/Build Work................................ 55
SECTION 4.13. CORRECTION OF NON-CONFORMING DESIGN/BUILD WORK. ............... 56
(A) Correction of Non-Conforming Design/Build Work................................................ 56
(B) Elective Acceptance of Defective Design/Build Work ............................................. 56
(C) Relation to Other Obligations................................................................................ 57
SECTION 4.14. DAMAGE TO THE FACILITY. .................................................................... 57
(A) Damage Prevention ............................................................................................... 57
(B) Restoration ........................................................................................................... 57
(C) Notice and Reports ............................................................................................... 57
(D) Insurance and Other Third-Party Payments .......................................................... 58
(E) Uninsured Costs................................................................................................... 58
SECTION 4.15. PATENT, COPYRIGHT AND OTHER PROTECTED MATERIAL.................... 58
(A) Property of the County.......................................................................................... 58
(B) Delivery of Deliverable Material............................................................................. 58
(C) Software and Other Computer Programs as Part of the Deliverable Material ......... 58
(D) Use of Deliverable Material, Processes and Equipment.......................................... 59
(E) Infringement of Deliverable Material, Process or Equipment.................................. 59
SECTION 4.16. PERSONNEL............................................................................................. 59
(A) Personnel Performance ......................................................................................... 59
(B) Design/Build Manager.......................................................................................... 59
(C) County Rights With Respect to Key Personnel....................................................... 60
(D) Labor Disputes ..................................................................................................... 60
(E) Prevailing Wages................................................................................................... 60

(iii)
SECTION 4.17. WARRANTIES. .......................................................................................... 61

ARTICLE V

ECOLOGY REQUIREMENTS AND THE NPDES PERMIT

SECTION 5.1. ECOLOGY’S ROLE GENERALLY ............................................................... 62


SECTION 5.2. ECOLOGY REQUIREMENTS DURING THE DESIGN/BUILD PERIOD. ...... 62
(A) The Primary Design Document ............................................................................. 62
(B) County Review of WAC 173-240 Submittals on Behalf of Ecology.......................... 62
(C) Ecology Access to Records and Site....................................................................... 63
SECTION 5.3. OBTAINING THE INITIAL NPDES PERMIT. ............................................... 63
(A) Responsibility for Obtaining the Initial NPDES Permit........................................... 63
(B) Company Assistance............................................................................................. 63
SECTION 5.4. TERMS AND CONDITIONS OF THE INITIAL NPDES PERMIT. ................... 64
(A) Relationship to the Contract Standards in Effect as of the Contract Date.............. 64
(B) NPDES Terms and Conditions Consistent with the Contract Standards in Effect
as of the Contract Date ......................................................................................... 64
(C) Additional or More Stringent NPDES Terms and Conditions Not Requiring
Facility Modifications or Resulting in Increased Operating Expenses..................... 64
(D) Additional or More Stringent NPDES Terms and Conditions Requiring Facility
Modifications or Resulting in Increased Operating Expenses................................. 64
SECTION 5.5. RECLAIMED WATER PROJECT ALTERNATIVES ...................................... 65
SECTION 5.6. COMPANY CO-PERMITTEE STATUS ON THE NPDES PERMIT OR
ANY RECLAIMED WATER PERMIT. .......................................................... 66
(A) Requirement of Company Co-Permittee Status on the NPDES Permit or Any
Reclaimed Water Permit........................................................................................ 66
(B) Company Challenge to Co-Permittee Status .......................................................... 66
(C) County Indemnification in the Event of Company Co-Permittee Status on the
NPDES Permit or Any Reclaimed Water Permit ..................................................... 66
(D) Upsets and Excessive Influent and Company Co-Permittee Status ........................ 67
(E) Service Contract Termination and Company Co-Permittee Status ......................... 67
SECTION 5.7. NPDES PERMIT RENEWALS AND COMPLIANCE. ..................................... 68
(A) Company Responsibility for NPDES Permit Renewals............................................ 68
(B) Data and Information ........................................................................................... 68
(C) Non-Compliance and Enforcement........................................................................ 69
(D) Reports to Ecology ................................................................................................ 69
(E) Potential Regulatory Change ................................................................................. 69
SECTION 5.8. THIRD-PARTY LAWSUITS PERTAINING TO COMPLIANCE WITH THE
NPDES PERMIT. ....................................................................................... 69
(A) Generally .............................................................................................................. 69
(B) Corrective Measures ............................................................................................. 70
(C) Resolution of Responsibility for Noncompliance with the NPDES Permit ............... 70

ARTICLE VI

ACCEPTANCE OF THE FACILITY

SECTION 6.1. SUBSTANTIAL COMPLETION. .................................................................. 72


(A) Conditions to Substantial Completion................................................................... 72
(B) Final Punch List ................................................................................................... 73
(C) Notice of Substantial Completion .......................................................................... 74
SECTION 6.2. START-UP OPERATIONS. ......................................................................... 74
(A) Notices.................................................................................................................. 74

(iv)
(B) Commissioning ..................................................................................................... 74
SECTION 6.3. ACCEPTANCE TESTING. .......................................................................... 74
(A) Submittal of Acceptance Test Plan ........................................................................ 74
(B) Notice of Commencement of Acceptance Test ........................................................ 74
(C) Conditions to Commencement of the Acceptance Tests ......................................... 75
(D) Conduct of Acceptance Test .................................................................................. 75
(E) Fees of the County Engineering Representative..................................................... 75
SECTION 6.4. ACCEPTANCE DATE CONDITIONS ........................................................... 76
SECTION 6.5. TEST REPORT .......................................................................................... 76
SECTION 6.6. INTERIM OPERATIONS AND PROVISIONAL ACCEPTANCE....................... 77
(A) Interim Operations ............................................................................................... 77
(B) Company Certification .......................................................................................... 77
(C) Effect of Provisional Acceptance ............................................................................ 77
SECTION 6.7. CONCURRENCE OR DISAGREEMENT WITH TEST RESULTS................... 78
(A) Acceptance Date Concurrence .............................................................................. 78
(B) Acceptance Date Disagreement ............................................................................. 78
(C) Acceptance Date Disagreement and Provisional Acceptance .................................. 78
SECTION 6.8. EFFECT OF UNEXCUSED DELAY; EXTENSION PERIOD.......................... 79
(A) Unexcused Delay .................................................................................................. 79
(B) Delay-Liquidated Damages ................................................................................... 79
SECTION 6.9. FAILURE TO MEET ACCEPTANCE STANDARD......................................... 80
SECTION 6.10. BIOSOLIDS PERFORMANCE TESTING. .................................................... 80
(A) Generally .............................................................................................................. 80
(B) Submittal of Biosolids Performance Test Plan ....................................................... 80
(C) Notice of Commencement of Biosolids Performance Test ....................................... 80
(D) Conduct of Biosolids Performance Test ................................................................. 81
(E) Fees of the County Engineering Representative..................................................... 81
(F) Biosolids Performance Test Report ........................................................................ 81
(G) Concurrence with Test Report............................................................................... 81
(H) Disagreement with Test Report ............................................................................. 81
(I) Remedies for Failure to Meet the Biosolids Performance Standards....................... 82
SECTION 6.11. FINAL COMPLETION. ............................................................................... 82
(A) Requirements ....................................................................................................... 82
(B) Final Certificate and Claims Statement ................................................................. 83
(C) Payment for Punchlist Items and Final Payment ................................................... 83
SECTION 6.12. NO ACCEPTANCE, WAIVER OR RELEASE................................................ 84
SECTION 6.13. NO SERVICE FEE PAYMENT DURING START-UP AND TESTING.............. 84
SECTION 6.14. OVERLAP OF DESIGN/BUILD PERIOD AND OPERATION PERIOD........... 85

ARTICLE VII

FINANCING AND PAYMENT OF THE DESIGN/BUILD PRICE

SECTION 7.1. COUNTY FINANCING................................................................................ 86


SECTION 7.2. ASSISTANCE WITH FINANCING PROCESS............................................... 86
SECTION 7.3. WPCRF RESPONSIBILITIES...................................................................... 86
(A) WPCRF Loan Agreement ....................................................................................... 86
(B) Company Responsibilities ..................................................................................... 86
(C) Data and Information ........................................................................................... 87
(D) Design Packages ................................................................................................... 87
(E) WPCRF Requirements........................................................................................... 87
SECTION 7.4. DESIGN/BUILD PRICE............................................................................. 87
(A) Design/Build Price Generally................................................................................ 87
(B) Fixed Design/Build Price ...................................................................................... 87

(v)
(C) Fixed Design/Build Price Adjustments.................................................................. 88
(D) Limitation on Payments for Costs of the Design/Build Work ................................. 91
(E) Taxes Payable in Connection with the Design/Build Work .................................... 91
SECTION 7.5. PAYMENT PROCEDURE. .......................................................................... 92
(A) Milestone Payments .............................................................................................. 92
(B) Construction Disbursement Procedure ................................................................. 92
(C) Disbursement Dispute Procedures........................................................................ 94
(D) Letter of Credit in Lieu of Retainage ...................................................................... 94
SECTION 7.6. PERMISSIBLE WITHHOLDINGS ............................................................... 95
SECTION 7.7. FINAL REQUISITION AND PAYMENT. ....................................................... 96
(A) Final Requisition .................................................................................................. 96
(B) Final Payment....................................................................................................... 96
SECTION 7.8. PAYMENT OF SUBCONTRACTORS ........................................................... 98
SECTION 7.9. AUDIT BOOKS AND RECORDS. ............................................................... 98
(A) Audit .................................................................................................................... 98
(B) Construction Books and Records .......................................................................... 98

ARTICLE VIII

OPERATION AND MANAGEMENT

SECTION 8.1. COMPANY OBLIGATIONS GENERALLY. ................................................... 99


(A) Operation and Management Responsibility ........................................................... 99
(B) Transfer and Application of Industry Experience................................................... 99
SECTION 8.2. COUNTY OBLIGATIONS GENERALLY ....................................................... 99
SECTION 8.3. SERVICE COORDINATION AND CONTRACT ADMINISTRATION. ............ 100
(A) Company’s Facility Manager ............................................................................... 100
(B) Company’s Senior Supervisors............................................................................ 101
(C) County’s Contract Administrator ........................................................................ 101
(D) County Approvals and Consents ......................................................................... 101
(E) Communications and Meetings ........................................................................... 102
(F) Complaints and Communications ....................................................................... 102
SECTION 8.4. OPERATION AND MAINTENANCE MANUAL............................................ 103
(A) Company Responsibility ..................................................................................... 103
(B) Supplements for Capital Modifications................................................................ 103
SECTION 8.5. PROCESS CONTROL MANAGEMENT PLAN. ........................................... 104
(A) Company Responsibility ..................................................................................... 104
(B) Supplements for Capital Modifications................................................................ 104
SECTION 8.6. STAFFING AND PERSONNEL. ................................................................ 104
(A) Staffing ............................................................................................................... 104
(B) Training.............................................................................................................. 105
(C) Prevailing Wages................................................................................................. 105
SECTION 8.7. TRAINING OF COUNTY PERSONNEL...................................................... 105
(A) Emergency Preparedness .................................................................................... 105
(B) Ongoing Training ................................................................................................ 105
(C) Permanent Operations ........................................................................................ 105
(D) Compensation..................................................................................................... 106
SECTION 8.8. ELECTRICITY SUPPLY............................................................................ 106
SECTION 8.9. SAFETY AND SECURITY......................................................................... 106
(A) Safety ................................................................................................................. 106
(B) Security .............................................................................................................. 107
SECTION 8.10. COMPLIANCE WITH APPLICABLE LAW. ................................................. 107
(A) Compliance Obligation........................................................................................ 107
(B) Sampling, Testing and Laboratory Work ............................................................. 107

(vi)
(C) Investigations of Non-Compliance ....................................................................... 108
(D) Fines, Penalties and Remediation ....................................................................... 108
(E) No Nuisance Covenant........................................................................................ 109
SECTION 8.11. OPERATING GOVERNMENTAL APPROVALS........................................... 109
(A) General Permit for Biosolids Management........................................................... 109
(B) Company Assistance........................................................................................... 109
(C) NPDES Permit .................................................................................................... 110
(D) All Other Operating Approvals ............................................................................ 110
(E) Data and Information ......................................................................................... 110
(F) Non-Compliance and Enforcement...................................................................... 111
(G) Reports to Governmental Bodies ......................................................................... 111
(H) Potential Regulatory Change ............................................................................... 111
SECTION 8.12. COUNTY ACCESS TO FACILITY.............................................................. 111
SECTION 8.13. ASSET AND FINANCIAL RECORDS. ....................................................... 112
(A) Facility Records .................................................................................................. 112
(B) Availability of Facility Records to County ............................................................ 112
(C) Record Documents ............................................................................................. 112
(D) Financial Records ............................................................................................... 113
(E) Company Financial Reports ................................................................................ 113
(F) Inspection, Audit and Adjustment....................................................................... 113
SECTION 8.14. PERIODIC REPORTS. ............................................................................. 114
(A) Monthly and Quarterly Operations...................................................................... 114
(B) Annual Operations and Maintenance Reports ..................................................... 114
(C) Default Reports................................................................................................... 114
(D) Permit Communications and Reports.................................................................. 114
SECTION 8.15. EMERGENCIES. ..................................................................................... 114
(A) Emergency Plan .................................................................................................. 114
(B) Emergency Action ............................................................................................... 115
SECTION 8.16. COST REDUCTION AND SERVICE IMPROVEMENT................................ 115

ARTICLE IX

INDUSTRIAL PRETREATMENT PROGRAM

SECTION 9.1. COMPANY IPP OBLIGATIONS. ................................................................ 116


(A) Industrial Pretreatment Program ........................................................................ 116
(B) Company IPP Participation Generally.................................................................. 116
(C) IPP Administrative Support Generally ................................................................. 116
(D) General Compliance Monitoring .......................................................................... 116
(E) Transition Program Administrative Support Duties ............................................. 117
(F) Ongoing Program Administrative Support Duties ................................................ 117
(G) Field Inspection, Flow Monitoring and Flow Sampling......................................... 118
(H) Laboratory Analyses of Wastewater Samples....................................................... 120
(I) Preparation of Annual Pretreatment Report......................................................... 120
(J) IPP Violation Investigations................................................................................. 121
(K) Notice to County of Violations ............................................................................. 121
(L) Company Enforcement Assistance ...................................................................... 122
(M) Fines and Penalties............................................................................................. 122
(N) New Permittees under the IPP ............................................................................. 122
SECTION 9.2. IPP ENFORCEMENT BY THE COUNTY. .................................................. 122
(A) Industrial Discharge Permits .............................................................................. 122
(B) Enforcement ....................................................................................................... 122
SECTION 9.3. SUMMARY OF RESPONSIBILITIES ......................................................... 122

(vii)
ARTICLE X

PERFORMANCE

SECTION 10.1. FACILITY PERFORMANCE GENERALLY. ................................................ 124


(A) Reliance.............................................................................................................. 124
(B) Curtailments and Shutdowns ............................................................................. 124
(C) Limitations on Company Rights .......................................................................... 124
SECTION 10.2. EFFLUENT GUARANTEE. ....................................................................... 124
(A) Generally ............................................................................................................ 124
(B) Liquidated Damages for Failure to Comply with the Effluent Guarantee.............. 124
(C) Indemnity for Loss-and-Expense from Non-Complying Effluent........................... 125
(D) Change in Law Affecting Effluent ........................................................................ 125
SECTION 10.3. ODOR GUARANTEE. .............................................................................. 125
(A) Applicable Law Limits ......................................................................................... 125
(B) Contract Limits................................................................................................... 125
(C) Odor Control Practices Report............................................................................. 126
(D) Preventing Recurrence of Violations .................................................................... 126
(E) Odor Incident ..................................................................................................... 126
(F) Sustained Odor Condition................................................................................... 126
(G) Citations for Odor Incidents................................................................................ 126
(H) Liquidated Damages for Odor Citations............................................................... 127
(I) County Monitoring.............................................................................................. 127
(J) Disregarding Prior Odor Citations ....................................................................... 127
(K) Sustained Odor Condition Determination ........................................................... 127
(L) Liquidated Damages for Sustained Odor Condition Determination...................... 128
(M) County Termination Rights Based on Odor Citations or a Sustained Odor
Condition Determination .................................................................................... 128
(N) Concurrent Odor Incidents and Sustained Odor Conditions................................ 128
(O) Number of Odor Citations and Sustained Odor Condition Determinations .......... 128
SECTION 10.4. SEPTAGE GUARANTEE .......................................................................... 129
SECTION 10.5. DISPOSAL OF RESIDUALS AND BIOSOLIDS QUALITY AND
QUANTITY GUARANTEE......................................................................... 129
(A) General Obligations ............................................................................................ 129
(B) Biosolids Quality and Quantity Guarantee .......................................................... 129
(C) Storage, Loading and Coordinating with Transporter .......................................... 130
(D) Failure to Comply with the Biosolids Quality and Quantity Guarantee................ 130
(E) Residuals Processing and Management Information............................................ 130
SECTION 10.6. ENVIRONMENTAL GUARANTEE............................................................. 130
SECTION 10.7. UPSETS AND EXCESSIVE INFLUENT AFFECTING COMPANY
COMPLIANCE WITH PERFORMANCE GUARANTEES.............................. 131
(A) Relief Generally................................................................................................... 131
(B) Upsets and Excessive Influent ............................................................................ 131
(C) Response Measures to Upsets and Excessive Influent ......................................... 131
(D) Service Fee Impact.............................................................................................. 131
SECTION 10.8. TESTING, METERING AND WEIGHING. ................................................. 132
(A) Testing................................................................................................................ 132
(B) Metering and Weighing ....................................................................................... 132
SECTION 10.9. RELEASES, LEAKS AND SPILLS............................................................. 132
(A) Unauthorized Releases Prohibited....................................................................... 132
(B) Notification and Reporting .................................................................................. 132
(C) Cleanup and Costs ............................................................................................. 133
(D) Indemnification................................................................................................... 133

(viii)
SECTION 10.10. COUNTY REMEDIES FOR NON-COMPLIANCE WITH
PERFORMANCE GUARANTEES.............................................................. 133
(A) Remedies ............................................................................................................ 133
(B) Performance Testing ........................................................................................... 134

ARTICLE XI

MAINTENANCE, REPAIR AND REPLACEMENT

SECTION 11.1. MAINTENANCE, REPAIR AND REPLACEMENT GENERALLY. ................. 135


(A) Ordinary Maintenance ........................................................................................ 135
(B) Repair and Maintenance of Site Grounds ............................................................ 135
(C) Major Maintenance, Repair and Replacements by the Company.......................... 135
(D) Repair and Replacements by the County............................................................. 136
SECTION 11.2. FACILITY EVALUATION. ......................................................................... 136
(A) Initial and Final Valuation of Vehicles, Rolling Stock, Spare Parts and
Consumables...................................................................................................... 136
(B) Baseline Facility Record...................................................................................... 136
(C) Final Evaluation of the Facility ........................................................................... 137
(D) Required Condition of Facility Structures Upon Return to the County ................ 137
(E) Required Condition of Facility Equipment Upon Return to the County ................ 137
(F) Capital Modifications .......................................................................................... 137
(G) Effect of Election to Renew.................................................................................. 138
(H) Disputes ............................................................................................................. 138
SECTION 11.3. PERIODIC MAINTENANCE INSPECTIONS. ............................................. 138
(A) Annual Maintenance Inspection.......................................................................... 138
(B) Full-Scale Inspections......................................................................................... 138
(C) Remediation ....................................................................................................... 139
(D) Unscheduled Inspections .................................................................................... 139
SECTION 11.4. COMPUTERIZED MAINTENANCE MANAGEMENT SYSTEM .................... 139
SECTION 11.5. MAINTENANCE, REPAIR AND REPLACEMENT PLAN.............................. 140
(A) Generally ............................................................................................................ 140
(B) Facility Equipment Repair and Replacement Schedule........................................ 140
(C) Facility Equipment Repair and Replacement Charge ........................................... 141
SECTION 11.6. MEMBRANE REPAIR AND REPLACEMENT............................................. 141
(A) Generally ............................................................................................................ 141
(B) Required Condition of Membranes Upon Return to the County ........................... 142
SECTION 11.7. WARRANTIES ......................................................................................... 142
SECTION 11.8. LOSS, DAMAGE OR DESTRUCTION TO THE FACILITY. ......................... 142
(A) Prevention and Repair......................................................................................... 142
(B) Insurance and Other Third-Party Payments ........................................................ 143
(C) Uninsured Costs................................................................................................. 143
(D) Repair of County and Private Property ................................................................ 143

ARTICLE XII

CAPITAL MODIFICATIONS

SECTION 12.1. CAPITAL MODIFICATIONS GENERALLY. ................................................ 144


(A) Purpose .............................................................................................................. 144
(B) County Approval ................................................................................................. 144
(C) Party Responsible for Costs ................................................................................ 144
(D) No Third Party Borrowing or Financing ............................................................... 144
(E) Cost Savings ....................................................................................................... 144

(ix)
SECTION 12.2. CAPITAL MODIFICATIONS AT COMPANY REQUEST .............................. 145
SECTION 12.3. MAINTENANCE, REPAIR AND REPLACEMENT CAPITAL
MODIFICATIONS .................................................................................... 145
SECTION 12.4. CAPITAL MODIFICATIONS REQUIRED TO REMEDY COMPANY
BREACH................................................................................................. 145
SECTION 12.5. CAPITAL MODIFICATIONS DUE TO UNCONTROLLABLE
CIRCUMSTANCES .................................................................................. 146
SECTION 12.6. CAPITAL MODIFICATIONS AT COUNTY DIRECTION............................... 146
SECTION 12.7. PRIMARY PROCEDURE FOR IMPLEMENTING CAPITAL
MODIFICATIONS. ................................................................................... 146
(A) Primary Implementation Procedure ..................................................................... 146
(B) Preliminary Company Plan and County Review ................................................... 147
(C) Company Implementation Proposal..................................................................... 147
(D) Negotiation and Finalization of Company Implementation Proposal..................... 148
(E) Implementation Procedures ................................................................................ 148
SECTION 12.8. ALTERNATIVE PROCEDURES FOR IMPLEMENTING CAPITAL
MODIFICATIONS .................................................................................... 148
SECTION 12.9. FINANCING CAPITAL MODIFICATIONS .................................................. 149
SECTION 12.10. COMPANY NON-IMPAIRMENT RIGHTS................................................... 149

ARTICLE XIII

SERVICE FEE AND OTHER PAYMENTS

SECTION 13.1. SERVICE FEE ........................................................................................ 150


SECTION 13.2. SERVICE FEE FORMULA ....................................................................... 150
SECTION 13.3. BASE OPERATING CHARGE COMPONENTS. ......................................... 150
(A) Formula.............................................................................................................. 150
(B) Basis of Fixed Component .................................................................................. 151
(C) Basis of Variable Component .............................................................................. 151
SECTION 13.4. FIXED COMPONENT. ............................................................................. 151
(A) Annual Reset Group Election .............................................................................. 151
(B) Annual Reset Groups Defined ............................................................................. 151
(C) Adjustment to Facility Element Based on Incremental Increase to Number of
Permittees under the IPP .................................................................................... 152
(D) Annual Adjustment of Facility Element ............................................................... 152
(E) Annual Adjustment of Electricity Element........................................................... 154
SECTION 13.5. VARIABLE COMPONENT. ....................................................................... 155
(A) Calculation ......................................................................................................... 155
(B) Non-electricity Flow and Loadings Adjustment Element ...................................... 155
(C) Electricity Flow and Loading Adjustment Element .............................................. 156
SECTION 13.6. VARIABLE COMPONENT ADJUSTMENT FEES. ...................................... 156
(A) Non-electricity Adjustment Fees.......................................................................... 156
(B) Electricity Adjustment Fees ................................................................................ 157
SECTION 13.7. REIMBURSABLE COSTS CHARGE ......................................................... 157
SECTION 13.8. ANNUAL MAJOR REPAIR AND REPLACEMENT CHARGES. .................... 157
(A) Generally ............................................................................................................ 157
(B) Major Repair and Replacement Fund .................................................................. 158
(C) Maximum Annual Major Repair and Replacement Charge................................... 158
(D) Annual Major Repair and Replacement Charge ................................................... 159
(E) Characterization of Annual Major Repair and Replacement Charge Payments..... 160
SECTION 13.9. EXTRAORDINARY ITEMS CHARGE OR CREDIT. .................................... 160
(A) Generally ............................................................................................................ 160
(B) Treatment of Extraordinary Items Component .................................................... 160

(x)
SECTION 13.10. BILLING AND PAYMENT......................................................................... 161
(A) Billing................................................................................................................. 161
(B) Payment ............................................................................................................. 161
(C) County Service Fee Offset Rights ........................................................................ 162
SECTION 13.11. ESTIMATES AND ADJUSTMENTS. ......................................................... 162
(A) Pro Rata Adjustments ......................................................................................... 162
(B) Budgeting ........................................................................................................... 162
(C) Adjustment to Service Fee................................................................................... 163
SECTION 13.12. ANNUAL SETTLEMENT .......................................................................... 163
SECTION 13.13. BILLING STATEMENT DISPUTES ........................................................... 163
SECTION 13.14. PRIVATE BUSINESS USE RESTRICTIONS. ............................................. 164
(A) Payments to Company ........................................................................................ 164
(B) Retesting of the Service Fee ................................................................................ 164
(C) Monthly Update .................................................................................................. 165
SECTION 13.15. TAXES.................................................................................................... 165

ARTICLE XIV

BREACH, DEFAULT, REMEDIES AND TERMINATION

SECTION 14.1. REMEDIES FOR BREACH ...................................................................... 166


SECTION 14.2. EVENTS OF DEFAULT BY THE COMPANY. ............................................ 166
(A) Events of Default Not Requiring Previous Notice or Further Cure Opportunity for
Termination ........................................................................................................ 166
(B) Events of Default Requiring Previous Notice and Cure Opportunity for
Termination ........................................................................................................ 167
(C) Other Remedies Upon Company Event of Default................................................ 168
(D) Relationship to Liquidated Damages ................................................................... 168
SECTION 14.3. LIMITATION ON COMPANY LIABILITY. ................................................... 169
(A) Initial Stated Monetary Limitation....................................................................... 169
(B) Reductions for the Payment of Delay-Liquidated Damages .................................. 169
(C) Stated Monetary Limitation for Contract Years Six through Ten.......................... 169
(D) Stated Monetary Limitation for Contract Years Eleven through Fifteen................ 169
(E) Stated Monetary Limitation for Contract Years Sixteen through the end of the
Term................................................................................................................... 169
(F) Liability for Liquidated Damages and Other Reimbursements to the County
Relating to the Operations Services..................................................................... 170
SECTION 14.4. APPLICABILITY AND INTERPRETATION OF THE LIMITATIONS ON
LIABILITY ............................................................................................... 170
SECTION 14.5. EVENTS OF DEFAULT BY THE COUNTY. ............................................... 171
(A) Events of Default Permitting Termination ........................................................... 171
(B) Notice and Cure Opportunity .............................................................................. 171
(C) Termination Liquidated Damages During the Operation Period ........................... 172
SECTION 14.6. COUNTY CONVENIENCE TERMINATION DURING THE
DESIGN/BUILD PERIOD. ....................................................................... 172
(A) Termination Right and Fee.................................................................................. 172
(B) Delivery of Design/Build Period Work Product to the County .............................. 172
SECTION 14.7. COUNTY CONVENIENCE TERMINATION DURING THE OPERATION
PERIOD.................................................................................................. 173
(A) Termination Right and Fee.................................................................................. 173
(B) Uncontrollable Circumstances ............................................................................ 173
(C) Payment of Amounts Owing Through the Termination Date and Termination
Costs .................................................................................................................. 173

(xi)
SECTION 14.8. GENERAL PROVISIONS REGARDING CONVENIENCE
TERMINATION........................................................................................ 173
(A) Termination Fee Payment Contingent Upon Surrender of Possession .................. 173
(B) Adequacy of Termination Payment ...................................................................... 173
(C) Consideration for Convenience Termination Payment ......................................... 174
(D) Completion or Continuance by County ............................................................... 174
SECTION 14.9. OBLIGATIONS UPON TERMINATION OR EXPIRATION. .......................... 174
(A) Company Obligations.......................................................................................... 174
(B) Hiring of Company Personnel.............................................................................. 176
(C) Continuity of Service and Technical Support....................................................... 176
(D) Company Payment of Certain Costs .................................................................... 177
(E) County Payment of Certain Costs ....................................................................... 177
(F) Exit Test ............................................................................................................. 177
SECTION 14.10. SURVIVAL OF CERTAIN PROVISIONS UPON TERMINATION .................. 178
SECTION 14.11. NO WAIVERS.......................................................................................... 178
SECTION 14.12. NO CONSEQUENTIAL OR PUNITIVE DAMAGES ..................................... 178
SECTION 14.13. FORUM FOR DISPUTE RESOLUTION ..................................................... 179
SECTION 14.14. NON-BINDING MEDIATION. ................................................................... 179
(A) Rights to Request and Decline ............................................................................ 179
(B) Procedure ........................................................................................................... 179
(C) Non-Binding Effect ............................................................................................. 179
(D) Relation to Judicial Legal Proceedings ................................................................ 179

ARTICLE XV

INSURANCE, UNCONTROLLABLE CIRCUMSTANCES AND INDEMNIFICATION

SECTION 15.1. INSURANCE. .......................................................................................... 180


(A) Company Insurance............................................................................................ 180
(B) Insurers, Deductibles and County Rights............................................................ 180
(C) Certificates, Policies and Notice .......................................................................... 180
(D) Maintenance of Insurance Coverage.................................................................... 181
(E) County Insurance ............................................................................................... 181
SECTION 15.2. UNCONTROLLABLE CIRCUMSTANCES. ................................................. 181
(A) Relief from Obligations........................................................................................ 181
(B) Notice and Mitigation.......................................................................................... 182
(C) Conditions to Performance, Price and Schedule Relief......................................... 182
(D) Cost Relief Associated with Uncontrollable Circumstance Delays interfering with
the Critical Path Completion Date....................................................................... 184
(E) Change in Law Pertaining to Taxes ..................................................................... 185
(F) Certain Changes in Law occurring Outside the United States ............................. 185
(G) Capital Modifications .......................................................................................... 185
(H) Acceptance of Adjustment Constitutes Release ................................................... 186
SECTION 15.3. INDEMNIFICATION BY THE COMPANY .................................................. 186
SECTION 15.4. INDEMNIFICATION BY THE COUNTY ..................................................... 187

ARTICLE XVI

SECURITY FOR PERFORMANCE

SECTION 16.1. GUARANTOR. ......................................................................................... 188


(A) Guaranty Agreement........................................................................................... 188
(B) Material Adverse Change to the Financial Condition of the Guarantor ................ 188
(C) Credit Enhancement........................................................................................... 188

(xii)
(D) No Surety Liability for Credit Enhancement ........................................................ 189
(E) Annual Reports................................................................................................... 189
SECTION 16.2. BONDS................................................................................................... 189
(A) Construction Performance and Payment Bonds .................................................. 189
(B) Monitoring of Sureties......................................................................................... 190
SECTION 16.3. DESIGN/BUILD LETTER OF CREDIT. .................................................... 190
(A) Terms and Purpose of the Design/Build Letter of Credit ..................................... 190
(B) County Drawing Rights....................................................................................... 190
(C) Effect of Final Determination of Damages ........................................................... 191
SECTION 16.4. COSTS OF PROVIDING SECURITY FOR PERFORMANCE ....................... 191

ARTICLE XVII

MISCELLANEOUS PROVISIONS

SECTION 17.1. RELATIONSHIP OF THE PARTIES .......................................................... 192


SECTION 17.2. LIMITED RECOURSE TO COUNTY ......................................................... 192
SECTION 17.3. PROPERTY RIGHTS. ............................................................................... 192
(A) Protection from Infringement .............................................................................. 192
(B) Substitutes for Deliverable Material, Process or Equipment ................................ 193
(C) Intellectual Property Developed by the Company................................................. 193
SECTION 17.4. INTEREST ON OVERDUE OBLIGATIONS................................................ 194
SECTION 17.5. NEGOTIATED FIXED PRICE WORK........................................................ 194
(A) Fixed Design/Build Price and Fixed Component of the Service Fee ..................... 194
(B) Negotiated Lump Sum Pricing of Work for Which the County is Financially
Responsible ........................................................................................................ 194
SECTION 17.6. COST SUBSTANTIATION OF WORK ALREADY PERFORMED. ................ 195
(A) Cost Substantiation Generally ............................................................................ 195
(B) Costs Requiring Cost Substantiation .................................................................. 195
(C) Cost Substantiation Certificate ........................................................................... 195
(D) Technical Services .............................................................................................. 196
(E) Mark-Up ............................................................................................................. 196
(F) Evidence of Costs Incurred ................................................................................. 196
SECTION 17.7. SUBCONTRACTORS. .............................................................................. 196
(A) Use Restricted .................................................................................................... 196
(B) Limited County Review and Approval of Permitted Subcontractors...................... 196
(C) Subcontract Terms and Subcontractor Actions ................................................... 197
(D) Indemnity for Subcontractor Claims ................................................................... 197
(E) Assignability ....................................................................................................... 198
SECTION 17.8. ACTIONS OF THE COUNTY IN ITS GOVERNMENTAL CAPACITY. ........... 198
(A) Rights as Government Not Limited...................................................................... 198
(B) No County Obligation to Issue Governmental Approvals...................................... 198
SECTION 17.9. ASSIGNMENT......................................................................................... 198
(A) By the Company ................................................................................................. 198
(B) By the County..................................................................................................... 199
SECTION 17.10. FACILITY TOURS.................................................................................... 199
SECTION 17.11. COMPLIANCE WITH MATERIAL AGREEMENTS...................................... 199
SECTION 17.12. BINDING EFFECT .................................................................................. 199
SECTION 17.13. CONTRACT ADMINISTRATION. .............................................................. 199
(A) Administrative Communications ......................................................................... 199
(B) Contract Administration Memoranda .................................................................. 199
(C) Procedures.......................................................................................................... 200
(D) Effect .................................................................................................................. 200
SECTION 17.14. AMENDMENT AND WAIVER. .................................................................. 200

(xiii)
(A) Service Contract Amendments ............................................................................ 200
(B) Waiver ................................................................................................................ 200
SECTION 17.15. NON-DISCRIMINATION .......................................................................... 200
SECTION 17.16. NOTICES. ............................................................................................... 201
(A) Procedure ........................................................................................................... 201
(B) Company Notice Address .................................................................................... 201
(C) County Notice Address........................................................................................ 201
SECTION 17.17. NOTICE OF LITIGATION ......................................................................... 202
SECTION 17.18. FURTHER ASSURANCES........................................................................ 202

(xiv)
APPENDICES

(1) Site Description


(2) Technical Specifications
(3) General Design/Build Work Requirements and Environmental Mitigation Measures
(4) Design/Build Work Review Procedures
(5) Anticipated Governmental Approvals
(6) Acceptance Test Procedures and Standards and Biosolids Performance Testing
(7) [Reserved]
(8) Milestone Payment and Maximum Drawdown Schedule
(9) General Operations and Maintenance Requirements
(10) Supplemental Performance Guarantee Requirements
(11) Facility Evaluation Protocol
(12) Example Service Fee
(13) Exit Test and Transition Plan
(14) Insurance Requirements
(15) Key Personnel and Approved Subcontractors
(16) Maintenance, Repair and Replacement Schedules

REFERENCE DOCUMENTS

[1] GeoEngineers, Inc., “Geotechnical Baseline Study, Proposed Water Reclamation Facility,
Spokane County, Washington,” File No. 0188-070-00, August 23, 2007

[2] Final Closure Report, Former Stockyards Property, 1004 N. Freya Street, Spokane, WA,
September 24, 2007, File No. 003-09314-00, LFR, Inc.

[3] Spokane County Wastewater Facilities Plan Final Environmental Impact Statement,
dated January 2002; Spokane County Wastewater Facilities Plan Final Supplemental
Environmental Impact Statement, dated December 2002; Conditional Use Permit issued
by the City of Spokane, Washington, File Number Z2007-011-CUP

TRANSACTION FORMS

A. Form of Guaranty Agreement


B. Form of Performance Bond
C. Form of Payment Bond

(xv)
SERVICE CONTRACT
FOR THE
DESIGN, CONSTRUCTION AND OPERATION
OF THE
SPOKANE COUNTY REGIONAL WATER RECLAMATION FACILITY

THIS SERVICE CONTRACT FOR THE DESIGN, CONSTRUCTION AND


OPERATION OF THE SPOKANE COUNTY REGIONAL WATER RECLAMATION FACILITY (this
“Service Contract”) is made and entered into as of this ____ day of _________, 2008 between the
County of Spokane, a political subdivision of the State of Washington (the “County”), and
CH2M Hill Constructors, Inc., a corporation organized and existing under the laws of the State
of Delaware and authorized to do business in the State of Washington (the “Company”).

RECITALS

(A) The County has determined that it is in the County’s best interests to
contract with a private entity to permit, design, construct, start up, acceptance test, operate,
maintain, repair and replace a new regional water reclamation facility.

(B) The County has also determined that it is in the County’s best interests
to have such private entity (i) administer the Industrial Pretreatment Program, and (ii) perform
certain residuals processing and disposal services, as more particularly described herein
(together with the services described in (A) above, the “Contract Services”).

(C) Pursuant to the Water Quality Joint Development Act, Chapter 70.150
RCW (the “Act”), the County is authorized to conduct a procurement process to select a private
entity to provide the Contract Services.

(D) The first phase of the procurement process was the issuance of a
Request for Qualifications (“RFQ”) by the County in January 2007. Following an evaluation of
the statements of qualifications submitted in response to the RFQ based upon the criteria set
forth in the RFQ, the County selected two firms to whom it would issue a request for proposals
(“RFP”) to provide the Contract Services.

(E) On October 15, 2007, the County undertook the second phase of the
competitive process by issuing the RFP to the two pre-qualified firms. RFP Addenda were
issued on November 26, 2007 and December 11, 2007.

(F) Proposals submitted in response to the RFP were received on March 14,
2007 from the two pre-qualified firms.

(G) The proposals were reviewed by the County’s selection committee and
assigned a score based on the evaluation criteria and scoring method set forth in the RFP.

Draft of October 17, 2008


(H) Based on the evaluations and scoring of the final proposals, the selection
committee determined that the proposal submitted by ____________________ was the most
advantageous proposal received in response to the RFP.

(I) On _______________, 2008, by Resolution No. __________, the County’s


Board of Commissioners authorized the execution and delivery of this Service Contract on
behalf of the County.

(J) _________________________, an [affiliate] of the Company, will guarantee


the payment and performance of the obligations of the Company under this Service Contract
pursuant to a guaranty agreement executed concurrently herewith.

(K) The County desires to receive, and the Company desires to provide, the
Contract Services under the terms of this Service Contract.

NOW, THEREFORE, in consideration of the mutual covenants herein contained,


the parties hereto, intending to be legally bound, agree as follows:

Draft of October 17, 2008 2


ARTICLE I

DEFINITIONS AND INTERPRETATION

SECTION 1.1. DEFINITIONS. As used in this Service Contract the following


terms shall have the meanings set forth below:

“Acceptable Septage” means Septage that (1) does not contain grease trap
material, (2) has a pH not lower than 5 and not higher than 8.5, (3) does not contain Toxic
Substances or a Hazardous Material, and (4) is transported into the Facility by authorized
septic tank haulers pre-registered by the Company and the County.

“Acceptance” means demonstration by the Company in accordance with


Article V and Appendix 6 that the Acceptance Tests have been conducted, the Acceptance Test
Procedures and Standards have been achieved and the other Acceptance Date Conditions set
forth in Section 6.4 have been achieved.

“Acceptance Date” means the date on which Acceptance has occurred or is


deemed to have occurred under Article VI.

“Acceptance Date Conditions” has the meaning specified in Section 6.4.

“Acceptance Test Plan” means the testing protocols, procedures and processes
for the performance of the Acceptance Tests prepared and documented by the Company and
approved by the County in accordance with Appendix 6 and Section 6.3.

“Acceptance Test Procedures and Standards” means the test procedures and
standards for Acceptance, as set forth in Appendix 6.

“Acceptance Tests” means the tests required for Acceptance, as more


particularly described in Article VI and Appendix 6.

“Act” means the Water Quality Joint Development Act, Chapter 70.150 RCW, as
amended, supplemented, superseded and replaced from time to time.

“Affiliate” means any person directly or indirectly controlling or controlled by


another person, corporation or other entity or under direct or indirect common control with
such person, corporation or other entity.

“Annual Major Facility Equipment Payment Amount” means the payment


amounts set forth in Table 16-3 of Appendix 16, which are used to calculate the Major Repair
and Replacement Charge in accordance with Section 13.8.

“Annual Reset Group” has the meaning specified in subsection 13.4(B).

“Annual Settlement Statement” has the meaning specified in Section 13.12.

Draft of October 17, 2008 3


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

“Appendix” means any of the Appendices attached to this Service Contract and
identified as such in the Table of Contents, as the same may be amended or modified from time
to time in accordance with the terms hereof.

“Applicable Law” means: (1) any federal, state or local law, code or regulation;
(2) any formally adopted and generally applicable rule, requirement, determination, standard,
policy, implementation schedule or other order of any Governmental Body having appropriate
jurisdiction; (3) any established interpretation of law or regulation utilized by an appropriate
Governmental Body if such interpretation is documented by such Governmental Body and both
generally applicable and publicly available; (4) any Governmental Approval; and (5) any consent
order or decree, settlement agreement or similar agreement between the County and the EPA,
Ecology or any other Governmental Body, in each case having the force of law and applicable
from time to time to: (a) the siting, design, acquisition, construction, equipping, financing,
ownership, possession, start up, testing, operation, maintenance, repair, replacement or
management of the Facility; (b) the conveyance, treatment, storage, discharge, reuse or
disposal of the influent thereto or the effluent thereof; (c) the air and odor emissions therefrom;
(d) the transfer, handling, processing, transportation or disposal of sludge, biosolids and other
residuals produced thereby; or (e) any other transaction or matter contemplated hereby
(including any of the foregoing which pertain to wastewater treatment, waste disposal, health,
safety, fire, environmental protection, labor relations, building codes, the payment of prevailing
or minimum wages and non-discrimination). Applicable Law shall include the Conditional Use
Permit and the Environmental Mitigation Measures set forth in Reference Document 3.

“Assumed Approval Issuance Date” has the meaning specified in


subsection 4.8(I).

“Bankruptcy Code” means the United States Bankruptcy Code, Title 11 U.S.C.,
as amended from time to time and any successor statute thereto. “Bankruptcy Code” shall
also include (1) any similar state law relating to bankruptcy, insolvency, the rights and
remedies of creditors, the appointment of receivers or the liquidation of companies and estates
that are unable to pay their debts when due, and (2) in the event the Guarantor is incorporated
or otherwise organized under the laws of a jurisdiction other than the United States, any
similar insolvency or bankruptcy code applicable under the laws of such jurisdiction.

“Baseline Cost Amounts” has the meaning set forth in subsection 7.4(C)(3)(b).

“Baseline Facility Record” has the meaning specified in subsection 11.2(B).

“Base Operating Charge” is comprised of a Fixed Component and a Variable


Component, each of which is designed to recover a distinct portion of the costs associated with
the operation and maintenance costs of the Facility, as set forth in Section 13.3.

Draft of October 17, 2008 4


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

“Best and Final Offer Date” shall mean May 30, 2008, which is the date the
Company submitted its best and final offer to the County in accordance with the RFP.

“Billing Period” means each calendar month. The first Billing Period shall begin
on the Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the Provisional
Acceptance Date) and shall continue to the last day of the month in which the Acceptance Date
(or, if certified by the Company pursuant to Section 6.6, the Provisional Acceptance Date)
occurs and the last Billing Period shall end on the last day of the Term. Any computation
made on the basis of a Billing Period shall be adjusted on a pro rata basis to take into account
any Billing Period of less than the actual number of days in the month to which such Billing
Period relates.

“Biosolids” means treated Sludge meeting the Biosolids quality requirements set
forth in subsection 10.5(B).

“Biosolids Performance Standards” means the standards for successful


completion of the Biosolids Performance Test, as set forth in Appendix 6

“Biosolids Performance Test” means the tests required to demonstrate


compliance with the Biosolids Performance Standards, as more particularly described in
Appendix 6.

“Biosolids Performance Test Plan” means the testing protocols, procedures and
processes for the performance of the Biosolids Performance Tests prepared and documented by
the Company and approved by the County in accordance with Appendix 6 and Section 6.10.

“Biosolids Quality and Quantity Guarantee” has the meaning specified in


subsection 10.5(B).

“Capital Modification” means any material change to the Facility including the
installation of new structures, equipment, systems or technology following Acceptance, as
addressed in Article XII.

“CERCLA” means the Comprehensive Environmental Response, Compensation,


and Liability Act, 42 U.S.C. § 9601 et seq., and applicable regulations promulgated thereunder,
each as amended from time to time.

“Change in Law” means any of the following acts, events or circumstances to the
extent that compliance therewith materially increases the cost of performing or materially
increases the scope of a party’s obligations hereunder:

(a) except as provided below with respect to the exclusions from the
definition of “Change in Law”, the adoption, amendment, promulgation, issuance, modification,

Draft of October 17, 2008 5


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

repeal or written change in any Applicable Law, or the administrative or judicial interpretation
thereof on or after [_______ __, 2008] unless such Applicable Law was on or prior to [_______ __,
2008] duly adopted, promulgated, issued or otherwise officially modified or changed in
interpretation, in each case in final form, to become effective without any further action by any
Governmental Body;

(b) except as provided below with respect to the exclusions from the
definition of “Change in Law”, the order or judgment of any Governmental Body issued on or
after [_______ __, 2008] (unless such order or judgment is issued to enforce compliance with
Applicable Law which was effective as of [_______ __, 2008]) to the extent such order or
judgment is not the result of willful or negligent action, error or omission of the Company or of
the County, whichever is asserting the occurrence of a Change in Law; provided, however, that
the contesting in good faith or the failure in good faith to contest any such order or judgment
shall not constitute or be construed as such a willful or negligent action, error or omission; or

(c) except as provided below with respect to the exclusions from the
definition of “Change in Law”, the denial of an application for, a delay in the review, issuance or
renewal of, or the suspension, termination, or interruption of any Governmental Approval, or
the imposition of new or increased permitting fees, or the imposition of a term, condition or
requirement which is more stringent or burdensome than the Contract Standards in
connection with the issuance, renewal or failure of issuance or renewal of any Governmental
Approval, to the extent that such occurrence is not the result of willful or negligent action,
error or omission or a lack of reasonable diligence of the Company or of the County, whichever
is asserting the occurrence of a Change in Law; provided, however, that the contesting in good
faith or the failure in good faith to contest any such occurrence shall not be construed as such
a willful or negligent action or lack of reasonable diligence.

It is specifically understood, however, that none of the following shall constitute


a “Change in Law”:

(i) a change in the nature or severity of the actions typically taken by a


Governmental Body to enforce compliance with Applicable Law which was effective as of the
Contract Date;

(ii) acts, events and circumstances relating to any Governmental Approval


with respect to which the Company has assumed the permitting risk hereunder;

(iii) any increase in any fines or penalties provided for under Applicable Law
in effect as of the Contract Date; or

Draft of October 17, 2008 6


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

(iv) any act, event or circumstance that would otherwise constitute a Change
in Law but that does not change the requirements imposed on the Company by the Contract
Standards in effect as of the Contract Date.

“Change Order” means a written order issued by the County to the Company
prior to the Acceptance Date making a Design and Construction Requirement Change, whether
made at Company request, due to Uncontrollable Circumstances, as a result of a term or
condition imposed by a Governmental Body, or at the direction of the County, or otherwise
making a Fixed Design/Build Price Adjustment, adjustment to the Scheduled Acceptance Date
or other change to the terms and conditions of this Service Contract relating to the
Design/Build Work or the Operation Services. A Change Order shall be deemed to constitute a
Service Contract Amendment.

“Clean Water Act” means the Clean Water Act (formally referred to as the Federal
Water Pollution Control Act), 33 U.S.C. §1251 et seq., and applicable regulations promulgated
thereunder, each as amended from time to time.

“CMMS” means the computerized maintenance management system to be


developed by the Company in accordance with Section 11.4.

“Collection System” means the County’s wastewater collection system described


in the Facilities Plan, together with all modifications thereto, as the same shall be acquired,
installed, constructed or reconstructed from time to time.

“Company” means CH2M HILL Constructors, Inc., a corporation organized and


existing under the laws of Delaware, and its permitted successors and assigns.

“Company Fault” means any breach (including the untruth or breach of any
Company representation or warranty herein set forth), failure, non-performance or non-
compliance by the Company with respect to its obligations and responsibilities under this
Service Contract to the extent not directly attributable to any Uncontrollable Circumstance,
and which materially and adversely affects the County’s rights, obligations or ability or costs to
perform under this Service Contract.

“Company Governmental Approvals” means all Governmental Approvals other


than the County Governmental Approvals.

“Company Indemnitee” has the meaning specified in subsection 5.6(C).

“Conditional Use Permit” means the permit issued by the City of Spokane,
Washington imposing additional conditions on the design, construction and operation of the
Facility pursuant to the Conditional Use Permit Findings of Fact and Decision on file with the
City Planning Department, File Number Z2007-011-CUP.

Draft of October 17, 2008 7


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

“Construction Commencement Date” has the meaning set forth in


subsection 4.1(C).

“Consumables” means those materials, supplies and similar consumables used


in connection with the operation of the Facility, which may include fuel oil, diesel fuel, liquid
chlorine, liquid sulfur dioxide, liquid defoament, quick lime, activated carbon, lubricants,
polymers, office supplies and other chemicals, fuels, materials, supplies and similar
consumables. References to Consumables herein shall not include the membranes.

“Consumer Price Index” or “CPI” means the Consumer Price Index, as reported
by the U.S. Department of Labor, Bureau of Labor Statistics, for All Items, All Urban
Consumers, Not Seasonally Adjusted for Seattle-Tacoma-Bremerton, WA, and reported in the
CPI Detailed Report Series Id: CUURA423SAO.

“Contract Administration Memorandum” has the meaning set forth in


subsection 17.13(B).

“Contract Administrator” has the meaning specified in subsection 8.3(C).

“Contract Date” means the date this Service Contract is executed and delivered
by the parties hereto.

“Contract Representative” means, in the case of the Company, the individual


specified in writing by the Company as the representative of the Company from time to time for
all purposes of this Service Contract and, in the case of the County, David Moss or such other
representative as shall be designated in writing by the County from time to time.

“Contract Services” means the Design/Build Work and the Operation Services.

“Contract Standards” means the standards, terms, conditions, methods,


techniques and practices imposed or required by: (1) Applicable Law; (2) the Technical
Specifications; (3) the Performance Guarantees; (4) Prudent Engineering and Construction
Practice; (5) Prudent Industry Practice; (6) the Quality Management Plan; (7) the Operation and
Maintenance Manual; (8) the Process Control Management Plan; (9) applicable equipment
manufacturers’ specifications; (10) applicable Insurance Requirements; and (11) any other
standard, term, condition or requirement specifically provided in this Service Contract to be
observed by the Company. Subsection 1.2(N) shall govern issues of interpretation related to
the applicability and stringency of the Contract Standards.

“Contract Year” means the County’s fiscal year commencing on January 1 in any
year and ending on December 31 of such year; provided, however, that with respect to
operations of the Facility, the first Contract Year shall commence on the Acceptance Date (or, if
certified by the Company pursuant to Section 6.6, the Provisional Acceptance Date) and shall

Draft of October 17, 2008 8


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end on the following December 31, and the last Contract Year shall commence on January 1
prior to the date this Service Contract expires or is terminated, whichever is appropriate, and
shall end on the last day of the Term or the effective date of any termination, whichever is
appropriate. Any computation made on the basis of a Contract Year shall be adjusted on a pro
rata basis to take into account any Contract Year of less than 365 or 366 days, whichever is
applicable.

“Cost Substantiation” means the process of providing evidence of actual costs in


accordance with Section 17.6.

“County” means the County of Spokane, Washington.

“County Engineering Representative” means either (1) an engineer employed by


the County or (2) a qualified consulting engineer or firm of consulting engineers, having
experience with respect to the design, construction, testing, operation, maintenance, repair,
replacement and management of wastewater treatment facilities, in either case designated as
the County Engineering Representative from time to time in writing by the County.

“County Fault” means any breach (including the untruth or breach of any
County representation or warranty herein set forth), failure, non-performance or non-
compliance by the County under this Service Contract with respect to its obligations and
responsibilities under this Service Contract to the extent not directly attributable to any
Uncontrollable Circumstance, and which materially and adversely affects the Company’s
rights, obligations or ability or costs to perform under this Service Contract.

“County Governmental Approvals” means the Governmental Approvals required


to be obtained by the County, as more particularly described in Appendix 5.

“County Indemnitee” has the meaning specified in Section 15.3.

“County Property” means any structures, improvements, equipment, fire alarm


systems, valves, pumping systems, hydrants, hydrant connections, duct lines, lamps,
lampposts, monuments, sidewalks, curbs, trees, lawns, roadways, utilities or any other
systems, fixtures, or real or personal property owned, leased, operated, maintained, or
occupied by the County.

“Critical Path Completion Date” has the meaning specified in subsection 15.2(D).

“Delegation Agreement” means the Memorandum of Agreement between the


County and Ecology dated February 11, 2008 pursuant to which the County is delegated
certain responsibilities for design review from Ecology pursuant to RCW 90.48.110(2).

Draft of October 17, 2008 9


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“Deliverable Material” means all documents, reports, studies, surveys, computer


programs, warranties, manuals, submittals, licenses and other documents and materials
required to be delivered by the Company to the County pursuant to this Service Contract,
including the Design Documents.

“Design and Construction Requirement Change” means a change in the Design


and Construction Requirements made by a Change Order pursuant to Section 4.6 or a
Design/Build Work Change Directive pursuant to Section 4.7, (1) as a result of a Company
request agreed to by the County, (2) due to Uncontrollable Circumstances, (3) as a result of a
term or condition imposed by a Governmental Body, or (4) at the direction of the County.

“Design and Construction Requirements” means the design and construction


requirements for the Facility and the performance of the Design/Build Work set forth in
Appendix 2, as the same may be changed or modified in accordance herewith.

“Design/Build Letter of Credit” has the meaning specified in subsection 7.5(D).

“Design/Build Manager” has the meaning specified in subsection 4.16(B).

“Design/Build Period” means the period of time from the Contract Date through
the achievement of Final Completion.

“Design/Build Price” means the Fixed Design/Build Price and any Fixed
Design/Build Price Adjustments made pursuant to subsection 7.4(C).

“Design/Build Work” means the employment and furnishing of all labor,


materials, equipment, supplies, tools, scaffolding, transportation, Utilities, Required
Design/Build Period Insurance, temporary facilities and other things and services of every kind
whatsoever necessary for the full performance and completion of the Company’s design,
engineering, construction, start-up, shakedown, Acceptance Testing, Biosolids Performance
Testing, obtaining Company Governmental Approvals, assisting the County in obtaining
County Governmental Approvals, and related obligations with respect to the construction of the
Facility during the Design/Build Period under this Service Contract, including all completed
structures, assemblies, fabrications, acquisitions and installations, all commissioning and
testing, and all of the Company’s administrative, accounting, record-keeping, notification and
similar responsibilities of every kind whatsoever under this Service Contract pertaining to such
obligations. A reference to Design/Build Work shall mean any part and all of the Design/Build
Work unless the context otherwise requires, and shall include all Design/Build Work
authorized or required by Change Order or Design/Build Work Change Directive.

“Design/Build Work Change Directive” has the meaning specified in Section 4.7.

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“Design Documents” means the Company’s plans, technical specifications,


drawings, record drawings and other design documents prepared in connection with the
Design/Build Work.

“Differing Site Conditions” means concealed or latent physical conditions or


subsurface conditions at the Site that materially differ from the geotechnical conditions
reasonably anticipated by the data set forth in the geotechnical report set forth in Reference
Document 1.

“ECIB” shall mean ECI-Total Benefits = Employment Cost Index, (Series ID:
CIUY20300000000001), Private Industry, Index Number, Not Seasonally Adjusted, as complied
by the US Bureau of Labor and Statistics.

“ECIW” shall mean ECI-Wages and Salaries = Employment Cost Index, Pacific
(Series ID: CIU202000000024991), Private Industry, Index Number, Not Seasonably Adjusted,
as complied by the US Bureau of Labor and Statistics.

“Ecology” means the Washington State Department of Ecology or any successor


agency.

“Effluent” means all treated wastewater discharged from the Facility. A


reference to Effluent shall include both treated wastewater discharged from the Facility to the
Spokane River and treated wastewater discharged from the Facility for reuse.

“Effluent Guarantee” has the meaning specified in Section 10.2.

“Electricity Price Index” or “EPI” means the annual average cost per kilowatt-
hour ($/kWh) for a calendar year, taking into consideration all applicable customer charges,
demand charges, discounts and applicable taxes, of 12 hypothetical monthly invoices that are
based on the electric Utility rate schedule in effect during the month. If the electric Utility rate
schedule includes time of day pricing. then the hypothetical monthly invoice will assume the
energy consumption is distributed uniformly during each day.

“Encumbrance” means any Lien, lease, mortgage, security interest, charge,


judgment, judicial award, attachment or encumbrance of any kind with respect to the Facility,
other than Permitted Encumbrances.

“Environmental Guarantee” has the meaning specified in Section 10.6.

“Environmental Mitigation Measures” means the environmental mitigation


measures set forth in Reference Document 3.

“EPA” means the United States Environmental Protection Agency and any
successor agency.

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“Event of Default” means, with respect to the Company, those items specified in
Section 14.2 and, with respect to the County, those items specified in Section 14.5.

“Excessive Influent” means (1) Influent containing Toxic Substances or a


Hazardous Material, (2) Influent in excess of the projected flow and loading capacity of the
Facility, as set forth in Table 2-1 of Appendix 2, or (3) Septage which is not Acceptable Septage.

“Exit Test Procedures and Standards” means the test procedures and standards
regarding the Facility to be conducted by the Company prior to termination or expiration of this
Service Contract, as set forth in Appendix 13.

“Extension Period” means the period commencing on the day after the
Scheduled Acceptance Date and ending 365 days following the Scheduled Acceptance Date, as
such period may be adjusted due to one or more delays caused by Uncontrollable
Circumstances occurring during such period.

“Facilities Plan” means the Spokane County 2002 Wastewater Facilities Plan,
the Spokane County 2003 Wastewater Facilities Plan Amendment and the Spokane County
2006 Wastewater Facilities Plan Amendment, as amended from time to time in accordance with
Applicable Law.

“Facility” means the regional water reclamation facility to be designed,


constructed and acceptance tested by the Company in accordance with the Technical
Specifications, consisting generally of buildings, structures, fixtures and equipment involved in
the treatment of wastewater, and all roads, grounds, fences and landscaping appurtenant
thereto, utilized for preliminary treatment, primary treatment, secondary treatment and
advanced treatment of Influent, and Effluent disinfection, Residuals treatment, management of
stormwater, laboratory functions and administration, training and management of the Facility,
including any Capital Modifications made thereto from time to time. A reference herein to the
Facility shall mean and include the Facility Equipment and the Facility Structures, including
those portions of the reclaimed water pipelines, force mains and outfall to be constructed on
the Site. A reference herein to the Facility shall not include the Collection System, conveyance
system, the Influent pump stations or those portions of the reclaimed water pipelines, force
mains and outfall to be constructed by the County outside of the Site boundary.

“Facility Element Adjustment Factor” has the meaning specified in


subsection 13.4(D).

“Facility Equipment” means all manufactured equipment, property or assets,


whether or not constituting personal property or fixtures other than Facility Structures,
constituting part of the Facility, including, pumps, bar screens, grit handling equipment,

Draft of October 17, 2008 12


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sludge handling equipment, odor control systems, coating systems, chemical feed and storage
equipment, and traveling bridges.

“Facility Equipment Repair and Replacement Schedule” has the meaning


specified in subsection 11.5(B).

“Facility Manager” has the meaning specified in Section 8.3.

“Facility Structures” means all structures, buildings, roofing systems, concrete


tanks and metal tanks, tank covers and above- and below-ground pipes constituting part of the
Facility other than Facility Equipment.

“Fees and Costs” means reasonable fees and expenses of employees, attorneys,
architects, engineers, expert witnesses, contractors, consultants and other persons, and costs
of transcripts, printing of briefs and records on appeal, copying and other reimbursed
expenses, and expenses reasonably incurred in connection with investigating, preparing for,
defending or otherwise appropriately responding to any Legal Proceeding.

“Final Completion” means completion of the Design/Build Work in compliance


with the Design and Construction Requirements and the requirements of Section 6.11.

“Final Punch List” has the meaning specified in subsection 6.1(B).

“Fixed Component” has the meaning specified in Section 13.3.

“Fixed Design/Build Price” has the meaning specified in subsection 7.4(B).

“Fixed Design/Build Price Adjustment” has the meaning specified in


subsection 7.4(C).

“General Permit for Biosolids Management” means the permit to be issued by


Ecology for the beneficial use of Biosolids, the transfer of Biosolids within a facility or from one
facility to another, and the disposal of Biosolids in municipal solid waste landfills pursuant to
RCW 70.95(J) and WAC 173-308.

“Governmental Approval Application Date” has the meaning specified in


subsection 4.8(I).

“Governmental Approvals” means all orders of approval, permits, licenses,


authorizations, consents, certifications, exemptions, rulings, entitlements and approvals issued
by a Governmental Body of whatever kind and however described which are required under
Applicable Law to be obtained or maintained by any person with respect to the Contract
Services, including the Company Governmental Approvals and the County Governmental
Approvals.

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“Governmental Body” means any federal, state, regional or local legislative,


executive, judicial or other governmental board, agency, authority, commission,
administration, court or other body, or any official thereof having jurisdiction.

“Grit and Screenings” means materials such as scum, grease, grit and
screenings, and other solid waste generated at the Facility other than Sludge and Biosolids.

“Guarantor” means CH2M HILL Companies ltd., a corporation organized and


existing under the laws of Oregon, and its permitted successors and assigns.

“Guaranty Agreement” or “Guaranty” means the Guaranty Agreement entered


into concurrently with this Service Contract from the Guarantor to the County in the form set
forth in the Transaction Forms, as the same may be amended from time to time in accordance
therewith.

“Hazardous Material” means any waste, substance, object or material deemed


hazardous under Applicable Law, including “hazardous substance” as defined under CERCLA
and “hazardous waste” as defined under RCRA.

“Independent Evaluator” means a qualified independent evaluator or evaluation


firm with demonstrated skill and experience in the evaluation of utility property, not otherwise
associated with the transactions contemplated hereby, selected with the mutual consent of the
parties for the purpose of evaluating and determining the condition of the Facility pursuant to
Section 11.2. The Independent Evaluator may be an engineer or other technical professional
competent to perform such services.

“Industrial Pretreatment Program” or “IPP” means the industrial pretreatment


program of sampling, inspecting, analyzing and keeping records with respect to compliance by
industrial and certain commercial users with the Sewer Use Ordinance and technology-based
local limits, all as more fully described in Article IX.

“Influent” means (1) all flows reaching the Facility through the Collection System
from all connecting sources, (2) pretreated industrial wastewater transported into the Facility
by haulers authorized by the County in accordance with the IPP, and (3) Septage transported
into the Facility by authorized septic tank haulers pre-registered by the Company and the
County.

“Initial Term” has the meaning specified in Section 3.1.

“Insurance Requirement” means any rule, regulation, code, or requirement


issued by any insurance company which has issued a policy of Required Insurance under this
Service Contract, as in effect during the Term, compliance with which is a condition to the
effectiveness of such policy.

Draft of October 17, 2008 14


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“Legal Proceeding” means every action, suit, litigation, arbitration,


administrative proceeding, and other legal or equitable proceeding having a bearing upon this
Service Contract, and all appeals therefrom.

“Lien” means any and every lien against the Facility or against any monies due
or to become due from the County to the Company under this Service Contract, for or on
account of the Contract Services, including mechanics’, materialmen’s, laborers’ and lenders’
liens.

“Loss-and-Expense” means and is limited to any and all actual losses, liabilities,
forfeitures, obligations, damages, fines, penalties, judgments, deposits, costs, expenses,
charges, Taxes, or expenses, including all Fees and Costs, except as explicitly excluded or
limited under any provision of this Service Contract, relating to third party claims for which
either party is obligated to indemnify the other party and its indemnitees pursuant to and in
accordance with this Service Contract. “Loss-and-Expense” for the purpose of any provision
hereunder requiring indemnification of either party and their respective indemnitees shall
mean and include any special, incidental, consequential, punitive or similar damages incurred
by the indemnified parties for third party claims.

“Major Facility Equipment” shall mean the specific Facility Equipment identified
in Table 16-4 of Appendix 16.

“Major Repair and Replacement Charge” shall have the meaning specified in
subsection 13.8(D).

“Major Repair and Replacement Fund” shall have the meaning specified in
subsection 13.8(B).

“Material Adverse Change” has the meaning specified in subsection 16.1(B).

“Materials Price Adjustment” has the meaning specified in


subsection 7.4(C)(3)(a).

“Materials Price Adjustment Date” has the meaning specified in


subsection 7.4(C)(3).

“Maximum Annual Major Repair and Replacement Charge” has the meaning
specified in subsection 13.8(C).

“Mediator” means any person serving as a mediator of disputes hereunder


pursuant to Section 14.15.

“MG” means millions of gallons.

“MGD” means millions of gallons per day.

Draft of October 17, 2008 15


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“Monthly Progress Report” has the meaning specified in subsection 4.1(D).

“Non-Binding Mediation” means the voluntary system of dispute resolution


established by Section 14.14 for the resolution of any dispute arising under this Service
Contract.

“NPDES Permit” means the National Pollutant Discharge Elimination System


Permit to be issued by Ecology pursuant to the provisions of the State of Washington Water
Pollution Control Law, RCW 90.48, and the Federal Water Pollution Control Act, 33 USC
Section 1251 et seq.

“Odor Citation” has the meaning specified in subsection 10.3(H).

“Odor Control Standards” means the standards pertaining to odor control at the
Facility, as set forth in Appendix 9.

“Odor Guarantee” has the meaning specified in subsection 10.3(B).

“Odor Incident” has the meaning specified in subsection 10.3(E).

“Operation and Maintenance Manual” means the manual and related computer
programs prepared by the Company containing detailed standard operating and maintenance
procedures and other specific instructions, policies, directives, routines, schedules and other
matters relating to the Operation Services, developed and maintained as required by Article VIII
and Appendix 9 solely for the delivery of services under this Service Contract.

“Operation Period” means the period from and including the Acceptance Date
(or, if certified by the Company pursuant to Section 6.6, the Provisional Acceptance Date) to
and including the last day of the Term.

“Operation Services” means everything required to be furnished and done for


and relating to the Facility by the Company pursuant to this Service Contract during the
Operation Period.

“Overdue Rate” means the maximum rate of interest permitted by the laws of the
State, if applicable, or the Prime Rate plus 1%, whichever is lower.

“Payment Bond” means the payment bond required to be provided by the


Company in accordance with Section 16.2 and in substantially the form set forth in the
Transaction Forms.

“Performance Bond” means the performance bond required to be provided by the


Company in accordance with Section 16.2 and substantially in the form set forth in the
Transaction Forms.

Draft of October 17, 2008 16


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Facility - P5451-4 Article I - Definitions and Interpretation

“Performance Guarantees” means the guarantees of performance made by the


Company specifically set forth in Article X.

“Permitted Encumbrances” means, as of any particular time, any one or more of


the following:

(1) encumbrances for Utility charges, taxes, rates and assessments not yet
delinquent or, if delinquent, the validity of which is being contested diligently and in
good faith by the Company and against which the Company has established
appropriate reserves in accordance with generally accepted accounting principles;

(2) any encumbrance arising out of any judgment rendered which is being
contested diligently and in good faith by the Company, the execution of which has been
stayed or against which a bond or bonds in the aggregate principal amount equal to
such judgments shall have been posted with a financially-sound insurer and which
does not have a material and adverse effect on the ability of the Company to construct
or operate the Facility;

(3) any encumbrance arising in the ordinary course of business imposed by


law dealing with materialmen’s, mechanics’, workmen’s, repairmen’s, warehousemen’s,
landlords’, vendors’ or carriers’ encumbrances created by law, or deposits or pledges
which are not yet due or, if due, the validity of which is being contested diligently and in
good faith by the Company and against which the Company has established
appropriate reserves;

(4) servitudes, licenses, easements, encumbrances, restrictions, rights-of-


way and rights in the nature of easements or similar charges which will not in the
aggregate materially and adversely impair the construction or operation of the Facility
by the Company;

(5) encumbrances which are created by a Change in Law on or after the


Contract Date; and

(6) any encumbrance created by an act or omission by the County or with


respect to which the County has given its consent.

“Primary Design Document” means the design document entitled “Spokane


County Regional Water Reclamation Facility Primary Design Document,” originally published
by HDR Engineering, Inc. in October 2007, as amended by the Company pursuant to its
proposal submitted in response to the RFP, and submitted jointly by the County and the
Company to Ecology in accordance with WAC 173-240, Submission of Plans and Reports for

Draft of October 17, 2008 17


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Construction of Wastewater Facilities, to comply with WAC 173-240-030 (3)(a) Submission and
approval of engineering report.

“Prime Rate” means the prime rate as published in The Wall Street Journal, or a
mutually agreeable alternative source of the prime rate if it is no longer published in The Wall
Street Journal or the method of computation thereof is substantially modified.

“Process Control Management Plan” has the meaning specified in


subsection 8.5(A).

“Producers Price Index” or “PPI” means (1) with respect to the Materials Price
Adjustment under Section 7.4, the Annual Producers Price Index, Not Seasonally Adjusted, for
certain materials and commodities, as reported by the U.S. Department of Labor, Bureau of
Labor Statistics and reported in the applicable PPI Detailed Report Series, as more particularly
described in subsection 7.4(C)(3), and (2) with respect to the Facility Element Adjustment
Factor under subsection 13.4(D), the Producer Price Index, All Other Basic Inorganic Chemical
Manufacturing (Series Id: PCU325188325188).

“Provisional Acceptance” has the meaning specified in subsection 6.6(B).

“Provisional Acceptance Date” has the meaning specified in subsection 6.6(B).

“Prudent Engineering and Construction Practice” means those methods,


techniques, standards and practices which, at the time they are to be employed and in light of
the circumstances known or reasonably believed to exist at such time, are generally recognized
and accepted as prudent design, engineering, equipping, installation, construction and
commissioning practices for the design, construction and improvement of capital assets in the
municipal wastewater treatment industry, as followed in the United States.

“Prudent Industry Practice” means the methods, techniques, standards and


practices which, at the time they are to be employed and in light of the circumstances known
or reasonably believed to exist at such time, are generally recognized and accepted as prudent
operation, maintenance, repair, replacement and management practices in the municipal
wastewater treatment industry, as observed in the United States.

“Quality Management Plan” means the quality assurance and quality control
requirements developed by the Company and set forth as an attachment to Appendix 3.

“Rating Agencies” means Moody’s Investors Service, Inc., Standard & Poor’s
Ratings Services, a division of The McGraw-Hill Companies, Inc., or Fitch, Inc. or any of their
respective successors and assigns and, if such corporations shall be dissolved or liquidated or
shall no longer perform the functions of a securities rating agency, a “Rating Agency” shall be

Draft of October 17, 2008 18


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deemed to refer to any other nationally recognized securities rating agency designated by the
County.

“RCRA” means the Resource Conservation and Recovery Act, 42 U.S.C.A. §6901
et seq., and applicable regulations promulgated thereunder, each as amended from time to
time.

“Reclaimed Water Permit” means any reclaimed water permit or State waste
discharge permit required to be issued by any Governmental Body in order to operate and
maintain the Facility under the reclaimed water project alternatives generally described in
Section 5.5.

“Record Adjustment” has the meaning specified in subsection 7.4(C)(3)(c).

“Record Adjustment Date” has the meaning specified in subsection 7.4(C)(3)(c).

“Record Adjustment Factor” has the meaning specified in subsection 7.4(C)(3)(c).

“Reference Document” means any of the documents appended to this Service


Contract or incorporated by reference.

“Regulated Site Condition” means, and is limited to, (1) surface or subsurface
structures, materials or conditions having historical, archaeological, religious or similar
significance; (2) any habitat of an endangered or protected species, as provided in Applicable
Law; (3) the presence anywhere in, on or under the Site on the Contract Date of wells or
underground storage tanks for the storage of chemicals, petroleum products or Regulated
Substances; (4) the presence of Regulated Substances in environmental media anywhere in, on
or under the Site (including presence in surface water, groundwater, soils or subsurface
strata); and (5) contamination of the Site from groundwater, soil or airborne Regulated
Substances migrating from sources outside the Site and not caused by Company Fault.

“Regulated Substance” means (1) any oil, petroleum or petroleum product and
(2) any pollutant, contaminant, hazardous substance, hazardous material, toxic substance,
toxic pollutant, solid waste, municipal waste, or industrial waste that is defined as such by and
is subject to regulation under any Applicable Law. Regulated Substances include Hazardous
Materials and contaminated soils requiring special handling or disposal. Regulated Substances
do not include Influent

“Renewal Term” has the meaning specified in Section 3.1.

“Required Design/Build Period Insurance” has the meaning specified in


Appendix 14.

Draft of October 17, 2008 19


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Facility - P5451-4 Article I - Definitions and Interpretation

“Required Insurance” means the Required Design/Build Period Insurance and


the Required Operation Period Insurance.

“Required Operation Period Insurance” has the meaning specified in


Appendix 14.

“Requisition” means a written submission by the Company on the form of


requisition as agreed to by the parties, together with accompanying submittals, requesting
progress payments or final payment with respect to the Design/Build Price, and which is to be
accompanied by such supporting documentation as required by Article VII.

“Residuals” means Biosolids, Sludge and Grit and Screenings.

“Response Action” means any action taken in the investigation, removal,


confinement, remediation or cleanup of a release of any Regulated Substance. “Response
Actions” include any action which constitutes a “removal”, “response”, or “remedial action” as
defined by Section 101 of the CERCLA.

“Rev. Proc. 97-13” has the meaning specified in subsection 13.14(A).

“RFP” means the County’s Request for Proposals for the Spokane County
Regional Water Reclamation Facility, issued on October 15, 2007, as amended.

“Scheduled Acceptance Date” means June 30, 2012, as such date may be
adjusted due to the occurrence of Uncontrollable Circumstances.

“Security Instruments” means the Guaranty Agreement, the Performance Bond,


the Payment Bond and the Design/Build Letter of Credit.

“Senior Supervisors” has the meaning specified in subsection 8.3(B).

“Septage” means the liquid and solid material pumped from a septic tank,
cesspool or similar domestic sewage treatment system, or a holding tank, during cleaning.

“Septage Guarantee” has the meaning specified in Section 10.4.

“Service Contract” means this Service Contract for the Design, Construction and
Operation of the Spokane County Regional Water Reclamation Facility between the Company
and the County, including the Appendices, as the same may be amended or modified from time
to time in accordance herewith.

“Service Contract Amendment” has the meaning specified in


subsection 17.14(A).

“Service Fee” has the meaning specified in Article XIII.

Draft of October 17, 2008 20


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“Service Territory” means all areas in which customers are served by the
Facility.

“Sewer Use Ordinance” means the County’s Sanitary Sewer Code, Chapter 8.03
of Title 8 of the Spokane County Code, as the same may be amended from time to time in
accordance with Applicable Law.

“Significant Industrial User” or “SIU” means a significant industrial user, as


defined in 40 CFR 403.3(t), of the Facility.

“Site” means the parcels of real property identified in Appendix 1 on which the
Facility is to be constructed.

“Sludge” means any solid, semi-solid or liquid residue, byproduct or other waste
streams removed during the treatment of Influent by the Facility other than Biosolids and Grit
and Screenings.

“State” means the State of Washington.

“Subcontract” means an agreement or purchase order by the Company, or a


Subcontractor to the Company, as applicable, entered into in connection with the performance
of the Contract Services.

“Subcontractor” means every person (other than employees of the Company)


employed or engaged by the Company or any person under subcontract with the Company or
any other Subcontractor (including all subcontractors and every sub-subcontractor of whatever
tier) for any portion of the Contract Services, whether for the furnishing of labor, materials,
equipment, supplies, services or otherwise.

“Substantial Completion” means satisfaction by the Company of the conditions


specified in Section 6.1.

“Supplemental Technical Information” means those portions of Appendix 2 that


are expressly designated as “Supplemental Technical Information”.

“Surety” means the surety company issuing the Performance Bond or the
Payment Bond.

“Sustained Odor Condition” has the meaning specified in subsection 10.3(F).

“Tax” means any tax, fee, levy, duty, impost, charge, surcharge, assessment or
withholding, or any payment-in-lieu thereof, and any related interest, penalty or addition to
tax.

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“Technical Specifications” means the technical specifications set forth or


referenced in Appendix 2, which are comprised of the Design and Construction Requirements
and the Supplemental Technical Information.

“Term” has the meaning set forth in Article III.

“Termination Date” means the last day of the Term.

“Toxic Substance” means any toxic, hazardous, chemical, industrial, explosive,


flammable, volatile, reactive, corrosive or radioactive waste, material or substance which, alone
or in combination with other substances, is contained in sufficiently high concentrations or
volumes in Influent received at the Facility, so as:

(1) to cause a material and adverse effect on the operation of the Facility and
the performance of the Operation Services (including any substance or combination of
substances contained in the Influent in a sufficiently high concentration so as to interfere with
the biological processes necessary for the removal of the organic and chemical contents of the
Influent required to meet the Effluent Guarantee);

(2) to endanger human health or safety; or

(3) to cause Effluent or Residuals to become a Hazardous Material, if any such


result could not reasonably have been provided by the management of the Facility in
accordance with the Contract Standards.

“Transaction Form” means any of the Transaction Forms appended to this


Service Contract.

“Uncontrollable Circumstances” means any act, event or condition that is


beyond the reasonable control of the party relying thereon as justification for not performing an
obligation or complying with any condition required of such party under this Service Contract,
and that materially interferes with or materially increases the cost of performing its obligations
hereunder (other than payment obligations), to the extent that such act, event or condition is
not the result of the willful or negligent act, error or omission, failure to exercise reasonable
diligence, or breach of this Service Contract on the part of such party.

(1) Inclusions. Subject to the foregoing, Uncontrollable Circumstances may


include the following:

(a) a Change in Law (except as otherwise provided in the definition thereof


and in subsection 15.2(E));

(b) the receipt of Excessive Influent at the Facility, subject to the provisions
of Section 10.7;

Draft of October 17, 2008 22


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Facility - P5451-4 Article I - Definitions and Interpretation

(c) the occurrence of an Upset, subject to the provisions of Section 10.7;

(d) Differing Site Conditions to the extent provided in Section 4.3;

(e) Regulated Site Conditions to the extent provided in Section 4.3;

(f) naturally occurring events (excluding weather conditions normal for the
geographic region of the County) such as landslides, underground movement, earthquakes,
fires, tornadoes, floods, epidemics, and other acts of God;

(g) explosion, sabotage or similar occurrence, acts of a declared public


enemy, terrorism, extortion, war, blockade or insurrection, riot or civil disturbance;

(h) labor disputes, except labor disputes involving employees of the


Company, its Affiliates, or Subcontractors, which affect the performance of the Contract
Services;

(i) the failure of any Subcontractor (other than the Company, the Guarantor
or any Affiliate of either), to furnish services, materials, chemicals or equipment on the dates
agreed to, but only if such failure is the result of an event which would constitute an
Uncontrollable Circumstance if it affected the Company directly, and the Company is not able
to timely obtain substitutes after exercising all reasonable efforts;

(j) the failure of any appropriate Governmental Body or private Utility


having operational jurisdiction in the area in which the Facility is located to provide and
maintain Utilities to the Facility which are required for the performance of this Service
Contract;

(k) any failure of title to the Facility or any placement or enforcement of any
Encumbrance on the Facility not consented to in writing by, or arising out of any action or
agreement entered into by, the party adversely affected thereby;

(l) the preemption, confiscation, diversion or destruction of materials or


services by a Governmental Body in connection with a public emergency or any condemnation
or other taking by eminent domain of any material portion of the Facility;

(m) a violation of Applicable Law by a person other than the affected party or
its subcontractors;

(n) violations of the IPP, to the extent that the Company demonstrates that it
has complied with its obligations with respect to the IPP under Article IX;

(o) with respect to the Company, any County Fault or County-directed


Change Orders not due to Company Fault;

Draft of October 17, 2008 23


Spokane County Regional Water Reclamation Service Contract
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(p) the failure of the City of Spokane, in its governmental capacity, to


perform an inspection of the Design/Build Work required under Applicable Law within two
days following notification by the Company that the Design/Build Work is ready for such
inspection, but only to the extent such failure occurs five or more times over the course of the
Design/Build Period; and

(q) soil contamination preventing the Company from meeting its landscaping
obligations at the Site with respect to the growth of plants, trees and other vegetation to the
extent caused by the application of diuron at the Site prior to the Contract Date, subject to the
requirements set forth in Appendix 2 with respect to plot testing, landscaping and outdoor
maintenance.

(2) Exclusions. It is specifically understood that none of the following acts,


events or circumstances shall constitute Uncontrollable Circumstances:

(a) any act, event or circumstance that would not have occurred if the
affected party had complied with its obligations hereunder;

(b) changes in interest rates, inflation rates, wage rates, insurance costs,
commodity prices (except as provided in subsection 7.4(C)(4)), currency values, exchange rates
or other economic conditions;

(c) changes in the financial condition of the County, the Company, the
Guarantor, or their Affiliates or Subcontractors affecting the ability to perform their respective
obligations;

(d) the consequences of error, neglect or omissions by the Company, the


Guarantor, any Subcontractor, any of their Affiliates or any other person in the performance of
the Contract Services;

(e) any impact of prevailing wage or similar laws, customs or practices on


the Company’s costs;

(f) weather conditions normal for the geographic region of the County;

(g) any surface or subsurface geotechnical or hydrological conditions,


including the existence of compressible soil layers, masses, unstable soils, manmade deposits,
and water table fluctuations, other than Differing Site Conditions or Regulated Site Conditions;

(h) any act, event, circumstance or Change in Law occurring outside of the
United States (except as provided in subsection 15.2(F));

(i) mechanical failure of equipment to the extent not resulting from a


condition that is listed in the “Inclusions” section of this definition; and

Draft of October 17, 2008 24


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

(j) any failure of the Company to secure patents which it deems necessary
for the performance of the Contract Services.

“Upset” has the meaning given such term in the Clean Water Act (40 CFR
122.41(n)).

“Utilities” means any and all utility services and installations whatsoever
(including gas, water, electricity, telephone, internet, cable and any other telecommunications),
and all piping, wiring, conduit, and other fixtures of every kind whatsoever related thereto or
used in connection therewith. Utilities shall not include the Collection System, the conveyance
system, the Influent pump station or those portions of the reclaimed water pipelines, force
mains and outfall to be constructed by the County outside the Site boundary.

“Variable Component” has the meaning specified in Section 13.3.

“WPCRF Loan Agreement” means the loan agreement regarding the Water
Pollution Control Revolving Fund (WPCRF) loan from Ecology to the County to partially fund
the Facility.

SECTION 1.2. INTERPRETATION. In this Service Contract, notwithstanding


any other provision hereof:

(A) References Hereto. The terms “hereby,” “hereof,” “herein,” “hereunder”


and any similar terms refer to this Service Contract; and the term “hereafter” means after, and
the term “heretofore” means before, the Contract Date.

(B) Gender and Plurality. Words of the masculine gender mean and include
correlative words of the feminine and neuter genders and words importing the singular
number mean and include the plural number and vice versa.

(C) Persons. Words importing persons include firms, companies,


associations, joint ventures, general partnerships, limited partnerships, limited liability
corporations, trusts, business trusts, corporations and other legal entities, including public
bodies, as well as individuals.

(D) Headings. The table of contents and any headings preceding the text of
the Articles, Sections and subsections of this Service Contract shall be solely for convenience
of reference and shall not affect its meaning, construction or effect.

(E) Entire Agreement. This Service Contract contains the entire agreement
between the parties hereto with respect to the transactions contemplated by this Service
Contract. Without limiting the generality of the foregoing, this Service Contract shall
completely and fully supersede all other understandings and agreements among the parties

Draft of October 17, 2008 25


Spokane County Regional Water Reclamation Service Contract
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with respect to such transactions, including those contained in the RFP, the proposal of the
Company submitted in response thereto, any amendments or supplements to the RFP or the
proposal, and the RFQ and the statement of qualifications submitted by the Company in
response to the RFQ.

(F) Technical Specifications. The Technical Specifications are intended to


include the basic design principles, concepts and requirements for the Design/Build Work but
do not include the final, detailed designs, plans or specifications or indicate or describe each
and every item required for full performance of the physical Design/Build Work and for
achieving Acceptance and the Biosolids Performance Standards. The Company agrees to
prepare all necessary and required complete and detailed designs, plans, drawings and
specifications and to furnish and perform, without additional compensation of any kind, all
Design/Build Work in conformity with the Technical Specifications and the final designs,
plans, drawings and specifications based thereon. The Company further agrees that it shall
not have the right to bring any claim whatsoever against the County or any of its consultants
or subcontractors, arising out of any design drawings, specifications or design and
construction requirements included in the RFP or made available during the procurement
process.

(G) Standards of Workmanship and Materials. Any reference in this Service


Contract to materials, equipment, systems or supplies (whether such references are in lists,
notes, specifications, schedules, or otherwise) shall be construed to require the Company to
furnish the same in accordance with the applicable grades and standards indicated in this
Service Contract. Where this Service Contract does not specify any explicit quality or standard
for construction materials or workmanship, the Company shall use only workmanship and
new materials of a quality consistent with that of construction workmanship and materials
specified elsewhere in the Technical Specifications, and the Technical Specifications are to be
interpreted accordingly.

(H) Technical Standards and Codes. References in this Service Contract to


all professional and technical standards, codes and specifications are to the most recently
published professional and technical standards, codes and specifications of the institute,
organization, association, authority or society specified, all as in effect as of __________ __,
2008. Unless otherwise specified to the contrary, (1) all such professional and technical
standards, codes and specifications shall apply as if incorporated in the Design and
Construction Requirements and (2) if any material revision occurs, to the Company’s
knowledge, after __________ __, 2008, and prior to completion of the Design/Build Work, the
Company shall notify the County. If so directed by the County, the Company shall perform
the Design/Build Work in accordance with the revised professional and technical standard,

Draft of October 17, 2008 26


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

code, or specification as long as the Company is provided such schedule relief (including any
appropriate adjustment to the Scheduled Acceptance Date) as is necessary to comply with
such revision and compensated on a lump sum or Cost Substantiated basis for any additional
cost or expense attributable to any such revision.

(I) Liquidated Damages. This Service Contract provides for the payment by
the Company of liquidated damages in certain circumstances of non-performance, breach and
default. Each party agrees that the County’s actual damages in each such circumstance
would be difficult or impossible to ascertain (particularly with respect to the public harm that
would occur as a result of such non-performance, breach or default of the Company), and that
the liquidated damages provided for herein with respect to each such circumstance are a
reasonable forecast of the just compensation required to place the County in the same
economic position as it would have been in had the circumstance not occurred. Such
liquidated damages shall constitute the only damages payable by the Company to the County
in such circumstances of non-performance, breach or default, regardless of legal theory. This
limitation, however, is not intended to limit any of the other remedies for breach specifically
provided for in Article XIV. The parties acknowledge and agree that the additional remedies
specifically provided for in this Service Contract are intended to address harms and damages
which are separate and distinct from those which the liquidated damages are meant to
remedy.

(J) Causing Performance. A party shall itself perform, or shall cause to be


performed, subject to any limitations specifically imposed hereby with respect to
Subcontractors or otherwise, the obligations affirmatively undertaken by such party under
this Service Contract.

(K) Party Bearing Cost of Performance. All obligations undertaken by each


party hereto shall be performed at the cost of the party undertaking the obligation or
responsibility, unless the other party has explicitly agreed herein to bear all or a portion of the
cost either directly, by reimbursement to the other party or through an adjustment to the
Service Fee.

(L) Assistance. The obligations of a party to cooperate with, to assist or to


provide assistance to the other party hereunder shall be construed as an obligation to use the
party’s personnel resources to the extent reasonably available in the context of performance of
their normal duties, and not to incur material additional overtime or third party expense
unless requested and reimbursed by the assisted party.

Draft of October 17, 2008 27


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

(M) Interpolation. If any calculation hereunder is to be made by reference to


a chart or table of values or indices, and the reference calculation falls between two stated
values, the calculation shall be made on the basis of linear interpolation.

(N) Applicability and Stringency of Contract Standards. The Company shall


be obligated to comply only with those Contract Standards which are applicable in any
particular case. Where more than one Contract Standard applies to any particular
performance obligation of the Company hereunder, each such applicable Contract Standard
shall be complied with. In the event there are different levels of stringency among such
applicable Contract Standards, the most stringent of the applicable Contract Standards shall
govern.

(O) Delivery of Documents in Digital Format. In this Service Contract, the


Company is obligated to deliver reports, records, designs, plans, drawings, specifications,
proposals and other documentary submittals in connection with the performance of its duties
hereunder. The Company agrees that all such documents shall be submitted to the County
both in printed form (in the number of copies indicated) and, at the County’s request, in digital
form. Digital copies shall consist of computer readable data submitted in Autocad, Microsoft
Word, Microsoft Access, and Microsoft Excel or in any other similar standard interchange
format which the County may reasonably request to facilitate the administration and
enforcement of this Service Contract. In the event that a conflict exists between the signed or
the signed and stamped hard copy of any document and the digital copy thereof, the signed or
the signed and stamped hard copy shall govern.

(P) Severability. If any clause, provision, subsection, Section or Article of


this Service Contract shall be ruled invalid by any court of competent jurisdiction, then the
parties shall: (1) promptly negotiate a substitute for such clause, provision, subsection,
Section or Article which shall, to the greatest extent legally permissible, effect the intent of the
parties in the invalid clause, provision, subsection, Section or Article; (2) if necessary or
desirable to accomplish item (1) above, apply to the court having declared such invalidity for a
judicial construction of the invalidated portion of this Service Contract; and (3) negotiate such
changes in substitution for or addition to the remaining provisions of this Service Contract as
may be necessary in addition to and in conjunction with items (1) and (2) above to effect the
intent of the parties in the invalid provision. The invalidity of such clause, provision,
subsection, Section or Article shall not affect any of the remaining provisions hereof, and this
Service Contract shall be construed and enforced as if such invalid portion did not exist.

(Q) No Third-Party Rights. This Service Contract is exclusively for the benefit
of the County and the Company and, except as specifically provided in subsection 5.6(C) with

Draft of October 17, 2008 28


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article I - Definitions and Interpretation

respect to the Company Indemnities and in Section 15.3 with respect to the County
Indemnitees, shall not provide any third parties with any remedy, claim, liability,
reimbursement, cause of action or other rights.

(R) References to Treatment. The terms “treat”, “treated”, “treatment”,


“treating” and any similar terms, when used with respect to Influent, shall mean and refer to
the operation of the Facility to receive, and treat Influent and discharge Effluent, all in
accordance with this Service Contract.

(S) References to Days. Unless otherwise specified as “business days”, all


references to days herein are references to calendar days. References to “business days”
herein shall include Monday through Friday, excluding State and federal holidays.

(T) References to Including. All references to “including” herein shall be


interpreted as meaning “including without limitation”.

(U) References to Knowledge. All references to “knowledge”, “knowing”,


“know” or “knew” shall be interpreted as references to a party having actual knowledge.

(V) Counterparts. This Service Contract may be executed in any number of


original counterparts. All such counterparts shall constitute but one and the same Service
Contract.

(W) Governing Law. This Service Contract shall be governed by and


construed in accordance with the applicable laws of the State.

(X) Defined Terms. The definitions set forth in Section 1.1 shall control in
the event of any conflict with any definitions used in the recitals hereto.

Draft of October 17, 2008 29


ARTICLE II

REPRESENTATIONS AND WARRANTIES

SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF THE COUNTY.


The County represents and warrants that:

(A) Existence and Powers. The County is a political subdivision of the State,
organized and existing under and by virtue of the laws of the State, with full legal right, power
and authority to enter into and to perform its obligations under this Service Contract.

(B) Due Authorization and Binding Obligation. This Service Contract has
been duly authorized, executed and delivered by all necessary action of the County and
constitutes a legal, valid and binding obligation of the County, enforceable against the County
in accordance with its terms, except to the extent that its enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors’ rights from time to time in
effect and by equitable principles of general application.

(C) No Conflict. To the best of its knowledge after due inquiry, neither the
execution nor delivery by the County of this Service Contract, nor the performance by the
County of its obligations in connection with the transactions contemplated hereby or the
fulfillment by the County of the terms or conditions hereof (1) conflicts with, violates or results
in a breach of any constitution, law or governmental regulation applicable to the County or
(2) conflicts with, violates or results in the breach of any term or condition of any order,
judgment or decree, or any contract, agreement or instrument, to which the County is a party
or by which the County or any of its properties or assets are bound, or constitutes a default
under any of the foregoing.

(D) No Approvals Required. No approval, authorization, order or consent of,


or declaration, registration or filing with, any Governmental Body or referendum of voters is
required for the valid execution and delivery by the County of this Service Contract or the
performance by the County of its payment or other obligations hereunder except otherwise as
such have been duly obtained or made or, if not required as of the Contract Date, are expected
to be obtained in due course.

(E) No Litigation. Except as disclosed in writing to the Company, there is no


Legal Proceeding, at law or in equity, before or by any court or Governmental Body, or
proceeding for referendum or other voter initiative, pending, except as disclosed in writing, or,
to the best of the County’s knowledge after due inquiry, overtly threatened or publicly
announced against the County, in which an unfavorable decision, ruling or finding could
reasonably be expected to have a material and adverse effect on the execution and delivery of

Draft of October 17, 2008 30


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article II - Representations and Warranties

this Service Contract or the validity, legality or enforceability of this Service Contract, or any
other agreement or instrument entered into by the County in connection with the transactions
contemplated hereby, or on the ability of the County to perform its obligations hereunder or
under any such other agreement or instrument.

(F) County Ownership Interests in the Site. The County owns the Site in fee
simple.

(G) Information Pertaining to the Site. To the best of its knowledge after due
inquiry, the County has made available to the Company all of the significant studies, reports
and other information pertaining to the Site which the County has developed in connection
with its planning and preparation work with respect to the RFP and the Facility and which, in
the County’s opinion, may reasonably be material to the performance by the Company of the
Contract Services. The County makes no representation, however, as to the accuracy or
completeness of any such information; provided, however, that the Company shall be entitled
to rely on the specific information identified in subsection 4.2(B) in accordance with and to the
extent provided therein.

SECTION 2.2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.


The Company represents and warrants that:

(A) Existence and Powers. The Company is a corporation duly organized,


validly existing and in good standing under the laws of Delaware and has the authority to do
business in the State and in any other state in which it conducts its activities, with the full
legal right, power and authority to enter into and perform its obligations under this Service
Contract.

(B) Due Authorization and Binding Obligation. This Service Contract has
been duly authorized, executed and delivered by all necessary corporate action of the
Company and constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent that its enforceability
may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights from
time to time in effect and by equitable principles of general application.

(C) No Conflict. To the best of its knowledge after due inquiry, neither the
execution nor delivery by the Company of this Service Contract nor the performance by the
Company of its obligations in connection with the transactions contemplated hereby or the
fulfillment by the Company of the terms or conditions hereof (1) conflicts with, violates or
results in a breach of any constitution, law or governmental regulation applicable to the
Company or (2) conflicts with, violates or results in a breach of any order, judgment or decree,
or any organizational document of the Company, or any contract, agreement or instrument to

Draft of October 17, 2008 31


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article II - Representations and Warranties

which the Company is a party or by which the Company or any of its properties or assets are
bound, or constitutes a default under any of the foregoing.

(D) No Approvals Required. No approval, authorization, order or consent of,


or declaration, registration or filing with, any Governmental Body is required for the valid
execution and delivery of this Service Contract by the Company or the performance of its
payment or other obligations hereunder except as such have been duly obtained or made or, if
not required as of the Contract Date, are expected to be obtained in due course.

(E) No Litigation. Except as disclosed in writing to the County, there is no


Legal Proceeding, at law or in equity, before or by any court or Governmental Body pending or,
to the best of the Company’s knowledge after due inquiry, overtly threatened or publicly
announced against the Company, in which an unfavorable decision, ruling or finding could
reasonably be expected to have a material and adverse effect on the execution and delivery of
this Service Contract by the Company or the validity, legality or enforceability of this Service
Contract against the Company, or any other agreement or instrument entered into by the
Company in connection with the transactions contemplated hereby, or on the ability of the
Company to perform its obligations hereunder or under any such other agreement or
instrument.

(F) Claims and Demands. Except as disclosed in writing to the County, to


the best of its knowledge after due inquiry, there are no material and adverse claims or
demands based in environmental or tort law, or based on breach of contract, pending or
threatened against the Company with respect to any wastewater plant providing service to the
general public designed, constructed, operated, maintained or managed by the Company, the
Guarantor or any Affiliate that would have a material and adverse effect upon the ability of the
Company to perform the Contract Services.

(G) Applicable Law Compliance. Except as disclosed in writing to the


County, to the best of its knowledge after due inquiry, neither the Company, the Guarantor
nor any Affiliate is in material violation of any law, order, rule or regulation applicable to any
wastewater plant providing service to the general public designed, constructed, operated,
maintained or managed by the Company, the Guarantor or any Affiliate the violation of which
may have a material and adverse affect on the ability of the Company to perform its obligations
hereunder or on the ability of the Guarantor to perform its obligations under the Guaranty
Agreement.

(H) Practicability of Performance. The Design and Construction


Requirements, the technology and the construction and management practices to be employed
in the construction and operation of the Facility are furnished exclusively by the Company

Draft of October 17, 2008 32


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article II - Representations and Warranties

pursuant to the terms of this Service Contract, and the Company assumes and shall have
exclusive responsibility for their efficacy, notwithstanding the inclusion of design principles or
other terms and conditions in the RFP or the negotiation of the terms of the Design and
Construction Requirements, Acceptance Test Procedures and Standards, Biosolids
Performance Standards and Performance Guarantees between the Company and the County.
The Company assumes the risk of the practicability and possibility of performance of the
Facility on the scale, within the time for completion and in the manner required hereunder,
and of treating Influent (other than Excessive Influent) through the operation of the Facility in
a manner which meets all of the requirements hereof, even though such performance and
operation may involve technological or market breakthroughs or overcoming facts, events or
circumstances (other than Uncontrollable Circumstances) which may be different from those
assumed by the Company in entering into this Service Contract, and agrees that sufficient
consideration for the assumption of such risks and duties is included in the Fixed
Design/Build Price and the Service Fee. No impracticability or impossibility of any of the
foregoing shall be deemed to constitute an Uncontrollable Circumstance.

(I) Patents and Licenses. The Company owns, or is expressly authorized to


use under patent rights, licenses, franchises, trademarks or copyrights, the technology
necessary for the Facility and the performance of the Contract Services without any known
material conflict with the rights of others.

(J) Information Supplied by the Company. The information supplied and


representations and warranties made by the Company and the Guarantor in all submittals
made in response to the RFP and in all post-proposal submittals with respect to the Company
and the Guarantor (and to the best of its knowledge after due inquiry, all information supplied
in such submittals with respect to any Subcontractor) are true, correct and complete in all
material respects.

(K) Guaranty Agreement. Concurrently with the execution of this Service


Contract, the Company has provided the County with the Guaranty Agreement as security for
the faithful performance and payment of its obligations hereunder. The Guaranty Agreement
is in the form set forth in the Transaction Forms, and is in compliance with the requirements
of Article XVI.

(L) Required Design/Build Period Insurance. Concurrently with the


execution of this Service Contract, the Company has provided the County with certificates of
insurance for all Required Design/Build Period Insurance specified in Appendix 14. The
Required Design/Build Period Insurance is in compliance with the requirements of
Section 15.1.

Draft of October 17, 2008 33


ARTICLE III

TERM

SECTION 3.1. EFFECTIVE DATE AND INITIAL TERM. This Service Contract
shall become effective on the Contract Date, and shall continue in effect for 20 years following
the Acceptance Date or, if certified by the Company pursuant to Section 6.6, the Provisional
Acceptance Date (the “Initial Term”) or, if renewed as provided in Section 3.2, until the last day
of the renewal term (the “Renewal Term”; the Initial Term and any Renewal Term being referred
to herein as the “Term”), unless earlier terminated pursuant to the termination provisions of
Article XIV, in which event the Term shall be deemed to have ended as of the date of such
termination. All rights, obligations and liabilities of the parties hereto shall commence on the
Contract Date, subject to the terms and conditions hereof. The County shall have no obligation
to make Service Fee payments prior to the Acceptance Date or, if certified by the Company
pursuant to Section 6.6, the Provisional Acceptance Date. At the end of the Term, all
obligations of the parties hereunder shall terminate, except as provided in Sections 14.9 and
14.10.

SECTION 3.2. RENEWAL AND EXTENSION OPTION. This Service Contract


may be renewed and extended for an additional period of five years (subject to convenience
termination without cost to the County at any time upon 90 days’ written notice) by mutual
agreement of the parties on the same conditions as are applicable during the Initial Term. The
Company shall give the County written notice of the approaching expiration of the Initial Term
and any subsequent Renewal Term no later than 180 days prior to such expiration.

Draft of October 17, 2008 34


ARTICLE IV

PERMITTING, DESIGN AND CONSTRUCTION OF THE FACILITY

SECTION 4.1. DESIGN/BUILD WORK GENERALLY.

(A) Commencement of Design/Build Work. On the Contract Date, the


Company shall proceed to undertake, perform and complete the Design/Build Work in
accordance with the Contract Standards. The Company shall be paid the Design/Build Price
pursuant to Article VII as its entitlements to portions of the Design/Build Price arise in
accordance with that Article.

(B) Construction Practice. The Company shall perform the Design/Build


Work in accordance with the Contract Standards and shall have exclusive responsibility for all
construction means, methods, techniques, sequences, and procedures necessary or desirable
for the correct, prompt, and orderly prosecution and completion of the Design/Build Work as
required by this Service Contract. The responsibility to provide the construction means,
methods techniques, sequences and procedures referred to above shall include, but shall not
be limited to, the obligation of the Company to provide the following construction requirements
as further set forth in Appendix 2 and Appendix 3: (1) temporary power and light,
(2) temporary offices and construction trailers, (3) required design certifications, (4) required
approvals, (5) weather protection, (6) site clean-up and housekeeping, (7) construction trade
management, (8) temporary parking, (9) safety and first aid facilities, (10) correction of
defective work or equipment, (11) Subcontractors’ insurance, (12) staging areas,
(13) workshops and warehouses, (14) temporary fire protection, (15) site security, (16) potable
water, (17) telecommunications, (18) sanitary facilities, (19) fuel, (20) Subcontractor and
vendor qualification, (21) receipt and unloading of delivered materials and equipment,
(22) erection rigging, (23) temporary supports, (24) snow removal, and (25) construction
coordination. Laydown and staging areas for construction materials shall be located on the
Site, or at other locations approved by the County and arranged and paid for by the Company.

(C) Sequencing and Staging of Design/Build Work. The Company shall not
be limited in the sequencing or staging of the Design/Build Work, except to the extent that the
Contract Standards impose limitations. The County understands and acknowledges that the
Company intends to complete the Design/Build Work in stages, whereby particular segments
of the Design/Build Work will be designed and built prior to the completion of the design of
the Facility as a whole. Although the Company is not required to fully complete the entire
design of the Facility prior to proceeding with particular segments of the physical construction
of the Facility, the Company must comply with all requirements of Applicable Law in
performing the Design/Build Work and must comply with the design submittal requirements

Draft of October 17, 2008 35


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

set forth in subsection 4.4(C). In no event shall the Company proceed with the construction of
any portion of the Facility prior to obtaining all Governmental Approvals necessary for the
commencement of such construction. The Performance Bond, the Payment Bond and the
Design/Build Letter of Credit must be executed and delivered to the County in accordance
with Article XVI and in any event prior to the commencement of any construction activities at
the Site. The Company shall comply with Prudent Engineering and Construction Practice in
all aspects of the performance of the Design/Build Work and shall satisfy all preconditions for
the commencement of physical construction set forth in Appendix 2 and 3. Upon satisfaction
by the Company of the preconditions necessary for the commencement of physical
construction in accordance with this subsection, the parties shall execute a Contract
Administration Memorandum to memorialize the establishment of the date for the
commencement of physical construction, which date shall be the “Construction
Commencement Date” hereunder.

(D) Schedule and Reports. The Company shall prepare and provide the
County with the construction plan and critical path schedule for the Design/Build Work in
accordance with Appendix 3. Throughout the Design/Build Period, the Company shall submit
to the County and the County Engineering Representative a monthly progress schedule and
report in accordance with the requirements set forth in Appendix 4 (the “Monthly Progress
Report”). The Company agrees that the Company’s submission of the Monthly Progress Report
(or any revised Monthly Progress Report) is for the County’s and the County Engineering
Representative’s information only and shall not limit or otherwise affect the Company’s
obligation to achieve Acceptance by the Scheduled Acceptance Date. The County’s and the
County Engineering Representative’s acceptance of the Monthly Progress Report (or any
revised Monthly Progress Report) shall not bind the County or the County Engineering
Representative in any manner. Thus, the County’s and the County Engineering
Representative’s acceptance of the Monthly Progress Report (or any revised Monthly Progress
Report) shall not imply County approval or consent to any of the matters set forth therein.
Notwithstanding any of the foregoing, the Company acknowledges and agrees that it has a
material obligation to provide the County with, and to update, maintain and revise, the critical
path schedule for the performance of the Design/Build Work throughout the Design Build
Period in accordance with the Contract Standards.

(E) Monthly On-Site Meetings and Design and Construction Review. During
the Design/Build Period, the Company, the County and the County Engineering
Representative shall conduct construction progress and management meetings as set forth in
Appendix 4. Such meetings shall take place on the Site in a field office to be provided by the

Draft of October 17, 2008 36


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

Company in accordance with Appendix 4. At such meetings, discussions will be held


concerning all aspects of the Design/Build Work, including construction schedule, progress
payments, any Change Orders, shop drawings, progress photographs to the extent available,
and any soil boring data and shop test results. The Monthly Progress Report shall be prepared
by the Company and provided to the County and the County Engineering Representative at
least five days prior to each monthly meeting.

(F) Engagement of County Engineering Representative. The Company shall


fully cooperate with the County Engineering Representative. The services of the County
Engineering Representative may include but shall not be limited to the following:

(1) review and monitor construction progress, payments and procedures;

(2) determine the completion of specified portions of the Design/Build Work


and review the release of funds to the Company pursuant hereto;

(3) review proposed changes to the Design and Construction Requirements;

(4) review Facility drawings, plans and specifications for compliance with the
Design and Construction Requirements;

(5) monitor the Acceptance Tests undertaken by the Company to determine


whether any Acceptance Test Procedure and Standard has been satisfied;

(6) monitor the Biosolids Performance Tests undertaken by the Company to


determine whether any Biosolids Performance Standard has been satisfied;

(7) review the validity of the Company’s written notice that an


Uncontrollable Circumstance has occurred; and

(8) review and advise the County with respect to material changes to the
Facility during the Term.

It is understood that the services intended to be provided by the County Engineering


Representative shall be of an observational and review nature only, and that the County
Engineering Representative shall not have authority to interfere with, halt or delay in any way
the construction of the Facility or to require or approve changes to the Design and
Construction Requirements or the Company’s plans and specifications made in accordance
therewith. The County shall be responsible for the fees of the County Engineering
representative, except as otherwise provided in subsections 6.3(E) and 6.9(E)

(G) Title and Risk of Loss. Title to the structures, improvements, fixtures,
machinery, equipment and materials constituting the Facility shall pass to the County upon

Draft of October 17, 2008 37


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

incorporation in the Facility or payment therefor by the County, whichever first occurs, free
and clear of all Encumbrances as provided in subsection (H) of this Section. The Company
shall, however, bear all risk of loss concerning such structures, improvements, fixtures,
machinery, equipment and materials prior to the earlier to occur of incorporation in the
Facility or payment therefor, regardless of the extent to which the loss was insured or the
availability of insurance proceeds. The procedures set forth in Section 4.14 shall be applicable
in the event of any damage to, loss or the destruction of the Design/Build Work at the Site.

(H) Encumbrances. The Company shall not directly or indirectly, without


the County’s consent, create or permit to be created or to remain, and shall promptly
discharge or bond any Encumbrance (other than Permitted Encumbrances) arising in relation
to the Facility, Site or the Design/Build Work.

(I) Utilities. The Company shall make all arrangements necessary to secure
the availability of all Utilities required to construct and operate the Facility in the capacities
required hereunder. In the event the County is required to grant Utility easements on the Site
in connection with the Design/Build Work, the Company shall provide complete descriptions
of all Utility connections and routes on the Site necessary for such purposes.

(J) Payment of Costs. The Company shall pay directly all costs and
expenses of the Design/Build Work of any kind or nature whatsoever, including all costs of
obtaining and maintaining Company Governmental Approvals (regardless of permittee);
assisting the County in obtaining and maintaining the County Governmental Approvals in
accordance with subsections 4.8(F) and 5.3(B); regulatory compliance and Legal Proceedings
brought against the Company; obtaining and maintaining the Security Instruments and
Required Insurance; payments due under the Subcontracts with Subcontractors or otherwise
for all labor and materials; legal, financial, engineering, architectural and other professional
services of the Company; sales, use and similar Taxes on building supplies, materials and
equipment; general supervision by the Company of all Design/Build Work; Company
preparation of schedules, budgets and reports; keeping all construction accounts and cost
records; and all other costs required to achieve Acceptance and Final Completion.

(K) Quality Assurance and Quality Control. The Company shall have full
responsibility for quality assurance and quality control for the Design/Build Work, including
compliance with the Quality Management Plan.

(L) Certificates and Reports. The Company shall secure and deliver to the
County Engineering Representative promptly, at the Company’s sole cost and expense, all

Draft of October 17, 2008 38


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

required certificates of inspection, test reports, work logs, or approvals with respect to the
Design/Build Work as and when required by the Contract Standards.

(M) Notice of Default. The Company shall provide to the County, promptly
following the receipt thereof, copies of any notice of default, breach or non-compliance received
under or in connection with any Governmental Approval, Required Design/Build Period
Insurance or Security Instrument. The Company shall also provide to the County, promptly
following receipt thereof, copies of any notice of default, material breach or material non-
compliance received under or in connection with any Subcontract or other transaction
agreement pertaining to the Design/Build Work, which default, material breach or material
non-compliance may reasonably be expected to result in an Encumbrance or the termination
of such Subcontract or transaction agreement.

SECTION 4.2. ACCESS TO AND SUITABILITY OF SITE.

(A) Site Familiarity. The Company acknowledges that the Company’s agents
and representatives have visited, inspected and are familiar with the Site, its surface physical
condition relevant to the obligations of the Company pursuant to this Service Contract,
including surface conditions, normal and usual soil conditions, roads, utilities, topographical
conditions and air and Influent quality conditions; that the Company is familiar with all local
and other conditions which may be material to the Company’s performance of its obligations
under this Service Contract (including transportation; seasons and climate; access,
availability, disposal, handling and storage of materials and equipment; and availability and
quality of labor and Utilities), and has received and reviewed all information regarding the Site
provided to it by the County as part of the Site-related information or obtained in the course of
performing its obligations hereunder; and that, based on the foregoing, the Site constitutes an
acceptable and suitable site for the construction and operation of the Facility in accordance
herewith, and the Facility can be constructed on the Site within the Fixed Design/Build Price
and by the Scheduled Acceptance Date.

(B) Independent Verification. The Company acknowledges that, except with


respect to the geotechnical baseline report set forth as Reference Document 1 and the
projected flows and loadings of the Influent set forth in Table 2-1 of Appendix 2, the Company
is responsible for the independent verification and confirmation of all information supplied to
it by or on behalf of the County and upon which it elects to rely in connection herewith. No
error or omission in any information supplied to the Company by or on behalf of the County
shall constitute an Uncontrollable Circumstance, or relieve the Company from any of its
obligations or entitle the Company to any increase in compensation hereunder, except to the
extent provided in Section 4.3 with respect to Regulated Site Conditions and Differing Site

Draft of October 17, 2008 39


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

Conditions and except to the extent provided under this Service Contract with respect to the
Company’s right to Uncontrollable Circumstance relief in the event of the receipt of Excessive
Influent at the Facility.

(C) Site Access. The execution of this Service Contract shall be deemed to
constitute the granting of a license to the Company to access the Site for the purposes of
performing engineering, analysis and such additional subsurface and geotechnical studies or
tests as deemed necessary by the Company prior to the Construction Commencement Date.
Such access shall be subject to the County’s prior approval, which shall not be unreasonably
withheld as to time and scope. Except to the extent provided in Section 4.3 with respect to
Regulated Site Conditions and Differing Site Conditions (including any County Response
Action required pursuant thereto), the Company shall assume all risks associated with such
activities and indemnify, defend and hold harmless the County Indemnitees in accordance
with and to the extent provided in Section 15.3 from and against all Loss-and-Expense
resulting therefrom. Following the Construction Commencement Date, the Company shall
have all Site access rights as are necessary for the performance of the Contract Services
during the Term and such access rights shall not be subject to prior County approval.

(D) Regulated Site Conditions and Differing Site Conditions. Nothing in this
Section shall be deemed to limit or otherwise affect the right of the Company to claim
Uncontrollable Circumstance relief in accordance with and to the extent provided in Section
4.3 with respect to Regulated Site Conditions and Differing Site Conditions.

SECTION 4.3. SURFACE AND SUBSURFACE GEOTECHNICAL


CONDITIONS.

(A) General. The only relief to which the Company shall be entitled
hereunder due to any surface or subsurface condition encountered in the performance of the
Contract Services shall be relief based on the discovery of Regulated Site Conditions or
Differing Site Conditions, both of which constitute Uncontrollable Circumstances entitling the
Company to relief as and to the extent provided in this Section and Section 15.2.

(B) Differing Site Conditions. The Company and the County have assumed
the existence of certain surface and subsurface geotechnical conditions at the Site, as reflected
in the data included in the geotechnical baseline report set forth as Reference Document 1.
The parties acknowledge and agree that the existence of buried concrete or large boulders at
the Site in individual pieces greater than two cubic yards shall constitute a Differing Site
Condition for purposes of this Service Contract, except that buried concrete or large bundles of
any size containing a Regulated Substance shall be subject to the provisions of subsection (C)

Draft of October 17, 2008 40


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

of this Section. Upon encountering a Differing Site Condition, the Company shall provide
prompt written notice to the County of such condition, which notice shall not be later than five
days after such condition is first known to the Company. The Company shall, to the extent
reasonably possible, provide such notice before the Differing Site Condition has been disturbed
or altered and shall notify the County of its intended course of action to address the Differing
Site Conditions. The County and the County Engineering Representative shall then promptly
investigate the alleged Differing Site Condition set out in the Company’s notice. The Company
shall be entitled to Uncontrollable Circumstance relief in accordance with and to the extent
provided in Section 15.2, in the event that it encounters a Differing Site Condition.

(C) Regulated Site Conditions - Company Obligations. In performing the


Design/Build Work, the Company shall exercise due care, in light of all relevant facts and
circumstances, to avoid exacerbating any Regulated Site Condition after the location and
existence of such Regulated Site Condition has been disclosed to the Company, or becomes
known by the Company through physical observation (including any such observation made
during excavations). Upon encountering a Regulated Site Condition, the Company shall
provide prompt written notice to the County of such condition, which notice shall not be later
than five days after such condition is first known to the Company. The Company shall, to the
extent reasonably possible, provide such notice before the Regulated Site Condition has been
disturbed or altered. Except for the Company’s failure to provide such notice and exercise due
care with respect to such disclosed or known Regulated Site Condition, the Company shall not
be responsible for any Regulated Site Condition and shall be entitled to Uncontrollable
Circumstance relief in connection therewith in accordance with and to the extent provided in
Section 15.2. The parties acknowledge and agree, however, that Regulated Site Conditions
shall not include any condition involving Regulated Substances used, stored or otherwise
brought to the Site by the Company or any Subcontractor. The Company shall comply, and
shall cause all Subcontractors to comply, with the Contract Standards, including the specific
requirements set forth in Appendix 3, in using or storing any Regulated Substances on the
Site and shall assume all risks associated with such activities and indemnify, defend and hold
harmless the County Indemnitees in accordance with and to the extent provided in Section
15.3 from and against all Loss-and-Expense resulting therefrom.

(D) Regulated Site Conditions - County Obligations. If at any time a


Regulated Site Condition is determined to exist which (1) reasonably requires a Response
Action or other action in order to comply with Applicable Law, (2) interferes with the
performance of the Design/Build Work, or (3) increases the cost to the Company of
performing, or the time necessary for the Company to perform, the Design/Build Work, then

Draft of October 17, 2008 41


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

the County shall promptly, after written notice from any Governmental Body or the Company
of the presence or existence thereof, commence and diligently prosecute Response Actions or
other actions as may be necessary under Prudent Engineering and Construction Practice to
dispose of, remediate or otherwise correct the Regulated Site Condition or otherwise make the
Regulated Site Condition comply with Applicable Law. The County shall have the right to
contest any determination of a Regulated Site Condition and shall not be required to take any
action under this subsection so long as: (i) the County is contesting any determination of a
Regulated Site Condition in good faith by appropriate proceedings conducted with due
diligence; and (ii) Applicable Law permits continued design or construction of the Facility
pending resolution of the contest, so that the Company shall have no liability as a result of the
failure of the County to dispose of, remediate or otherwise correct such Regulated Site
Condition during the period of contest.

SECTION 4.4. DESIGN WORK.

(A) Performance of the Design Work. The Company agrees to undertake,


perform, and complete the designs and plans in accordance with the Contract Standards. The
Company shall make design submittals to the County in accordance with Appendix 4. As of
the Contract Date, the Company’s design for the Facility is not complete. All Company
working and final Design Documents shall comply with the Design and Construction
Requirements and shall ensure that the Facility is constructed to a standard of quality,
integrity, durability and reliability which is equal to or better than the standard established by
the Design and Construction Requirements.

(B) Design Risk. The Company shall have the sole and exclusive
responsibility and liability for the design, construction and performance of the Facility
hereunder, notwithstanding the Contract Standards or the fact that the RFP included certain
minimum conceptual design criteria for the Design/Build Work and certain performance
standards that the Facility would be required to meet. The Company acknowledges that, in
the proposal and clarification process leading to the execution of this Service Contract, the
Company had the unrestricted right and opportunity not to submit a proposal, and not to
execute this Service Contract if the Company had determined that such minimum conceptual
design criteria would in any manner or to any degree impair the Company’s ability to perform
the Design/Build Work or the Operation Services in compliance herewith.

(C) County Review and Comment on Design Documents. The Company shall
provide the County with the design submittal protocol in accordance with the specific
requirements set forth in Appendix 4. The County shall have the right to review and comment
on all Design Documents as provided in Appendix 4 in order to confirm the compliance and

Draft of October 17, 2008 42


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

consistency of the Design Documents with the Technical Specifications. In no event shall the
Company proceed with the physical construction of any particular segment of the
Design/Build Work without first complying with the requirements of the design submittal
protocol and Appendix 4. The Company shall give due consideration and provide written
responses, in the time and manner provided in Appendix 4, to any comments delivered by the
County as to the Company’s design submittals. Neither compliance by the Company with the
Technical Specifications, nor review and comment by the County or the County Engineering
Representative of the Company’s Design Documents, nor any failure or delay by the County or
the County Engineering Representative in commenting on any design submittals shall in any
way relieve the Company of full responsibility for the design, construction, performance and
operation of the Facility in accordance with the Contract Standards. The parties acknowledge
and agree that the review and comment rights of the County under this subsection are
intended for the informational purposes of the County and for the County to determine
whether the Design Documents comply with the Technical Specifications. Except as provided
in subsection 5.2(B) with respect to the County’s obligations under the Delegation Agreement
and without limiting the County’s review and comment rights under this subsection, the
County’s approval of any Design Document shall not be required in order for the Company to
proceed with the performance of the Design/Build Work.

(D) Changes to the Technical Specifications. The Company acknowledges


the County’s material interest in each provision of the Design and Construction Requirements
and, notwithstanding the Acceptance Test Procedures and Standards, the Biosolids
Performance Standards and the Performance Guarantees of the Company and the associated
non-performance remedies of the County, agrees that no change to the Design and
Construction Requirements shall be made except with the consent of the County solely in
accordance with Sections 4.6 and 4.7. Changes to the Supplemental Technical Information
shall be made solely in accordance with Section 4.5.
(E) Documents at Site. The Company shall maintain at the Site all design
and construction documents, including a complete set of record drawings, in accordance with
Appendix 4. These documents shall be available to the County for reference, copying and use,
and a complete set thereof shall be delivered to the County upon completion of the
Design/Build Work.

(F) Licensing Requirements. Architects and engineers engaged by the


Company for design services shall be licensed to practice in the State and shall be experienced
and qualified to perform such services.

SECTION 4.5. SUPPLEMENTAL TECHNICAL INFORMATION.

Draft of October 17, 2008 43


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

(A) Relation to the Design and Construction Requirements. The


Supplemental Technical Information is provided in order to establish in further detail (1) the
manner in which the design work, as of the Contract Date, is reasonably expected to be
developed and carried to full completion and (2) the standards of quality, integrity, durability
and reliability to which the Facility is to be constructed.

(B) Permissible Variations. The Design/Build Work shall be completed in


accordance with the Supplemental Technical Information. In light of the design/build/operate
nature of this Service Contract and the partially completed level of the design work as of the
Contract Date, however, reasonable, minor variations from the Supplemental Technical
Information shall be permitted in the final design of the Facility, to the extent such variations
do not diminish the quality, integrity, durability, functionality and reliability of the Facility.
Examples of elements of the Supplemental Technical Information from which there may be
reasonable, minor variations in the final design include thickness, level and composition of
individual structural members; exact dimensions of rooms and buildings (to the extent overall
functionality is not impaired or total square footage decreased); routes and depth of pipe work;
exact size, weight and height of mechanical components; and dimensions, ratings and
positions of electrical, power and control cables, switchgear, transformers and control panels.
No such variations shall be inconsistent with the Design and Construction Requirements, with
the purposes of the Supplemental Technical Information as set forth in subsection (A) of this
Section, or with any limits specifically provided in the Supplemental Technical Information
regarding the range or nature of permissible variations or with any standards or principles
regarding permissible deviations set forth therein. Variations in the final design from the
Supplemental Technical Information which conform to the provisions of this Section shall be
at the Company’s sole cost and expense and shall not require affirmative County consent or
approval; provided, however, that any such variations which do not conform to the provisions
of this Section shall require the consent and approval of the County, which shall not be
unreasonably withheld or delayed. The Company shall notify the County of any variations to
the Supplemental Technical Information and shall clearly show and mark any such variations
on the Design Documents submitted to the County pursuant to subsection 4.4(C). Any
variation requiring the consent of the County shall be evidenced by a Contract Administration
Memorandum or a Change Order, as applicable.

SECTION 4.6. CHANGES TO THE DESIGN AND CONSTRUCTION


REQUIREMENTS.

(A) Changes Made at Company Request. The Company shall have the right
to propose Design and Construction Requirement Changes for consideration by the County.

Draft of October 17, 2008 44


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

The Company’s proposal for any such Design and Construction Requirement Change shall
contain sufficient information for the County to determine that the Design and Construction
Requirement Change: (1) does not diminish the capacity of the Facility to be operated so as to
meet the Contract Standards; (2) does not impair the quality, integrity, durability and
reliability of the Facility; (3) is reasonably necessary or is advantageous for the Company to
fulfill its obligations under this Service Contract; and (4) is feasible. The County shall have the
absolute right to accept, reject or modify any Design and Construction Requirement Change
proposed by the Company. Any such Design and Construction Requirement Change accepted
or modified by the County, and any related change in the terms and conditions of this Service
Contract, shall be reflected in a Change Order.

(B) Changes Made due to Uncontrollable Circumstances. Upon the


occurrence of an Uncontrollable Circumstance prior to Final Completion, the County shall
promptly proceed, subject to the terms, conditions and procedures set forth in Section 15.2, to
make or cause to be made all Design and Construction Requirement Changes reasonably
necessary to address the Uncontrollable Circumstance. The Company shall consult with the
County concerning possible means of addressing and mitigating the effect of any
Uncontrollable Circumstance, and the Company and the County shall cooperate in order to
minimize any delay, lessen any additional cost and modify the Design/Build Work so as to
permit the Company to continue providing the Design/Build Work in light of such
Uncontrollable Circumstance. The design, permitting and construction costs resulting from
any such Design and Construction Requirement Change shall be borne by the County through
a Fixed Design/Build Price Adjustment. The Company shall be entitled to schedule relief
resulting from any such Design and Construction Requirement Change, as well as to
appropriate price or performance relief associated with the impact of any such Design and
Construction Requirement Change on the performance of the Operation Services, if any, to the
extent provided in Section 15.2. Without limiting the right of the County to issue a
Design/Build Work Change Directive under Section 4.7, any Design and Construction
Requirement Change made on account of Uncontrollable Circumstances, and any related
change in the terms and conditions of this Service Contract, shall be reflected in a Change
Order.

(C) Changes Required by Governmental Bodies. The parties recognize that a


Governmental Body may impose terms and conditions in connection with a Governmental
Approval after the Contract Date that require a Design and Construction Requirement Change.
In the event of the imposition of any such additional terms and conditions imposed by a
Governmental Body, the County shall promptly proceed to make or cause to be made all

Draft of October 17, 2008 45


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

Design and Construction Requirement Changes reasonably necessary to comply with such
additional terms and conditions, or the County may elect to contest any such additional terms
and conditions if such terms and conditions are not acceptable to the County; provided,
however, that, if such contest by the County delays the performance of the Design/Build
Work, the Company shall be entitled to Uncontrollable Circumstance relief to the extent
provided in Section 15.2. Pursuant to and to the extent provided in Section 4.8, the Company
shall bear the risk of the imposition of any such additional terms and conditions imposed by a
Governmental Body in connection with a Company Governmental Approval; provided,
however, that the County shall bear the risk of additional terms and conditions imposed in
connection with the initial NPDES Permit as and to the extent required pursuant to
Section 5.4. Accordingly, except to the extent provided in Sections 4.8 and 5.4, the design and
construction costs, as well as any increased operating and maintenance costs, resulting from
any Design and Construction Requirement Change required under this subsection shall be
borne by the Company. Without limiting the right of the County to issue a Design/Build Work
Change Directive under Section 4.7, any such Design and Construction Requirement Change
and any related change in the terms and conditions of this Service Contract shall be reflected
in a Change Order.

(D) Changes Required by the County. The County shall have the right to
make Design and Construction Requirement Changes at any time prior to Final Completion at
its own discretion for any reason whatsoever, whether and however the exercise of such rights
affects this Service Contract so long as the Company’s rights are protected as provided in this
subsection. The County shall have no obligation to make any Design and Construction
Requirement Change under this Section. The Company shall be entitled to a Change Order
providing appropriate price, schedule, performance and other relief in the event of a Design
and Construction Requirement Change made at the direction of the County under this
subsection, including, as appropriate, any price or performance relief associated with the
impact of any such Design and Construction Requirement Change on the performance of the
Operation Services, if any; provided, however, that the Company shall not be entitled to any
such price, schedule, performance or other relief to the extent that any such Design and
Construction Requirement Change is required due to Company Fault.

SECTION 4.7. DESIGN/BUILD WORK CHANGE DIRECTIVES.

(A) Generally. The parties intend to negotiate the terms of any Change
Order providing for a Design and Construction Requirement Change pursuant to Section 4.6
prior to the Company incurring any costs with respect to any such change or adjustment. The
Company shall consult with the County concerning possible means of addressing any

Draft of October 17, 2008 46


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

proposed Design and Construction Requirement Change pursuant to Section 4.6 and, without
limiting any of the rights of the County under subsection 4.6(A), the Company and the County
shall cooperate in order to minimize any delay and lessen any additional cost in light of such
proposed Design and Construction Requirement Change. However, notwithstanding the
foregoing, the County shall have the right to issue a written order prepared by and signed by
the County directing a Design and Construction Requirement Change pursuant to Section 4.6
(a “Design/Build Work Change Directive”). Upon receipt of a Design/Build Work Change
Directive, the Company shall promptly proceed with the performance of any change in the
Design/Build Work as instructed and shall promptly advise the County in writing of the
Company’s agreement (or disagreement) with any price, performance or schedule relief, if any,
as may be proposed by the County in the Design/Build Work Change Directive. Cost
responsibility for any Design/Build Work Change Directive issued by the County shall be
determined in accordance with the provisions of Section 4.6. If the Company receives a
written communication signed by the County, which the Company believes is a Design/Build
Work Change Directive that is not so identified, it shall not proceed with the purported change
in the Design/Build Work until it receives written confirmation from the County that such
communication is in fact a Design/Build Work Change Directive. A Design/Build Work
Change Directive that is signed by the Company and the County reflecting the scope of work
and any price, schedule and performance relief, if any, shall be deemed a Change Order. All
Design/Build Work Change Directives shall address the impact (including cost), if any, such
change will have on the Operation Services.

(B) Disagreement with Terms of a Design/Build Work Change Directive. If


the Company disagrees in writing with the suggested price, schedule or performance relief, if
any, set out in the Design/Build Work Change Directive, either party may elect to refer the
dispute to Non-Binding Mediation for resolution pursuant to Section 14.15. In such case, the
Company shall keep and present, in such form as the County may request, an itemized
accounting to go with the appropriate supporting data with respect to the Company’s position.
The Company shall provide notice of any disagreement pursuant to this subsection within 30
days after receipt of the Design/Build Work Change Directive.

SECTION 4.8. COMPANY CONSTRUCTION PERMITTING RESPONSIBILITIES.

(A) Applications and Submittals. The Company shall prepare all filings,
applications and reports and take all other action necessary to obtain and maintain, and shall
obtain and maintain, all Company Governmental Approvals necessary to commence, continue
and complete the Design/Build Work and achieve Acceptance and the Biosolids Performance
Standards. Where required under Applicable Law or requested by the County, Company

Draft of October 17, 2008 47


Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

Governmental Approvals shall be obtained in the name of the County or name the County as a
co-permittee, and in connection therewith, the Company shall: (1) prepare the application and
develop and furnish all necessary supporting material; (2) supply all data and information
which may be required; (3) familiarize itself with the terms and conditions thereof; (4) attend
all required meetings and hearings; and (5) take all other action necessary in obtaining,
maintaining, renewing, extending and complying with the terms thereof. All permit and filing
fees required in order to obtain and maintain Company Governmental Approvals shall be paid
by the Company, regardless of the identity of the applicant or permittee, except Company
Governmental Approvals required in connection with an Uncontrollable Circumstance. The
Company shall not disadvantage the County in any application, data submittal or other
communication with any Governmental Body regarding Governmental Approvals. The final
terms and conditions of any Company Governmental Approval shall be subject to the County’s
approval, which approval shall not be unreasonably withheld or delayed.

(B) Data and Information. All data, information and action required to be
supplied or taken in connection with the Company Governmental Approvals shall be supplied
and taken on a timely basis considering the requirements of Applicable Law and the
responsibilities of the County as the legal and beneficial owner of the Facility. The data and
information supplied by the Company to the County and all Governmental Bodies in
connection therewith shall be correct and complete in all material respects, and shall be
submitted in draft form to the County at least 30 days prior to submitting such data and
information to the applicable Governmental Body to allow full and meaningful review and
comment by the County. The Company shall be responsible for any schedule and cost
consequences which may result from the submission of materially incorrect or incomplete
information. The County reserves the right to reject, modify, alter, amend, delete or
supplement any information supplied by the Company pursuant to this Section to the extent
that any such information would impose any unreasonable cost or burden on the County. The
County shall provide the Company with its comments, if any, to the draft data and information
provided by the Company pursuant to this subsection within 15 days following receipt thereof
by the County; provided, however, that no failure or delay by the County in commenting on
any such draft data or information shall in any way relieve the Company of its obligations to
comply with Applicable Law and to design, construct, operate and maintain the Facility in
accordance with the Contract Standards.

(C) Non-Compliance and Enforcement. The Company shall report to the


County, immediately upon obtaining knowledge thereof, all violations of the terms and
conditions of any Governmental Approval or Applicable Law pertaining to the Facility. The

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County shall have the right to independently enforce compliance with this Service Contract
regarding the requirements of any Governmental Approval regardless of whether a concurrent
or different regulatory enforcement action has been undertaken by any other Governmental
Body. The failure of the Company to comply with any Governmental Approval shall constitute
a breach of this Service Contract as well as an event of non-compliance with the Governmental
Approval.

(D) Reports to Governmental Bodies. The Company shall prepare all reports,
make all information submittals and provide all notices to all Governmental Bodies required
by all Governmental Approvals and under Applicable Law with respect to the Design/Build
Work. Such reports shall contain all information required by the Governmental Body, and
may be identical to comparable reports prepared for the County, if such are acceptable to the
Governmental Body. The Company shall provide the County with copies of such regulatory
reports for review, comment and signature, as applicable, at least 15 days before their filing
with the Governmental Body, and the County shall provide the Company with its comments, if
any, and any required signatures, within seven days after receipt by the County of such
regulatory reports; provided, however, that no failure or delay by the County in commenting on
any such regulatory reports shall in any way relieve the Company of its obligations to comply
with Applicable Law and to design, construct, operate and maintain the Facility in accordance
with the Contract Standards.

(E) Potential Regulatory Change. The Company shall keep the County
regularly advised as to potential changes in regulatory requirements affecting the
Design/Build Work of which the Company has knowledge, and provide recommended
responses to such potential changes so as to mitigate any possible adverse economic impact
on the County should a Change in Law actually occur.

(F) Assistance to the County. The Company, at its cost and expense, shall
cooperate with and assist the County in obtaining and maintaining all County Governmental
Approvals. Such cooperation and assistance shall include providing to the County and all
appropriate Governmental Bodies all data, information, plans and documentation that are
within its possession or control (including all information specific to the Design/Build Work
that may exist or be required by such Governmental Bodies to be developed by the Company),
which may be required in order to properly apply for and obtain such Governmental
Approvals. All such data, information, plans and documentation shall be correct and complete
in all material respects and, as applicable, shall be developed by the Company in accordance
with the Contract Standards.

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(G) Company Assumption of Permitting Risk. The Company explicitly


assumes the risk of obtaining and maintaining all Company Governmental Approvals that are
required for the Design/Build Work, including the risk of delay, non-issuance or imposition of
any term or condition in connection therewith by a Governmental Body; provided, however,
that the Company shall be afforded relief from the assumption of such risk in the event of the
occurrence of any Change in Law described in items (a) and (b) of the definition thereof and to
the extent provided under subsections (H), (I) and (J) of this Section. In assuming this risk,
the Company acknowledges that (except as otherwise specifically provided in this Section) the
delay or non-issuance of any Company Governmental Approval required for the
commencement of construction will have the effect of compressing the period within which the
completion of construction, acceptance testing and all other Design/Build Work must be
completed hereunder in order to avoid delay-liquidated damages pursuant to Section 6.8 and
termination pursuant to Section 14.2. The Company further acknowledges that the
Governmental Body, in issuing any Company Governmental Approval, may impose terms and
conditions which require the Company to make changes or additions to the Design/Build
Work which may increase the cost, time or risk to the Company of performing the
Design/Build Work, all of which costs, delays or risks shall be for the account of and borne by
the Company (except as otherwise specifically provided in this Section).

(H) Relief from Certain Permitting Obligations. If in seeking to obtain a


Company Governmental Approval set forth in subsection (I) of this Section from a
Governmental Body, (1) the Company has complied with the requirements of this Service
Contract; (2) the Company has submitted all applications, data, studies, reports, responses
and other information required under Applicable Law and the adopted administrative practice
of the Governmental Body in order to obtain the Governmental Approval; (3) the Company has
in all respects used its best efforts to obtain the Governmental Approval; (4) the Company has
consistently maintained a fully responsive, engaged and respectful professional relationship
with the staff and management of the Governmental Body in a manner that, while not
expressly required under Applicable Law, is generally recognized among regular practitioners
in the permitting field as necessary on a practical level to secure similar permits in a timely
manner in light of the discretion accorded Governmental Bodies under administrative law;
(5) there has been a failure to issue a Company Governmental Approval by the Assumed
Approval Issuance Date set forth in Table 4.8, then the Company shall be entitled to
Uncontrollable Circumstance relief as and to the extent provided in subsection (I) of this
Section and in Section 15.2.

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(I) Assumed Approval Issuance Dates. The Company shall submit


completed applications for each of the Company Governmental Approvals listed below in Table
4.8 by the applicable “Governmental Approval Application Date”. Each such date shall be the
date which is the number of days indicated in the table following the Contract Date. The
“Assumed Approval Issuance Date” is the date by which the applicable Governmental Approval
is expected to be obtained, as measured from the Contract Date and assuming completed
application submittals in accordance with Applicable Law and the adopted administrative
practice of the applicable Governmental Body by the applicable Governmental Approval
Application Date.

Table 4.8

Governmental Approval
Application Date
Company (Number of calendar
Governmental Issuing days from Contract Assumed Approval Issuance
Approval Agency Date) Date
Clearing and Grading City of 106 Governmental Approval
Permit Spokane Application Date plus 30
work days
Building Permits City of 122 Applicable Governmental
Spokane Approval Application Date
136
plus 40 work days for each
150 package
195

Street Use Permit City of 181 Applicable Governmental


Spokane Approval Application Date
plus 10 work days

Uncontrollable Circumstance relief pursuant to this Section and Section 15.2


shall be measured based on the number of days of delay by a Governmental Body in issuing
any required Governmental Approval listed in Table 4.8 of this Section beyond the Assumed
Approval Issuance Date, reduced by (i) the number of days of Company delay in submitting a
complete application in accordance with this Section beyond the applicable Governmental
Approval Application Date, and (ii) the number of days of any Governmental Body delay in
issuing the required Company Governmental Approval due to the failure of the Company to
exercise reasonable diligence in accordance with this Section in securing the Company
Governmental Approval following submittal of the complete application, but only to the extent
any such Governmental Body delay is reasonably expected to cause actual delay in achieving
the Critical Path Completion Date after the exercise of all commercially reasonable mitigation
efforts by the Company. The Company shall bear the burden of proving any claim of

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entitlement to relief under this Section, and shall promptly and regularly inform the County as
matters arise which may culminate in any such claim in order to permit timely intervention by
the County should it so elect.

(J) Failure of a Governmental Body to Comply with Applicable Law. The


Company shall be entitled to claim Uncontrollable Circumstance relief in accordance with and
to the extent provided in Section 15.2 in the event of a failure of a Governmental Body to
comply with Applicable Law in denying a Company Governmental Approval or in imposing
unreasonable terms and conditions in connection with a Company Governmental Approval.

SECTION 4.9. COUNTY PERMITTING RESPONSIBILITIES.

(A) County Permitting Responsibilities Generally. The County shall prepare


all filings, applications and reports and take all other action necessary to obtain and maintain,
and shall obtain and maintain, all County Governmental Approvals. In addition, the County,
at its cost and expense, shall cooperate with and assist the Company in connection with the
Company’s obligation to obtain and maintain the Company Governmental Approvals, including
signing permit applications, attending public hearings and meetings of the Governmental
Bodies charged with issuing such Company Governmental Approvals, and providing the
Company with existing relevant data and documents that are within its custody or control and
which are reasonably required for such purpose; provided, however, that the County’s
obligation to provide such assistance shall be limited, in light of the Company’s primary role in
the permitting and development of the Facility, to those actions which are legally required to
be taken by the County as permittee or which involve providing information which is in the
possession of the County. Any such assistance shall be provided upon the reasonable request
of the Company made directly to the County. This covenant shall not obligate the County to
staff the Company’s permitting efforts, to undertake any new studies or investigations with
respect to the Facility, or to affirmatively seek to obtain the issuance of the Company
Governmental Approvals required under this Section. The County, however, shall not take
any action which seeks to cause the denial or delay of the issuance of a Company
Governmental Approval or otherwise interfere with the Company’s efforts in obtaining the
Company Governmental Approvals. Any agreement by the County to cooperate or assist does
not in any way obligate the County with respect to usual and customary County permitting,
code compliance and other regulatory reviews as they may relate to the Company or the
Company’s requirements hereunder. The outcome of any regulatory review or action
undertaken by the County involving the Company will be independent of and in no way
biased, prejudiced, or predetermined in any way by this Service Contract. Nothing in this

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Service Contract is intended or shall be construed to require that the County exercise its
discretionary authority under its regulatory ordinances in a manner favorable to the Company.

(B) Ecology Requirements and the NPDES Permit. The provisions of


Article V shall govern the respective rights and responsibilities of the parties with respect to
Ecology requirements during the Design/Build Period and the NPDES Permit.

SECTION 4.10. COMPLIANCE WITH APPLICABLE LAW.

(A) Compliance with Applicable Law Generally. The Company shall, and
shall cause all Subcontractors to, perform the Design/Build Work in accordance with
Applicable Law and all other applicable Contract Standards, and shall observe the same safety
standards as are set forth in Section 8.9 with respect to the operation of the Facility and such
other safety requirements set forth in Appendix 9. The Company shall provide all notices
required by Applicable Law and in accordance with the Contract Standards. The
incorporation, reference or citation of specific statutes or other parts of Applicable Law in this
Service Contract is not intended, nor shall it be construed, to limit the generality of the
Company’s and all Subcontractors’ obligations to comply with Applicable Law (whether or not
specifically incorporated or referenced in this Service Contract). The Company shall be
entitled to Change in Law relief only to the extent provided in Section 15.2.

(B) Compliance with Conditions in Governmental Approvals.


Notwithstanding the Company’s right to seek Uncontrollable Circumstance relief in accordance
with and to the extent permitted in Section 15.2, the Company shall comply with all conditions
and requirements of all Governmental Approvals required to be made, obtained or maintained
under Applicable Law in connection with the performance of the Design/Build Work.

(C) Governmental Approvals Necessary for Continued Construction.


Notwithstanding the Company’s right to seek Uncontrollable Circumstance relief in accordance
with and to the extent permitted in Section 15.2, the Company shall make all necessary
filings, applications and reports necessary to obtain and maintain all Governmental Approvals
required to be made, obtained or maintained under Applicable Law in connection with the
continuance of the Design/Build Work once commenced. The County shall cooperate with the
Company in connection with the foregoing undertaking.

(D) Fines, Penalties and Remediation. Except to the extent excused by


Uncontrollable Circumstances, in the event that the Company or any Subcontractor fails at
any time to comply with Applicable Law with respect to the Design/Build Work, the Company
shall, without limiting any other remedy available to the County upon such an occurrence and
notwithstanding any other provision of this Service Contract: (1) immediately correct such

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failure and resume compliance with Applicable Law; (2) indemnify the County for all Loss-and-
Expense resulting therefrom in accordance with Section 15.3; (3) pay or reimburse the County
for any resulting fines, assessments, levies, impositions, penalties or other charges; (4) make
all changes in performing the Design/Build Work which are necessary to assure that the
failure of compliance with Applicable Law will not recur; and (5) comply with any corrective
action plan filed with or mandated by any Governmental Body in order to remedy a failure of
the Company to comply with Applicable Law.

SECTION 4.11. ENVIRONMENTAL MITIGATION MEASURES. The County has


prepared a complete environmental impact statement with respect to the Facility in accordance
with Applicable Law. The published EIS requires specific environmental mitigation measures,
set forth in Reference Document 3, to be completed in connection with the Design/Build Work.
The Environmental Mitigation Measures constitute part of the Design and Construction
Requirements, which the Company is obligated to carry out and comply with hereunder. In the
event that any EIS mitigation measure not specifically set forth in the Environmental Mitigation
Measures is required for the Design/Build Work, the Company shall be entitled to
Uncontrollable Circumstance relief in accordance with and to the extent provided in
Section 15.2, unless such mitigation measure is otherwise required by the Contract Standards.

SECTION 4.12. CONSTRUCTION MONITORING, OBSERVATIONS, TESTING


AND UNCOVERING OF WORK.

(A) Observations and Design/Build Work Review Protocol. During the


progress of the Design/Build Work through Final Completion, the Company shall at all times
during normal working hours afford designated representatives of the County and the County
Engineering Representative every reasonable opportunity for observing all Design/Build Work
at the Site, and shall comply with the Design/Build Work review procedures set forth in
Appendix 4. During any such observation, all representatives of the County and the County
Engineering Representative shall comply with all reasonable safety and other rules and
regulations applicable to presence in or upon the Site, and shall in no material way interfere
with the Company’s performance of any Design/Build Work.

(B) Tests. The Company shall conduct all tests or inspections of the
Design/Build Work (including shop tests) required by the Contract Standards. The Company
shall give the County and the County Engineering Representative reasonable advance notice of
tests or inspections prior to the conduct thereof. In no event shall the inability, failure, or
refusal of the County or the County Engineering Representative to attend or be present at or
during any such test or inspection, delay the conduct of such test or inspection, delay the
performance of the Design/Build Work, or otherwise serve as the basis for relief from the

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Company’s obligations hereunder. If required by Applicable Law or the Insurance


Requirements, the Company shall engage a licensed engineer or architect to conduct or
witness any such test or inspection. All analyses of test samples shall be conducted by
persons appearing on lists of laboratories authorized to perform such tests by the State or
federal agency having jurisdiction or, in the absence of such an authorized list in any
particular case, shall be subject to the approval of the County, which shall not be
unreasonably withheld or delayed. Acceptance Testing and Biosolids Performance Testing
shall be conducted in accordance with Article VI.

(C) County Observations, Inspections and Tests. The County and the
County Engineering Representative may at any reasonable time conduct such on-site
observations and inspections, and such civil, structural, mechanical, electrical, chemical, or
other tests as the County or the County Engineering Representative deems necessary or
desirable to ascertain whether the Design/Build Work complies with this Service Contract.
The Company shall not restrict the ability of the County or the County Engineering
Representative to take progress photographs of the Design/Build Work. The County shall pay
for any such test, observation or inspection and incur any costs directly resulting from a delay
in performing the Design/Build Work caused by such test or inspection, unless such test,
observation or inspection is otherwise required by the Contract Standards or reveals a
material failure of the Design/Build Work to comply with this Service Contract or Applicable
Law, in which event the Company shall bear all reasonable costs and expenses of such
observation, inspection or test and of any such delays.

(D) Taking Apart, Uncovering and Replacing Design/Build Work. The


Company shall give the County notice in the Monthly Progress Report of its upcoming
schedule with respect to the covering and completion of any Design/Build Work, and shall
update such notice, if necessary, within a reasonable time period before such covering and
completion. The County shall give the Company reasonable notice, but in no event less than
one day’s notice, of any intended inspection or testing of such Design/Build Work in progress
prior to the anticipated date of its covering or completion. If the County provides such notice,
the Company shall afford the County a reasonable opportunity to conduct such tests or
inspections, which the County shall promptly complete. At the County’s written request, the
Company shall take apart or uncover for inspection or testing any previously-covered or
completed Design/Build Work; provided, however, that the County’s right to make such
requests shall be limited to circumstances where there is a reasonable basis for concern by the
County as to whether the disputed Design/Build Work conforms with the requirements of this
Service Contract. The cost of uncovering, taking apart, or replacing such Design/Build Work

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along with the costs related to any delay in performing Design/Build Work caused by such
actions, shall be borne as follows:

(1) by the Company, if such Design/Build Work has been covered prior to
any observation or test required by the Contract Standards or if such Design/Build Work has
been covered prior to any observation or test as to which the County has provided notice of its
intention to conduct in accordance with this subsection; and
(2) in all other cases, as follows:
(i) by the Company, if such observation or test reveals that the
Design/Build Work does not comply with this Service Contract; or

(ii) by the County, if such observation or test reveals that the


Design/Build Work complies with this Service Contract.

In the event such Design/Build Work does comply with this Service Contract, the delay caused
by such observation or test shall be treated as having been caused by an Uncontrollable
Circumstance and any costs incurred with respect to or as a result of such observation or test,
including re-assembly and re-covering of Design/Build Work shall be borne by the County in
accordance with Section 15.2.

SECTION 4.13. CORRECTION OF NON-CONFORMING DESIGN/BUILD


WORK.

(A) Correction of Non-Conforming Design/Build Work. Throughout the


Design/Build Period, the Company, at its sole cost and expense, shall repair, restore, rebuild,
replace re-perform and correct promptly, any Design/Build Work that does not conform with
the Contract Standards. In the event of a failure of the Company to correct any such
nonconforming Design/Build Work, the County shall have the right, but not the obligation, to
correct or provide for the correction of such nonconforming Design/Build Work and the
Company shall be required to pay for all costs and expenses incurred by the County in
connection therewith. The County shall provide the Company with seven days’ advance
written notice prior to exercising its right to correct or provide for the correction of any
nonconforming Design/Build Work pursuant to this subsection.

(B) Elective Acceptance of Defective Design/Build Work. The County may


elect, at the Company’s request, to accept non-conforming Design/Build Work and charge the
Company (through a Fixed Design/Build Price Adjustment, adjustment to the Service Fee, or
both, as appropriate) for the amount agreed upon by the parties, which amount shall reflect
the reduction in value of the Design/Build Work.

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(C) Relation to Other Obligations. The obligations specified in subsection (A)


of this Section establish only the Company’s specific obligation to correct the Design/Build
Work and shall not be construed to establish any limitation with respect to any other
obligations or liabilities of the Company under this Service Contract. This Section is intended
to supplement (and not to limit) the Company’s obligations under the Acceptance Test
Procedures and Standards, the Biosolids Performance Standards, the Performance Guarantees
and any other provision of this Service Contract or Applicable Law.

SECTION 4.14. DAMAGE TO THE FACILITY.

(A) Damage Prevention. In performing the Design/Build Work, the Company


shall use care and diligence, and shall take all appropriate precautions to protect the Facility
from loss, damage or destruction in accordance with the Contract Standards.

(B) Restoration. During the Design/Build Period, in case of damage to the


Facility, and regardless of the extent thereof or the estimated cost of restoration, and whether
or not any insurance proceeds are sufficient or available for the purpose, the Company shall
promptly undertake and complete restoration of the damage to the Facility to the character
and condition existing immediately prior to the damage and in accordance with the procedures
set forth herein, as applicable, regarding Uncontrollable Circumstances and Change Orders.
The County shall have the right to monitor, review and inspect the performance of any repair,
replacement and restoration work by the Company in accordance with this Article. If the
Company fails to undertake restoration of the damage, or having so commenced fails to
complete restoration in accordance with this Service Contract, the County may (but shall not
be obligated to) undertake or complete restoration at the Company’s expense to the extent
applicable.

(C) Notice and Reports. The Company shall notify the County, any other
appropriate Governmental Body, and the insurers under any applicable Required Insurance of
any damage to the Facility, or any accidents on the Site related to the Design/Build Work or
otherwise caused by the Company, as promptly as reasonably possible after the Company
learns of any such damage or accidents; and, as soon as practicable after learning of any such
occurrence (but in no event later than 72 hours), the Company shall submit a full and
complete written report to the County Engineering Representative and the County. Such
report shall be updated on a weekly basis and upon culmination of all tests, analysis and
reviews, a final report incorporating all of the tests, analysis and reviews and the findings
thereof shall be submitted to the County. The Company shall also submit to the County
Engineering Representative and the County copies of all accident and other reports filed with
(or given to the Company by) any insurance company, adjuster, or Governmental Body or

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otherwise prepared or filed in connection with the damage or accident. Prior to resuming
work, the Company shall provide written authorization from OSHA (and any other
Governmental Body required under Applicable Law) and a report of a qualified independent
engineer certifying that it is safe to resume such work.

(D) Insurance and Other Third-Party Payments. To the extent that any
repair, replacement or restoration costs incurred pursuant to this Section can be recovered
from any insurer or from another third party, each party shall assist each other in exercising
such rights as it may have to effectuate such recovery. Each party shall provide the other with
copies of all relevant documentation, and shall cooperate with and assist the other party upon
request by participating in conferences, negotiations and litigation regarding insurance claims.

(E) Uninsured Costs. The County shall provide all funds necessary to pay
the costs of repairing, replacing and restoring the Facility in accordance with this Section and
all insurance proceeds and recoveries from third parties resulting from damage to or the loss
or destruction of the Facility shall be for the account of the County; provided, however, that
such costs not covered by insurance proceeds or third-party payments shall be borne by the
Company to the extent the loss, damage or destruction was caused by Company Fault.

SECTION 4.15. PATENT, COPYRIGHT AND OTHER PROTECTED MATERIAL.

(A) Property of the County. The Design and Construction Requirements, all
other documents forming part of this Service Contract, and the Deliverable Material shall be
“works for hire” and, subject to the provisions of subsection (C) of this Section, shall remain
the property of the County and the County shall own all copyrights thereto, regardless of any
termination of this Service Contract. The County’s use of any such “works for hire” for any
purpose other than the Facility shall be at its own risk and the Company shall have no liability
therefor.

(B) Delivery of Deliverable Material. As the Design/Build Work progresses


(or upon the termination of the Company’s right to perform the Design/Build Work), the
Company shall deliver to the County all Deliverable Material as otherwise required herein.

(C) Software and Other Computer Programs as Part of the Deliverable


Material. The County acknowledges that some of the software and other computer programs
constituting Deliverable Material hereunder may be licensed to the Company or its
Subcontractors by third parties. The Company shall ensure that the terms and conditions of
any such third party licenses are reasonable and in accordance with industry standards and
that such licenses will be granted to the County for perpetual use in connection with the
Facility, subject to such terms and conditions. Confirmation of such license grant(s) shall be

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provided by the Company upon any termination of this Service Contract as a condition of any
final payment required to be made by the County upon termination.

(D) Use of Deliverable Material, Processes and Equipment. Except as


provided in subsection (C) of this Section, if any Deliverable Material, process or equipment
utilized in the Design/Build Work is patented or copyrighted by other persons (or is or may be
subject to other protection from use or disclosure), the County (and Ecology and EPA) shall
have a royalty-free perpetual license to use the same with respect to the Facility. The County
shall have the right to use (or permit use of) all such Deliverable Material, process or
equipment, all oral information whatsoever received by the County in connection with the
Design/Build Work, and all ideas or methods represented by such Deliverable Material,
process or equipment, at any time without additional compensation, but solely for purposes of
the ownership, construction and operation of the Facility.

(E) Infringement of Deliverable Material, Process or Equipment. The


provisions of Section 17.3 shall be applicable in the event the Company or the County is
enjoined or otherwise legally prohibited from using any Deliverable Material, process or
equipment (or any affected Design/Build Work).

SECTION 4.16. PERSONNEL.

(A) Personnel Performance. The Company shall enforce discipline and good
order at all times among the Company’s employees and all Subcontractors. All persons
engaged by the Company for Design/Build Work shall have requisite skills for the tasks
assigned. All firms and personnel performing Design/Build Work, including Subcontractor
firms and personnel, shall meet the licensing and certification requirements imposed by
Applicable Law. Section 17.7 shall be applicable to the Company’s use of Subcontractors in
connection with the Design/Build Work.

(B) Design/Build Manager. The Company hereby appoints Dennis Nelson as


the manager of the Design/Build Work (the “Design/Build Manager”), who shall be present on
the Site with any necessary assistants on a full-time basis when the Company or any
Subcontractor is performing the Design/Build Work. The Design/Build Manager shall, among
other things:

(1) be familiar with the Design/Build Work and all requirements of this
Service Contract;

(2) coordinate the Design/Build Work and give the Design/Build Work
regular and careful attention and supervision;

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(3) maintain a daily status log of the Design/Build Work; and

(4) attend all monthly management meetings, weekly construction meetings


and applicable design-related meetings with the County and the County Engineering
Representative.

The Company may replace Dennis Nelson as the Design/Build Manager solely in accordance
with the provisions of subsection (C) of this Section. The Design/Build Manager is hereby
vested with the authority to act on behalf of the Company in connection with the performance
of the Design/Build Work and to bind the Company with respect to any certification required
under this Service Contract to be made by the Design/Build Manager.

(C) County Rights With Respect to Key Personnel. The Company


acknowledges that the identity of the key management and supervisory personnel proposed by
the Company and its Subcontractors in its proposal submitted in response to the RFP was a
material factor in the selection of the Company to perform this Service Contract. The
Company’s key management and supervisory personnel and their affiliations are set forth in
Appendix 15. The Company shall utilize such personnel to perform such services unless any
such personnel becomes unavailable to the Company due to an event beyond the control of the
Company. If the availability of any such personnel becomes limited or is entirely eliminated
due to an event beyond the control of the Company, the Company shall immediately notify the
County in writing and shall replace such personnel with personnel of similar experience and
capabilities, subject to the prior review and approval of the County, which shall not be
unreasonably withheld or delayed. The parties shall execute a Contract Administration
Memorandum evidencing any change to Company personnel pursuant to this Section.

(D) Labor Disputes. The Company shall furnish labor that can work in
harmony with all other elements of labor employed for the performance of the Design/Build
Work. The Company shall have exclusive responsibility for disputes or jurisdictional issues
among unions or trade organizations representing employees of the Company or its
Subcontractors, whether pertaining to organization of the Design/Build Work, arrangement or
subdivision of the Technical Specifications, employee hiring, or any other matters. The County
shall have no responsibility whatsoever for any such disputes or issues and the Company
shall indemnify, defend and hold harmless the County Indemnitees in accordance with
Section 15.3 from any and all Loss-and-Expense resulting from any such labor dispute.

(E) Prevailing Wages. The Company shall pay or cause to be paid by its
Subcontractors prevailing wages for all labor engaged in connection with the Design/Build

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article IV - Permitting, Design and
Construction of the Facility

Work in accordance with the rate determined by the Industrial Statistician of the Washington
State Department of Labor and Industries pursuant to Chapter 39.12 RCW.

SECTION 4.17. WARRANTIES.

The Company warrants to the County that the structures, improvements,


fixtures, machinery, equipment and materials incorporated in the Facility will be new, of recent
manufacture, of good quality, free from faults and defects, suitable for its intended purpose (as
set forth in the Technical Specifications) and in conformity with the Contract Standards. The
Company shall, for the protection of the County, obtain from all Subcontractors, vendors,
suppliers and other persons from which the Company procures structures, improvements,
fixtures, machinery, equipment and materials in connection with the Design/Build Work such
warranties and guarantees as are normally provided with respect thereto, each of which shall
be assigned to the County to the full extent of the terms thereof. No such warranty or
guarantee shall relieve the Company of any obligation hereunder, and no failure of any
warranted structures, improvements, fixtures, machinery, equipment or material shall be the
cause for any increase in the Fixed Design/Build Price or the Service Fee or non-performance
of the Contract Services unless such failure is itself attributable to an Uncontrollable
Circumstance.

Draft of October 17, 2008 61


ARTICLE V

ECOLOGY REQUIREMENTS AND THE NPDES PERMIT

SECTION 5.1. ECOLOGY’S ROLE GENERALLY. The parties acknowledge that


Ecology has been designated as the State water pollution control agency for all purposes of the
Clean Water Act pursuant to RCW 90.48.260, with jurisdiction to control and prevent the
pollution of the waters of the State pursuant to RCW 90.48.030, and is the Governmental Body
responsible for the issuance of the NPDES Permit. Pursuant to RCW 90.48.110, Ecology must
approve engineering reports, plans, and specifications for the construction of the Facility and
the method of future operation and maintenance of the Facility before construction may begin.
Ecology approved the Facilities Plan and the Primary Design Document prior to the Contract
Date in accordance with Applicable Law, enabling the parties to undertake their respective
obligations under this Service Contract.

SECTION 5.2. ECOLOGY REQUIREMENTS DURING THE DESIGN/BUILD


PERIOD.

(A) The Primary Design Document. The parties acknowledge that the
Primary Design Document has been incorporated into the Technical Specifications. Without
limiting the Company’s rights and responsibilities with respect to the Technical Specifications
under this Service Contract, the Company shall be responsible for ensuring that all
Design/Build Work complies with the Primary Design Document and shall prepare and submit
all plans, reports and other materials required after the Contract Date pursuant to WAC 173-
240. The Company shall be responsible for obtaining all approvals required after the Contract
Date pursuant to WAC 173-240, including the declaration of construction required pursuant
to WAC 173-240-090.

(B) County Review of WAC 173-240 Submittals on Behalf of Ecology. The


County has entered into the Delegation Agreement with Ecology, which formally delegates
certain review activities that Ecology would otherwise perform from Ecology to the County’s
Division of Utilities, as authorized by RCW 90.48.110(2) and as more particularly described in
the Delegation Agreement. Pursuant to the Delegation Agreement, the County, in its
governmental capacity on behalf of Ecology, will review the specified reports, plans and other
materials required after the Contract Date pursuant to WAC 173-240 for conformance with the
Primary Design Document, the Facilities Plan and the requirements of WAC 173-240. The
County, in its review capacity delegated under the Delegation Agreement, will provide
comments related to a submittal’s conformance with the Primary Design Document, the
Facilities Plan and the requirements of WAC 173-240 within 21 days after receiving such
submittals. In no way shall such County review be construed as acceptance by the County, as

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

the owner of the Facility and the counterparty to the Company under this Service Contract, of
the reviewed materials under this Service Contract, nor shall it relieve the Company from its
obligations to meet the performance and other requirements of this Service Contract. The
Company acknowledges that it bears the risk of demonstrating that the reports, plans and
other materials submitted pursuant to this Section comply with the Primary Design
Document, the Facilities Plan and the requirements of WAC 173-240. Accordingly, if either
Ecology or the County, in its governmental capacity under the Delegation Agreement,
determines that a submittal is not in conformance with the Primary Design Document, the
Facilities Plan or the requirements of WAC 173-240, the Company shall be required to correct
the submittal and shall not be entitled to any price, schedule or performance relief hereunder.
Under the Delegation Agreement, Ecology retains full authority over the approval of any
substantive deviations from the Primary Design Document and any other documents approved
by Ecology. Nothing in this Section shall limit the Company’s right to Uncontrollable
Circumstance relief in accordance with Section 5.4 in the event that Ecology requires changes
from the Primary Design Document in connection with the finalization of the terms and
conditions of the initial NPDES Permit.

(C) Ecology Access to Records and Site. The Company shall provide Ecology
personnel with safe access to the Site and to the Company’s records pertaining to the
Design/Build Work.

SECTION 5.3. OBTAINING THE INITIAL NPDES PERMIT.

(A) Responsibility for Obtaining the Initial NPDES Permit. The County shall
have primary responsibility for obtaining the initial NPDES Permit and shall prepare all filings,
applications and reports and take all other action necessary to obtain the initial NPDES
Permit, subject to the Company’s obligations pursuant to this Section. The County shall pay
all permit and filing fees required in order to obtain the initial NPDES Permit.

(B) Company Assistance. The Company, at its cost and expense, shall
cooperate with and assist the County in obtaining the initial NPDES Permit. Such cooperation
and assistance shall include providing to the County and Ecology all data, information, plans
and documentation that are within its possession or control (including all information specific
to the Contract Services that may exist or be required by Ecology to be developed by the
Company), which may be required in order to properly apply for and obtain the initial NPDES
Permit. All such data, information, plans and documentation shall be correct and complete in
all material respects and shall be developed by the Company in a timely manner in accordance
with the Contract Standards. In addition, the Company shall familiarize itself with the terms
and conditions of the initial NPDES Permit, attend all required meetings and hearings and

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

take all other action necessary or otherwise reasonably requested by the County in order to
assist or support the County in obtaining the initial NPDES Permit.

SECTION 5.4. TERMS AND CONDITIONS OF THE INITIAL NPDES PERMIT.

(A) Relationship to the Contract Standards in Effect as of the Contract Date.


The parties acknowledge and agree that the Contract Standards in effect as of the Contract
Date, including the Technical Specifications and the Performance Guarantees, have been
established, in part, based on the expected terms and conditions of the initial NPDES Permit.
The parties shall use all reasonable efforts in applying for the initial NPDES Permit to obtain
terms and conditions thereof consistent with the Contract Standards in effect as of the
Contract Date.

(B) NPDES Terms and Conditions Consistent with the Contract Standards in
Effect as of the Contract Date. In the event that the terms and conditions of the initial NPDES
Permit are materially consistent with the Contract Standards in effect as of the Contract Date,
the Company shall comply with the terms and conditions applicable to the Company under
the NPDES Permit and shall not be entitled to any price, performance or schedule relief under
this Section.

(C) Additional or More Stringent NPDES Terms and Conditions Not


Requiring Facility Modifications or Resulting in Increased Operating Expenses. In the event
that the terms and conditions of the initial NPDES Permit include additional requirements or
more stringent requirements than the requirements of the Contract Standards in effect as of
the Contract Date, but which do not require Facility modifications and are not reasonably
expected to result in increased operating expenses to the Company in performing the
Operation Services, the Company shall comply with the terms and conditions applicable to the
Company under the NPDES Permit and shall not be entitled to any price, performance or
schedule relief under this Section.

(D) Additional or More Stringent NPDES Terms and Conditions Requiring


Facility Modifications or Resulting in Increased Operating Expenses. In the event that the
terms and conditions of the initial NPDES Permit include additional requirements or more
stringent requirements than the requirements of the Contract Standards in effect as of the
Contract Date, and which require Facility modifications or are reasonably expected to result in
increased operating expenses to the Company in performing the Operation Services, the
Company shall comply with the terms and conditions applicable to the Company under the
NPDES Permit; provided, however that the Company shall be entitled to Uncontrollable
Circumstance relief for any increased operating expenses or reasonably required Facility

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

modifications in accordance with and to the extent provided in this subsection and Section
15.2. The Company shall provide the County with written notice of its determination and
reasoning as to whether and why the terms and conditions of any draft or final initial NPDES
Permit contains conditions or requirements which are more stringent than the Contract
Standards in effect as of the Contract Date within 15 days following receipt of information as
to proposed conditions or requirements to be contained in the initial NPDES Permit. The
Company acknowledges that a requirement that the Company be named as a co-permittee
under the NPDES Permit shall not constitute grounds for Uncontrollable Circumstance relief
under this Section and that Section 5.6 shall govern all issues associated with any
requirement of Company co-permittee status on the NPDES Permit. In the event that Facility
modifications are reasonably required in order to comply with the terms and conditions of the
initial NPDES Permit, the Company shall be entitled to a Change Order in accordance with
and to the extent provided in subsection 4.6(C) and the County shall be responsible for the
design and construction costs, as well as increased operating and maintenance costs,
associated therewith. Nothing in this Section shall limit the Company’s responsibility to
comply with all terms and conditions of the NPDES Permit (other than those terms and
conditions which are specific to the obligations of the County hereunder) in accordance with
the terms and conditions of this Service Contract.

SECTION 5.5. RECLAIMED WATER PROJECT ALTERNATIVES. The parties


acknowledge and agree that the County may, in its sole discretion, issue a Change Order
during the Design/Build Period or require the Company to implement a Capital Modification
under Section 12.6 during the Operation Period in order to modify the Facility to provide for
the treatment of Influent to produce reclaimed water as an alternative to the discharge of
Effluent to the Spokane River. In such event, the County shall have primary responsibility for
obtaining any initial Reclaimed Water Permit and shall prepare all filings, applications and
reports and take all other action necessary to obtain the initial Reclaimed Water Permit. The
County shall pay all permit and filing fees required in order to obtain the initial Reclaimed
Water Permit, and the Company shall provide assistance with respect to obtaining any such
Reclaimed Water Permit in accordance with subsection 5.3(B). The design and construction
costs (including permitting costs) associated with, as well as any impact on the cost of
operating and maintaining, any Facility modifications required for any such reclaimed water
project alternative, shall be addressed in the associated Change Order or Service Contract
Amendment, as applicable.

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

SECTION 5.6. COMPANY CO-PERMITTEE STATUS ON THE NPDES PERMIT OR


ANY RECLAIMED WATER PERMIT.

(A) Requirement of Company Co-Permittee Status on the NPDES Permit or


Any Reclaimed Water Permit. The Company acknowledges that Ecology may require the
Company to be named as a co-permittee on the NPDES Permit. In addition, the Company
acknowledges that Ecology or any other applicable Governmental Body may require the
Company to be named as a co-permittee on any Reclaimed Water Permit. The Company shall
agree to be named as a co-permittee on the NPDES Permit and on any Reclaimed Water Permit
if required by Ecology or any other Governmental Body in accordance with Applicable Law and
agrees that no such requirement shall constitute a Change in Law hereunder. In such event,
the parties shall use all reasonable efforts in applying for the NPDES Permit or any Reclaimed
Water Permit to provide that the terms and conditions thereof allocate responsibility
thereunder in accordance with the terms and conditions of this Service Contract.

(B) Company Challenge to Co-Permittee Status. The Company shall bear all
risk, cost and expense associated with any Company challenge any requirement that the
Company be named as a co-permittee on the NPDES Permit or any Reclaimed Water Permit.
In no event shall the Company be entitled to any price, schedule or performance relief
hereunder as a result of any such Company challenge to co-permittee status on the NPDES
Permit or any Reclaimed Water Permit.

(C) County Indemnification in the Event of Company Co-Permittee Status on


the NPDES Permit or Any Reclaimed Water Permit. The County agrees that, in the event that
the Company is required to be a co-permittee on the NPDES Permit or any Reclaimed Water
Permit, the County shall, to the fullest extent permitted by law, indemnify, defend and hold
harmless the Company and its officers, directors and employees (each a “Company
Indemnitee”) from and against (and pay the full amount of) any and all Loss-and-Expense
incurred by a Company Indemnitee to third parties arising from or in connection with (or
alleged to arise from or in connection with) any failure of the County to perform its obligations
under the NPDES Permit, Reclaimed Water Permit or Applicable Law. The Company
acknowledges and agrees that the County’s indemnification obligations hereunder apply only
to third-party claims relating to the Company’s status as a co-permittee on the NPDES Permit
or any Reclaimed Water Permit, as applicable. The County’s indemnity obligations hereunder
shall not be limited by any coverage exclusions or other provisions in any insurance policy
maintained by the County that is intended to respond to such events, but shall be limited to
the extent provided in Section 17.2. Notwithstanding any of the foregoing, the County shall
not be required to reimburse or indemnify any Company Indemnitee for any Loss-and-Expense

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

to the extent caused by a failure of the Company to perform its obligations under this Service
Contract or by the negligence or willful misconduct of any Company Indemnitee. A Company
Indemnitee shall promptly notify the County of the assertion of any claim against it for which
it is entitled to be indemnified hereunder, and the County shall have the right to assume the
defense of the claim in any Legal Proceeding and to approve any settlement of the claim.
These indemnification provisions are for the protection of the Company Indemnitees only and
shall not establish, of themselves, any liability to third parties. The provisions of this Section
shall survive termination of this Service Contract; provided, however, that this indemnification
shall apply solely to events occurring during any period when the Company is named as a co-
permittee on the NPDES Permit or any Reclaimed Water Permit. The County shall have no
obligation to indemnify any Company Indemnitee in the event that the Company is not
required to be named as a co-permittee on the NPDES Permit or any Reclaimed Water Permit
or with respect to events occurring during any period when the Company is not listed as a co-
permittee on the NPDES Permit or any Reclaimed Water Permit.

(D) Upsets and Excessive Influent and Company Co-Permittee Status. The
Company shall be entitled to reimbursement of its reasonable legal fees and expenses as part
of the cost relief provided under Section 15.2 in the event it is required to defend a lawsuit
alleging violations of the NPDES Permit or any Reclaimed Water Permit as a result of its status
as a co-permittee on the NPDES Permit or any Reclaimed Water Permit to the extent that such
alleged violations result from the occurrence of an Upset or the receipt of Excessive Influent in
accordance with Sections 10.7 and 15.2. The County shall have the right to assume the
defense of any such lawsuit and to approve the settlement of any claim. Nothing in this
subsection shall limit or otherwise affect the Company’s obligations under this Service
Contract in the event of the occurrence of an Upset or the receipt of Excessive Influent.

(E) Service Contract Termination and Company Co-Permittee Status. Upon


any termination of this Service Contract, the parties shall use all reasonable efforts to cause
the Company to be removed from the NPDES Permit or Reclaimed Water Permit, as applicable,
concurrently with, or as soon as is reasonably practicable following, the termination or
expiration of this Service Contract, consistent with Applicable Law. The County acknowledges
and agrees that its indemnification obligations shall apply in accordance with and to the
extent provided in subsection (C) of this Section during any period following termination of this
Service Contract when the Company continues to be named as a co-permittee on the NPDES
Permit or any Reclaimed Water Permit.

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

SECTION 5.7. NPDES PERMIT RENEWALS AND COMPLIANCE.

(A) Company Responsibility for NPDES Permit Renewals. The Company, in a


timely manner, shall make all applications necessary to obtain and maintain, and shall obtain
and maintain, all renewals of the NPDES Permit during the Term. The Company shall be
entitled to seek Uncontrollable Circumstance relief in accordance with Section 15.2 in the
event that the terms and conditions imposed in connection with a renewal of the NPDES
Permit are more stringent than the terms and conditions of the initial NPDES Permit and such
terms and conditions (1) require Facility modifications or are reasonably expected to result in
increased operating expenses, and (2) are not imposed as a result of Company Fault. The
Company shall pay all permit and filing fees required in order to obtain and maintain renewals
of the NPDES Permit, regardless of the identity of the applicant. Without limiting the
generality of the foregoing, the Company, in a timely manner, shall: (1) prepare the
application and develop and furnish all necessary supporting material; (2) supply all data and
information that may be required; (3) familiarize itself with the terms and conditions of the
NPDES Permit; (4) attend all required meetings and hearings; and (5) take all other action
necessary, including any action reasonably requested by the County, in order to obtain,
maintain, renew and extend the NPDES Permit throughout the Term. The Company shall
manage the process of obtaining and maintaining all renewals of the NPDES Permit in a
manner that affords the County a full opportunity to review and comment on all permit
application materials and documentation submitted to and issued by Ecology in connection
therewith as provided in Appendix 9, including all draft NPDES Permits and fact sheets. The
Company shall not knowingly take any action in any application, data submittal or other
communication in connection with any renewal of the NPDES Permit or the terms and
conditions thereof that would impose an unreasonable cost or burden on the County.

(B) Data and Information. All data, information and action required to be
supplied or taken by the Company in connection with the NPDES Permit shall be supplied and
taken on a timely basis considering the requirements of Applicable Law and the
responsibilities of the County as the legal and beneficial owner of the Facility and primary
permittee. The data and information supplied by the Company to the County and Ecology
shall be correct and complete in all material respects, and shall be submitted in draft form to
the County seven days in advance of submittal to Ecology to allow full and meaningful review
and comment by the County. The Company shall be responsible for any schedule and cost
consequences that may result from the submission of materially incorrect or incomplete
information. The parties shall use reasonable efforts to agree on the content of any
information to be submitted to Ecology pursuant to this subsection prior to submittal.

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

(C) Non-Compliance and Enforcement. Each party shall report to the other,
immediately upon obtaining knowledge thereof, all violations of the terms and conditions of
the NPDES Permit or Applicable Law pertaining to the Facility and shall have all obligations
and responsibilities with respect thereto as set forth in this Service Contract. The County
shall have the right independently to enforce compliance with this Service Contract regarding
the requirements applicable to the Company under the NPDES Permit regardless of whether a
concurrent or different regulatory enforcement action has been undertaken by Ecology or a
third party. The failure of the Company to comply with the requirements applicable to the
Company under the NPDES Permit shall constitute a breach of this Service Contract by the
Company as well as an event of non-compliance with the NPDES Permit.

(D) Reports to Ecology. The Company shall prepare all periodic and annual
reports, make all information submittals and provide all notices to Ecology required by the
NPDES Permit with respect to the Company’s obligations thereunder, including sampling and
testing results and monthly discharge monitoring reports. Such reports shall contain all
information required by Ecology, and may be identical to comparable reports prepared for the
County, if such are acceptable to Ecology. The Company first shall provide the County with
copies of such regulatory reports for review, comment and signature, as applicable, in
accordance with Appendix 9. The parties shall use reasonable efforts to agree on the content
of the reports required pursuant to this Section prior to submittal to Ecology.

(E) Potential Regulatory Change. The Company shall keep the County
regularly advised as to potential changes in regulatory requirements affecting the wastewater
treatment industry and the Facility of which it has knowledge, and provide recommended
responses to such potential changes so as to mitigate any possible adverse economic impact
on the County should a Change in Law actually occur.

SECTION 5.8. THIRD-PARTY LAWSUITS PERTAINING TO COMPLIANCE WITH


THE NPDES PERMIT.

(A) Generally. The Company acknowledges and agrees that, notwithstanding


the Company’s status as a co-permittee on the NPDES Permit as and to the extent required
under Section 5.6, Applicable Law enables a third party to file a lawsuit in federal court
against the County, as the owner of the Facility and the primary permittee on the NPDES
Permit, for alleged violations of the NPDES Permit. The Company further acknowledges and
agrees that any such lawsuit is subject to the Company’s indemnification obligations under
Section 15.3 to the extent that the underlying violations of the NPDES Permit result from a
failure of the Company to comply with its obligations under this Service Contract. The parties
recognize that, before the third-party lawsuit can be filed in federal court, the plaintiff(s) must

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

give the County a 60-day notice of intent to sue under the federal Clean Water Act, which
notice contains information about the alleged violations of the NPDES Permit. Applicable Law
provides for a defense(s) against any such third-party lawsuit in the event that any alleged
violations of the NPDES Permit are corrected prior to the filing of such lawsuit in federal court
and provided that there are no ongoing violations during the pendency of the litigation.
Accordingly, without limiting any of the Company’s obligations under Section 8.10 with
respect to violations of Applicable Law or the Company’s rights to Uncontrollable
Circumstance relief under Section 15.2 or to indemnification as and to the extent provided in
subsection 5.6(C), the parties agree to work together in accordance with this Section upon the
County’s receipt of a 60-day notice of intent to sue under the federal Clean Water Act or other
notification of a violation of the NPDES Permit in order to correct any violations or
noncompliance with the NPDES Permit within such 60-day notice timeframe and the parties
agree to continue to work together in accordance with this Section to conduct themselves so as
to maximize the opportunity to defend against any lawsuit filed under the federal Clean Water
Act.

(B) Corrective Measures. The County and the Company shall meet
promptly, but in no event later than five business days, after (1) obtaining knowledge that the
Facility is not in compliance with the NPDES Permit, (2) the receipt by the County of a 60-day
notice of intent to sue under the federal Clean Water Act alleging a violation of the NPDES
Permit, or (3) any other notification of a violation of the NPDES Permit. The purpose of the
meeting shall be to develop mutually acceptable corrective measures to correct any
noncompliance with the NPDES Permit, including any deficiencies that are referenced in the
60-day notice or other notice of violation. The Company shall implement any such corrective
measures and use its best efforts to bring the Facility and the Operation Services into
compliance with the NPDES Permit as soon as is reasonably practicable in accordance with
the Contract Standards, with the objective of achieving compliance no later than 60 days after
the date of a 60-day notice of intent to sue under the federal Clean Water Act or other notice of
violation is received. The cost and expense associated with any such corrective measures shall
be borne by the Company to the extent that the failure of compliance results from the failure
of the Company to comply with the terms and conditions of this Service Contract and by the
County to the extent that the failure of compliance results from the occurrence of an
Uncontrollable Circumstance.

(C) Resolution of Responsibility for Noncompliance with the NPDES Permit.


The implementation of corrective measures by the Company pursuant to this subsection shall
not be deemed an admission of guilt or responsibility by the Company with respect to the

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article V – Ecology Requirements
and the NPDES Permit

failure to comply with the NPDES Permit. The parties shall resolve responsibility for the
failure of compliance with the NPDES Permit based on the underlying facts and circumstances
relating to the failure of compliance following the implementation of corrective measures
pursuant to subsection (B) of this Section in accordance with the terms and conditions of this
Service Contract. Nothing in this Section shall limit or otherwise affect the Company’s
indemnification obligations under Section 15.3 or the County’s indemnification obligations
under subsection 5.6(C).

Draft of October 17, 2008 71


ARTICLE VI

ACCEPTANCE OF THE FACILITY

SECTION 6.1. SUBSTANTIAL COMPLETION.

(A) Conditions to Substantial Completion. Substantial Completion shall


occur only when all of the following conditions have been satisfied (unless otherwise agreed to
by the parties in writing):

(1) a preliminary or temporary certificate of occupancy has been issued, if


required by Applicable Law;

(2) the Company is authorized to conduct the Acceptance Tests and to


operate the Facility under Applicable Law, and such authorization has not been withdrawn,
revoked, superseded, suspended, or materially impaired or amended;

(3) all Utilities specified or required under this Service Contract to be


arranged for by the Company are connected and functioning properly;

(4) the Company and the County have agreed in writing upon the Final
Punch List (or, if they are unable to agree, the County shall have prepared and issued the Final
Punch List to the Company within 15 business days following the Company having submitted
its Final Punch List to the County);

(5) the Company has submitted a certification that construction of the


Facility is physically complete and all other Design/Build Work pertaining to the Facility,
except the Acceptance Tests, the Biosolids Performance Tests and the items on the Final Punch
List, is complete and in all respects is in compliance with this Service Contract;

(6) the Company has delivered to the County written certifications from the
equipment manufacturers (including information technology systems and instrumentation and
controls) that all major items of machinery and equipment included in the Facility have been
properly installed and tested in connection with the manufacturers’ recommendations and
requirements;

(7) the Company has delivered to the County a claims statement setting
forth in detail all claims of every kind whatsoever of the Company connected with, or arising
out of, the Design/Build Work, and arising out of or based on events prior to the date when the
Company gives such statement to the County;

(8) the Company has delivered to the County the initial draft Operation and
Maintenance Manual in accordance with Appendix 9;

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Spokane County Regional Water Reclamation Service Contract
Facility - P5451-4 Article VI - Acceptance of the Facility

(9) all spare parts and Consumables required by the Technical


Specifications have been delivered and are in storage at the Facility;

(10) the Company has submitted to the County and the County has reviewed
and approved the plan for Acceptance Testing as required by Appendix 6;

(11) if required by Applicable Law, Ecology has approved the plan for
Acceptance Testing and has issued a notice of permission to conduct the Acceptance Tests; and

(12) the Company has submitted written certification that all of the foregoing
conditions have been satisfied and the County has approved the Company’s certification, which
approval shall be effective as of the date of the Company’s certification.

Alternatively, Substantial Completion shall occur on any date certified in writing by the
County, which shall have discretion to waive any of the foregoing conditions.

(B) Final Punch List. The Company shall submit a proposed Final Punch
List to the County and the County Engineering Representative when the Company believes
that the Design/Build Work has been substantially completed in compliance with this Service
Contract. The “Final Punch List” shall be a statement of repairs, corrections and adjustments
to the Facility, and incomplete aspects of the Design/Build Work (excluding the performance
of the Acceptance Tests, the Biosolids Performance Tests and the delivery of the as-built
drawings), which in the Company’s opinion:

(1) the Company can complete before the Company’s agreed date for Final
Completion and with minimal interference to the occupancy, use and lawful operation of the
Facility; and

(2) would represent, to perform or complete, a total cost of not more than
2.5% of the portion of the Fixed Design/Build Price (unless the County determines that a
higher percentage is acceptable).

Completion of the Final Punch List work shall be verified by a final walk-through of the Facility
conducted by the County and the County Engineering Representative with the Company. The
existence and approval of the Final Punch List shall in no way either limit the Company from
performing additional repairs, corrections and adjustments to the Facility as may be necessary
to comply with this Service Contract or limit the County’s ability to enforce the Company
obligation to complete the Design/Build Work in accordance with the Design and Construction
Requirements. Performance of the Final Punch List-related Design/Build Work items shall be
secured by the Design/Build Letter of Credit in accordance with subsection 7.5(D) and
Section 16.3.

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(C) Notice of Substantial Completion. The Company shall give the County
Engineering Representative and Ecology at least 30 days prior written notice of the expected
date of Substantial Completion and of commencement of start-up operations at the Facility in
preparation for conducting the Acceptance Test.

SECTION 6.2. START-UP OPERATIONS.

(A) Notices. The Company shall give the County (1) at least 90 days’ prior
written notice of the expected date of commencement of start-up operations, which notice shall
include a certification (to be confirmed as of the date start-up operations commence) that the
Company is in full compliance with the terms of this Service Contract, and that the Facility is
in compliance with all of the conditions of the Governmental Approvals applicable to the
Facility and other Applicable Law; and (2) notice as to the Company’s requirements for Influent
during commissioning and start-up operations reasonably in advance of the date by which the
Company requires the Influent. The County shall be under no obligation to provide such
Influent prior to July 1, 2011. In the event that the County does not provide Influent on or
before July 1, 2011, the Company shall be entitled to Uncontrollable Circumstance relief in
accordance with and to the extent provided in Section 15.2.

(B) Commissioning. Subject to subsection (A) of this Section and the


limitations set forth in Appendix 6 with respect to hydraulic testing, the Company may
commission and start-up the Facility, and test equipment and systems, at its election at any
time, whether prior to or subsequent to Substantial Completion. The Company’s cost of all
such commissioning-related activities, regardless of their extent or duration, shall be included
in the Fixed Design/Build Price.

SECTION 6.3. ACCEPTANCE TESTING.

(A) Submittal of Acceptance Test Plan. At least 180 days before the earlier of
the Scheduled Acceptance Date or the date upon which the Company plans to begin
Acceptance Testing, the Company shall prepare and submit to the County for its approval a
detailed Acceptance Test Plan, which shall conform to the requirements of Appendix 6 in all
respects. If the Company and the County are unable to agree upon an acceptable Acceptance
Test Plan within 90 days following such submission, their inability to agree may be mediated
as provided in Section 14.15.

(B) Notice of Commencement of Acceptance Test. The Company shall


provide the County and Ecology with at least 30 days’ prior written notice of the expected
initiation of the Acceptance Test in accordance with the requirements of Appendix 6. At least
10 days prior to the actual commencement of any Acceptance Testing, the Company shall

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certify in writing that it is ready to begin Acceptance Testing in accordance with the
Acceptance Test Plan and Appendix 6.

(C) Conditions to Commencement of the Acceptance Tests. The Company


shall not commence the Acceptance Tests until the following events have occurred:

(1) The Company has satisfied the requirements of subsections (A) and (B) of
this Section;

(2) Substantial Completion has occurred;

(3) All Governmental Approvals, including those relating to changes to or


exemptions from the requirements included in the NPDES Permit or other approved operating
procedures, necessary to perform the Acceptance Tests have been obtained; and

(4) The Company has certified that it has complied with the pre-Acceptance
Testing requirements of Appendix 6.

(D) Conduct of Acceptance Test. The Company shall conduct all Acceptance
Tests in accordance with the Contract Standards, including the specific requirements of
Appendix 6 and the Acceptance Test Plan, and shall notify the County when any such test
shall occur. The Company shall permit the designated representatives of the County and the
County Engineering Representative to inspect the preparations for any Acceptance Test and to
be present for the conducting of any Acceptance Test for purposes of evaluating compliance
with the Acceptance Test Plan and the integrity of the Acceptance Test results.

(E) Fees of the County Engineering Representative. The County shall be


responsible for the fees of the County Engineering Representative in connection with the
monitoring of the performance of the Acceptance Tests in accordance with subsection 4.1(F);
provided, however, that the Company shall reimburse the County for such fees to the extent
incurred after 72 days following the commencement of the Acceptance Tests and prior to the
Scheduled Acceptance Date. The parties acknowledge and agree that the liquidated damages
provided for in subsection 6.8(B) are intended to reimburse the County for the expenses
reasonably anticipated to be incurred by the County as a result of a delay by the Company in
achieving Acceptance by the Scheduled Acceptance Date, including the costs associated with
any services to be performed by the County Engineering Representative during the Extension
Period. Accordingly, during the Extension Period, the Company shall be required to pay
liquidated damages in accordance with and to the extent provided in subsection 6.8(B), but
shall not otherwise be required to reimburse the County for the actual costs of the County
Engineering Representative incurred during the Extension Period.

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SECTION 6.4. ACCEPTANCE DATE CONDITIONS. The following conditions


shall constitute the “Acceptance Date Conditions,” each of which must be satisfied in all
material respects by the Company in order for the Acceptance Date to occur, and each of which
must be and remain satisfied as of the Acceptance Date (unless otherwise agreed to by the
parties in writing):

(1) Achievement of Acceptance Standards. The Company shall have


completed the required Acceptance Tests and such tests shall have demonstrated that the
Facility has met the Acceptance Test Procedures and Standards;

(2) Final Operation and Maintenance Manual. The Company has delivered
to the County the final Operation and Maintenance Manual in accordance with Appendix 9;

(3) Required Operation Period Insurance. The Company shall have


submitted to the County certificates of insurance for all Required Operation Period Insurance
specified in Appendix 14 and made available to the County all insurance policies for its review;

(4) Operating Governmental Approvals. All applicable Governmental


Approvals required under Applicable Law that are necessary for the continued routine
operation of the Facility shall have been duly obtained and shall be in full force and effect.
Certified copies of all such Governmental Approvals, to the extent not in the County’s
possession, shall have been delivered to the County;

(5) Equipment Warranties and Manuals. The Company shall be in


possession of, and shall have delivered to the County, copies of the warranties of machinery,
equipment, fixtures and vehicles constituting a part of the Facility, together with copies of all
related operating manuals supplied by the equipment supplier; and

(6) No Default. The Company has certified that there is no Event of Default
by the Company under this Service Contract or by the Guarantor under the Guaranty
Agreement, or event which, with the giving of notice or the passage of time, would constitute an
Event of Default by the Company hereunder or an Event of Default by the Guarantor under the
Guaranty Agreement.

SECTION 6.5. TEST REPORT. Within 30 days following conclusion of the


Acceptance Tests, the Company shall furnish the County and the County Engineering
Representative with ten copies of a certified written report describing and certifying (1) the
Acceptance Test conducted, (2) the results of the Acceptance Test, and (3) the level of
satisfaction of the Acceptance Tests Procedures and Standards relating thereto and all other
requirements specified in Appendix 6. The written test report shall include copies of the
original data sheets, log sheets and all calculations used to determine performance during the

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Acceptance Test, and copies of laboratory reports conducted in conjunction with the
Acceptance Test, including all laboratory sampling and test results.

SECTION 6.6. INTERIM OPERATIONS AND PROVISIONAL ACCEPTANCE.

(A) Interim Operations. The Company, at its sole cost and expense, shall
maintain the Facility in accordance with the Contract Standards following completion of the
Acceptance Tests, notwithstanding the fact that the Operation Period will not commence until
the earlier to occur of the Acceptance Date or the certification of Provisional Acceptance by the
Company in accordance with this Section. If, during the interim operating period, the Facility
is capable of treating Influent and producing Effluent in accordance with the requirements of
Applicable Law, the parties may negotiate an interim operating protocol for the treatment of
Influent during any such interim operating period, which shall take into account the level of
service, the performance guarantees of the Company associated with the level of service and
the payment obligations of the County associated with the level of service. In no event shall
the County have any payment obligation to the Company for the operation and maintenance of
the Facility prior to the negotiation of such interim operating protocol. In the event the parties
negotiate such an interim operating protocol, the Company shall operate the Facility to treat
Influent during the interim period in accordance with Applicable Law and the interim
operating protocol. Interim operations shall continue until (1) the Acceptance Date or the
Provisional Acceptance Date, or (2) the County terminates this Service Contract for the
Company’s failure to achieve Acceptance by the end of the Extension Period. Nothing in this
Section shall limit the Company’s obligation, at its sole cost and expense, to perform any
further commissioning or retesting of the Facility, to the extent required to achieve Acceptance
in accordance with this Article.

(B) Company Certification. The Company shall have the right, following
(1) the conduct of the Acceptance Tests as provided in subsection 6.3(D) and (2) the
preparation and delivery to the County of the Acceptance Test report as required by
Section 6.5, to certify Acceptance on a provisional basis. In order to certify Acceptance on a
provisional basis, the Company shall deliver a written certification to the County and the
County Engineer that, in the good faith judgment of the Company, based on all information
available to it at the time of the certification, all of the Acceptance Date Conditions have
occurred. The date upon which the Company’s provisional Acceptance certification is
delivered is referred to herein as the “Provisional Acceptance Date,” and thereupon “Provisional
Acceptance” shall be deemed to have occurred.

(C) Effect of Provisional Acceptance. Upon the occurrence of Provisional


Acceptance, the Operation Period shall commence and, subject to Section 6.14, all of the

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Operation Period rights and obligations of the parties hereunder shall apply (including the
Performance Guarantees of the Company, the Service Fee payment obligations of the County,
and the obligation of the Company to pay liquidated damages for any failure to meet the
Performance Guarantees). Thereafter, the parties shall be bound as if Acceptance had
permanently occurred, except as provided in 6.7 in the event the County disputes the
substance of the Company’s Provisional Acceptance certification.

SECTION 6.7. CONCURRENCE OR DISAGREEMENT WITH TEST RESULTS.

(A) Acceptance Date Concurrence. The “Acceptance Date” shall be the day
on which the Acceptance Date Conditions have been achieved. If the Company certifies in its
written report delivered pursuant to Section 6.5 that the full Acceptance Test Procedures and
Standards have been achieved, the County shall determine, within 30 days following its receipt
of such report, whether it concurs with such certification. If the County states in writing that
it concurs with the Company’s certification, the Facility shall be deemed to have achieved
Acceptance and the Acceptance Date shall be deemed to have been established on the date of
the Company’s original certification.

(B) Acceptance Date Disagreement. If the County determines at any time


during such 30-day review period that it does not concur with such certification, the County
shall immediately send written notice to the Company of the basis for its disagreement. In the
event of any such non-concurrence by the County, either party may elect to refer the dispute
to Non-Binding Mediation for resolution pursuant to Section 14.15. Acceptance shall not be
deemed to have been achieved unless the Acceptance Test, conducted in a unified and
continuous manner as provided in the Acceptance Test Plan and in Appendix 6, demonstrates
that all of the Acceptance Test Procedures and Standards have been met. In the event the
Company, in conducting the Acceptance Test, does not successfully meet the Acceptance Test
Procedures and Standards, the County, without limiting the right of the Company to re-
perform the entire Acceptance Test pursuant to subsection 6.8(A), shall have the right, in its
sole discretion, to permit the Company to re-test the Facility for compliance only with the
Acceptance Test Procedures and Standards not previously achieved through an earlier
Acceptance Test.

(C) Acceptance Date Disagreement and Provisional Acceptance. No


certification of Provisional Acceptance by the Company pursuant to Section 6.6 shall limit or
otherwise affect any of the County’s rights under this Service Contract with respect to a failure
of the Company to achieve Acceptance in the event that the County disagrees with the
Company’s certification in accordance with this Section. Accordingly, without limiting the
generality of the foregoing, if the County disagrees with the Company’s certification pursuant

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to this Section, the Company shall be liable for delay-liquidated damages in accordance with
Section 6.8 and subject to termination in accordance with Section 6.9, notwithstanding any
certification of Provisional Acceptance by the Company under Section 6.6. In no event shall
the Company be entitled to the milestone payment of the Design/Build Price associated with
the achievement of Acceptance under Article VII until the parties have agreed that the
Company has actually achieved Acceptance in accordance with this Article. In addition, in the
event of a disagreement by the County as to the achievement of Acceptance by the Company
pursuant to this Section, the “Acceptance Date” for purposes of the County’s convenience
termination rights and the limitations on Company liability pursuant to Article XIV shall be
the date the Company actually achieves Acceptance in accordance with this Article,
notwithstanding any certification of Provisional Acceptance by the Company pursuant to
Section 6.6.

SECTION 6.8. EFFECT OF UNEXCUSED DELAY; EXTENSION PERIOD.

(A) Unexcused Delay. It is agreed that time is of the essence in the


performance of the Design/Build Work. If Acceptance shall not have occurred on or before the
Scheduled Acceptance Date, the Company shall be entitled to conduct or repeat such
Acceptance Test as often as it desires in order to secure Acceptance of the Facility during the
Extension Period. During the Extension Period, the Company shall be responsible for and
shall pay any fines and penalties assessed by a Governmental Body against the County or the
Company due to the failure to achieve Acceptance by the Scheduled Acceptance Date, together
with liquidated damages as set forth in subsection (B) of this Section, subject to relief in
accordance with the terms and conditions of this Service Contract in the event of
Uncontrollable Circumstances.

(B) Delay-Liquidated Damages. Subject to relief in accordance with the


terms and conditions of this Service Contract in the event of Uncontrollable Circumstances, if
the Acceptance Date occurs subsequent to the Scheduled Acceptance Date, then, in addition
to the amounts payable under subsection (A) of this Section, the Company shall pay to the
County delay-liquidated damages in the amount of $5,500 per day for each day that the
Acceptance Date falls after the Scheduled Acceptance Date (excluding the number of days after
the Scheduled Acceptance Date, if any, between the receipt of the Company’s certified report
delivered pursuant to Section 6.5 and the date the County notifies the Company of its
disagreement with such written report), up to the end of the Extension Period, and thereafter,
until any termination of this Service Contract for an Event of Default. In no event shall the
aggregate amount of delay-liquidated damages payable by the Company pursuant to this
subsection exceed $2,007,500.

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SECTION 6.9. FAILURE TO MEET ACCEPTANCE STANDARD. Subject to


relief in accordance with the terms and conditions of this Service Contract in the event of
Uncontrollable Circumstances, if, as of the last day of the Extension Period, the Acceptance
Tests have not been conducted or have failed to demonstrate that the Facility operates at a
standard equal to or greater than the full Acceptance standard, an Event of Default by the
Company shall be deemed to have occurred under Section 14.2 notwithstanding any absence
of notice, further cure opportunity or other procedural rights accorded the Company
thereunder, and the County shall thereupon have the right to terminate this Service Contract
upon written notice to the Company. Upon any such termination, the County shall have all of
the rights provided in Article XIV upon a termination of the Company for cause.

SECTION 6.10. BIOSOLIDS PERFORMANCE TESTING.

(A) Generally. The Company shall demonstrate that the Facility meets the
Biosolids Performance Standards within 180 days following the Acceptance Date (or, if certified
by the Company pursuant to Section 6.6, the Provisional Acceptance Date) through the
successful completion of the Biosolids Performance Test in accordance with this Section.
Demonstration of compliance with the Biosolids Performance Standards shall be a condition of
Final Completion. Notwithstanding the fact that the Biosolids Performance Test will occur
after the Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the
Provisional Acceptance Date) and notwithstanding any delay or failure to successfully
demonstrate compliance with the Biosolids Performance Standards pursuant to this Section,
the Company shall be required to comply with all Performance Guarantees, including the
Biosolids Quality and Quantity Guarantee, beginning on the Acceptance Date (or, if certified
by the Company pursuant to Section 6.6, the Provisional Acceptance Date).

(B) Submittal of Biosolids Performance Test Plan. At least 90 days before


the earlier of the Scheduled Acceptance Date or the date upon which the Company plans to
begin Acceptance Testing, the Company shall prepare and submit to the County for its
approval a detailed Biosolids Performance Test Plan, which shall conform to the requirements
of Appendix 6 in all respects. If the Company and the County are unable to agree upon an
acceptable Biosolids Performance Test Plan within 30 days following such submission, their
inability to agree may be mediated as provided in Section 14.15.

(C) Notice of Commencement of Biosolids Performance Test. The Company


shall provide the County and Ecology with at least 30 days’ prior written notice of the expected
initiation of the Biosolids Performance Test. At least 10 days prior to the actual
commencement of the Biosolids Performance Test, the Company shall certify in writing that it

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is ready to begin Biosolids Performance Testing in accordance with the Biosolids Performance
Test Plan and Appendix 6.

(D) Conduct of Biosolids Performance Test. The Company shall conduct the
Biosolids Performance Test in accordance with Appendix 6 and the Biosolids Performance Test
Plan, and shall notify the County when any such test shall occur. The Company shall permit
the designated representatives of the County and the County Engineering Representative to
inspect the preparations for the Biosolids Performance Test and to be present for the
conducting of the Biosolids Performance Test for purposes of evaluating compliance with the
Biosolids Performance Test Plan and the integrity of the Biosolids Performance Test results.

(E) Fees of the County Engineering Representative. The County shall be


responsible for the fees of the County Engineering Representative in connection with the
monitoring of the performance of the Biosolids Performance Tests in accordance with
subsection 4.1(F); provided, however, that the Company shall reimburse the County for such
fees to the extent incurred after 30 days following the commencement of the Biosolids
Performance Tests.

(F) Biosolids Performance Test Report. Within 30 days following the


conclusion of the Biosolids Performance Test, the Company shall furnish the County and the
County Engineering Representative with 10 copies of a certified written report describing and
certifying (1) the results of the Biosolids Performance Test and (2) the level of satisfaction of
the Biosolids Performance Standards. The written test report shall include copies of the
original data sheets, log sheets and all calculations used to determine performance during the
Biosolids Performance Test, and copies of laboratory reports conducted in conjunction with
the Biosolids Performance Test, including all laboratory sampling and test results.

(G) Concurrence with Test Report. If the Company certifies in its written
report delivered pursuant to subsection (E) of this Section that all Biosolids Performance
Standards have been achieved, the County shall determine, within 30 days following its receipt
of the report, whether it concurs in such certification. If the County states in writing that it
concurs with the Company’s certification, the Facility shall be deemed to have met the
Biosolids Performance Standards.

(H) Disagreement with Test Report. If the County determines at any time
during such 30-day review period that it does not concur with such certification, the County
shall immediately send written notice to the Company of the basis for its disagreement. In the
event of any such non-concurrence by the County, either party may elect to refer the dispute
to Non-Binding Mediation for resolution pursuant to Section 14.15. The Company shall not be
deemed to have achieved the Biosolids Performance Standards unless the Biosolids

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Performance Test, conducted in a unified and continuous manner as provided in the Biosolids
Performance Test Plan and in Appendix 6, demonstrates that all of the Biosolids Performance
Standards have been met.

(I) Remedies for Failure to Meet the Biosolids Performance Standards. In


the event that the Company fails to demonstrate that the Facility meets the Biosolids
Performance Standards through the performance of the Biosolids Performance Test in
accordance with this Section, the Company, in addition to its obligations and liabilities under
Section 10.5 for any failure to meet the Biosolids Performance Guarantee, shall be required to
take all action necessary (including making all capital investments, improvements or
modifications, repairs and replacements and operating and management practices changes) in
order for the Facility to comply with the Biosolids Performance Standards. The Company shall
consult with the County in determining the appropriate course of action necessary to remedy a
failure of the Facility to meet the Biosolids Performance Standards in accordance with this
subsection. However, the Company shall have the discretion to determine, and the sole
responsibility with respect to, the specific corrective action required pursuant to this
subsection. The Company shall make such determination and perform all such corrective
work in a manner consistent with the Contract Standards.

SECTION 6.11. FINAL COMPLETION.

(A) Requirements. The Company shall achieve Final Completion within 180
days after the Acceptance Date. Unless otherwise agreed to by the parties in writing, “Final
Completion” shall occur when all of the following conditions have been satisfied:

(1) Acceptance Achieved. The Company has achieved Acceptance of the


Facility;

(2) Achievement of Biosolids Performance Standards. The Company has


demonstrated that the Facility meets the Biosolids Performance Standards through the
performance of the Biosolids Performance Test in accordance with Section 6.10;

(3) Certificate of Occupancy Issued. A certificate of occupancy has been


issued for the Facility, if required under Applicable Law;

(4) Design/Build Work Completed. All Design/Build Work (including all


items on the Final Punch List and all clean up and removal of construction materials and
demolition debris) is complete and in all respects is in compliance with this Service Contract;

(5) Spare Parts In Storage. All spare parts and Consumables required by
the applicable Design and Construction Requirements have been delivered and are in storage
at the Facility;

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(6) Deliverable Material Furnished. The Company has furnished to the


County all Deliverable Material required to be delivered prior to Final Completion;

(7) Record Drawings. The Company shall have delivered to the County a
final and complete reproducible set of record drawings in accordance with Appendix 4;

(8) Encumbrances. The Company has provided evidence to the County that
no Encumbrances (other than Permitted Encumbrances) exist with respect to the Facility and
has provided a written representation that there exist no outstanding claims from
Subcontractors or materials providers or, if there are outstanding claims from Subcontractors
or materials providers, the Company shall state the nature and amount of the claims, identify
the claimant, indemnify the County Indemnitees for such claims in accordance with
Section 14.3, and certify that the Company shall bond any such claims which become
Encumbrances. In addition, the Company shall certify that it will indemnify the County
Indemnitees for any unknown claims of Subcontractors or material providers and bond any
such claims which become Encumbrances. If any claims of Subcontractors or material
providers, whether known or unknown, are reduced to judgments in the future, after giving the
Company notice of its intention to pay such claim and providing the Company a reasonable
opportunity to discuss the County’s intention, the County may pay such amounts due and
owing and offset such amounts from those due and owing by the County to the Company at
any time; and

(9) Declaration of Construction Completion. The Company shall have


provided the County the declaration of construction completion required by WAC 173.240-090
and 095.

(B) Final Certificate and Claims Statement. The Company shall also prepare
and submit to the County as soon as practicable following the Acceptance Tests, for purposes
of demonstrating Final Completion: (1) a certificate of the Design/Build Manager certifying
(a) that all the Design/Build Work has been completed in accordance with the Design and
Construction Requirements, (b) that Acceptance of the Facility has occurred, and (c) that the
Facility has met the Biosolids Performance Standards in accordance with Section 6.10; and
(2) a claims statement setting forth a detailed, itemized description, related dollar amount and
grounds for all claims of every kind whatsoever against the County in connection with or
arising out of the Design/Build Work the Company may have. The County shall review the
certificate and the claims statement and shall verify or dispute them in writing within 30 days
after receipt.

(C) Payment for Punchlist Items and Final Payment. Upon Final Completion,
the County shall surrender the Design/Build Letter of Credit to the Company for cancellation

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and the Company shall be entitled to final payment of the Design/Build Price in accordance
with Section 7.7.

SECTION 6.12. NO ACCEPTANCE, WAIVER OR RELEASE. Unless other


provisions of this Service Contract specifically provide to the contrary, none of the following,
without limitation, shall be construed as the County’s acceptance of any Design/Build Work
which is defective, incomplete, or otherwise not in compliance with this Service Contract, as
the County’s release of the Company from any obligation under this Service Contract, as the
County’s extension of the Company’s time for performance, as an estoppel against the County,
or as the County’s acceptance of any claim by the Company:

(1) the County’s payment to the Company or any other person of all or any
portion of the Design/Build Price;

(2) review or acceptance by the County or the County Engineering


Representative of any drawings, submissions, punch lists, other documents, certifications
(other than certificates relating to Acceptance or Final Completion), or Design/Build Work of
the Company or any Subcontractor;

(3) review by the County or the County Engineering Representative of (or


failure to prohibit) any construction applications, means, methods, techniques, sequences, or
procedures for the Design/Build Work;

(4) entry at any time by the County or the County Engineering


Representative on the Site (including any area in which the Design/Build Work is being
performed);

(5) any inspection, testing, or approval of any Design/Build Work (whether


finished or in progress) by the County, the County Engineering Representative or any other
person;

(6) the failure of the County, the County Engineering Representative or any
consultant to respond in writing to any notice or other communication of the Company; or

(7) any other exercise of rights or failure to exercise rights by the County
hereunder.

SECTION 6.13. NO SERVICE FEE PAYMENT DURING START-UP AND


TESTING. During start-up, testing (including Acceptance Testing), and interim operations
pursuant to subsection 6.6(A), the Company shall not be entitled to payment of the Service
Fee. All costs for design, construction, permitting, start-up, commissioning, testing and
retesting for Acceptance, maintaining the Facility prior to the Acceptance Date (or, if certified
by the Company pursuant to Section 6.6, the Provisional Acceptance Date), including costs for

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labor, materials, chemicals and Utilities, shall be borne by the Company without
reimbursement by the County, except as otherwise provided for in the Design/Build Price.

SECTION 6.14. OVERLAP OF DESIGN/BUILD PERIOD AND OPERATION


PERIOD. The parties acknowledge that the Operation Period (which commences on the
Acceptance Date or, if certified by the Company pursuant to Section 6.6, the Provisional
Acceptance Date) and the Design/Build Period (which ends upon achievement of Final
Completion) will overlap, and that during the period of overlap the obligations of the Company
to be performed during both such periods shall apply. The parties further acknowledge that
the Acceptance Date shall demarcate the County’s respective rights to convenience terminate
this Service Contract during the Design/Build Period and during the Operation Period, as
provided in Sections 14.6 and 14.7, respectively.

Draft of October 17, 2008 85


ARTICLE VII

FINANCING AND PAYMENT OF THE DESIGN/BUILD PRICE

SECTION 7.1. COUNTY FINANCING. The County shall secure the


availability of all funds necessary to pay the Design/Build Price in a timely manner, whether
through the authorization or issuance of debt obligations of the County or otherwise as
determined by the County. Payments of the Design/Build Price shall be made by the County to
the Company in the manner provided in this Article.

SECTION 7.2. ASSISTANCE WITH FINANCING PROCESS. The Company


shall cooperate with and assist the County in providing any information, certifications or
documents, and in attending meetings, hearings or forums, which may be reasonably required
in connection with (i) any requisitioning of funds from Ecology pursuant to the WPCRF Loan
Agreement, or (ii) otherwise obtaining the funds necessary to pay the Design/Build Price. The
inability of the County to obtain WPCRF funds shall not relieve the County of its payment
obligations hereunder

SECTION 7.3. WPCRF RESPONSIBILITIES.

(A) WPCRF Loan Agreement. The County has obtained the WPCRF Loan
Agreement for partial funding of the Facility. The County shall submit all filings, further
applications and reports necessary to obtain reimbursement from the WPCRF for the Facility.

(B) Company Responsibilities. The Company shall be responsible for:

(1) assisting the County in preparing any further applications required in


connection with the WPCRF Loan Agreement;

(2) supplying all necessary supporting material, data and information


relating to the Design/Build Work which may be required in connection with the WPCRF Loan
Agreement;

(3) familiarizing itself with the terms and conditions of the WPCRF program
relating to construction activities and practices;

(4) complying with the terms and conditions of the WPCRF Loan Agreement
or other financing document required by the WPCRF program applicable to the performance of
the Design/Build Work, including the terms and conditions associated with the MBE/WBE
objectives;

(5) preparing all plans relating to the performance of the Contract Services
required by the WPCRF Loan Agreement and the applicable regulations of the WPCRF program;

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(6) attending meetings, as necessary, with Ecology and other Governmental


Bodies; and

(7) taking all other reasonable action necessary or otherwise reasonably


requested by the County in order to assist and support the County related to the WPCRF
financing for the Facility.

(C) Data and Information. All data, information and action required to be
supplied or taken in connection with any WPCRF financing shall be supplied and taken on a
timely basis considering the WPCRF requirements at the Company’s sole cost and expense.
The data and information supplied by the Company to the County and Ecology in connection
therewith shall be correct and complete in all material respects and shall be submitted in draft
form to the County sufficiently in advance to allow full and meaningful review and comment by
the County. The Company shall be responsible for any schedule and cost consequences which
may result from the submission of materially incorrect or incomplete information prepared
solely by the Company and without modification, alteration or amendment by the County. The
County reserves the right to reject, modify, alter, amend, delete or supplement any information
supplied by the Company pursuant to this Section.

(D) Design Packages. The Company shall be responsible for preparing


design packages in accordance with Appendix 7.

(E) WPCRF Requirements. In performing its WPCRF-related responsibilities


as set forth herein, the Company shall do so in a manner that complies with all WPCRF
program requirements applicable to the Company in accordance with this Service Contract.

SECTION 7.4. DESIGN/BUILD PRICE.

(A) Design/Build Price Generally. The Company shall be entitled to receive


the Design/Build Price for the Design/Build Work on a progress basis in accordance with the
terms of this Article. The Design/Build Price shall be the Fixed Design/Build Price, as
adjusted by any Fixed Design/Build Price Adjustments set forth in subsection (C) of this
Section.

(B) Fixed Design/Build Price. The Fixed Design/Build Price is


$127,300,000. The parties acknowledge and agree that the Fixed Design/Build Price does not
include any amount necessary to pay State sales and use taxes which shall be paid by the
Company and subject to reimbursement from the County in accordance with subsection (E) of
this Section. Except as provided in subsection (C) of this Section, the Fixed Design/Build
Price shall not be subject to adjustment in any manner whatsoever.

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(C) Fixed Design/Build Price Adjustments. Each adjustment to the Fixed


Design/Build Price provided for in this subsection shall be deemed a “Fixed Design/Build
Price Adjustment” and shall be reflected in a Change Order or, with respect to Items (3) and
(4), below, a Contract Administration Memorandum. The Fixed Design/Build Price shall be
adjusted only for the following:

(1) Design and Construction Requirement Changes. An adjustment for the


cost of any Design and Construction Requirement Changes pursuant to and subject to the
limitations set forth in Section 4.6 or 4.7.

(2) Uncontrollable Circumstances Generally. An adjustment for the cost of


any Uncontrollable Circumstances not reflected in item (1) above, as and to the extent provided
in Section 15.2.

(3) ENR/CCI Adjustment. The Fixed Design/Build Price shall be subject to


a one-time adjustment pursuant to this subsection based on the change in the National
Engineering News Record (ENR) “Construction Cost Index (CCI)” for the period starting on the
Best and Final Offer Date and ending on the Contract Date (the “ENR/CCI Adjustment”). The
ENR/CCI Adjustment shall be calculated 30 days following the Contract Date by multiplying
$93,208,636 (the amount of the Fixed Design/Build Price minus the Baseline Cost Amounts
set forth in subsection (4) of this Section) by the difference between: (i) a fraction, the
denominator of which is 8183.51 (the ENR/CCI as of the Best and Final Offer Date), and the
numerator of which is the ENR/CCI on the Contract Date; and (ii) 1.0. The ENR/CCI
Adjustment shall be added or subtracted from the Fixed Design/Build Price, depending on
whether the ENR/CCI has increased or decreased from the Best and Final Offer Date to the
Contract Date. For purposes of determining the ENR/CCI on the Contract Date, the parties
agree that the ENR/CCI published in any month reflects prices as of the last day of the prior
month. For example, the ENR/CCI reported for June 2008 reflects pricing on May 31, 2008.

(4) Adjustment for Certain Raw Materials Cost Fluctuations. The Fixed
Design/Build Price shall be subject to a one-time adjustment pursuant to this subsection to
account for fluctuations in the costs of the materials indicated in Table 7.4, below. Such
adjustment to the Fixed Design/Build Price shall occur on the date which is six months
following the final Record Adjustment Date set forth in Table 7.4 (the “Materials Price
Adjustment Date”), and shall be calculated by adding or subtracting the Materials Price
Adjustment to the Fixed Design/Build Price in the manner set forth in this subsection. The
Company shall submit the Materials Price Adjustment in the Requisition in the month
following the Materials Price Adjustment Date.

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(a) The Materials Price Adjustment. The “Materials Price Adjustment” shall
equal the sum of the Record Adjustments, which shall be calculated in accordance with
paragraph (c), below. Record Adjustments reflecting a decrease in the applicable PPI
shall offset Record Adjustments reflecting an increase in the applicable PPI. The
Materials Price Adjustment shall serve to increase the Fixed Design/Build Price in the
event that the sum of the Record Adjustments equals a positive number and shall serve
to reduce the Fixed Design/Build Price in the event that the sum of the Record
Adjustments equals a negative number.

(b) Baseline Cost Amounts. The “Baseline Cost Amounts” for each material
shall be as set forth in Table 7.4, below. The Company represents that the Baseline
Cost Amounts consist only of the cost of the material (as included in the Company’s
material take-offs upon which the Company based its Fixed Design/Build Price proposal
to the County) and excludes all associated procurement costs, labor costs, and tax and
freight charges. These Baseline Cost Amounts shall be used to calculate the Record
Adjustments in accordance with subsection (c), below.

(c) Record Adjustments. The parties shall calculate a “Record Adjustment”


for each material indicated in Table 7.4, below, within 30 days after the applicable
Record Adjustment Date in accordance with this subsection. Record Adjustments shall
be based on the PPI indicated in Table 7.4. Record Adjustments shall be calculated by
multiplying the applicable Baseline Cost Amount associated with the particular material
by the Record Adjustment Factor. The “Record Adjustment Factor” shall be based on
the change in the applicable PPI at the Best and Final Offer Date, as indicated in Table
7.4 (“IC”), compared to the applicable PPI on the Record Adjustment Date (“IE”), and
shall be calculated in accordance with the following formula:

Record Adjustment Factor = IE/IC - 1.00

The parties agree that the PPI for any month reflects prices as of the 13th day of the
month. The parties shall use linear interpolation to determine the PPI for any particular
date and shall execute a Contract Administration Memorandum setting forth each
Record Adjustment within 45 days after the applicable Record Adjustment Date. The
parties acknowledge that each PPI is subject to a one-time revision four months after
original publication. Accordingly, the parties will review each PPI four months after the
applicable Record Adjustment Date to determine if the index value for the applicable
Record Adjustment Date has been revised. In the event of any such revision, the
applicable Record Adjustment shall be revised through the execution of a subsequent
Contract Administration Memorandum to reflect the revised PPI for the applicable

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Record Adjustment Date. Except as provided in paragraph (a), above, with respect to
the calculation of the Materials Price Adjustment, Record Adjustments shall not serve to
increase or decrease the Fixed Design/Build Price.

Table 7.4

Record
Dept of Labor Baseline Cost Baseline
Material Adjustment
PPI Series ID Amounts Indices
Date
WPU1333 Ready Mix Concrete $1,543,795 212.2 365
WPU05810112 Asphalt $237,095 219.9 365
WPU1017 Steel Mill Products $1,106,221 240.0 365
Products From
WPU0721 Plastic $106,468 183.8 365
Refined Petroleum
WPU057 Products $617,000 332.2 365
Other Stainless
Castings, low alloy
WPU101509 steel $415,819 198.8 365
Aluminium Mill
WPU102501 Shapes $602,429 195.5 365
Copper and Copper
Alloy Wire and Cable,
WPU10260314 bare and timme $941,716 337.7 365
WPU11710216 Electrical Conduit $505,397 128.1 365
Masonry Block and
WPU1331 Brick $921,000 218.5 365
Hot Rolled Bars,
Plates & Structural
WPU101704 Shape $177,000 244.7 365
WPU101708 Cold Finished Bars $1,111,831 196.0 365
Plastic Construction
WPU072106 Products $1,426,069 183.8 365
Steel Pipe and
WPU101706 Tubing $2,793,006 257.8 365
Pressure and Soil
Pipe and Fittings,
WPU101502 Cast Iron $2,300,454 309.6 240
Copper Base Tube
WPU10250239 and Pipe $68,179 225.4 365
Nonferrous Wire and
WPU102603 Cable $297,000 269.2 365

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Record
Dept of Labor Baseline Cost Baseline
Material Adjustment
PPI Series ID Amounts Indices
Date

Transformers and
Other Power
WPU1174 Regulators $138,744 218.8 365
WPU114902 Metal Valves $1,090,040 239.1 365
WPU1334 Pre-cast Concrete $239,932 209.0 365
WPU133201 Concrete Pipe $26,790 202.0 180
Construction sand,
WPU132101 gravel and stone $617,145 247.0 180
Switchgear,
switchboard
WPU1175 equipment $1,653,187 194.4 365
Misc. general
WPU1149 purpose equipment $12,721,012 218.4 365
Motors and
WPU1173 Generators $520,500 179.9 365
WPU114102 Industrial Pumps $1,701,535 217.9 365
Wiring Devices,
WPU1171 Electrical Conduit $212,000 206.7 365

* Each Record Adjustment Date shall be the number of days indicated from the Contract Date.
[Note: the baseline indices will need to be adjusted prior to execution of the Service
Contract to account for any revisions to the index numbers.]

(D) Limitation on Payments for Costs of the Design/Build Work. The


Company agrees that the Design/Build Price shall be the Company’s entire compensation and
reimbursement for the performance of the Design/Build Work, including providing for all
Utilities that the Company will require to perform the Design/Build Work, commissioning and
starting up the Facility, and operating the Facility during the Acceptance Tests and prior to
the Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the Provisional
Acceptance Date) and correcting all nonconforming Design/Build Work in accordance with the
terms and conditions of this Service Contract. In no event shall the Company be entitled to
any payment for Design/Build Work costs in excess of the Design/Build Price,
notwithstanding any cost overruns the Company may incur. The Company shall finance and
pay for any such excess cost of the Design/Build Work in any manner it chooses without
reimbursement from or other claim upon the County.

(E) Taxes Payable in Connection with the Design/Build Work. The Company
shall pay all Taxes required under Applicable Law in connection with the performance of the

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Design/Build Work, including all State sales and use taxes in connection with the
performance of the Design/Build Work. The County shall reimburse the Company for all State
sales and use taxes paid by the Company in accordance with Applicable Law in connection
with the performance of the Design/Build Work in accordance with this subsection. The
Company shall include the amount of any State sales and use taxes paid by the Company in
accordance with Applicable Law as a separate line item on the Company’s Requisitions
submitted in accordance with this Article, along with appropriate documentation evidencing
payment of such taxes. The County shall reimburse the Company for such amounts in
accordance with the payment provisions of this Article. In no event shall the County be
responsible for any other Taxes paid by the Company in connection with the performance of
the Design/Build Work, including any business and occupation tax or gross receipts tax
required to be paid by the Company in connection with the performance of the Design/Build
Work under Applicable Law.

SECTION 7.5. PAYMENT PROCEDURE.

(A) Milestone Payments. The Company shall be paid the Design/Build Price
on a milestone payment basis in accordance with the terms of this Section. The Milestone
Payment Schedule set forth in Appendix 8 will serve as the basis for progress payments and
will be incorporated into a form of Requisition acceptable to the County.

(B) Construction Disbursement Procedure. The Company shall be entitled to


submit Requisitions and receive from the County the payments, which (1) shall be made on a
percent complete or milestone basis, as applicable, in accordance with Appendix 8, (2) shall be
subject to the maximum drawdown limitations specified in Appendix 8 hereto, and (3) shall be
subject to the conditions to payment set forth in this Section; provided, however, that on the
date that the Acceptance Date is permanently established under Article VI, the Company shall
be entitled to receive all payments due for completed work (which is unencumbered) that
remain unpaid as of such date except for the payment conditioned on achievement of the
Biosolids Performance Standards and Final Completion. In no event shall the cumulative
Design/Build Price payments in any month exceed the maximum drawdown amount set forth
in Appendix 8 for the particular month. Each Requisition must be accompanied by a monthly
requisition report, which shall include:

(1) a reasonably detailed description of all Design/Build Work actually


completed to date;

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(2) revisions to the progress schedule (or a revised progress schedule) which
shall reflect changes in the Company’s construction schedule since the date of the last
Requisition;

(3) revisions to the cost-loaded critical path schedule, which shall reflect
changes in the critical path schedule since the date of the last Requisition;

(4) construction progress photographs;

(5) a certificate of the Design/Build Manager certifying (1) the portion of the
Fixed Design/Build Price which is payable to the Company, (2) that the Company is neither in
default under this Service Contract nor in breach of any material provision of this Service
Contract such that the breach would, with the giving of notice or passage of time, constitute an
Event of Default, and (3) that all items applicable to the work entitling the Company to the
requested payment under the schedule in Appendix 8 have been completed in accordance
therewith and with the Design and Construction Requirements;

(6) a verified statement setting forth the information required under any
Applicable Law pertaining to prevailing wages;

(7) notice of any Encumbrances which have been filed together with
evidence that the Company has discharged or bonded against any such Encumbrances; and

(8) any other documents or information relating to the Design/Build Work


or this Service Contract requested by the County or the County Engineering Representative or
as may be required by Applicable Law, this Service Contract or generally accepted accounting
practices or principles.

The County Engineering Representative shall review the Company’s certified Requisitions to the
County for each Design/Build Price payment and within 10 business days after receipt of the
Company’s written report delivered pursuant to this Section, shall verify or dispute in writing
(or by telecommunication promptly confirmed in writing) the Company’s certification that the
Company has achieved the level of progress indicated and is entitled to payment. If the County
Engineering Representative determines that the work has progressed to the milestone indicated
in the Company’s certified Requisition and the County Engineering Representative provides
written notice thereof to the Company and the County, thereupon the Company shall be
entitled to payment within 20 days following such determination. Disputes regarding
payments of the Fixed Design/Build Price shall be resolved in accordance with subsection (C)
of this Section. Any undisputed amounts of the Fixed Design/Build Price shall be paid within
30 days after receipt of the Company’s certified requisition.

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(C) Disbursement Dispute Procedures. If the County Engineering


Representative determines, pursuant to subsection (B) of this Section, that the work required
for any payment has not progressed as indicated by the Company, or otherwise disputes any
Requisition, the County Engineering Representative shall provide prompt written notice to the
Company and the County as to the County Engineering Representative’s reasons, in
reasonable detail, for such determination or the basis for such dispute. After receiving such
determination notice, the Company may make the necessary corrections and resubmit a
certified Requisition to the County Engineering Representative, or the County Engineering
Representative may agree on a revised amount, Requisition or estimate, as applicable, in
which case the Company shall promptly notify the County of such agreement. If the Company
is unable to reach agreement with the County Engineering Representative as to the progress of
work, the Company may exercise its right to contest the County Engineering Representative’s
determination in accordance with the dispute resolution procedures set forth in Section 14.15.
Any proceedings undertaken to resolve a dispute arising under this subsection shall
immediately terminate if (1) the Company demonstrates to the County Engineering
Representative that the work has proceeded as indicated in the certified Requisition giving rise
to the dispute or that any disputed certified Requisition is correct, and (2) the County
Engineering Representative concurs with such demonstration. The Company shall not be
entitled to payment of the amount so requisitioned and disputed except upon resolution of the
dispute in accordance with this subsection; provided, however, that the County shall pay all
requisitioned amounts which are not in dispute. In the event that upon resolution of any such
dispute, it is determined that the Company was properly entitled to the disputed amount as of
a date earlier than the date on which payment is actually made, the Company shall be entitled
to receive, promptly following such resolution, such disputed amount plus interest on such
disputed amount for the period of dispute calculated at the Overdue Rate.

(D) Letter of Credit in Lieu of Retainage. The Company shall provide the
County with a letter of credit in accordance with Section 16.3 (the “Design/Build Letter of
Credit”). The Design/Build Letter of Credit shall be in the initial stated amount of 5% of the
maximum aggregate amount of the first three monthly Requisitions, as estimated by the
Company in accordance with Appendix 8. The Company shall increase the stated amount of
the Design/Build Letter of Credit on a quarterly basis (with such increased Design/Build
Letter of Credit delivered with the Requisition submitted by the Company in the first month of
each calendar quarter) so that the stated amount remains equal to (1) 5% of the aggregate
amount of all Requisitions invoiced by the Company through the date the Company delivers
the increased Design/Build Letter of Credit, including the Requisition submitted by the
Company with the increased Design/Build Letter of Credit, plus (2) 5% of the maximum

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aggregate amount of the next three monthly Requisitions, as estimated by the Company in
accordance with Appendix 8. The Company shall have the right to reduce the stated amount
of the Design/Build Letter of Credit in accordance with this subsection upon (i) receipt of
certification from the Company and confirmation by the County Engineering Representative
that Acceptance has occurred pursuant to Article VI, and (ii) receipt of certification from the
Company that the Company has paid all applicable taxes as of the Acceptance Date. At such
time, the Design/Build Letter of Credit may be replaced by the Company with a Design/Build
Letter of Credit with a stated amount not less than an amount sufficient to cover: (1) 5% of the
amount of the milestone payment associated with the achievement of the Biosolids
Performance Standards; (2) 5% of the amount of the milestone payment associated with the
delivery of the “as-built” drawings to the County; (3) two times the aggregate value of all items
contained on the Final Punch List, as estimated by the County or the County Engineering
Representative based on the estimated cost to make each correction or to complete each item
on the Final Punch List; and (4) the amount of any unresolved or unbonded claims by third
parties or Encumbrances in connection with the Design/Build Work. The County shall have
the right to draw on the Design/Build Letter of Credit to the extent provided in Section 16.3.
The County shall surrender the Design/Build Letter of Credit for cancellation by the Company
within 15 days following the date the County Engineering Representative determines that Final
Completion has occurred in accordance with Section 7.7.

SECTION 7.6. PERMISSIBLE WITHHOLDINGS. The County may disapprove


and withhold and retain all or any portion of any payment requested in any Requisition in an
amount equal to the sum of:

(1) any amounts which are due the County hereunder, including any
liquidated damages which are payable and any indemnification amounts which are agreed to
by the parties, or after judicial review are found to be due and owing to the County under
Section 15.3 subject to the County’s obligation to pay interest at the Overdue Rate if it is later
determined that such amounts were not due to the County;

(2) any other deductions which are required by Applicable Law;

(3) any payments with respect to which documents required to be delivered


in connection therewith are not correct and complete;

(4) any payments with respect to which the Design/Build Work covered by
such Requisition (or any previous Requisition) does not comply with this Service Contract;

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(5) any payments with respect to which any person has asserted a Lien
resulting from the acts or omissions of the Company in performing the Design/Build Work and
such Lien remains unreleased or unbonded;

(6) all requisitioned payments, if an Event of Default of the Company has


occurred under Section 14.2; and

(7) in the event the Company fails to pay any taxes, assessments, penalties
or fees imposed by any Governmental Body, then the Company authorizes the County to
deduct and withhold or pay over to the appropriate Governmental Body those unpaid amounts
upon demand by the Governmental Body; provided, however, that, with respect solely to taxes,
the County shall not pay over to a Governmental Body any amounts required to pay unpaid
taxes as long as the Company is engaged in a good faith dispute as to the assessment of such
taxes with the appropriate Governmental Body. It is agreed that this provision shall apply to
taxes and fees imposed by County ordinance.

SECTION 7.7. FINAL REQUISITION AND PAYMENT.

(A) Final Requisition. Upon achieving Final Completion in accordance with


Section 6.11, the Company shall prepare and submit to the County a final Requisition. The
final Requisition shall enclose:

(1) AIA Document G707 (Consent of Surety Company to Final Payment)


certifying the Surety agrees that final payment of the Fixed Design/Build Price shall not relieve
the Surety of any of its obligations under the Performance Bond or the Payment Bond;

(2) a contractor’s affidavit regarding settlement of claims and complete and


legally effective releases or waivers acceptable to the County in the full amount of the
Design/Build Price, or if any Subcontractor refuses or fails to furnish such release or waiver, a
bond or other security acceptable to the County to indemnify the County Indemnitees against
any payment claim; and

(3) a list of all pending property damage and personal injury or death
insurance claims arising out of or resulting from the Design/Build Work, identifying the
claimant and the nature of the claim.

(B) Final Payment. If based on the County Engineering Representative’s


(1) observation of the Design/Build Work, (2) final inspection, and (3) review of the final
Requisition and other documents required by subsection (A) of this Section, the County
Engineering Representative is satisfied that conditions for Final Completion have been
satisfied, the County Engineering Representative shall, within 30 days after receipt of the final

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Requisition, furnish to the County and the Company the County Engineering Representative’s
recommendation of final payment and Final Completion. If the County Engineering
Representative is not satisfied, the County Engineering Representative shall return the final
Requisition to the Company, indicating in writing the reasons for not recommending final
payment, in which case the Company shall make the necessary corrections and resubmit the
final Requisition.

(1) County Concurrence. If the County concurs with the County


Engineering Representative’s recommendation of final payment, the County shall, within 15
days, file a written notice of Final Completion and notify the Company and the County
Engineering Representative of such acceptance. Within 30 days after filing such notice, the
County shall pay to the Company the balance of the Design/Build Price, subject to any
withholdings and any other provisions governing final payment specified herein.

(2) County Non-Concurrence. If the County does not concur with the
County Engineering Representative’s determination, the County shall return the Requisition to
the Company, through the County Engineering Representative, indicating in writing its reasons
for refusing final payment and Final Completion. The Company shall promptly make the
necessary corrections and resubmit the Requisition to the County Engineering Representative.
The County’s written determination shall bind the Company, unless the Company delivers to
the County, through the County Engineering Representative, written notice of a claim
within 30 days after receipt of that determination.

(3) Partial Release of Final Payment. If recommended by the County


Engineering Representative, the County may, upon receipt of the Company’s final Requisition
and without terminating the Design/Build Period, make payment of the balance due for that
portion of the Design/Build Work fully completed and accepted, if Final Completion is
significantly delayed due to Uncontrollable Circumstances. If the balance to be held by the
County for the Design/Build Work not fully completed or corrected is less than the retainage
on that work, the affidavits specified in subsection (A) of this Section and the release or waiver,
or Performance and Payment Bonds, shall be furnished as required and submitted by the
Company. Payment of the balance due shall be made under the provisions for final payment,
but shall not constitute a wavier of claims. The County shall pay with reasonable promptness
any amounts deducted from the final payment, upon resolution of the claims for which the
amounts were withheld.

Final payment does not constitute a waiver by the County of any rights relating to the
Company’s obligations under this Service Contract. Final payment constitutes a waiver of all
claims by the Company against the County relating to the Design/Build Work, the payment of

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the Design/Build Price or otherwise in connection with the Design/Build Period other than
those previously filed in writing with the County on a timely basis and still unsettled.

SECTION 7.8. PAYMENT OF SUBCONTRACTORS. The Company shall pay


its Subcontractors in accordance with Applicable Law.

SECTION 7.9. AUDIT BOOKS AND RECORDS.

(A) Audit. All payments subject to Cost Substantiation in accordance with


Section 17.6 and all Design/Build Work shall be subject to audit at any time by the County,
the Office of the State Auditor and Ecology.

(B) Construction Books and Records. The Company shall prepare and
maintain proper, accurate and complete books and records regarding the Design/Build Work
and all other transactions related to the design, permitting, construction, shakedown and
testing of the Design/Build Work, including all books of account, bills, vouchers, invoices,
personnel rate sheets, cost estimates and bid computations and analyses, Subcontracts,
purchase orders, time books, daily job diaries and reports, correspondence, and any other
documents showing all acts and transactions in connection with or relating to or arising by
reason of the Design/Build Work, this Service Contract, any Subcontract or any operations or
transactions in which the County has or may have a financial or other material interest
hereunder. All financial records of the Company and its Subcontractors shall be maintained
in accordance with generally accepted accounting principles and auditing standards for
governmental institutions. The Company shall produce such construction books and records
(except for the Company’s financial ledgers and statement) for examination and copying in
connection with the costs of Change Orders, Design/Build Work Change Directives,
Uncontrollable Circumstance costs, or other costs in addition to the Fixed Design/Build Price
under circumstances in which such costs are required to be Cost Substantiated pursuant to
this Service Contract, for which the County may be responsible hereunder with respect to
work performed prior to Final Completion except with respect to costs incurred in connection
with work performed on a fixed price basis. The Company shall keep and maintain all such
construction books and records for the Facility separate and distinct from other records and
accounts, and shall maintain such books and records for at least seven years after
Acceptance, or such longer period during which any Legal Proceeding with respect to the
Design/Build Work commenced within seven years after the Acceptance Date may be pending.

Draft of October 17, 2008 98


ARTICLE VIII

OPERATION AND MANAGEMENT

SECTION 8.1. COMPANY OBLIGATIONS GENERALLY.

(A) Operation and Management Responsibility. Commencing on the


Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the Provisional
Acceptance Date), the Company shall operate and manage the Facility on a 24-hour per day,
7-day per week basis, and shall treat all Influent, process and mange all Residuals on Site,
transport and dispose of all Residuals other than Biosolids, provide all information necessary
to secure Governmental Approvals, and otherwise operate and manage the Facility, all in
accordance with the Contract Standards.

(B) Transfer and Application of Industry Experience. The Company shall use
reasonable efforts to transfer to and apply at the Facility the benefit of the advances and
improvements in technology, management practices and operating efficiencies which are
developed by the Company, the Guarantor and their Affiliates through the operation of their
worldwide wastewater treatment businesses and industry research and development activities
conducted during the Term, and which are useful and appropriate in the good faith judgment
of the Company for carrying out the Contract Services in a manner which improves upon the
Contract Standards; provided, however, that such obligations shall not obligate the Company
to: (i) undertake any physical modifications to the Facility (including any Capital Modification);
(ii) incur any additional operating, maintenance, repair or replacement costs; or (iii) accept any
additional risk or liability beyond those imposed under the Contract Standards in effect as of
the Contract Date, unless the County agrees to compensate the Company in a manner
acceptable to the Company for undertaking such obligations.

SECTION 8.2. COUNTY OBLIGATIONS GENERALLY. The County, in


addition to the obligations it has undertaken elsewhere in this Service Contract, shall:

(1) Make available to the Company upon request all information relating to
the Facility which is in the possession of the County and material to the Company’s
performance hereunder;

(2) Grant and assure the Company access to the Facility for the performance
of its obligations hereunder;

(3) Comply with its obligations under Applicable Law;

(4) Provide for the transport and disposal of Biosolids in accordance with
Section 9.5; and

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(5) Pay the Service Fee and any other amounts due the Company in
accordance with the terms and conditions of this Service Contract.

SECTION 8.3. SERVICE COORDINATION AND CONTRACT


ADMINISTRATION.

(A) Company’s Facility Manager. The Company shall appoint a full-time


manager of the Facility (the “Facility Manager”) who shall be licensed, trained, experienced and
proficient in the management and operation of wastewater treatment systems comparable to
the Facility, shall have a Grade IV operator’s certification and be otherwise appropriately
certified under Applicable Law, and whose sole employment responsibility shall be managing
the Company’s performance of the Operation Services. The Company acknowledges that the
performance of the individual serving from time to time as the Facility Manager will have a
material bearing on the quality of service provided hereunder, and that effective cooperation
between the County and the Facility Manager will be essential to effectuating the intent and
purposes of this Service Contract. Accordingly, not fewer than 30 days prior to the date on
which any candidate for Facility Manager from time to time during the Term is proposed by
the Company to assume managerial responsibility for the Facility, the Company shall:
(1) provide the County with a comprehensive résumé of the candidate’s licenses, training,
experience, skills and approach to management and customer relations; and (2) afford the
County an opportunity to interview the candidate with respect to such matters. The County
shall have the right within 30 days following such interview to disapprove the hiring of the
proposed candidate, which right of disapproval shall not be exercised unreasonably. The
initial Facility Manager shall not be replaced, unless otherwise approved by the County in its
sole discretion, for a period of three years after the Acceptance Date absent retirement,
resignation or cessation of employment with the Company. The Company shall replace the
Facility Manager at the request of the County, after notice and a reasonable opportunity for
corrective action, in the event the County determines, in its sole discretion, that an
unworkable relationship has developed between the Facility Manager and the County.
Without limiting the County’s rights under this subsection, an unworkable relationship shall
be deemed to have developed upon any failure of compliance indicated below:

(1) failure to report any exceedence as required by the Contract Standards;

(2) failure to calibrate or verify calibration of flow meters as required by


Appendix 9;

(3) failure to respond within three business days to a written request for
information related to this Service Contract made by the Contract Administrator and
designated as a “priority request”;

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(4) failure to provide any plan, proposal, report or other deliverable required
hereunder with respect to Uncontrollable Circumstances or any regulatory matter by the
deadline agreed upon by the parties with respect thereto;

(5) failure to keep monthly maintenance logs as required by Section 11.1;

(6) failure of Company staff to attend County meetings as reasonably


requested, with adequate advance notice from the County;

(7) failure to provide any reports required hereunder within seven days after
the due date;

(8) failure to maintain proper certification as required by any Governmental


Body;

(9) failure to respond to alarms at the Facility as required hereunder; and

(10) failure to properly sample, test or report the results thereof as required
by Applicable Law.

(B) Company’s Senior Supervisors. The Company shall appoint and inform
the County from time to time of the identity of the corporate officials of the Company and the
Guarantor with direct, senior supervisory responsibility for the Facility and the performance of
this Service Contract (the “Senior Supervisors”). The Company shall promptly notify the
County in writing of the appointment of any successor Senior Supervisors. The Senior
Supervisors shall cooperate with the County in any reviews of the performance of the Facility
Manager which the County may undertake from time to time, and shall give full consideration
to any issues raised by the County in conducting such performance reviews.

(C) County’s Contract Administrator. The County shall designate an


individual or firm to administer this Service Contract and act as the County’s liaison with the
Company in connection with the Operation Services (the “Contract Administrator”). The
Company understands and agrees that the Contract Administrator has only limited authority
with respect to the implementation of this Service Contract, and cannot bind the County with
respect to any Service Contract Amendment or to incurring costs in excess of the amounts
appropriated therefor.

(D) County Approvals and Consents. When this Service Contract shall
require any approval or consent by the County to a Company submission, request or report,
the County’s approval or consent shall be given by the Contract Administrator in writing and
such writing shall be conclusive evidence of such approval or consent, subject only to
compliance by the County with the Applicable Law that generally governs its affairs. Unless
expressly stated otherwise in this Service Contract, and except for requests, reports and

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submittals made by the Company that do not, by their terms or the terms of this Service
Contract, require a response or action, if the County does not find a request, report or
submittal acceptable, it shall provide written response to the Company describing its
objections and the reasons therefor within 30 days after the County’s receipt thereof. If no
response is received, the request, report or submittal shall be deemed rejected unless the
County’s approval or consent may not be unreasonably delayed by the express terms hereof,
and the Company may resubmit the same, with or without modification. Requests, reports
and submittals that do not require a response or other action by the County pursuant to some
specific term of this Service Contract shall be deemed acceptable to the County if the County
shall not have objected thereto within 30 days after the receipt thereof.

(E) Communications and Meetings. On or before the Acceptance Date (or, if


certified by the Company pursuant to Section 6.6, the Provisional Acceptance Date), the
Company shall inform the County of the telephone, cellular telephone, fax and beeper
numbers, e-mail addresses and other means by which the Facility Manager and Senior
Supervisors may be contacted. The Facility Manager shall be reachable 24 hours a day, seven
days a week and shall, at the County’s request, attend weekly meetings with the County’s
Public Works staff. The County shall furnish to the Company comparable communications
information with respect to the Contract Administrator. The Company shall meet with the
County each month to review the contents of the operations reports required to be prepared
pursuant to Section 8.14. The Facility Manager and, if requested by the County, the Senior
Supervisors each shall personally attend the monthly operations meetings with the County,
and all special meetings which the County may reasonably request from time to time, to review
management, operational, performance and planning matters arising with respect to the
Facility and this Service Contract. Any issue in dispute which the parties are unable to
resolve at such monthly and special meetings may be referred to Non-Binding Mediation, as
provided for in Section 14.15, and the resolution of any issues resolved at such meetings or
through Non-Binding Mediation shall be reflected in a Contract Administration Memorandum
or a Service Contract Amendment, as applicable.

(F) Complaints and Communications. The Company shall respond in a


timely and effective manner to all complaints and communications received by the Company
or the County regarding the performance of the Contract Services, odor and air emissions,
noise, light emissions, construction or any other matter related to the Operation Services. The
Company shall investigate each such complaint and communication and, if it has a valid
basis, the Company shall promptly rectify the matter. Complaints and communications
concerning spillages, leaks, breaks, noise, light emissions and emergencies relating to the
Facility shall be responded to within two hours, and all other communications within 24

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hours. All such complaints and communications shall be immediately logged and promptly
responded to in writing, faxed or emailed to the County on a daily basis, and reported to the
County as part of the monthly operations reports delivered pursuant to Section 8.14. The
Company shall establish, maintain and make freely known a telephone number, e-mail
address and mailing address to which customer or citizen complaints and communications
may be directed.

SECTION 8.4. OPERATION AND MAINTENANCE MANUAL.

(A) Company Responsibility. The Company shall develop, provide and


maintain the Operation and Maintenance Manual for the Facility in accordance with the
Contract Standards and the specific requirements set forth in Appendix 9. The Operation
Services shall be performed substantially in compliance with the Operation and Maintenance
Manual. The Company shall keep the Operations and Maintenance Manual current and shall
supply the County with appropriate updates, supplements or revisions thereto annually or at
any earlier time that a material change to the Operation and Maintenance Manual is made, to
be reviewed and commented on in accordance with Appendix 9. Such updates shall preserve
the standards set forth in the initial Operation and Maintenance Manual. Notwithstanding
any such review and comment by and discussion with the County, the Operation and
Maintenance Manual shall remain, at all times, the responsibility of the Company. Neither the
review of or comment upon, nor the failure of the County to comment upon, the Operation and
Maintenance Manual shall: (1) relieve the Company of any of its responsibilities under this
Service Contract; (2) be deemed to constitute a representation by the County that operating
the Facility pursuant to the Operation and Maintenance Manual will cause the Facility to be in
compliance with this Service Contract or Applicable Law; or (3) impose any liability upon the
County.

(B) Supplements for Capital Modifications. The Company shall prepare


supplements and revisions to the Operation and Maintenance Manual which are required due
to the design, construction and installation of all Capital Modifications. Such supplements
and revisions shall be provided, reviewed and approved in the same manner as provided in
this Section with respect to the initial Operation and Maintenance Manual. The cost and
expense of all such supplements and revisions shall be borne by the Company, except with
respect to supplements and revisions necessitated by Capital Modifications directed by the
County or required by a Change in Law or other Uncontrollable Circumstance, or by any
Capital Modifications not undertaken by the Company.

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SECTION 8.5. PROCESS CONTROL MANAGEMENT PLAN.

(A) Company Responsibility. The Company shall develop, provide and


maintain the process control management plan in accordance with the Contract Standards
and the specific requirements set forth in Appendix 9 (the “Process Control Management
Plan”). The Operation Services shall be performed substantially in compliance with the
Process Control Management Plan. The Company shall keep the Process Control Management
Plan current and shall supply the County with appropriate updates, supplements or revisions
thereto annually or at any earlier time that a material change to the Process Control
Management Plan is made, to be reviewed and commented on in accordance with Appendix 9.
Such updates shall preserve the standards set forth in the initial Process Control Management
Plan. Notwithstanding any such review and comment by and discussion with the County, the
Process Control Management Plan shall remain, at all times, the responsibility of the
Company. Neither the review of or comment upon, nor the failure of the County to comment
upon, the Process Control Management Plan shall: (1) relieve the Company of any of its
responsibilities under this Service Contract; (2) be deemed to constitute a representation by
the County that operating the Facility pursuant to the Process Control Management Plan will
cause the Facility to be in compliance with this Service Contract or Applicable Law; or
(3) impose any liability upon the County.

(B) Supplements for Capital Modifications. The Company shall prepare


supplements and revisions to the Process Control Management Plan which are required due to
the design, construction and installation of all Capital Modifications. Such supplements and
revisions shall be provided, reviewed and approved in the same manner as provided in this
Section with respect to the initial Process Control Management Plan. The cost and expense of
all such supplements and revisions shall be borne by the Company, except with respect to
supplements and revisions necessitated by Capital Modifications directed by the County or
required by a Change in Law or other Uncontrollable Circumstance, or by any Capital
Modifications not undertaken by the Company.

SECTION 8.6. STAFFING AND PERSONNEL.

(A) Staffing. The Company shall staff the Facility during the Term with
qualified personnel who meet the licensing and certification requirements of the State in
accordance with the Contract Standards. The Company shall discipline or replace, as
appropriate, any employee of the Company or any Subcontractor engaging in unlawful, unruly
or objectionable conduct. Staffing levels and qualifications shall be consistent with the
requirements of Applicable Law and Appendix 9. The Company shall notify the County of any
material change in staffing levels and positions from time to time, and shall not make any

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such material change if the new staffing level would adversely affect the ability of the Company
to provide the Contract Services in accordance with the Contract Standards.

(B) Training. The Company shall be responsible for training the Facility
Manager, operations supervisors and other Company personnel. No later than 90 days prior
to Substantial Completion, the Company shall submit to the County for its review and
comment a personnel training program which the Company proposes to institute in order to
ensure that the Facility is managed and operated in accordance with this Service Contract.
Such personnel training program shall include, at a minimum, the personnel training
guidelines, policies and procedures established: (1) by Ecology and the EPA; (2) in any
Governmental Approval or operator’s certificate required or issued by any Governmental Body;
and (3) in any other Applicable Law.

(C) Prevailing Wages. The Company shall pay or cause to be paid by its
Subcontractors prevailing wages for all labor engaged in connection with the Operations
Services to the extent required by Applicable Law.

SECTION 8.7. TRAINING OF COUNTY PERSONNEL.

(A) Emergency Preparedness. The Company acknowledges that,


notwithstanding the execution of this Service Contract, the County will retain the
responsibility for treating wastewater received from the Collection System and serving the
public health, safety and welfare needs of its ratepayers. The County accordingly shall have
the right to designate up to three officers or employees for the purpose of receiving emergency
preparedness training from the Company at the Facility during the Term. Such training shall
be scheduled 30 days in advance to enable any of the three officers or employees to be familiar
with the equipment, supplies, processes, operations and performance of the Facility. The
Company shall provide such training in accordance with Prudent Industry Practice to ensure
that the County’s designees receive appropriate emergency preparedness training.

(B) Ongoing Training. The County shall have the right to send not more
than three County employees to any Company-provided training programs on-Site at the
Facility pursuant to subsection 8.6(B). The Company shall be responsible for the cost of
training such County employees, and the County shall be responsible for all employee
expenses (wages, travel, lodging, meals, etc.) incurred while participating in such training
programs.

(C) Permanent Operations. The Company shall, on not less than 90 days’
prior written notice from the County, conduct a one-time training program for the County and
its designees in order to enable the County to assume operating and management
responsibility for the Facility at the expiration or termination of this Service Contract. The

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program shall include 45 days of review of Facility operations and shall be substantially
equivalent to the training afforded the Company’s and Subcontractor’s employees in
connection with the start-up of the Facility prior to the Acceptance Tests. In addition, the
Company shall permit County supervisory and operating personnel to observe the Company’s
operation of the Facility for a period of up to six months prior to expiration or termination of
this Service Contract, which observation activities shall not interfere unreasonably with the
Company’s performance of the Contract Services. All costs pertaining to the observation
activities of County supervisory and operating personnel shall be borne by the County.

(D) Compensation. The cost and expense of providing the required training
pursuant to this subsection shall be borne by the Company and included in the Service Fee
without additional reimbursement from the County.

SECTION 8.8. ELECTRICITY SUPPLY. The Company shall arrange for the
supply of electricity to the Facility, and shall negotiate and establish electric rates with the
supplier. The County shall cooperate with and assist the Company in making such
arrangements, and the Company shall give reasonable consideration to any requests and
recommendations made by the County as to the terms and conditions of electricity supply. The
Company shall pay all electricity bills in a timely manner at its sole cost and expense. The
Company acknowledges and agrees that the Base Operating Charge of the Service Fee shall be
the Company’s sole compensation for the expenses of the Company pursuant to this Section.

SECTION 8.9. SAFETY AND SECURITY.

(A) Safety. The Company shall maintain the safety of the Facility at a level
consistent with the Contract Standards. Without limiting the foregoing, the Company shall:
(1) take all reasonable precautions for the safety of, and provide all reasonable protection to
prevent damage, injury or loss by reason of or related to the operation of the Facility to, (a) all
employees working at the Facility and all other persons who may be involved with the
operation, construction, maintenance, repair and replacement of the Facility, (b) all visitors to
the Facility, (c) all materials and equipment under the care, custody or control of the Company
on the Site, (d) other property constituting part of the Facility, and (e) County Property;
(2) establish and enforce all reasonable safeguards for safety and protection, including posting
danger signs and other warnings against hazards and promulgating safety regulations; (3) give
all notices and comply with all Applicable Laws relating to the safety of persons or property or
their protection from damage, injury or loss; (4) designate a qualified and responsible employee
whose duty shall be the supervision of Facility safety, the prevention of fires and accidents and
the coordination of such activities as shall be necessary with federal, State and County
officials; (5) operate all equipment in a manner consistent with the manufacturer’s safety

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recommendations; (6) provide for safe and orderly vehicular movements; and (7) develop and
carry out a Site-specific safety program, including employee training and periodic inspections,
designed to implement the requirements of this Section.

(B) Security. The Company shall be responsible for the security of the
Facility, and shall maintain suitable fences, gates and locks at the Facility in accordance with
the Design and Construction Requirements. The Company shall guard against damage or
injury to such properties caused by trespass, negligence, vandalism or malicious mischief of
third parties in accordance with the Contract Standards. The Company shall comply with EPA
and Water Environmental Federation guidelines regarding security measures for terrorist
threats and activities. The Company shall be entitled to Change in Law relief in accordance
with and to the extent provided in Section 15.2 in the event that new security measures or
Facility modifications are required after the Contract Date as a result of the County’s
vulnerability assessment regarding security measures for terrorist threats and activities.

SECTION 8.10. COMPLIANCE WITH APPLICABLE LAW.

(A) Compliance Obligation. Subject to the Company’s rights to


compensation and other relief in accordance with Section 15.2 in the event of a Change in
Law, the Company shall perform the Contract Services in accordance with Applicable Law, and
shall cause all Subcontractors to comply with Applicable Law. The Company shall comply
with the terms of all Governmental Approvals and other Applicable Law pertaining to the
Facility, the Influent, the Effluent, air emissions and odor, and Residuals, notwithstanding the
fact that the Company may not be a permittee or co-permittee with respect to some or all of
such Governmental Approvals.

(B) Sampling, Testing and Laboratory Work. The Company shall perform
and provide and bear the cost of, all sampling, laboratory testing and analyses, and quality
assurance and quality control procedures and programs required by the Contract Standards.
All testing laboratories shall be certified by the appropriate State agency and EPA, as
applicable, for the applicable test, shall be operated in accordance with Prudent Industry
Practice, and shall be audited and monitored by the Company for compliance with EPA
standard test methods. All sampling and test data shall be available for review by, and
reported to, the County in accordance with Section 8.14 and Appendix 9. The Company
explicitly assumes the risk of incorrect sampling, testing and laboratory work and any
consequences thereof or actions taken or corrections needed based thereon, whether such
work is performed by itself or third parties subcontracted with the Company, both as to
failures to detect and as to false detections. The Company shall permit the County, at the

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County’s expense, to perform any testing, sampling or analytical procedure it deems


appropriate, using the Facility or otherwise.

(C) Investigations of Non-Compliance. In connection with any actual or


alleged event of non-compliance with Applicable Law, the Company shall, in addition to any
other duties which Applicable Law may impose: (1) fully and promptly respond to all inquiries,
investigations, inspections, and examinations undertaken by any Governmental Body;
(2) attend all meetings and hearings required by any Governmental Body; (3) provide all
corrective action plans, reports, submittals and documentation required by any Governmental
Body; (4) provide information in a timely manner to the County so that the County may
communicate in a timely and effective manner with the general public as to the nature of the
event, the impact on the public, and the nature and timetable for the planned remediation
measures; and (5) promptly upon receipt thereof, provide the County with a true, correct and
complete copy of any written notice of violation or non-compliance with Applicable Law
(including any request for information, notice of penalty, or immediate action order), and true
and accurate transcripts of any verbal notice of non-compliance with Applicable Law, issued or
given by any Governmental Body. The Company shall furnish the County with a prompt
written notice describing the occurrence of any event or the existence of any circumstance
which does or may result in any such notice of violation or non-compliance to the extent the
Company has knowledge of any such event or circumstance, and of any Legal Proceeding
alleging such non-compliance.

(D) Fines, Penalties and Remediation. Except to the extent excused by


Uncontrollable Circumstances, in the event that the Company or any Subcontractor fails at
any time to comply with Applicable Law with respect to the Facility, the Influent, the Effluent,
air emissions, odor, Residuals or other environmental or operating condition, the Company
shall, without limiting any other remedy available to the County upon such an occurrence and
notwithstanding any other provision of this Service Contract: (1) promptly correct such failure
and resume compliance with Applicable Law; (2) indemnify, defend and hold harmless the
County Indemnitees in accordance with and to the extent provided in Section 14.3 from all
Loss-and-Expense resulting therefrom; (3) pay or reimburse the County for any resulting
damages, fines, assessments, levies, impositions, penalties or other charges; (4) make all
capital investments, improvements or modifications and changes in operating and
management practices which are necessary to assure that the failure of compliance with
Applicable Law will not recur; and (5) comply with any corrective action plan filed with or
mandated by any Governmental Body in order to remedy a failure of the Company to comply
with Applicable Law. With respect to the Company’s obligation under Item (4) of this
subsection, the Company shall consult with the County in determining the appropriate course

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of action required. However, the Company shall have the discretion to determine, and the sole
responsibility with respect to, the specific corrective action required to be taken pursuant to
Item (4) of this subsection, subject to the Company’s obligation to comply with any corrective
action plan under Item (5) of this subsection. The Company shall make such determination
and perform all such corrective work in a manner consistent with the Contract Standards.

(E) No Nuisance Covenant. The Company shall keep the Facility neat, clean
and litter-free at all times, ensure that the operation of the Facility does not create any odor,
litter, noise, fugitive dust, vector, excessive light or other adverse environmental effects on the
surrounding community constituting, with respect to each of the foregoing, a nuisance
condition under Applicable Law. Should any such nuisance condition occur which is not
caused by Uncontrollable Circumstances, the Company shall promptly remedy the condition,
pay any fines or penalties relating thereto, make all Capital Modifications and changes in
operating and management practices necessary to prevent a recurrence of the nuisance
condition, and indemnify, defend and hold harmless the County Indemnitees from any Loss-
and-Expense relating thereto in the manner provided in Section 15.3. Nothing in this
subsection shall be deemed to limit or otherwise affect the Company’s rights to compensation
and other relief in accordance with Section 15.2 in the event of a Change in Law relating to a
nuisance condition under Applicable Law.

SECTION 8.11. OPERATING GOVERNMENTAL APPROVALS.

(A) General Permit for Biosolids Management. The County shall prepare all
filings, applications and reports and take all other action necessary to obtain and maintain the
General Permit for Biosolids Management. All permit and filing fees required in order to
maintain the General Permit for Biosolids Management shall be paid by the County.

(B) Company Assistance. The Company, at its cost and expense, shall
cooperate with and assist the County in obtaining and maintaining the General Permit for
Biosolids Management. Such cooperation and assistance shall include providing to the
County and all appropriate Governmental Bodies all data, information, plans and
documentation that are within its possession or control (including all information specific to
the Contract Services that may exist or be required by such Governmental Bodies to be
developed by the Company), which may be required in order to properly apply for and obtain
the General Permit for Biosolids Management. All such data, information, plans and
documentation shall be correct and complete in all material respects and shall be developed by
the Company in a timely manner in accordance with the Contract Standards.

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(C) NPDES Permit. The provisions of Article V shall govern the respective
rights and responsibilities of the parties with respect to the initial NPDES Permit and all
renewals of the NPDES Permit.

(D) All Other Operating Approvals. The Company, in a timely manner, shall
make on behalf of the County all applications necessary to obtain and maintain, and shall
obtain and maintain, all other Governmental Approvals required to be made, obtained or
maintained under Applicable Law in order to operate the Facility and perform the Operation
Services during the Term. All permit and filing fees required in order to obtain and maintain
all other Governmental Approvals necessary to operate the Facility and perform the Operation
Services shall be paid by the Company, regardless of the identity of the applicant, except
Governmental Approvals required in connection with an Uncontrollable Circumstance. With
respect to Governmental Approvals required to be obtained in the name of the County, the
Company, in a timely manner, shall: (1) prepare the application and develop and furnish all
necessary supporting material; (2) supply all data and information that may be required;
(3) familiarize itself with the terms and conditions of such Governmental Approvals; (4) attend
all required meetings and hearings; and (5) take all other action necessary or otherwise
reasonably requested by the County in order to assist and support the County in obtaining,
maintaining, renewing, extending and complying with the terms of such Governmental
Approvals. The Company shall manage the process of obtaining and maintaining
Governmental Approvals pursuant to this subsection on behalf of the County in a manner that
affords the County a reasonable opportunity to review and comment on such submittals and
all material documentation to and issued by any Governmental Body in connection therewith
as provided in Appendix 9. The County shall deliver to the Company all Governmental
Approvals relating to the Facility to which it is a party promptly following receipt thereof. The
Company shall not knowingly take any action in any application, data submittal or other
communication in connection with any Governmental Approvals or the forms and conditions
thereof that would impose an unreasonable cost or burden on the County.

(E) Data and Information. All data, information and action required to be
supplied or taken by the Company in connection with the Governmental Approvals required
for the Operation Services shall be supplied and taken on a timely basis considering the
requirements of Applicable Law and the responsibilities of the County as the legal and
beneficial owner of the Facility and primary permittee. The data and information supplied by
the Company to the County and all Governmental Bodies shall be correct and complete in all
material respects, and shall be submitted in draft form to the County sufficiently in advance to
allow full and meaningful review and comment by the County in accordance with Appendix 9.
The Company shall be responsible for any schedule and cost consequences that may result

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from the submission of materially incorrect or incomplete information. The County reserves
the right to reject, modify, alter, amend, delete or supplement any information supplied by the
Company pursuant to this Section to the extent that any such information would impose any
unreasonable cost or burden on the County.

(F) Non-Compliance and Enforcement. The Company shall report to the


County, immediately upon obtaining knowledge thereof, all violations of the terms and
conditions of any Governmental Approval or Applicable Law pertaining to the Facility and shall
have all obligations and responsibilities with respect thereto as set forth in Section 8.10. The
County shall have the right independently to enforce compliance with this Service Contract
regarding the requirements of any Governmental Approval regardless of whether a concurrent
or different regulatory enforcement action has been undertaken by any other Governmental
Body. The failure of the Company to comply with any Governmental Approval shall constitute
a breach of this Service Contract by the Company as well as an event of non-compliance with
the Governmental Approval.

(G) Reports to Governmental Bodies. The Company shall prepare all periodic
and annual reports, make all information submittals and provide all notices to all
Governmental Bodies required by all Governmental Approvals and under Applicable Law with
respect to the Facility, including sampling and testing results and monthly discharge
monitoring reports. Such reports shall contain all information required by the Governmental
Body, and may be identical to comparable reports prepared for the County, if such are
acceptable to the Governmental Body. The Company first shall provide the County with copies
of such regulatory reports for review, comment and signature, as applicable, in accordance
with Appendix 5.

(H) Potential Regulatory Change. The Company shall keep the County
regularly advised as to potential changes in regulatory requirements affecting the wastewater
treatment industry and the Facility of which it has knowledge, and provide recommended
responses to such potential changes so as to mitigate any possible adverse economic impact
on the County should a Change in Law actually occur.

SECTION 8.12. COUNTY ACCESS TO FACILITY. The County and all


appropriate Governmental Bodies shall have the right at any time, on a 24-hour per day, 365-
day per year basis, to visit and inspect the Facility and observe the Company’s performance of
the Contract Services. The Company shall permit and facilitate access to the Facility for such
purposes by County personnel and by agents and contractors designated by the County. Keys
or passwords, as applicable, for the facilities or structures comprising the Facility shall be
provided to the Contract Administrator by the Company in accordance with the Company’s

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physical security plan and key control program. All visitors (including all County Indemnitees,
personnel, agents and contractors) shall comply with the Company’s reasonable operating and
safety procedures and rules, and shall not interfere with the Company’s operations of the
Facility. When visiting any portion of the Facility that is staffed by the Company at the time of
the visit, all County employees, agents and contractors shall announce themselves to the staff
and Company employees may elect to accompany any County employees, agents and
contractors during the visit. The parties agree that the County shall have immediate access to
the Facility, and no Company rule or procedure shall impede, impair or delay such access. The
Company shall maintain a visitors’ log during the Term and shall require that all visitors to the
Facility (other than visitors on organized tours or Company personnel) sign in and sign out in
the visitors’ log.

SECTION 8.13. ASSET AND FINANCIAL RECORDS.

(A) Facility Records. The Company, on and after the Acceptance Date (or, if
certified by the Company pursuant to Section 6.6, the Provisional Acceptance Date), shall
establish and maintain a computerized information system with respect to the Facility for
operations and maintenance data and process control, including the information necessary to
verify calculations made pursuant to this Service Contract and demonstrate compliance with
the Contract Standards. The Company shall promptly provide the County, upon reasonable
request, with copies of all operations and maintenance data relating to the Facility and kept by
the Company in its performance of the Contract Services.

(B) Availability of Facility Records to County. The Company shall make


available to the County all operations, maintenance, performance, Residuals management,
process control and similar records and data as are available to the Facility Manager. The
County shall have real time, continuous computer access to such records and data, and hard
copy reproduction capability, through information systems installed in accordance with the
Design and Construction Requirements.

(C) Record Documents. The Company shall maintain at the Facility and
make available to the County upon request for review and copying: (1) all designs, drawings,
blueprints, plans, specifications and “as-built” or record drawings and documents pertaining
to the Facility, copies of which were delivered to the County by the Company pursuant to
Appendix 4; and (2) similar documents relating to any Capital Modifications. The Company
shall: (1) keep current all such records to show any changes to the Facility (including valves,
pipes, pumps, meters and other assets) made by the Company in the performance of the
Contract Services; and (2) provide advice and assistance to the County, based on such

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records, in establishing and maintaining any County geographic mapping and information
systems.

(D) Financial Records. The Company shall prepare and maintain proper,
accurate, complete and current financial books, records and accounts, in accordance with
generally accepted accounting principles, with respect to all aspects of the Facility and
Contract Services, including direct and indirect personnel expenses, Subcontractor costs, the
costs of material, equipment and supplies, maintenance, repair and replacement items,
operating expenses and overhead. These financial records shall be in form and substance
sufficient to support all financial reporting, including Cost Substantiation, required hereunder.
In the event the Company fails to prepare or maintain any books, records or accounts as
required under this Section, the Company shall not be entitled to any requested payments or
adjustment for which Cost Substantiation was required hereunder to the extent such failure
prevented Cost Substantiation. The Company shall keep the relevant portions of the books,
records and accounts maintained with respect to each Contract Year until at least the seventh
anniversary of the last day of each such Contract Year (or such longer period as may be
appropriate to account for any dispute then pending). For those circumstances that require
Cost Substantiation under Section 16.6, the Company shall make such books and records
available to the County for inspection, audit and copying upon reasonable notice during
business hours to the extent necessary to allow the County to determine to its reasonable
satisfaction the accuracy, completeness, currency and propriety of any charge or request for
payment hereunder. The Company shall not be required to provide the County any income
statement showing profit or loss, but recognizes that profit and loss information may become
discernible to the County through the Cost Substantiation process. The provisions of this
Section shall survive the termination of this Service Contract.

(E) Company Financial Reports. The Company shall furnish the County,
within 180 days after the end of each Contract Year, consolidating balance sheets and income
statements for the Company attached to the audited year-end financial statements reported
upon by the Company’s independent public accountant. The Company shall also furnish the
County with copies of the quarterly and annual reports and other filings of the Company filed
with the Securities and Exchange Commission.

(F) Inspection, Audit and Adjustment. The County shall have the right to
perform or commission an inspection or independent audit of the Company’s billing
statements and, with respect to items subject to Cost Substantiation in accordance with
Section 17.6, the financial information required to be kept under this Section, subject to
possible reimbursement as provided in this Section. If an inspection or audit reveals that the
Company has understated any amount subject to Cost Substantiation, the County shall

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promptly pay such amount, with interest accruing thereon at the Overdue Rate from the date
of the inspection or audit finding. If an inspection or audit reveals that the Company has
overstated any amount subject to Cost Substantiation, then the Company shall, at the election
of the County, either immediately reimburse to the County or offset against future Service Fee
payments, as a Service Fee adjustment, the overstated amount, in addition to interest, from
the time such amount was initially overpaid until reimbursed or credited to the County, at the
Overdue Rate. If an inspection or audit contemplated by this Section discloses an
overpayment of 1% or more of the total amount that should have been properly paid by the
County during the period audited, then the Company shall, in addition to the reimbursement
or credit of such overpaid amount, with interest, reimburse the County for any and all costs
incurred in connection with the inspection or audit. The foregoing remedies shall be in
addition to any other remedies the County may have, including remedies for an Event of
Default by the Company.

SECTION 8.14. PERIODIC REPORTS.

(A) Monthly and Quarterly Operations. The Company shall provide the
County with monthly and quarterly operations reports in accordance with the provisions set
forth in Appendix 9.

(B) Annual Operations and Maintenance Reports. The Company shall


furnish the County, within 90 days after the end of each Contract Year, an annual report in
accordance with the provisions set forth in Appendix 9, including a summary of the
information contained in the monthly and quarterly operations reports. The Company shall
also perform and report to the County, as part of its annual operations report, the results of a
comprehensive performance evaluation which reviews and analyzes the administrative,
operational and maintenance practices employed in the management of the Facility.

(C) Default Reports. The Company shall provide to the County, promptly
after the receipt thereof, copies of any written notice of a material default, breach or non
compliance received or sent under or in connection with any material contract entered into by
the Company in connection with the Contract Services.

(D) Permit Communications and Reports. The Company shall provide to the
County copies of all communications and reports furnished to any Governmental Body
pursuant to this Section simultaneously with their submittal to the Governmental Body.

SECTION 8.15. EMERGENCIES.

(A) Emergency Plan. Upon Substantial Completion, the Company shall have
provided the County with a plan of action to be implemented in the event of an emergency,

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including fire, weather, environmental, health, safety and other potential emergency
conditions. The plan shall: (1) provide for appropriate notifications to the County and all other
Governmental Bodies having jurisdiction and for measures which facilitate coordinated
emergency response actions by the County and all such other appropriate Governmental
Bodies; (2) specifically include spill prevention and response measures; and (3) assure the
timely availability of all personnel required to respond to any emergency (no later than two
hours during nights, weekends or holidays). The emergency plan shall be reviewed by the
parties annually as part of the review of the annual operations report, and updated when
necessary.

(B) Emergency Action. Notwithstanding any provision of this Service


Contract requiring County approval or consent, if at any time the Company determines in good
faith that an emergency situation exists such that action must be taken to protect the safety of
the public or its employees, to protect the safety or integrity of the Facility, or to mitigate the
immediate consequences of an emergency event, and the Company either determines in good
faith that it is impracticable to obtain the County’s approval or consent or the Company is
unable to obtain the County’s approval or consent (and the County has not expressly withheld
such approval or consent), then the Company shall take all such action it deems in good faith
to be reasonable and appropriate under the circumstances. As promptly thereafter as is
reasonable, the Company shall notify the County of the event at an emergency phone number
from a list supplied by the County, and the Company’s response thereto. Nothing in this
subsection shall limit the obligation of the Company to notify Ecology of any emergency event
in accordance with Applicable Law. The cost of the Company’s response measures shall be
borne by the Company except to the extent the emergency event was caused by an
Uncontrollable Circumstance, in which case the County shall bear the cost.

SECTION 8.16. COST REDUCTION AND SERVICE IMPROVEMENT. In the


event either party offers the other party any idea, approach or concept for lowering the
Company’s cost, reducing the County’s Service Fee or total costs, or improving the Company’s
service, the other party shall reasonably consider and explore the development and
implementation of the concept. Neither party shall be obligated to negotiate or to agree to
amend this Service Contract to effectuate any such idea, approach or concept except in its sole
discretion and upon terms and conditions acceptable to it.

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ARTICLE IX

INDUSTRIAL PRETREATMENT PROGRAM

SECTION 9.1. COMPANY IPP OBLIGATIONS.

(A) Industrial Pretreatment Program. The County’s IPP consists of a final


pretreatment ordinance and an enforcement response plan, both of which are included in this
Service Contract as Reference Documents. The County shall maintain in force the existing
rules, regulations and ordinances constituting the IPP in accordance with Applicable Law, and
shall modify the IPP when necessary to reflect the requirements of any Change in Law.

(B) Company IPP Participation Generally. The Company shall cooperate with
and assist the County in developing IPP administrative fee structures. The Company shall
review and participate in the development of any revisions to the IPP and any methodology the
County plans to use to establish pretreatment limits, including industrial and/or agricultural
waste surveys, sampling, identification of pollutants of concern, identification of existing and
new SIUs, allocation algorithms, reserve capacities, and default considerations. The County
shall have the sole right to approve any such methodology and pretreatment limitations and
any revisions and modifications thereto, notwithstanding any review or recommendation by
the Company. The Company shall have the right at any time to observe, inspect and sample
any wastes being discharged into the Facility for the purpose of assuring compliance with the
rules, regulations and requirements of the IPP. The Company shall provide to the County all
reports, data, discharge monitoring reports, industrial waste surveys and monitoring results
received or generated by the Company that are relevant to the IPP.

(C) IPP Administrative Support Generally. It is the intent of the parties that,
beginning on the Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the
Provisional Acceptance Date), the Company be responsible for the performance, execution, and
administrative support of the IPP in accordance with this Article. With respect to those
actions for which the County must perform, execute, administer and enforce directly in its own
name, including those set forth in Section 9.2 and as summarized in Section 9.3, the
Company shall provide all assistance, support, resources and personnel necessary to enable
such actions to be carried out.

(D) General Compliance Monitoring. The Company shall monitor all SIUs
and Priority A MIUs in the Service Territory through sampling and inspections in accordance
with the frequencies specified in this Article to determine, independent of information supplied
by the Users, compliance with all terms and conditions of their discharge permits and the
County’s Sewer Use Ordinance. The Company shall review monthly sampling data, inspect
SIUs and Priority A MIUs at least annually, prepare and submit inspection and monitoring

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reports to the County, and prepare letters to the County regarding any identified
noncompliance. The Company shall maintain files of all pretreatment actions, and prepare all
required monthly, quarterly, and annual reports to any agency with jurisdiction over IPP
compliance. At least twice per year the Company shall take samples at manholes or sewer
lines that service primarily residential areas in the Service Territory at locations determined by
the County. The Company shall be responsible for the costs of the monitoring and sampling
as specified in this subsection, as well as the cost of reports prepared based on this data.

(E) Transition Program Administrative Support Duties. On or prior to the


Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the Provisional
Acceptance Date), the Company shall, in cooperation with the County and the Contract
Administrator, arrange for an orderly transition of IPP administrative support responsibility,
and shall:

(i) Review and take possession of the existing computerized database of all
businesses of known or potential significance to the IPP;
(ii) Review and update as necessary the Standard Industrial Classification
(SIC) codes for Priority A and B Industrial Users;
(iii) Review and update the list of Priority A and B Industrial Users based
on the IPP investigations and data obtained under item (ii) above;
(iv) Review and assume responsibility for the computerized data storage
and reporting system, which includes for each Priority A Industrial User: (a) the
industry name, location, and permit status (SIU or Priority A MIU); (b) the name,
telephone number, and address of the responsible contact person; (c) SIC classification,
permit number, pollutant discharge limits for each facility and dates on which limits
were proposed or promulgated; and (d) historical data on inspections, sample analyses,
violations, and violation resolutions;
(v) Review and provide comments on the existing permit application form;
and
(vi) Review and provide comments on permissible pollutant discharge limits
for each SIU in the Service Territory, which were established based on the applicable
permit, the County’s Sewer Use Ordinance, EPA categorical pretreatment standards,
protection of the collection system, and protection of the biological treatment processes
at the Facility, and periodically provide the County with suggested updates to these
limits.
(F) Ongoing Program Administrative Support Duties. During the Term, as
part of its IPP administrative support duties, the Company shall:

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(i) Review all permit applications and related engineering reports, furnish
all pertinent data and make recommendations to the County relative to the issuance of a
permit and the approval of such sewer connections. Recommendations shall include
permissible pollutant discharge limits, self-monitoring schedules where applicable,
pretreatment processes, and pretreatment implementation schedules, and the establishment
of sampling points by the industry, if required;
(ii) Maintain an up-to-date data base of potential and current SIUs in the
Service Territory;
(iii) Issue additional permit application forms as required, and make
appropriate notifications and process actions on any permit applications received;
(iv) Maintain up-to-date computerized files on all information obtained
through industrial self-monitoring programs, laboratory analyses of collected samples, and on-
site inspections;
(v) Monitor industrial pretreatment compliance schedules and review
industrial interim and final compliance progress reports;
(vi) Monitor laboratory and flow data furnished by Facility personnel for
any indications of non-permitted discharges that may impair the Facility’s treatment efficiency,
and attempt to ascertain the nature and origin of any non-permitted discharge that is detected;
(vii) Immediately notify the County and the SIU of any reported or observed
violations; provide supporting data for the County to prepare violation notices; provide follow-
up inspections to verify that appropriate corrective measures were completed and are
employed; issue follow-up reports, including reports to the County as to the success or failure
of such corrective measures; and recommend appropriate punitive measures for continuing or
repetitive violations;
(viii) Prepare periodic status reports containing sufficient data to satisfy
applicable public participation requirements of the IPP and review the reports with the County;
(ix) Recommend sewer use surcharges and other cost recovery assessment
measures for SIUs found in violation of their permits or who exceed their proportional pollutant
loadings to the Facility; and
(x) Provide engineering information regarding the Facility, which may be
required by SIUs in the Service Territory to assist in developing and implementing the SIUs’
pretreatment facilities.
(G) Field Inspection, Flow Monitoring and Flow Sampling. The Company
shall observe, inspect, and collect wastewater samples at all SIUs and MIUs in the Service
Territory and report on compliance with the IPP requirements. The following table indicates
the required levels of monitoring:

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Table 9.1 Summary of Monitoring Requirements

Type Frequency Location Responsibility


Compliance 1+/year (scheduled) SIU, Priority A MIU Company
Demand Response to events noted at POTW SIU, Priority A MIU Company
Random 1+/year (unscheduled) SIU, Priority A MIU Company
1/2 years Priority B MIU Company
Interceptor 2/year Sewer System Company
(Residential Areas) (selected by County)
Self Monitoring 2+/year SIU User
Baseline New Users SIU User
Repeat After noncompliance event SIU User
Compliance Schedule As required in compliance schedule SIU User
Final Compliance After completion of compliance schedule SIU User

The furnishing or monitoring of inspection reports on any aspect of the IPP shall not make the
Company responsible for an SIU’s failure to comply with any permit issued, compliance
schedule, or violation abatement order. As part of its field inspection, flow monitoring and flow
sampling duties, the Company shall:

(i) Conduct periodic routine (at least one per year) and unannounced (at least one
per year) inspections of all current SIUs (for a total of at least twice per year), and of other
potential SIUs as may be required;

(ii) In connection with the twice-annual field inspections required pursuant to this
Section, monitor or verify compliance with any industrial pretreatment requirements contained
in an SIU’s discharge permit or violation notice;

(iii) In connection with the twice-annual field inspections required pursuant to this
Section, observe and record the operation of an SIU with respect to chemicals or pollutants in
use, stored, or produced by the SIU;

(iv) In connection with the twice-annual field inspections required pursuant to this
Section, observe and record estimated wastewater flow rates and readily noticeable wastewater
characteristics such as color, odor, turbidity, noticeable solids content, oils and grease;

(v) In connection with the twice-annual field inspections required pursuant to this
Section, make appropriate flow measurements or field analyses for such parameters as
temperature, pH, and explosive fumes as may be deemed necessary, or where apparent
discrepancies exist between permitted and observed discharges;

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(vi) In connection with the twice-annual field inspections required pursuant to this
Section, collect, prepare, label, preserve, and transport wastewater samples for laboratory
analysis, with samples labeled in code to prohibit source identification;

(vii) Investigate pollutants found in Influent that create Upsets or that appear to be
non-permitted discharges, and locate and identify sources of the discharge and recommend
appropriate actions; and

(viii) Prepare and maintain daily and weekly reports, as needed, to be used by the
Company in analyzing permit compliance, and in preparing periodic status reports for the
County.

(H) Laboratory Analyses of Wastewater Samples. The Company shall engage


a State certified analytical laboratory to conduct analyses of wastewater samples and to report
its findings to the Company. The laboratory shall perform all required analyses in accordance
with EPA protocol and the sampling and monitoring guide included as an appendix to the IPP.
The analysis of each sample will vary depending upon the SIU being monitored. Analyses may
be performed in the Company’s laboratory at the Facility provided that such laboratory has the
necessary certifications and the analyses are performed in accordance with Applicable Law
and the sampling and monitoring guide included as an appendix to the IPP.

(I) Preparation of Annual Pretreatment Report. The Company shall prepare


an annual pretreatment report for the County which satisfies the annual reporting
requirements contained in the applicable permit. The annual pretreatment report shall
include the following:

(i) An updated list of current and potential SIUs, with changes from previous
reports indicated;

(ii) A summary of the compliance, enforcement, and monitoring activities performed


during the reporting period, stating the number and percent of SIUs by category in compliance
with baseline monitoring reporting requirements, categorical standards, local limits (as
applicable), and inspections;

(iii) A list of significant noncompliance events by SIUs, with such list to be


simultaneously published in the local newspaper having the largest daily circulation;

(iv) A narrative description of program effectiveness and current and proposed


changes to the IPP, such as funding, staffing, ordinances, regulations, rules and statutory
authority; and

(v) A summary of all pollutant analytical results at the Facility, not previously
reported, for Influent, Effluent, and Residuals.

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(J) IPP Violation Investigations. In the event the Company determines or


reasonably believes that Excessive Influent has been received at the Facility or the Company
has knowledge or reasonably believes that the IPP is being or has been violated, the Company
shall within 10 days after making such determination or obtaining such knowledge, and after
notice to the County pursuant to the following subsection, commence an investigation to
reasonably determine whether a violation of the IPP has occurred and, if such a violation has
occurred, the identity of the source. For purposes of this subsection, the Company shall have
knowledge of a violation of the IPP if it becomes aware of:

(i) the presence of a Toxic Substance in Influent originating in the Service Territory;
(ii) violations of wastewater discharge permit limits, conditions or requirements, by
any discharger;
(iii) any other violation of a pretreatment requirement; or
(iv) any discharge of a pollutant into the Collection System that has caused
imminent endangerment to human health, safety or welfare or to the environment, or has
resulted in the Company’s exercise of its emergency authority to halt or prevent such a
discharge.
(K) Notice to County of Violations. The Company, prior to commencing the
investigations described in subsection (J) above, shall notify the County as to its intent to
undertake such investigations and the reasons therefor, and as to the estimated costs of such
investigation, which estimate shall be updated throughout the investigatory process. The
Company shall report weekly to the County regarding the progress of any IPP violation
investigation, and shall provide a written report regarding the results of such investigation
within 10 days after the conclusion thereof. Should the Company determine that an SIU has
failed to comply with its permit requirements in accordance with the IPP, or that a particular
waste being discharged is in violation of the IPP, the Company shall promptly notify the
County of its determination of noncompliance and shall have the right to recommend
appropriate enforcement actions and compliance schedules. The County shall determine the
enforcement action to be taken and thereupon promptly initiate such enforcement action in
accordance with the IPP enforcement response plan to the fullest extent allowed by law against
the violating entity and in accordance with the County’s enforcement determination. Such
enforcement action may include, without limitation, fines, penalties, appropriate injunctive
relief, and, in extreme cases, revocation of the non-complying discharger’s permit to discharge
into the Collection System and the shutting off of sewer services to the non-complying
discharger. The Company shall be relieved of responsibility for any compliance violations,
fines or penalties to the extent they result from a failure of the County to determine or
implement reasonable enforcement actions as required by Applicable Law.

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(L) Company Enforcement Assistance. The Company shall cooperate with


and fully assist the County in any IPP enforcement action. In such connection, the Company
shall provide applicable records and reports from its monitoring, sampling and reporting
activities performed pursuant hereto, and shall provide other information and personnel as
reasonably requested by the County.

(M) Fines and Penalties. In the event any violation of the IPP causes fines or
penalties to be levied upon the Company or the County by any Governmental Body as a result
of the discharge of non-complying Effluent, the Company shall pay all such fines and penalties
to the extent they arise due to Company Fault, and the County shall pay all such fines and
penalties to the extent they do not arise due to Company Fault. All financial recoveries from
IPP violations shall be the property of the County.

(N) New Permittees under the IPP. The parties acknowledge and agree that
there are eight permittees under the IPP as of the Contract Date. The Company shall be
entitled to an adjustment to the Fixed Component of the Service Fee in accordance with
subsection 13.4(C) upon each incremental increase of five new permittees under the IPP over
the Term.

SECTION 9.2. IPP ENFORCEMENT BY THE COUNTY.

(A) Industrial Discharge Permits. The County retains the right and the
responsibility to approve sewer connections, make determinations as to whether a person
constitutes an SIU, and issue industrial discharge permits in accordance with Applicable Law.
Copies of industrial discharge permits and any related agreements shall be provided to the
Company promptly following issuance and execution thereof.

(B) Enforcement. The County shall enforce the IPP in accordance with
Applicable Law, including the enforcement response plan approved by the EPA or Ecology
pursuant to the Clean Water Act.

SECTION 9.3. SUMMARY OF RESPONSIBILITIES. Table 9.3 summarizes


the roles and responsibilities of the County and the Company for supporting the IPP. See
Sections 9.1 and 9.2 for specific duties associated with each area.

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Table 9.3

COMPANY COUNTY*
Survey and Categorization
Industrial waste survey X
User categorization and survey follow-ups X
Review and acceptance of User categorization X
New source review and categorization X
Approval of new sewer connections and categorization X
User database management X
Permitting Process
Issue notification packet Prepare X
Review permit application Recommend X
Compliance scheduling and follow-up X
Issue draft permit X
Draft permit review and follow-up Recommend X
Final approval and issuance of permit X
Permit Changes
Permit revision Recommend X
Permit modification Recommend X
Permit waiver, transfer, or revocation Recommend X
Pretreatment Facilities
Pretreatment facility review X
Pretreatment facility approval (by Ecology) X
Local Limits Recommend X
Monitoring
Compliance monitoring X
Demand monitoring X
Random monitoring X
Interceptor monitoring X
Review user self monitoring reports X
IPP violation investigation Support X
Maintain monitoring, violations, and actions database X
Program enforcement
Informal notice Prepare X
Notice of Violation X
Administrative Order X
Civil penalty X
Court action X
Emergency suspension X
Public notification X
Program Management
Update pretreatment standards Recommend X
Annual pretreatment report Prepare X
*COUNTY – acting on behalf of itself and/or other agencies having jurisdiction.

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ARTICLE X

PERFORMANCE

SECTION 10.1. FACILITY PERFORMANCE GENERALLY.

(A) Reliance. The Company acknowledges that the County, as the owner of
the Facility, is providing an essential public service, and is relying on the performance by the
Company of its obligations hereunder.

(B) Curtailments and Shutdowns. If the operation of the Facility for any
reason is temporarily reduced, curtailed or shut down so that the Company is unable to
collect, receive and treat any quantity of Influent or discharge Effluent in accordance herewith,
the Company shall immediately advise the County as to the nature and probable duration
thereof and the expected effect on the operation of the Facility, and take all steps necessary to
remedy the curtailment or shutdown and to resume full performance hereunder as soon as
possible.

(C) Limitations on Company Rights. The Company shall not treat


wastewater other than Influent and shall not use the Facility for any purpose other than the
purposes contemplated hereby. The Company shall not process any material other than
Sludge in the Facility digesters unless authorized by the County in accordance with the terms
and conditions of this Service Contract. The Company shall not impose a fee or charge on any
third party for the treatment of Influent or any other waste. The only compensation payable
by the County to the Company for providing the Operation Services shall be the Service Fee
payable by the County hereunder.

SECTION 10.2. EFFLUENT GUARANTEE.

(A) Generally. Except to the extent relieved as provided in Section 10.7 or


otherwise due to the occurrence of an Uncontrollable Circumstance in accordance with
Section 15.2, the Company shall operate the Facility on a continuous, uninterrupted 24-hour
per day, 7-day per week basis so as to receive and treat all Influent and discharge Effluent in
compliance with the requirements of Applicable Law and the specific requirements set forth in
Appendix 10 (the “Effluent Guarantee”).

(B) Liquidated Damages for Failure to Comply with the Effluent Guarantee.
Except to the extent the Company’s obligation to comply with the Effluent Guarantee is
relieved as provided in Section 10.7 or otherwise due to the occurrence of an Uncontrollable
Circumstance in accordance with Section 15.2, the Company shall pay liquidated damages in
the amounts set forth in Appendix 10 for the Company’s failure to comply with the Effluent

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Guarantee. All dollar amounts set forth in Appendix 10 for such liquidated damages shall be
adjusted annually from the Contract Date by the Facility Element Adjustment Factor.

(C) Indemnity for Loss-and-Expense from Non-Complying Effluent. In the


event that any Effluent discharged by the Company fails to comply with the requirements of
the Effluent Guarantee, except to the extent such failure of compliance is caused by an
Uncontrollable Circumstance, the Company, in addition to its obligations under Section 10.8
and subsection (B) of this Section, shall pay all fines and penalties assessed by any
Governmental Body and shall indemnify, defend and hold harmless the County Indemnitees in
accordance with Section 15.3 from any Loss-and-Expense resulting from the discharge of such
non-complying Effluent. This indemnity shall extend to any liability resulting from property
loss or damage or death or personal injury suffered or alleged to be suffered by any person
from exposure to such non-complying Effluent based on any theory of recovery, including
theories of toxic tort or environmental impairment..

(D) Change in Law Affecting Effluent. The parties acknowledge that a


Change in Law may affect Effluent standards or impose more stringent requirements relating
to equipment or processes than those established hereunder as of the Contract Date. In the
event a Change in Law occurs, the Company shall not be entitled to performance relief or
additional compensation under Section 15.2 unless (1) such Change in Law imposes a
regulatory standard or operating requirement with respect to any particular Effluent
characteristic or parameter which is (i) more stringent or burdensome to comply with than the
Contract Standards applicable to such characteristic or parameter, or (ii) requires equipment
or processes not then utilized, in place or practiced at the Facility, and (2) the Company is
unable, after taking all mitigation measures required under Section 15.2 with respect to such
a Change in Law, to avoid the necessity for such performance relief or additional
compensation.

SECTION 10.3. ODOR GUARANTEE.

(A) Applicable Law Limits. Except to the extent relieved as provided in


Section 10.7 or otherwise due to the occurrence of an Uncontrollable Circumstance in
accordance with Section 15.2, in operating the Facility the Company shall comply with all
limits and requirements established by Applicable Law with respect to odor control.

(B) Contract Limits. In addition to its obligation to comply with odor limits
and requirements imposed by Applicable Law as provided in subsection (A) of this Section and
except to the extent relieved as provided in Section 10.7 or otherwise due to the occurrence of
an Uncontrollable Circumstance in accordance with Section 15.2, the Company shall comply
with the Odor Control Standards and operate and maintain the Facility so that there is no

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odor emanating from the Facility at or beyond the Site boundary which causes an Odor
Incident or a Sustained Odor Condition (the “Odor Guarantee”).

(C) Odor Control Practices Report. The Company shall submit, together with
the monthly operations report required by Section 8.14, a monthly odor control practices
report to the County in accordance with Appendix 9.

(D) Preventing Recurrence of Violations. The general remedies for exceeding


odor limits are set forth in Section 10.10 and this Section and may include termination as and
to the extent provided in Section 14.2. With respect to odor particularly, the parties
acknowledge the extreme importance of this issue to the general public. The Company further
acknowledges that, in the proposal process leading to the execution of this Service Contract,
the Company had a full opportunity to propose additional capital improvements for odor
control, and by making its proposal and by executing this Service Contract, the Company has
assumed the risk that the Facility is capable of controlling odor to a level required by the
Contract Standards absent the occurrence of Uncontrollable Circumstances. Accordingly, in
the event the Company fails to comply with its odor control obligations set forth or referred to
in this Section, and is not excused by Uncontrollable Circumstances, the Company shall be
obligated to implement such Capital Modifications and changes in operating, maintenance,
repair, replacement and management practices as shall be necessary, in light of the nature,
extent and repetitiveness of such non-compliance, to assure that the odor violation will not
recur.

(E) Odor Incident. An “Odor Incident” for purposes of this Service Contract
is an odor condition of limited duration emanating from the Facility, to the extent not caused
by Uncontrollable Circumstances, which is verified by the Company or the County in
accordance with Appendix 10.

(F) Sustained Odor Condition. A “Sustained Odor Condition” for purposes of


this Service Contract is any Odor Incident, or combination of Odor Incidents, occurring over
the course of three or more consecutive days.

(G) Citations for Odor Incidents. Upon receipt of information surrounding


any Odor Incident, the County shall have the right to issue a citation (“Odor Citation”) to the
Company if the County reasonably believes that the Company has violated the Odor
Guarantee. Prior to issuing an Odor Citation, the County shall give written notice of the
proposed issuance of the Odor Citation to the Company, together with a written statement as
to the basis of the determination. The Company shall have five business days after receipt of
the County’s written notice to respond in writing to the County. The Company may, in its
written statement, present information in refutation of the proposed County determination

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that an Odor Incident has occurred, including information as to the role of any Uncontrollable
Circumstances in any odor condition, other mitigating factors, and any possible assessment of
liquidated damages which may result from the County’s issuance of an Odor Citation. The
County may exercise discretion in making its final determination of whether to issue an Odor
Citation, and if so, the amount of liquidated damages to be assumed, if any. The limitations of
this discretionary power are described in subsection (H) of this Section. In exercising this
discretion, the County shall consider the number, frequency, legitimacy and forcefulness of
odor complaints logged; the size of the area or magnitude of the number of individuals
affected; and the degree of impact on the individuals affected. In exercising this discretion, the
County shall also consider the information presented by the Company (including the efforts of
the Company to correct the odor condition).

(H) Liquidated Damages for Odor Citations. The Company shall pay
liquidated damages for each Odor Citation issued by the County in the following amount:
(1) for the first Odor Citation, $0 to $4,000; (2) for the second Odor Citation, $0 to $8,000; and
(3) for the third and each subsequent Odor Citation, $0 to $16,000. The County shall have the
right in its discretion to set the amount of the liquidated damages within such parameters.
Each such dollar amount shall be adjusted annually based on the Facility Element
Adjustment Factor.

(I) County Monitoring. The County, upon reasonable advance notice to the
Company, shall have the right at any time to hire a third party for the purpose of monitoring
the Facility for odor and emissions. Such third party may perform odor panel testing or
sampling and monitoring. All costs relative to the third party shall be borne by the County
and the County shall be responsible for all damage caused to the Company by reason of
negligence of such third party while at the Site.

(J) Disregarding Prior Odor Citations. In the event that a period of 365 or
more days elapses following the issuance of an Odor Citation without any further Odor
Citations being issued by the County, all previous Odor Citations regardless of number shall
be disregarded for the purposes of the County’s termination rights pursuant to Section 14.2
and for determining Service Fee reductions under subsection (H) of this Section, and the next
Odor Citation, if any, which occurs shall be deemed to be the “first Odor Citation” for such
termination and Service Fee reduction purposes.

(K) Sustained Odor Condition Determination. In the event that the County
believes a Sustained Odor Condition exists, it shall have the right to make a determination
that a Sustained Odor Condition has occurred. Prior to making a Sustained Odor Condition
determination, the County shall give written notice of the proposed determination to the

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Company, together with a written statement as to the basis of the determination. The
Company shall have ten business days after receipt of the County’s written notice to respond
in writing to the County. The Company may, in its written statement, present information in
refutation of the proposed County determination that a Sustained Odor Condition has
occurred, including information as to the role of any Uncontrollable Circumstances in any
odor condition and as to other mitigating factors. The County shall consider any such
information presented by the Company (including the efforts of the Company to correct the
odor condition) in making its final determination as to whether a Sustained Odor Condition
has occurred and if so, the amount of liquidated damages to be assessed, if any.

(L) Liquidated Damages for Sustained Odor Condition Determination. The


Company shall pay liquidated damages upon a Sustained Odor Condition determination made
by the County, in any amount from $0 to $20,000 determined by the County. Such dollar
amount shall be adjusted annually based on the Facility Element Adjustment Factor.

(M) County Termination Rights Based on Odor Citations or a Sustained Odor


Condition Determination. The County shall have the right, but not the obligation, to terminate
this Service Contract based upon Odor Citations or upon a Sustained Odor Condition
determination by the County pursuant to and in accordance with Section 14.2. The rights of
the County to collect liquidated damages, or to terminate this Service Contract based on Odor
Citations or a Sustained Odor Condition determination, shall not be exclusive, and the County
shall have all of the other remedies provided herein in the event of a breach of this Service
Contract relating to odor, including the right to require the Company to prevent the recurrence
of odor violations as provided in subsection (D) of this Section.

(N) Concurrent Odor Incidents and Sustained Odor Conditions.


Notwithstanding the pendency of proceedings relating to the issuance of an Odor Citation, the
County shall have the right to give notice of a Sustained Odor Condition (whether based on the
continuance of the Odor Incident giving rise to the possible issuance of the Odor Citation or
based upon other odor conditions). In any such event the Company shall have the rights set
forth in subsection (K) of this Section with respect to the determination of a Sustained Odor
Condition. If a Sustained Odor Condition directly results from the related Odor Incident giving
rise to the issuance of an Odor Citation, the maximum total amount of liquidated damages
from both the Odor Citation and the Sustained Odor Conditions shall not exceed the
maximum allowed for by the Sustained Odor Condition.

(O) Number of Odor Citations and Sustained Odor Condition


Determinations. Nothing in this Section limits the number of Odor Incidents or Sustained

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Odor Condition Determinations that the County may declare if circumstances warrant
hereunder.

SECTION 10.4. SEPTAGE GUARANTEE. The Company shall receive, accept


and treat Acceptable Septage, up to a maximum amount of 24,000 gallons per day from
persons or businesses specifically designated by the County and shall comply with all
requirements set forth in Appendix 10 with respect to receiving, accepting and treating Septage
(the “Septage Guarantee”). The Service Fee includes full compensation for the services
performed by the Company pursuant to the Septage Guarantee. All revenue received in
connection with any Septage shall be the property of the County and for its account. The
Company shall be subject to liquidated damages in the amounts set forth in Appendix 10 for
failure to comply with the Septage Guarantee. The County shall be responsible for all cost and
expense of the Company associated with the removal or disposal of Septage received at the
Facility which is not Acceptable Septage, except to the extent such Septage is received at the
Facility due to Company Fault. The Company shall comply with the requirements of
Appendix 10 with respect to the receipt of Septage of the Facility and shall reject Septage
determined to be unacceptable in accordance therewith.

SECTION 10.5. DISPOSAL OF RESIDUALS AND BIOSOLIDS QUALITY AND


QUANTITY GUARANTEE.

(A) General Obligations. Except to the extent relieved in accordance with


Section 15.2 due to the occurrence of Uncontrollable Circumstances, the Company shall be
responsible for the on–Site processing and management of all Residuals and the
transportation and disposal of all Residuals other than Biosolids in accordance with the
Contract Standards, including the specific requirements set forth in Appendix 10. The County
shall be responsible for the transportation and disposal of all Biosolids.

(B) Biosolids Quality and Quantity Guarantee. Except to the extent the
Company is relieved in accordance with Section 15.2 due to the occurrence of Uncontrollable
Circumstances, all Biosolids shall: (1) be processed at the Facility to meet the Standards for
the Use or Disposal of Sewage Sludge, Title 40 of the Code of Federal Regulations, part 503, as
amended, for Class B pathogen reduction, (2) be in cake form dewatered to at least 20% solids,
free of standing water, free of identifiable or recognizable inerts (as defined by Ecology) and
suitable for truck handling and for application on agricultural land, and (3) shall not exceed
the maximum Biosolids yield calculated in accordance with Appendix 10 for the particular
Annual Reset Group in effect for the Contract Year (the “Biosolids Quality and Quantity
Guarantee”).

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(C) Storage, Loading and Coordinating with Transporter. The Company


shall not store in any manner Residuals on the Site unless fully covered or enclosed and odor
protected. The Company acknowledges that the primary purpose of this provision is to
minimize odors. The Company shall communicate directly with the County’s contractor
responsible for the transportation and disposal of Biosolids in order to coordinate the removal
of Biosolids from the Site.

(D) Failure to Comply with the Biosolids Quality and Quantity Guarantee. In
the event that the Company fails at any time to comply with the Biosolids Quality and
Quantity Guarantee, the Company shall, without limiting any other remedy available to the
County upon such an occurrence and notwithstanding any other provision of this Service
Contract: (1) promptly correct such failure and resume compliance with the Biosolids Quality
and Quantity Guarantee; (2) transport and dispose of all Sludge that does not meet the
Biosolids quality requirements set forth in subsection (B) of this Section at a disposal facility
lawfully able to accept such Sludge at the Company’s sole cost and expense (except that the
Company shall be entitled to cost relief in accordance with Section 15.2 to the extent the
Company demonstrates that such Sludge does not meet the Biosolids Quality and Quantity
Guarantee as a result of an Uncontrollable Circumstance), (3) reimburse the County for all
Cost Substantiated costs of the County incurred in transporting and disposing Biosolids in
excess of the quantity requirements set forth in subsection (B) of this Section, and (3)
indemnify, defend and hold harmless the County Indemnities in accordance with and to the
extent provided in Section 14.3 from all Loss-and-Expense resulting therefrom.

(E) Residuals Processing and Management Information. The Company shall


keep and maintain such logs, records, testing results or other documents pertaining to
Residuals as are necessary or appropriate to comply with Applicable Law and to monitor and
confirm compliance by the Company with the requirements of this Section, and shall collect
and promptly provide the County with a copy of all weights and measures data and
information relating to quantities of Residuals generated, processed or managed hereunder.

SECTION 10.6. ENVIRONMENTAL GUARANTEE. Except to the extent


relieved due to the occurrence of Uncontrollable Circumstances, the Company shall do all
things necessary in accordance with Prudent Industry Practice to assure that the Facility
meets all requirements of Applicable Law, including the specific requirements set forth in the
Conditional Use Permit, with respect to the control of noise, fugitive dust, traffic, litter, lighting,
vectors, negative visual impacts of the Facility, and other adverse environmental effects on the
surrounding community (the “Environmental Guarantee”).

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SECTION 10.7. UPSETS AND EXCESSIVE INFLUENT AFFECTING COMPANY


COMPLIANCE WITH PERFORMANCE GUARANTEES.

(A) Relief Generally. Subject to the provisions of subsection (B) of this


Section, the Company shall be relieved of its obligation to comply with a Performance
Guarantee to the extent and for any period during which the operation of the Facility is
affected by the occurrence of an Upset, the receipt of Excessive Influent or any other
Uncontrollable Circumstance.

(B) Upsets and Excessive Influent. The occurrence of an Upset or the receipt
of Excessive Influent shall not be considered to be an Uncontrollable Circumstance, and the
Company shall not be entitled to relief from a Performance Guarantee due to the occurrence of
an Upset or the receipt of Excessive Influent, except to the extent that the Company
affirmatively demonstrates through properly signed, contemporaneous operating logs, or other
relevant evidence that:

(i) an Upset actually occurred or Excessive Influent was actually received;


and

(ii) the occurrence or receipt thereof could not have been prevented by
compliance with the Contract Standards.

(C) Response Measures to Upsets and Excessive Influent. If an Upset occurs


or the Facility receives Excessive Influent, the Company shall, without limiting its obligations
under the Contract Standards: (1) use all reasonable efforts consistent with Prudent Industry
Practice to maintain Facility performance as if the Upset had not occurred or Excessive
Influent had not been received; (2) advise the County of the situation and the Company’s
planned course of action as soon as reasonably possible but in any case within 24 hours after
the Company’s first knowing of the occurrence of an Upset or the receipt of Excessive Influent;
(3) submit any notice thereof required by Applicable Law; and (4) use all reasonable efforts
consistent with Prudent Industry Practice to return the Effluent to compliance with the
requirements of Applicable Law and the Performance Guarantees as soon as reasonably
possible in accordance with the Contract Standards.

(D) Service Fee Impact. To the extent the occurrence of an Upset or the
receipt of Excessive Influent constitutes an Uncontrollable Circumstance hereunder, the
Service Fee shall be increased by an amount equal to the reasonable costs incurred by the
Company with respect to such Uncontrollable Circumstance, including the reasonable costs
incurred by the Company in responding to the effect of the Uncontrollable Circumstance on
the Facility and on the performance of the Contract Services but excluding any such increased

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costs which would have been avoided had the Company complied with any remedial measures
required under Applicable Law and appropriate mitigating measures required by Section 15.2.

SECTION 10.8. TESTING, METERING AND WEIGHING.

(A) Testing. The Company shall conduct all tests of Influent, Effluent,
Residuals, air emissions and odor in accordance with the Contract Standards.

(B) Metering and Weighing. The Company shall maintain in good working
order, and repair and replace when necessary, devices capable of (1) metering the continuous
and daily total volume of Influent and Effluent and (2) metering or weighing the daily amount
of Residuals leaving the Facility for disposal. The County shall have full access to such meters,
instruments, controls, recorders, scales and other metering and weighing devices. All
operating data produced by such metering and weighing devices shall be subject to audit, and
shall be summarized in the monthly operations reports delivered to the County pursuant to
Section 8.14. All such metering and weighing devices shall be calibrated to the accuracy
required by, and shall be operated and maintained in accordance with the requirements of, the
Contract Standards. To the extent any metering or weighing device is incapacitated or is being
tested, the Company shall estimate as accurately as practicable the data required by the
Company to perform the Contract Services. This estimate and methodology shall, with the
County’s approval and as allowed under Applicable Law, be used as the basis for determining
the operating data required hereunder during the outage. The County shall have the right, at
the County’s expense, to monitor, inspect and test such metering and weighing devices which
are part of the Facility at any time and for any purpose and to take measurements regarding
Influent, Effluent, and Residuals without unreasonably interfering with the Company’s
ordinary operations.

SECTION 10.9. RELEASES, LEAKS AND SPILLS.

(A) Unauthorized Releases Prohibited. The Company shall operate the


Facility in such a manner that Influent, Effluent and Residuals will not contaminate, or be
bypassed, released, leaked or spilled on or into, the environment, other than as permitted by
Applicable Law and the other Contract Standards.

(B) Notification and Reporting. The Company shall notify the County
promptly upon the occurrence of any unauthorized release, and shall be responsible for
fulfilling all notification and reporting requirements established by Applicable Law related to
any unauthorized release of Influent, Effluent or Residuals into the environment from or in
connection with its operation and management of the Facility. The Company shall prepare a
memorandum evidencing such notification and reporting and provide copies thereof to the

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County, along with any documents provided to the relevant Governmental Body regarding the
release.

(C) Cleanup and Costs. The Company shall coordinate with the County and
all appropriate Governmental Bodies in effectuating the prompt remediation of any
unauthorized release. The Company shall, in the most expeditious manner possible under the
circumstances, cause any Influent, Effluent or Residuals released in violation of this Section to
be cleaned up and remediated in accordance with Applicable Law. All costs associated with
performing any such cleanup and remediation measures shall be borne by the Company,
except to the extent the unauthorized release of Influent, Effluent or Residuals resulted from
an Uncontrollable Circumstance, in which case the appropriate portion of such costs shall be
borne by the County on a reimbursement basis.

(D) Indemnification. Except to the extent due to the occurrence of


Uncontrollable Circumstances, the Company shall indemnify, defend and hold harmless the
County Indemnitees in accordance with and to the extent provided in Section 15.3 from all
Loss-and-Expense that may result from a failure to comply with this Section.

SECTION 10.10. COUNTY REMEDIES FOR NON-COMPLIANCE WITH


PERFORMANCE GUARANTEES.

(A) Remedies. If the Company fails to comply with any Performance


Guarantee and is not excused from performance due to the occurrence of Uncontrollable
Circumstance as provided in Sections 10.7 or 15.2, the Company shall, without relief under
any other Performance Guarantee, and in addition to any other remedy provided herein,
allowed by Applicable Law or required by a Governmental Body: (1) promptly notify the
County within 24 hours of the Company’s having knowledge of any such non-compliance;
(2) promptly provide the County within 24 hours copies of any notices sent to or received from
the EPA, Ecology or any other Governmental Body having regulatory jurisdiction with respect
to any violations of Applicable Law; (3) pay any applicable liquidated damages or
reimbursements specifically provided for herein or have its Service Fee reduced in the amount
of such liquidated damages or reimbursements; (4) pay any other resulting damages, fines
(discretionary or mandatory in nature), levies, assessments, impositions, penalties or other
charges resulting therefrom; (5) take any action (including making all capital investments,
improvements or modifications, repairs and replacements and operating and management
practices changes) necessary in order to comply with such Performance Guarantee, continue
or resume performance hereunder and eliminate the cause of, and avoid or prevent the
recurrence of non-compliance with such Performance Guarantee; (6) promptly prepare all
public notifications required by Applicable Law, and submit such notifications for publication;

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and (7) assist the County with all public relations matters necessary to adequately address
any public concern caused by such non-compliance, including preparation of press releases,
attendance at press conferences, and participation in public information sessions and
meetings.

(B) Performance Testing. The County, at any time, may require a


performance test to be conducted by the Company, at the County’s cost and expense, to
demonstrate that the Facility is operating in compliance with Applicable Law and the
Performance Guarantees. The performance tests shall be conducted in the manner provided
in Appendix 6 to the extent applicable. If the test is not successfully passed, the Company
shall reimburse the County and, at its own cost and expense, make all necessary repairs and
replacements, including major repairs and replacements, and the test shall be re-performed at
the Company’s sole cost. The County Engineering Representative will conduct or verify each
test and inspection.

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ARTICLE XI

MAINTENANCE, REPAIR AND REPLACEMENT

SECTION 11.1. MAINTENANCE, REPAIR AND REPLACEMENT GENERALLY.

(A) Ordinary Maintenance. The Company shall perform all normal and
ordinary maintenance of the machinery, equipment, structures, improvements and all other
property constituting the Facility, shall keep the Facility in good working order, condition and
repair, in a neat and orderly condition and in accordance with the Contract Standards, and
shall maintain the aesthetic quality of the Facility as originally constructed and in accordance
with the Technical Specifications. The Company shall provide or make provisions for all labor,
materials, supplies, equipment, spare parts, Consumables and services which are necessary
for the normal and ordinary maintenance of the Facility and shall conduct predictive,
preventive and corrective maintenance of the Facility as required by the Contract Standards.
The Company shall keep maintenance logs in accordance with the requirements set forth in
Appendix 9.

(B) Repair and Maintenance of Site Grounds. The Company, in accordance


with the Contract Standards, shall keep the grounds of the Site in a neat and orderly condition
(including the cleanup of litter and debris on a daily basis or more frequently as required).
The Company shall also maintain and repair all Site fencing and signage and shall provide
snow removal, lawn mowing, landscape maintenance, leaf raking, and brush cutting services
for the Site.

(C) Major Maintenance, Repair and Replacements by the Company. The


Company shall perform all major maintenance, repairs and replacement of the machinery,
equipment, structures, improvements and all other property constituting the Facility during
the Term required under the Contract Standards, including membrane replacement and all
other maintenance, repair and replacement which may be characterized as “major” or “capital”
in nature. The County’s approval for any such maintenance, repair or replacement shall not
be required unless it constitutes a Capital Modification in which event the County shall have
the approval rights set forth in Article XII. The obligations of the Company under this
Article are intended to assure that the Facility is fully, properly and regularly maintained,
repaired and replaced in order to preserve its long-term reliability, durability and efficiency,
and that in any event the Facility is returned to the County at the end of the Term in a
condition which does not require the County to undertake a significant overhaul or immediate
replacements in order to continue to provide reasonably priced and efficient wastewater
treatment services. The Company shall bear the cost and expense of all maintenance, repairs
and replacements required under this Article, including the cost and expense of any

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maintenance, repair or replacement that may constitute a Capital Modification, unless


otherwise provided in Article XII.

(D) Repair and Replacements by the County. The County shall perform or
cause to be performed all maintenance, repair and replacement of all County Property located
outside the Site boundary, which is integral to the operations of the Facility, including the
Collection System, pump stations, conveyance system and outfall. The County shall bear the
cost and expense of such maintenance, repair and replacement.

SECTION 11.2. FACILITY EVALUATION.

(A) Initial and Final Valuation of Vehicles, Rolling Stock, Spare Parts and
Consumables. The Company shall, within 180 days following the Acceptance Date (or, if
certified by the Company pursuant to Section 6.6, the Provisional Acceptance Date) and in
conjunction with the County, prepare an itemized inventory and valuation of all vehicles,
rolling stock, spare parts and Consumables having operational utility and present at the
Facility as of the Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the
Provisional Acceptance Date). In like manner, prior to the Termination Date, the Company
shall prepare an itemized inventory and valuation of all vehicles, rolling stock, spare parts and
Consumables in stock at the Facility and having operational utility at the Facility which are to
be transferred to the County on the Termination Date. The final valuation amount shall be
compared to the initial valuation amount, as adjusted annually by the Facility Element
Adjustment Factor. The amount of any valuation shortfall or excess shall be paid by the
Company to the County or by the County to the Company as appropriate, on or before the
Termination Date.

(B) Baseline Facility Record. Concurrently with the inventory and valuation
conducted pursuant to subsection (A) of this Section, the Company shall photograph and
prepare an itemized inventory of all property constituting the Facility, including records of
assets originally installed, the manufacturer, identification number and original cost data (the
“Baseline Facility Record”). The Baseline Facility Record shall reflect, based on the
Design/Build Price and the Technical Specifications, the condition, functionality, value and
useful life of the Facility as originally constructed by the Company hereunder. The Baseline
Facility Record shall be prepared in accordance with the protocol established in Appendix 11.
The purpose of the Baseline Facility Record shall be to establish an informational baseline for
determining compliance by the Company with its maintenance, repair and replacement
obligations under this Article.

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(C) Final Evaluation of the Facility. Not later than six months prior to the
Termination Date resulting from the expiration of this Service Contract, the Company shall
conduct a final evaluation of the Facility in accordance with the protocol established in
Appendix 11. In connection with the final asset evaluation, the Company shall furnish the
County with the Baseline Facility Record prepared pursuant to subsection (B) of this Section
and all database information developed in connection with the implementation of the CMMS.
The evaluation of the Facility Structures shall determine and establish the physical condition
of the Facility Structures. The evaluation of the Facility Equipment shall determine and
establish the weighted average useful life of the Facility Equipment as of the date of evaluation
(expressed as a single number of years, carried to one decimal place), taking into account the
performance capability and value of each piece of Facility Equipment. The final evaluation
shall exclude the value of any Capital Modifications, which shall be evaluated separately in
accordance with subsection (F) of this Section.

(D) Required Condition of Facility Structures Upon Return to the County.


The Facility Structures shall be returned to the County in good condition, working order and
repair, as when new with ordinary wear and tear excepted, as determined in light of the
Company’s maintenance, repair and replacement obligations under Section 11.1 and the
periodic maintenance inspections under Section 11.3. If any periodic inspection establishes
that there are Facility Structures which fail to meet structural integrity and functionality
rankings of 3 or greater, as defined in Appendix 11, the Company shall remedy the deficiency
in accordance with the provisions of subsection 11.3(C). If the final evaluation establishes
that there are Facility Structures which fail to meet structural integrity and functionality
rankings of 3 or greater, as defined in Appendix 11, the Company shall, at the election of the
County, either remedy the deficiency or make a cash payment to the County sufficient to
enable the County to remedy the deficiency.

(E) Required Condition of Facility Equipment Upon Return to the County.


The Facility Equipment shall be returned to the County in a condition and state of repair such
that, in the aggregate, the weighted average useful life of the Facility Equipment at the end of
the Term (excluding the membranes) is equal to or greater than five years. The remaining
useful life of the membranes shall be in accordance with Section 11.6. If the final evaluation
establishes a maintenance, repair and replacement weighted average useful life deficiency, the
Company shall, at the election of the County, either remedy the deficiency or make a cash
payment to the County sufficient to enable the County to remedy the deficiency.

(F) Capital Modifications. If Capital Modifications constituting Facility


Structures are made during the Term, such assets shall be returned to the County on the

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Termination Date in good condition, working order and repair, with ordinary wear and tear
excepted as determined in light of the Company’s maintenance, repair and replacement
obligations under Section 11.1. If Capital Modifications constituting Facility Equipment are
made during the Term, such Capital Modifications shall be disregarded in preparing the final
evaluation of the Facility pursuant to subsection (C) of this Section. The weighted average
useful life of all such assets as an aggregate, however, shall be separately determined in the
final asset evaluation, and shall be equal to or greater than the weighted average useful life for
Facility Equipment provided in subsection (E) of this Section. Reasonable conventions may be
adopted in the weighting analysis to take account of the varying dates of installation.

(G) Effect of Election to Renew. If the parties elect to renew this Service
Contract at the end of the Initial Term, the final asset evaluation required by this Section shall
not be performed at the end of the Initial Term, but instead shall be performed at the end of
the Renewal Term. The standards established by this Section for the condition of the Facility
upon their return to the County shall apply notwithstanding any such renewal.

(H) Disputes. If the County disputes any of the information or conclusions


presented by the Company pursuant to this Section, the County shall notify the Company of
such dispute and the parties shall use good faith efforts to resolve any dispute. If the parties
are unable to resolve the dispute within 30 days after the County’s notification, the County
shall have the right to appoint an Independent Evaluator to review such information or
conclusions. The Company shall have the right to approve the County’s selection, the exercise
of which shall not unreasonably be withheld or delayed. The expense of the Independent
Evaluator for all services performed pursuant hereto shall be borne equally by the parties.
The final determination by the Independent Evaluator as to any matter arising under this
Section which is in dispute between the County and the Company shall be final and binding
upon the parties.

SECTION 11.3. PERIODIC MAINTENANCE INSPECTIONS.

(A) Annual Maintenance Inspection. The County may, upon reasonable


written notice, perform an inspection of the Facility and relevant records of the Company each
Contract Year to determine compliance with the Contract Standards. The Company shall
cooperate fully with the inspections, which shall not interfere unreasonably with the
Company’s performance of the Contract Services.

(B) Full-Scale Inspections. Commencing upon the third anniversary of the


Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the Provisional
Acceptance Date), and every third year thereafter during the Term, there shall be a full-scale

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inspection and review of the state of repair, working condition and performance capability of
the Facility. The inspection and review shall be performed by or on behalf of the County at the
County’s expense, and shall take place at such time as the County shall determine upon three
months’ written notice to the Company. The principal purpose of the inspection and review
shall be to permit the County to ascertain on a comprehensive and focused basis the extent to
which the Facility is being properly maintained, repaired and replaced in accordance with the
Contract Standards. The inspection shall include a concurrent review of all relevant data,
records and reports. The Company shall cooperate fully with the inspections and reviews,
which shall not interfere unreasonably with the Company’s performance of the Contract
Services.

(C) Remediation. Based on the annual operations and maintenance reports


submitted by the Company pursuant to Section 8.14 or the annual or periodic inspections and
reviews conducted pursuant to this Section or any unscheduled inspection provided for
herein, the County may submit a statement to the Company detailing any deficiencies found
and requiring the Company to submit a plan of remediation. Deficiencies identified by the
County shall be limited to (1) Facility structures which fail to meet structural integrity and
functionality ratings of 3 or greater, as defined in Appendix 11, and (2) items that, if not
addressed, could directly affect the performance of the Facility and are vital to the successful
operation of the Facility in accordance with Prudent Industry Practice. The remediation plan
shall be sufficient to reasonably demonstrate that, if implemented, the Facility will be promptly
brought into compliance with the requirements of this Article. If the County accepts the
remediation plan, the Company shall thereupon correct all deficiencies noted in accordance
therewith. Failing such corrective action, the Service Fee shall be reduced by the amount of
the County’s estimated cost of remediation. Any disputes with respect to the cause or amounts
specified in the County’s statement, not resolved to the mutual satisfaction of the parties, shall
be determined by Non-Binding Mediation as provided in Article XIV.

(D) Unscheduled Inspections. Nothing in this Section shall limit the


County’s right, on an unscheduled basis, at any time to inspect the Facility and relevant
records of the Company to determine compliance with this Article.

SECTION 11.4. COMPUTERIZED MAINTENANCE MANAGEMENT SYSTEM.


The Company shall, in accordance with Appendix 9, install, maintain, upgrade, repair and
replace, as appropriate during the Term, a computerized maintenance management system
(“CMMS”) capable of providing a record of repair and replacement of the Facility on a detailed,
item-by-item basis; scheduling, carrying out, monitoring and controlling predictive, preventive
and corrective maintenance programs; monitoring routine operations within the Facility;

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issuing work orders and purchase orders; maintaining a spare parts inventory; and issuing
exception, equipment status and repair priority reports. The CMMS shall be modified when
appropriate during the Term to take account of removals from and additions to the Facility.
The Company shall utilize the CMMS to provide the County with documentation which allows it
to efficiently monitor compliance by the Company with its maintenance obligations hereunder.
The County shall have computer-based real time, read-only access to such system. The
Company shall permit all electronic data to be replicated and provided to the County for review
by the County Engineering Representative.

SECTION 11.5. MAINTENANCE, REPAIR AND REPLACEMENT PLAN.

(A) Generally. Appendix 9 contains certain standards to be followed by the


Company in developing its plan for the maintenance, repair and replacement of the Facility.
The standards are intended to establish a minimum standard by which to measure the
Company’s performance of its ongoing maintenance, repair and replacement obligations
hereunder, and to assure that no material deferred or sub-standard maintenance, repair or
replacement occurs. The Operation and Maintenance Manual shall incorporate a
maintenance, repair and replacement plan in accordance with Appendix 9 and subsection (B)
of this Section. The Company shall adhere to the plan as incorporated in the Operation and
Maintenance Manual, except where it can demonstrate to the County that changes are
reasonable under Prudent Industry Practice, subject to the limitations set forth in this Section.
The timing and extent of maintenance, repair and replacement activities performed by the
Company hereunder with respect to the Facility, taken as a whole, shall equal or exceed the
standards set for those activities by Appendix 9, as incorporated in the Operation and
Maintenance Manual. The Company shall also perform any additional maintenance, repair
and replacement work which is necessary in order to comply with the Contract Standards.

(B) Facility Equipment Repair and Replacement Schedule. Appendix 16 sets


forth a detailed schedule of Facility Equipment repair and replacement activities (excluding
those related to the membranes) which would be required to be performed by the Company
during the Term in order to achieve the standard of overall Facility Equipment repair and
replacement deemed essential by the parties for the proper operability, durability and
reliability of the Facility Equipment over its expected useful life. Without limiting any of the
Company’s obligations under Section 11.1, the Company shall make and complete all Facility
Equipment (excluding membranes) repairs and replacements which are necessary to achieve
such standard of repair and replacement by performing Facility Equipment (excluding
membranes) repair and replacement in accordance with the schedule set forth in Appendix 16,
as such schedule may be altered or amended pursuant to this subsection (the “Facility

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Equipment Repair and Replacement Schedule”). The parties acknowledge that, in light of the
long-term nature of this Service Contract and the practical limitations on predicting with
specificity the useful life of any particular asset, it may be appropriate from time to time to
alter the Facility Equipment Repair and Replacement Schedule. Accordingly, the Company
shall have the right to request approval of alterations to the Facility Equipment Repair and
Replacement Schedule at any time during the Term, provided that no such alterations shall be
made unless the Company demonstrates to the reasonable satisfaction of the County that the
sum of all Facility Equipment (excluding membranes) repair and replacement services
performed to date by the Company, and all Facility Equipment (excluding membranes) repair
and replacement services to be performed under any such alterations, shall result in a
standard of overall Facility repair and replacement which is equal to or better than the
standard represented by the activities to be performed under the Facility Equipment Repair
and Replacement Schedule. Any alterations to the Facility Equipment Repair and
Replacement Schedule shall be reflected in a Contract Administration Memorandum. The
Company shall cooperate with the County in identifying any such alterations which may be
desirable in order to anticipate or address the technical obsolescence of any component,
system or process of the Facility, and in proposing such alterations for the County’s approval.
In no event shall any such alteration of the Facility Equipment Repair and Replacement
Schedule result in an increase in the amount to be funded by the County pursuant to
Section 13.8 for any particular Contract Year.

(C) Facility Equipment Repair and Replacement Charge. The Service Fee
shall constitute the only compensation available to the Company for the performance of its
maintenance, repair and replacement obligations under this Article. The Company shall be
paid the Major Equipment Repair and Replacement Charge for the repair and replacement of
the Major Facility Equipment in accordance with Section 13.8.

SECTION 11.6. MEMBRANE REPAIR AND REPLACEMENT.

(A) Generally. The Company shall maintain, repair and replace the
membranes in accordance with the Contract Standards, including the specific requirements
set forth in Appendix 16. The Company anticipates that the membranes will need to be fully
replaced in Contract Years 7 and 14. However, except to the extent relieved due to the
occurrence of Uncontrollable Circumstances, the Company shall be responsible for all
membrane repair and replacement required over the Term, including any membrane repair
and replacement required prior to Contract Years 7 and 14 or more frequent membrane repair
and replacement required in order to meet the Performance Guarantees. The Service Fee shall

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constitute the only compensation available to the Company for the performance of its
membrane maintenance, repair and replacement obligations under this Article.

(B) Required Condition of Membranes Upon Return to the County. The


membranes shall be returned to the County in a condition and state of repair sufficient to
meet the performance requirements for the membranes set forth in Appendix 16. In the event
that the membranes do not meet the performance requirements set forth in Appendix 16 at the
end of the Term, the Company shall, at the election of the County, either remedy the deficiency
in accordance with Appendix 16 or make a cash payment to the County sufficient to enable
the County to remedy the deficiency. Additionally, in the event that the Company has not fully
replaced all membranes at least twice prior to the expiration of the Initial Term, the Company
shall, at the election of the County, either replace any membranes that have not been replaced
at least twice over the course of the Initial Term or make a cash payment to the County
equivalent to the cost of replacing such membranes.

SECTION 11.7. WARRANTIES. During the Term, the Company shall be


responsible for meeting the County’s maintenance obligations under all manufacturer’s
warranties on new equipment purchased and installed in the Facility by the County or by the
Company, and shall be the agent of the County in enforcing existing equipment warranties and
guarantees. The Company shall not be required to commence or maintain any litigation with
respect to such warranties or guarantees, but may do so in its discretion. The Company shall
cooperate with and assist the County if the County seeks to enforce warranties and guarantees
through litigation.

SECTION 11.8. LOSS, DAMAGE OR DESTRUCTION TO THE FACILITY.

(A) Prevention and Repair. Following Acceptance of the Facility, the


Company shall use care and diligence, and shall take all appropriate precautions, to protect
the Facility from loss, damage or destruction in accordance with Prudent Industry Practice.
The Company shall report to the County and the insurers, immediately upon obtaining
knowledge thereof, any damage or destruction to the Facility and as soon as practicable
thereafter shall submit a full report to the County. The Company shall also submit to the
County within 24 hours of receipt copies of all accident and other reports filed with, or given to
the Company by, any insurance company, adjuster or Governmental Body. The parties shall
cooperate so as to promptly commence and proceed with due diligence to complete the repair,
replacement and restoration of the Facility to at least the character or condition thereof
existing immediately prior to the loss, damage or destruction, in accordance with and subject
to the procedures set forth in Article XII and Article XV, as applicable. The County shall have

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the right to monitor, review and inspect the performance of any repair, replacement and
restoration work by the Company as if such work constituted Design/Build Work hereunder.

(B) Insurance and Other Third-Party Payments. To the extent that any
repair, replacement or restoration costs incurred pursuant to this Section can be recovered
from any insurer or from another third party, each party shall assist each other in exercising
such rights as it may have to effect such recovery. Each party shall provide each other with
copies of all relevant documentation, and shall cooperate with and assist the other party upon
request by participating in conferences, negotiations and litigation regarding insurance claims.

(C) Uninsured Costs. The County shall provide all funds necessary to pay
the costs of repairing, replacing and restoring the Facility in accordance with this Section and
all insurance proceeds and recoveries from third parties resulting from damage to or the loss
or destruction of the Facility shall be for the account of the County; provided, however, that
such costs not covered by insurance proceeds or third-party payments shall be borne by the
Company to the extent the loss, damage or destruction was caused by Company Fault.

(D) Repair of County and Private Property. The Company shall promptly
repair or replace all County and private property damaged by the Company or any officer,
director, employee, representative or agent of the Company in connection with the
performance of, or the failure to perform, the Contract Services. The repair and replacements
shall restore the damaged property, to the maximum extent reasonably practicable, to its
character and condition existing immediately prior to the damage.

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ARTICLE XII

CAPITAL MODIFICATIONS

SECTION 12.1. CAPITAL MODIFICATIONS GENERALLY.

(A) Purpose. The parties acknowledge that it may be necessary, due to an


Uncontrollable Circumstance, or desirable from the standpoint of either party, to make Capital
Modifications. Capital Modifications may be desirable, for example, to improve the
performance or increase the capacity of the Facility, to address or anticipate the obsolescence
of portions of the Facility, to reduce the cost to the Company of performing this Service
Contract or to reduce the Service Fee payable by the County as provided in subsection (D) of
this Section.

(B) County Approval. The County shall have the right, in its sole discretion,
to approve all Capital Modifications. All Capital Modifications shall be made and implemented
in accordance with this Article. The County shall have the express right to condition its
approval of Capital Modifications upon the sharing of net cost savings expected to result
therefrom as provided in subsection (D) of this Section.

(C) Party Responsible for Costs. The Company shall bear the cost and
expense of all Capital Modifications required in accordance with Sections 12.3 and 12.4. The
responsibility for the cost and expense of any Capital Modifications requested by the Company
in accordance with Section 12.2 shall be determined by the County in its sole discretion in
accordance with its approval rights under this Section. The County shall bear the cost and
expense of all Capital Modifications required as a result of an Uncontrollable Circumstance to
the extent provided in Section 12.5, and all County-directed Capital Modifications in
accordance with Section 12.6.

(D) No Third Party Borrowing or Financing. Unless otherwise approved by


the County in its sole discretion, the Company shall not borrow from any third party to finance
any cost or expense required to be borne by the Company under subsection (C) of this Section.
In no event shall the Company have any ownership interest in the Facility as a result of any
Capital Modification undertaken by the Company under this Article. The County shall have
the right to condition its approval of any third party borrowing or financing on any stipulation,
term or condition that the County considers necessary or desirable in order to maintain its
interest in and ownership of the Facility.

(E) Cost Savings. In the event any Capital Modification is reasonably


expected to result in a net cost savings to the Company, the parties shall negotiate in good

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faith the extent to which any such net cost savings shall be shared with the County, and the
Service Fee shall be reduced accordingly.

SECTION 12.2. CAPITAL MODIFICATIONS AT COMPANY REQUEST. The


Company shall give the County written notice of, and reasonable opportunity to review and
comment upon, any Capital Modification proposed to be made at the Company’s request. The
notice shall contain sufficient information for the County to determine that the Capital
Modification: (1) does not diminish the capacity of the Facility to be operated so as to meet the
Contract Standards; (2) does not impair the quality, integrity, durability or reliability of the
Facility; (3) is reasonably necessary or is advantageous for the Company to fulfill its obligations
under this Service Contract; and (4) is feasible. The County shall have the absolute right to
accept, reject or modify any Capital Modification proposed by the Company. Any such Capital
Modification accepted or modified by the County, and any related change in the terms and
conditions of this Service Contract, shall be reflected in a Service Contract Amendment. In no
event shall the rejection of any Capital Modification requested by the Company pursuant to
this Section relieve the Company of any of its obligations under this Service Contract.

SECTION 12.3. MAINTENANCE, REPAIR AND REPLACEMENT CAPITAL


MODIFICATIONS. In the event that any repair or replacement proposed to be performed by the
Company in satisfaction of its obligations under Article XI can be reasonably expected to result
in a material change to the Facility, such repair or replacement shall constitute a Capital
Modification at Company request in accordance with this Article. The County shall have all
approval rights provided under this Article with respect to any such Capital Modification,
including the right to accept, reject or modify any such Capital Modification in accordance with
Section 12.2. Except as otherwise agreed to by the County, the design and construction costs
of any such Capital Modification, and any related operation, maintenance, repair and
replacement costs, shall be borne by the Company. Any such Capital Modifications, and any
related change in the terms and conditions of this Service Contract, shall be reflected in a
Service Contract Amendment.

SECTION 12.4. CAPITAL MODIFICATIONS REQUIRED TO REMEDY


COMPANY BREACH. In the event that any capital investment, improvement or modification,
required to be made by the Company in order to remedy a breach of this Service Contract
under subsections 8.10(D), 10.3(D), 10.10(A) or 14.9(F) can be reasonably expected to result in
a material change to the Facility, such capital investment, improvement or modification shall
constitute a Capital Modification under this Article. The County shall have the right to approve
any such Capital Modification; provided, however, that such approval shall not be
unreasonably withheld. In the event of a dispute between the parties pursuant to this
subsection, either party may elect to refer the dispute to Non-Binding Mediation in accordance

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with Section 14.15. The design and construction costs of any such Capital Modification, and
any related operation, maintenance, repair and replacement costs, shall be borne by the
Company. Any such Capital Modification, and any related change in the terms and conditions
of this Service Contract, shall be reflected in a Service Contract Amendment.

SECTION 12.5. CAPITAL MODIFICATIONS DUE TO UNCONTROLLABLE


CIRCUMSTANCES. Upon the occurrence of an Uncontrollable Circumstance, the County shall
promptly proceed, subject to the terms, conditions and procedures set forth in this Article and
Section 15.2, to make or cause to be made all Capital Modifications reasonably necessary to
address the Uncontrollable Circumstance. The Company shall consult with the County
concerning possible means of addressing and mitigating the effect of any Uncontrollable
Circumstance, and the Company and the County shall cooperate in order to minimize any
delay, lessen any additional cost and modify the Facility so as to permit the Company to
continue providing the Contract Services in light of such Uncontrollable Circumstance. The
design and construction costs of any such Capital Modification, and any related Governmental
Approval costs, Operation and Maintenance Manual update costs or other operation,
maintenance, repair and replacement costs, shall be borne by the County to the extent
provided in Section 15.2. Any such Capital Modification made on account of Uncontrollable
Circumstances, and any related change in the terms and conditions of this Service Contract,
shall be reflected in a Service Contract Amendment.

SECTION 12.6. CAPITAL MODIFICATIONS AT COUNTY DIRECTION. The


County shall have the right to make Capital Modifications at any time and for any reason
whatsoever, whether and however the exercise of such rights affects this Service Contract so
long as the Company’s rights are protected as provided in Section 12.10. The design and
construction costs of any such Capital Modification made at the County’s direction under this
Section, and any related Governmental Approval costs, Operation and Maintenance Manual
update costs or other operation, maintenance, repair and replacement costs, shall be borne by
the County, through an adjustment to the Service Fee, through County financing, or both, as
elected by the County pursuant to Sections 12.7, 12.8 and 12.9. The County shall have no
obligation to direct the Company to make any Capital Modification.

SECTION 12.7. PRIMARY PROCEDURE FOR IMPLEMENTING CAPITAL


MODIFICATIONS.

(A) Primary Implementation Procedure. Unless the County determines,


pursuant to Section 12.8, that an alternative implementation procedure be employed, the
implementation procedure set forth in this Section shall apply with respect to all Capital
Modifications.

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(B) Preliminary Company Plan and County Review. At the request of the
County and the cost and expense of (i) the Company if the Capital Modification is a Company-
requested Capital Modification or due to Company Fault; or (ii) the County if the Capital
Modification is a County-directed Capital Modification or required as a result of an
Uncontrollable Circumstance, the Company shall prepare and deliver to the County a
preliminary plan for the implementation of the Capital Modification. The preliminary plan
shall include recommendations as to technology, design, construction, equipment, materials,
and operating and performance impacts. Preliminary schedule and capital and operating cost
estimates shall be included, together with an assessment of possible alternatives. The
preliminary plan shall specifically evaluate reasonable alternatives to the mix of Capital
Modifications and changed operating and management practices which the Company is
recommending. The County shall review the Company’s preliminary plan and
recommendations, and undertake discussions with the Company in order to reach agreement
on a basic approach to the Capital Modification.

(C) Company Implementation Proposal. Following agreement on a basic


approach to the Capital Modification, at the request of the County the Company shall submit a
formal implementation proposal to the County for its consideration. The implementation
proposal shall contain: (1) a Company services element to be implemented through a Service
Contract Amendment; and (2) a third-party construction services element to be implemented
through third-party contracting. The Company services element shall contain: (i) the
Company’s offer to perform design, construction management and acceptance testing services
with respect to the Capital Modification for a fixed price, and shall include a guarantee of the
performance of the Capital Modification through an acceptance test and a guaranteed
maximum construction price if so requested by the County and agreed to by the Company;
and (ii) the Company’s offer to operate, maintain, repair, replace and manage the Capital
Modification following construction and acceptance for a fixed fee to be added to the Service
Fee, and shall include long-term performance guarantees with respect to the Capital
Modification. The third-party construction services element shall be a proposal by the
Company to conduct, as allowed by Applicable Law, a bidding or competitive proposal process
for the construction work or the design/build work involved in completing the Capital
Modification. A bidding process shall include an advertisement for bids and a construction
contract award to the lowest responsible bidder, and shall be conducted in accordance with
the requirements of Applicable Law which govern construction projects undertaken by the
County. A competitive proposal process shall include a request for proposals and a
construction or design/build contract award to the most advantageous proposer. The County

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shall be a party to all such construction contracts or design/build contracts unless the
County determines otherwise as permitted by Applicable Law.

(D) Negotiation and Finalization of Company Implementation Proposal. The


parties shall proceed, promptly following the County’s review of the Company’s submittal and
quotation, to negotiate to reach an agreement on price and any adjustment to the terms and
conditions of this Service Contract required under Section 12.10. Any final negotiated
agreement for the implementation of a Capital Modification under this Section shall address,
as applicable: (1) design and construction requirements; (2) construction management
services; (3) acceptance tests and procedures; (4) a guarantee of completion and acceptance;
(5) performance guarantees; (6) any changes to the Performance Guarantees or other Contract
Standards to take effect as a consequence of the Capital Modification; (7) a payment schedule
for the design and construction management-related services; (8) provisions for County
Engineering Representative review; (9) any adjustments to the Service Fee resulting from the
Capital Modification, including any related operation, maintenance, repair and replacement
costs; (10) a financing plan; and (11) any other appropriate amendments to this Service
Contract. The Company shall not be obligated to undertake any Capital Modification under
Section 12.5 or 12.6 except following agreement as to such negotiated adjustments, unless
otherwise required on an emergency basis. The County shall have no obligation to reimburse
the Company for any costs incurred pursuant to this Section except as part of a negotiated
amendment to this Service Contract. The Company shall be compensated for emergency work
on a Cost Substantiation basis as provided in Section 17.6.

(E) Implementation Procedures. With respect to each Capital Modification to


be made by the Company, the County shall have the same substantive and procedural rights
that it has with respect to the design, construction and acceptance of the Facility, as set forth
in Articles IV ,VI and VII and in Appendices 3, 4 and 6. Without limiting the generality of the
foregoing, the Company shall provide the warranties specified in Section 4.17 with respect to
each Capital Modification made by the Company.

SECTION 12.8. ALTERNATIVE PROCEDURES FOR IMPLEMENTING CAPITAL


MODIFICATIONS. The County shall be under no obligation to utilize the primary
implementation procedure for Capital Modifications set forth in Section 12.7, and may instead,
in its sole discretion, utilize any other implementation procedure available to it or required
under the Applicable Law. Alternative implementation procedures may include, without
limitation and to the extent permissible under Applicable Law: (1) contracting with the
Company on a sole source basis to implement the Capital Modification on a design/build basis;
(2) contracting with the Company to manage a competition for design/build services to
implement the Capital Modification; and (3) contracting with third parties for the

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implementation of the Capital Modification on a traditional design/bid/build basis, with the


County rather than the Company responsible for the design and construction of the Capital
Modification, or with the Company acting as the County’s agent in the design/bid/build
process. While it is the intention of the County to have the Company operate, maintain, repair,
replace and manage Capital Modifications on an integrated basis with the Facility, the County
is not obligated to do so and may contract for such services with a third-party. The County
may determine to proceed with an alternative implementation procedure for Capital
Modification at any time, whether before or after entering into negotiations with the Company
under the primary implementation procedure specified under Section 12.5. No alternative
implementation procedure for Capital Modifications shall impair the Company’s rights under
Section 12.10.

SECTION 12.9. FINANCING CAPITAL MODIFICATIONS. Unless otherwise


agreed to by the parties, the County shall provide financing for any Capital Modification for
which the County is financially responsible under this Article, and shall make the proceeds of
the financing available to the Company to pay the negotiated price on the milestone schedule
and subject to any retainage negotiated by the parties pursuant to this Article. The County in
its sole discretion may voluntarily, if requested by the Company, provide financing for the
Capital Modifications for which the Company is financially responsible hereunder, on terms
and conditions established by the County in its sole discretion.

SECTION 12.10. COMPANY NON-IMPAIRMENT RIGHTS. No Capital


Modification, other than a Company-requested Capital Modification, shall be made that
materially impairs any right, materially impairs the ability to perform, imposes any material
additional obligation or liability, or materially increases the costs of the Company hereunder,
including operating, maintenance, repair and replacement costs related to such Capital
Modification. The Company shall have no right to object to any such Capital Modification,
however, if the County affords the Company appropriate price, schedule, performance and
other relief necessary to avoid any such material effect.

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ARTICLE XIII

SERVICE FEE AND OTHER PAYMENTS

SECTION 13.1. SERVICE FEE. Beginning on the Acceptance Date (or, if


certified by the Company pursuant to Section 6.6, the Provisional Acceptance Date), the
County shall pay the Company an annual service fee in accordance with this Article (the
“Service Fee”) as the sole compensation for the Company’s performance of the Operation
Services under this Service Contract. The Service Fee shall be calculated and paid to the
Company according to this Article.

SECTION 13.2. SERVICE FEE FORMULA. The Service Fee shall be calculated
in accordance with the following formula:

SF = BOC + RC + EI
Where
SF = Annual Service Fee
BOC = Base Operating Charge
RC = Reimbursable Costs Charge
EI = Extraordinary Items Charge or Credit

Each component of the Service Fee shall be determined in accordance with this Article.

SECTION 13.3. BASE OPERATING CHARGE COMPONENTS.

(A) Formula. The Base Operating Charge shall be calculated in accordance


with the following formula:

BOC = FC + VC

FC = FE + EE

VC = NLAE + ELAE

Where

BOC = Base Operating Charge


FC = Fixed Component
FE = Facility Element
EE = Electricity Element
VC = Variable Component
NLAE = Non-electricity Flow and Loadings Adjustment Element
ELAE = Electricity Flow and Loadings Adjustment Element

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(B) Basis of Fixed Component. The Fixed Component in any Contract Year
shall be one of the fixed amounts set forth in Section 13.4, depending upon the Annual Reset
Group selected by the County prior to the start of a Contract Year to be applicable in that
Contract Year. Separate Annual Reset Groups have been specified in order to establish a
baseline scope of work to be performed by the Company in any Contract Year. Separate factors
have been established for each separate Annual Reset Group to determine compensation for
treating Influent which has the flow or loading characteristics reflected in the designated
Annual Reset Group.

(C) Basis of Variable Component. The Variable Component has been


established on a unit basis as set forth in Section 13.5 to compensate the Company for
variations in the Influent loadings in excess of the flows and loadings applicable in any
Contract Year based on the Annual Reset Group selected by the County.

SECTION 13.4. FIXED COMPONENT.

(A) Annual Reset Group Election. The County shall select the Annual Reset
Group applicable in the Contract Year beginning on the Acceptance Date (or, if certified by the
Company pursuant to Section 6.6, the Provisional Acceptance Date) and ending on
December 31 of such Contract Year and shall notify the Company in writing of its election
30 days prior to the commencement of Acceptance Testing in accordance with Article VI. For
each succeeding Contract Year, the Annual Reset Group which was applicable in the prior
Contract Year shall be applicable in each succeeding Contract Year unless the County elects in
its sole discretion, by written notice to the Company given not later than 30 days prior to the
beginning of any subsequent Contract Year, or is required pursuant to Section 13.14, to
change the Annual Reset Group applicable in such subsequent Contract Year.

(B) Annual Reset Groups Defined. The four Annual Reset Groups are
defined below. Biochemical Oxygen Demand (BOD5), Total Suspended Solids (TSS), Total
Nitrogen and Phosphorus are each expressed as annual average pounds per day for the
Contract Year, and flow is expressed as average million gallons per day for the Contract Year.
The Fixed Component shall be the sum of two subcomponents: (i) the Facility Element, and (ii)
the Electricity Element. The Fixed Component shall be as follows for each of the following
Annual Reset Groups:

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Annual Reset Group 1:


BOD5 Load (lbs./day) 10,842.0
TSS Load (lbs./day) 10,842.0
Nitrogen (lbs./day) 1,734.8
Phosphorous (lbs./day) 325.3
Flow (MGD) 6.50

Facility Element $4,330,877.00


Electricity Element $546,291.00

Annual Reset Group 2:


BOD5 Load (lbs./day) 11,676.0
TSS Load (lbs./day) 11,676.0
Nitrogen (lbs./day) 1,868.2
Phosphorous (lbs./day) 350.3
Flow (MGD) 7.00

Facility Element $4,360,535.00


Electricity Element $549,629.00

Annual Reset Group 3:


BOD5 Load (lbs./day) 13,344.0
TSS Load (lbs./day) 13,344.0
Nitrogen (lbs./day) 2,135.0
Phosphorous (lbs./day) 400.3
Flow (MGD) 8.00

Facility Element $4,419,879.00


Electricity Element $556,307.00

Annual Reset Group 4:


BOD5 Load (lbs./day) 16,000.0
TSS Load (lbs./day) 16,000.0
Nitrogen (lbs./day) 2,700.0
Phosphorous (lbs./day) 480.0
Flow (MGD) 8.00

Facility Element $4,466,633.00


Electricity Element $561,568.00

(C) Adjustment to Facility Element Based on Incremental Increase to


Number of Permittees under the IPP. Each Facility Element listed in subsection (B) of this
Section shall be increased by $53,750.00 upon each incremental increase of five new
permittees under the IPP over the Term in accordance with subsection 9.1(N).

(D) Annual Adjustment of Facility Element. The Facility Element for the
Contract Year beginning on the Acceptance Date (or, if certified by the Company pursuant to
Section 6.6, the Provisional Acceptance Date) and ending on December 31 of such Contract
Year shall be the amount specified in subsection (B) of this Section based on the Annual Reset

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Group selected by the County pursuant to subsection (A) of this Section times the Facility
Element Adjustment Factor for the Contract Year in which the Acceptance Date occurs. The
Facility Element for each Annual Reset Group for each subsequent Contract Year shall be
determined by multiplying the applicable Facility Element listed in subsection (B) of this
Section by the Facility Element Adjustment Factor. The “Facility Element Adjustment Factor”
for any particular Contract Year “n” (“AFn”) shall be determined as follows:

AFn = 0.527 x (CPIn-1 ÷ 213.010) + 0.195 x (ECIWn-1 ÷ 104.8)


+ 0.109 x (ECIBn-1 ÷ 103.9) + 0.169 x (PPIn-1 ÷ 223.1)
Where

AFn = Facility Element Adjustment Factor for Contract Year “n”

CPIn-1 = The average of the six bi-monthly CPIs beginning in October of


the second prior Contract Year preceding the Contract Year
with respect to which a calculation is to be made hereunder
and ending in August for the calendar year preceding the
Contract Year with respect to which a calculation is to be made
hereunder. For example, for the Contract Year beginning
January 1, 2009, CPIn-1 is the average for the CPIs for October
2007, December 2007, February 2008, April 2008, June 2008
and August 2008. (For clarification the CPI is provided every
other month.)

CPI0 = The average of the six bimonthly CPIs from October 2006
through and including August 2007, which is 213.010.

ECIWn-1 = The average of the four quarterly ECI-Wages and Salaries


beginning in the last quarter of the second prior calendar year
preceding the Contract Year with respect to which a calculation
is to be made hereunder and ending in the 3rd quarter for the
calendar year preceding the Contract Year with respect to
which a calculation is to be made hereunder. For example, for
the Contract Year beginning January 1, 2009, ECIWn-1 is the
average for the ECIWs for the 4th quarter of 2007, 1st quarter of
2008, 2nd quarter of 2008, and the 3rd quarter of 2008. (For
clarification the ECIW is provided every quarter.)

ECIW0 = The average ECIW for the 4th quarter of 2006, 1st quarter of
2007, 2nd quarter of 2007 and the 3rd quarter of 2007, which is
104.8.

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ECIBn-1 = The average of the four quarterly ECI-Total Benefits beginning


in the last quarter of the second prior calendar year preceding
the Contract Year with respect to which a calculation is to be
made hereunder and ending in the 3rd quarter for the calendar
year preceding the Contract Year with respect to which a
calculation is to be made hereunder. For example, for the
Contract Year beginning January 1, 2009, ECIBn-1 is the
average for the ECIBs for the 4th quarter of 2007, 1st quarter of
2008, 2nd quarter of 2008, and the 3rd quarter of 2008. (For
clarification the ECIB is provided every quarter.)

ECIB0 = The average ECIB for the 4th quarter of 2006, 1st quarter of
2007, 2nd quarter of 2007 and the 3rd quarter of 2007, which is
103.9.

PPIn-1 = The average of the 12-monthly PPI-Inorganic Chemicals


(PCU325188325188) beginning in September of the second
prior calendar year preceding the Contract Year with respect to
which a calculation is to be made hereunder and ending in
August for the calendar year preceding the Contract Year with
respect to which a calculation is to be made hereunder. For
example, for the Contract Year beginning January 1, 2009,
PPIn-1 is the average for the PPIs from September 2007 through
and including August 2008.

PPI0 = The average of the 12 monthly PPI-Inorganic Chemicals from


September 2006 through and including August 2007, which is
223.1.

The average values shall be rounded to the same number of decimal places as reported by the
U.S. Department of Labor Statistics for each Contract Year. When determining the Facility
Element for any Contract Year the Facility Element Adjustment Factor shall not be rounded
and the resulting Facility Element shall be rounded to the nearest penny.

(E) Annual Adjustment of Electricity Element. The Electricity Element for


the Contract Year beginning on the Acceptance Date (or, if certified by the Company pursuant
to Section 6.6, the Provisional Acceptance Date) and ending on December 31 of such Contract
Year shall be the amount specified in subsection (B) of this Section based on the Annual Reset
Group selected by the County pursuant to subsection (A) of this Section times the Electricity
Element Adjustment Factor for the Contract Year in which the Acceptance Date occurs. The
Electricity Element for each Annual Reset Group for each subsequent Contract Year shall be
determined by multiplying the applicable initial Contract Year Electricity Element by the
Electricity Element Adjustment Factor. The “Electricity Element Adjustment Factor” for any
particular Contract Year “n” (“EAFn”) shall be determined as follows:

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EAFn = [EPIn-1] ÷ [0.05800]

Where

EAFn = The Electricity Element Adjustment Factor for Contract Year


“n”
EPIn-1 = The actual average cost per kWh for electricity purchased to
operate and maintain the Facility calculated from November of
the second prior calendar year preceding the Contract Year
with respect to which a calculation is to be made hereunder
and to and including October for the calendar year preceding
the Contract Year with respect to which a calculation is to be
made hereunder. For example, for the Contract Year beginning
January 1, 2009, EPIn-1 is the average cost per kWh from
November 2007 through and including October 2008.

When calculating the average annual cost per kilowatt-hour, the average annual cost shall be
the total amount charged during the 12-month period, including all consumption, demand,
fuel adjustment, taxes, discounts and other credits or debits incurred, divided by the total
kilowatt hours consumed during the period . The average EPI values shall be rounded to 5
decimal places. When determining the Electricity Element for any Contract Year the Electricity
Element Adjustment Factor shall not be rounded and the resulting Electricity Element shall be
rounded to the nearest penny.

SECTION 13.5. VARIABLE COMPONENT.

(A) Calculation. The Variable Component shall be the sum of the Non-
electricity Flow and Loadings Adjustment Element and the Electricity Flow and Loading
Adjustment Element. In making these calculations, the annual average of all actual flow and
loadings shall be rounded to the level of accuracy of the applicable measuring devices, or six
significant figures, whichever is less.

(B) Non-electricity Flow and Loadings Adjustment Element. The Non-


electricity Flow and Loadings Adjustment Element for a Contract Year shall be equal to the
sum of the following (each a “Non-electricity Adjustment”): (1) the Non-electricity Phosphorus
Adjustment for that Contract Year, and (2) the Non-electricity Flow Adjustment for that
Contract Year. A Non-electricity Adjustment may only have a positive value. Should the
formula for any calculation of a Non-electricity Adjustment result in a negative value, the Non-
electricity Adjustment shall be deemed to be zero.

(1) Non-electricity Phosphorous Adjustment. The Non-electricity


Phosphorus Adjustment shall be determined by multiplying: (1) the Non-electricity Phosphorus
Adjustment Fee applicable to the Annual Reset group in effect for that Contract Year, times
(2) the amount of the annual average Phosphorus loading, measured in pounds per day, in the

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Contract Year minus the Phosphorus Influent parameter for that Contract Year based on the
Annual Reset Group in effect for that Contract Year, times (3) the number of days in the
Contract Year.

(2) Non-electricity Flow Adjustment. The Non-electricity Flow Adjustment


shall be determined by multiplying: (1) 1,000, times (2) the Non-electricity Flow Adjustment Fee
applicable to the Annual Reset Group in effect for that Contract Year, times (3) the amount of
the annual average Flow measured in million gallons per day in the Contract Year minus the
Flow Influent Parameter for that Contract Year based on the Annual Reset Group (set forth in
million gallons per day) in effect for the Contract Year, times (4) the number of days in the
Contract Year.

(C) Electricity Flow and Loading Adjustment Element. The Electricity Flow
and Loading Adjustment Element for a Contract Year shall be equal to the sum of the following
(each an “Electricity Adjustment”): (1) the Electricity BOD5 Adjustment, and (2) the Electricity
Total Nitrogen Adjustment. An Electricity Adjustment may only have a positive value. Should
the formula for any calculation of an Electricity Adjustment result in a negative value, the
Electricity Adjustment shall be deemed to be zero.

(1) Electricity BOD5 Adjustment. The Electricity BOD5 Adjustment shall be


determined by multiplying (1) the Electricity BOD5 Adjustment Fee applicable for the Annual
Reset Group in effect for that Contract Year, times (2) the amount of the annual average BOD5
loading, measured in pounds per day, in the Contract Year minus the BOD5 Influent parameter
for that Contract Year based on the Annual Reset Group in effect for that Contract Year, times
(3) the number of days in the Contract Year.

(2) Electricity Total Nitrogen Adjustment. The Electricity Total Nitrogen


Adjustment shall be determined by multiplying (1) the Electricity Total Nitrogen Adjustment
Fee applicable to the Annual Reset Group in effect for that Contract Year, times (2) the amount
of the annual average Total Nitrogen loading, measured in pounds per day, in the Contract
Year, minus the Total Nitrogen Influent parameter for that Contract Year based on the Annual
Reset Group in effect for that Contract Year, times (3) the number of days in the Contract Year.

SECTION 13.6. VARIABLE COMPONENT ADJUSTMENT FEES.

(A) Non-electricity Adjustment Fees. The Non-electricity Adjustment Fees


applicable to each Annual Reset Group are set forth below. The average lbs./day and 1000
gallons/day are all annual averages.

Annual Reset Group 1:


Phosphorus $1.84186/(lbs./day)
Flow $0.09421/(1000 gallons/day)

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Annual Reset Group 2:


Phosphorus $1.82398/(lbs./day)
Flow $0.09330/(1000 gallons /day)

Annual Reset Group 3:


Phosphorus $1.80610/(lbs./day)
Flow $0.09238/(1000 gallons /day)

Annual Reset Group 4:


Phosphorus $1.78821/(lbs./day)
Flow $0.09147/(1000 gallons /day)

Each of the Non-electricity Adjustment Fees shall be adjusted each Contract Year in the same
manner as the Facility Element is adjusted.

(B) Electricity Adjustment Fees. The Electricity Adjustment Fees applicable


to each Annual Reset Group are set forth below. The average lbs./day and 1000 gallons/day
are all annual averages.

Annual Reset Group 1:


BOD5 $0.00804/(lbs./day)
Total Nitrogen $0.04584/(lbs./day)

Annual Reset Group 2:


BOD5 $0.00797/(lbs./day)
Total Nitrogen $0.04539/(lbs./day)

Annual Reset Group 3:


BOD5 $0.00789/(lbs./day)
Total Nitrogen $0.04495/(lbs./day)

Annual Reset Group 4:


BOD5 $0.00781/(lbs./day)
Total Nitrogen $0.04450/(lbs./day)

Each of the Electricity Adjustment Fees shall be adjusted each Contract Year in the same
manner as the Electricity Element is adjusted.

SECTION 13.7. REIMBURSABLE COSTS CHARGE. The Reimbursable Costs


Charge shall be an amount equal to the Major Repair and Replacement Charge, as set forth in
Section 13.8, and any State sales and use taxes payable by the Company in accordance with
Section 13.15.

SECTION 13.8. ANNUAL MAJOR REPAIR AND REPLACEMENT CHARGES.

(A) Generally. The County shall establish the Major Repair and Replacement
Fund in accordance with and subject to the terms and conditions set forth in this Section.
The County shall make payments into this fund as described in subsection (B) of this Section
and payments shall be made from this fund to the Company in accordance with subsection (D)

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of this Section. The Maximum Annual Major Repair and Replacement Charge shall be
determined in accordance with subsection (C) of this Section.

(B) Major Repair and Replacement Fund. On or before the Acceptance Date,
the County shall create an interest bearing account within the County’s sewer enterprise fund,
to be exclusively used for payments of the annual Major Repair and Replacement Charge in
accordance with subsection (C) of this Section (the “Major Repair and Replacement Fund”).
The Company acknowledges that the County does not guarantee or warrant the amount of
interest that will be earned on amounts invested in the Major Repair and Replacement Fund.
The Company further acknowledges that the amount available in the Major Repair and
Replacement Fund shall not serve as a limitation of the Company’s obligations with respect to
major repair and replacement under Article XI. Within 30 days after the beginning of each
Contract Year, the County shall pay an amount into the Major Repair and Replacement Fund
equal to the product of: (i) $523,459.00 and (ii) the Facility Element Adjustment Factor
applicable for that Contract Year. Such amount shall be prorated for any partial Contract
Year. All interest earned on invested amounts shall remain in the Major Repair and
Replacement Fund for distribution pursuant to this Section. Any fees or charges incurred to
maintain the Major Repair and Replacement Fund shall be paid for from the proceeds within
the Major Repair and Replacement Fund. The Major Repair and Replacement Fund shall be
the property of the County. The Company may submit certified requisitions to the County for
payment of amounts held in the Major Repair and Replacement Fund in accordance with
subsection (C) of this Section. Upon the expiration of this Service Contract, the County shall
keep any amount remaining in the Major Repair and Replacement Fund that is not due and
owing to the Company; provided, however, that any amount remaining in the Major Repair and
Replacement Fund upon expiration or earlier termination of this Service Contract shall first be
available to reimburse the Company for third party expenses paid or incurred by the Company
(without markup for profit, administration or otherwise and subject to Cost Substantiation) in
satisfying its obligation to remedy any deficiency in the condition of the Facility Equipment
upon termination at the end of the Term in accordance with subsection 11.2(E).

(C) Maximum Annual Major Repair and Replacement Charge. The


“Maximum Annual Major Repair and Replacement Charge” for a given Contract Year shall be
the lesser of A or B, where:

“A” = The positive difference, if any, between CRRAn and CMRCn. The
value of “A” shall never be less than zero.

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“B” = The actual balance of the Major Repair and Replacement Fund on
the first day of the Contract Year; plus if not already paid into the
fund, the County’s payment due at the beginning of the Contract
Year pursuant to subsection (B) of this Section; minus any portion
of the prior Contract Year’s Major Repair and Replacement Charge
not yet paid to the Company from the fund; minus the estimated
annual fund expenses for the upcoming Contract Year as
reasonably estimated by the County. The balance of the Major
Repair and Replacement Fund on the Acceptance Date shall be
equal to zero. If the above calculation results in a negative
number, then Bn shall deemed to be equal to zero.
“CMRCn” = The sum of all the actual annual Major Repair and Replacement
Charges paid or due the Company for all prior Contract Years.
“CRRAn” = The Cumulative Repair and Replacement Amount applicable for a
Contract Year (CRRAn) shall be the Cumulative Repair and
Replacement Amount for the prior Contract Year (CRRAn-1) plus
the product of (i) the Annual Major Facility Equipment Payment
Amount for the upcoming Contract Year provided in Table 16-3 of
Appendix 16; and (ii) the Facility Element Adjustment Factor
applicable for the upcoming Contract Year. For the first Contract
Year the Cumulative Repair and Replacement Amount shall be
equal to zero.

(D) Annual Major Repair and Replacement Charge. The Company may
requisition from time to time amounts equal to the amounts paid or incurred by the Company
to third parties (excluding any Affiliate of the Company), plus a 10% mark-up for profit,
administration, contingency and other costs, for the performance of its major repair and
replacement obligations under Article XI with respect solely to the Major Facility Equipment.
The parties acknowledge and agree that the Annual Major Facility Equipment Payment
Amounts set forth in Table 16-3 of Appendix 16 include the 10% mark-up to which the
Company is entitled pursuant to this subsection. The Company’s requisitions shall be
certified and shall state that the amount requisitioned constitutes amounts paid or incurred to
third parties (excluding any Affiliate of the Company), plus a 10% mark-up for profit,
administration, contingency and other costs, and shall identify the specific Major Facility
Equipment repaired or replaced. Such requisitions shall be subject to Cost Substantiation in
accordance with Section 17.6. The Company shall be permitted to requisition funds from the

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Major Repair and Replacement Fund for work performed in the previous Contract Year,
provided, however, the Company may not requisition in any Contract Year aggregate amounts
that are greater than the Maximum Annual Major Repair and Replacement Charge for that
Contract Year, as determined in accordance with subsection (C) of this Section. The annual
“Major Repair and Replacement Charge” in a Contract Year shall be the lesser of: (a) the sum
of the requisitions made in accordance this subsection; or (b) the Maximum Annual Major
Repair and Replacement Charge calculated in accordance with subsection (C) of this Section.
Any dispute between the parties regarding the County’s approval of the Company’s certified
requisitions under this Section may be referred to Non-Binding Mediation in accordance with
Section 14.14. In no event shall this Section in any way limit or otherwise affect the
Company’s obligation to maintain the Facility and perform all necessary repair and
replacement of the Facility Equipment in accordance with the Contract Standards.

(E) Characterization of Major Repair and Replacement Charge Payments.


Payments to the Company from the Major Repair and Replacement Fund during the Term
shall constitute payments to the Company under the Reimbursable Costs Charge of the
Service Fee.

SECTION 13.9. EXTRAORDINARY ITEMS CHARGE OR CREDIT.

(A) Generally. The Extraordinary Items component of the Service Fee, which
may be a charge or a credit, shall be equal to the sum of (1) the amounts payable by the
County for increased operation, maintenance or other costs incurred on account of the
occurrence of an Upset, the receipt of Excessive Influent, or the occurrence of other
Uncontrollable Circumstances that are chargeable to the County hereunder, net of any
operation, maintenance or other cost savings achieved by the Company in mitigating the
effects of the occurrence of such an Uncontrollable Circumstance, plus or minus (2) any
adjustments to the Service Fee resulting from any Capital Modifications, minus (3) any Service
Fee reductions or liquidated damages due to Company non-performance specifically provided
for in this Service Contract, and plus or minus (4) any other increase or reduction in the
Service Fee provided for under any other Article of this Service Contract.

(B) Treatment of Extraordinary Items Component. For purposes of


compliance with Section 13.14, upon the occurrence of any event giving rise to an
extraordinary item and in advance of the payment of any such extraordinary item, the County
and the Company agree, in consultation with nationally recognized bond counsel, to treat and
designate (through a Contract Administration Memorandum) the particular extraordinary item
in one of the following ways:

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(1) an ongoing adjustment to the Fixed Component in a stated dollar


amount to be effective in a specified Contract Year;

(2) a one-time adjustment to the Fixed Component in a stated dollar amount


to apply for a specified Contract Year;

(3) an amount in the nature of actual and direct expenses paid by the
Company to unrelated third parties in connection with the extraordinary item;

(4) an amount to be paid to the Company either on a one-time basis or on


an ongoing basis which will be deemed to be added to and included within the Variable
Component of the Base Operating Charge in one or more specified Contract Years,
notwithstanding the absence of specification of the extraordinary item as part of the Variable
Component in Section 13.5;

(5) an amount resulting from a Capital Modification either directed by the


County or caused by an Uncontrollable Circumstance that is in the nature of a capital
expenditure for acquisition, construction, improving or equipping of the Facility, as contrasted
with a payment in the nature of compensation for services in managing or operating the
Facility; or

(6) an amount in the nature of liquidated damages, indemnification


payments or other payments of a similar, but specifically described, nature.

SECTION 13.10. BILLING AND PAYMENT.

(A) Billing. The County shall pay the Service Fee for each Contract Year in
monthly installments in an amount equal to the sum of (1) one-twelfth of the Fixed Component
for that Contract Year; (2) one-twelfth of the estimated Variable Component for that Contract
Year; (3) Reimbursable Costs for the prior month in accordance with subsection (B) of this
Section; (4) any Extraordinary Items for that month determined on a monthly basis and in
accordance with subsections (B) and (C) of this Section; (5) one-twelfth of any Extraordinary
Items for that Contract Year determined on an annual basis; and (6) any adjustments, plus or
minus, to reconcile any prior monthly Variable Component or Reimbursable Cost payments.
The estimated Variable Component shall be based upon the prior Contract Year’s average flow
and loadings and the applicable Annual Reset Group. Any overpayment, or underpayment, of
the Variable Component shall be paid as part of the Annual Settlement Statement.

(B) Payment. The Service Fee for each month shall be on account of the
Operation Services to be rendered for the upcoming month. If the Company provides the
County with an invoice by the fifteenth day of each month which sets forth the monthly
portion of the Service Fee for the upcoming month and which shows the annual Service Fee

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and each component thereof as calculated for the then current Contract Year, together with
the accumulated payments for each component to the date of such invoice and such other
documentation or information as the County may reasonably require to determine the
accuracy and appropriateness of the invoice, then the County shall pay the invoice within 30
days after receipt. In no event shall the County be required to pay any invoice prior to the end
of the month to which such invoice relates. The Company shall include all costs subject to
Cost Substantiation and payable by the County hereunder in the invoice for the month
following the month in which such costs were incurred. To the extent that the Company
incurs costs subject to Cost Substantiation and payable by the County hereunder in the last
month of the Term, the Company shall invoice the County for such costs at the end of such
month and the County shall pay the invoice within 30 days after receipt.

(C) County Service Fee Offset Rights. Once it is determined that liquidated
damages or other reimbursements are owed to the County in accordance with the terms and
conditions of this Service Contract, the County shall notify the Company and the Company
shall include such liquidated damages and other reimbursements as an Extraordinary Item in
the next monthly invoice provided to the County in accordance with this Section. In the event
the Company does not include such liquidated damages or other reimbursements in the next
monthly invoice provided to the County in accordance with this Section, the County shall have
the right to offset the Service Fee otherwise payable for such monthly invoice by the amount of
such liquidated damages or other reimbursements. Notwithstanding any of the foregoing, the
County shall have the right to offset the Service Fee otherwise payable to the Company for the
final monthly invoice of the Term by the amount of any liquidated damages or other
reimbursements due to the County in accordance with the terms and conditions of this Service
Contract.

SECTION 13.11. ESTIMATES AND ADJUSTMENTS.

(A) Pro Rata Adjustments. Any computation made on the basis of a stated
period shall be adjusted on a pro rata basis to take into account any initial or final period
which is a partial period. If either the Facility Element Adjustment Factor or the Electricity
Element Adjustment Factor is not known at the beginning of any Contract Year, then no
applicable adjustments will be made until the factor is known. Any under- or over-payment,
as appropriate, shall be debited or credited on the invoice following the determination of the
factor.

(B) Budgeting. For County budgeting purposes, no later than 120 days
preceding each Contract Year, the Company shall provide to the County a written statement
setting forth for such Contract Year its reasonable estimate of the aggregate Service Fee for

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each Annual Reset Group, including each component thereof, the Facility Element Adjustment
Factor and the Electricity Element Adjustment Factor. The estimated Variable Component
shall be based on the previous 12-month reported average flow and loadings. The estimate of
the Variable Component shall not be binding on the Company but shall establish the basis for
monthly billing for such Contract Year, subject to annual settlement pursuant to this Article.

(C) Adjustment to Service Fee. If any adjustment to the Service Fee is


required pursuant to any express provision of this Service Contract, the party requesting the
adjustment shall submit to the other party a written statement setting forth the cause of the
adjustment, the anticipated duration of the adjustment, and the amount of the adjustment, as
appropriate. Except to the extent that a longer period is otherwise specifically provided for in
this Service Contract, any request for adjustment of the Service Fee hereunder shall be
accepted or rejected by the party receiving the request within 45 days after receipt. If the
receiving party does not notify the requesting party of its rejection and the reasons therefor
within such 45 day period, the request shall be deemed rejected. A rejected request may be
resubmitted, with or without change, and this paragraph shall apply to such resubmitted
request as it applies to an original request. Any Service Fee adjustment request which is not
rejected or deemed rejected shall take effect as of the next monthly billing period thereafter, or
as otherwise agreed to by the parties.

SECTION 13.12. ANNUAL SETTLEMENT. Within 30 days after the end of each
Contract Year, the Company shall provide to the County an annual settlement statement (the
“Annual Settlement Statement”) setting forth the actual aggregate Service Fee payable with
respect to such Contract Year and a reconciliation of such amount with the amounts actually
paid by the County with respect to such Contract Year. The County or the Company, as
appropriate, shall pay all known and undisputed amounts within 60 days after receipt or
delivery of the Annual Settlement Statement. If any amount is then in dispute or is for other
reasons not definitely known at the time the Annual Settlement Statement is due, the Annual
Settlement Statement shall identify the subject matter and reasons for such dispute or
uncertainty and, in cases of uncertainty, shall include a good faith estimate by the Company of
the amount in question. When the dispute is resolved or the amount otherwise finally
determined, the Company shall file with the County an amended Annual Settlement Statement
which shall, in all other respects, be subject to this Section.

SECTION 13.13. BILLING STATEMENT DISPUTES. If the County disputes any


amount billed by the Company, the County may either (1) pay the disputed amount when
otherwise due, and provide the Company with a written objection indicating the amount that is
being disputed and providing all reasons then known to the County for its objection to or
disagreement with such amount, or (2) withhold payment of the disputed amount and provide

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the Company with written objection as aforesaid within the time when such amount would
otherwise have been payable. When any billing dispute is finally resolved, if payment by the
County to the Company of amounts withheld or reimbursement to the County by the Company
of amounts paid under protest is required, such payment or reimbursement shall be made
within 45 days after the date of resolution, with interest at the Overdue Rate.

SECTION 13.14. PRIVATE BUSINESS USE RESTRICTIONS.

(A) Payments to Company. It is the intent of the County and the Company
that this Service Contract shall be construed and applied so as to constitute a management
contract that does not result in private business use of property financed by the County within
the meaning and intent of the applicable regulations and rulings of the Internal Revenue
Service. In particular, the County and the Company agree that, notwithstanding any provision
of this Service Contract to the contrary, the County shall be under no obligation to, and shall
not, pay compensation for services to the Company for any Contract Year, if such payment, or
any portion thereof, would result in less than 80% of the Company’s compensation for services
for such Contract Year being based on a periodic fixed fee or would result in any portion of the
Company’s compensation being based on net profit, as such terms are defined in Internal
Revenue Service Revenue Procedure 97-13 (“Rev. Proc. 97-13”). In the event that, in any
Contract Year, the County is unable to fully compensate the Company as a result of the
restrictions set forth herein, the County shall be required to pay the Company the Service Fee
for the following Contract Year based upon the next higher Annual Reset Group specified in
subsection 13.4(B), provided, however, that if the County reasonably believes that the flow and
loadings for the past year were high due to an unusual condition and that the flow and loading
for the following Contract Year is not likely to result in any prohibition on compensation to the
Company based upon the existing Annual Reset Group pursuant to this Section, the County
shall not be required to compensate the Company in the following Contract Year at the next
higher Annual Reset Group. The County and the Company further agree that any such
payment or portion thereof that is not made by virtue of the restructuring discussed in this
paragraph shall be paid to the Company, without interest, during the next annual period in
which such payment will not result in less than 80% of the Company’s compensation being
based on a periodic fixed fee or in which such payment will be based on net profit, all as
defined by Rev. Proc. 97-13.

(B) Retesting of the Service Fee. If, at any time or from time to time, (1) the
scope of the Operation Services is increased or reduced pursuant to the terms of this Service
Contract and (2) there is an adjustment to the Fixed Component due to such increase or
reduction in the Operation Services, the parties shall retest, as of the date of such adjustment,
the Service Fee for compliance with Rev. Proc. 97-13 and the requirements of this Section.

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Any such adjustment of the Fixed Component and retesting of the Service Fee shall, at the
County’s cost, be subject to the review and approval of the County’s legal counsel with
expertise in public finance tax matters for confirmation that such adjustment will not
adversely affect the tax-exempt status of any obligations issued by the County with respect to
the Facility.

(C) Monthly Update. Each billing statement shall be accompanied by a


statement from the Company indicating the percent of total compensation paid (and to be paid
pursuant to the accompanying billing statement) in the then-current Contract Year which
constitutes the aggregate of the Fixed Component payments.

SECTION 13.15. TAXES. Except as otherwise provided in this Service


Contract, the Company shall be responsible for all federal, State, County and municipal Taxes
and any other Tax imposed in connection with its performance of the Operation Services;
provided that the County shall be responsible for all personal property and real property Taxes
which may be assessed against the Facility or the Site by any Governmental Body. The parties
acknowledge and agree that the Operation Services are professional services, which should not
be subject to State and local sales and use taxes under Applicable Law, except as such taxes
may be payable in connection with the purchase of Consumables. Notwithstanding the
foregoing, the County shall reimburse the Company for any State and local sales and use taxes
paid by the Company in accordance with Applicable Law in connection with the performance of
the Operation Services as a Reimbursable Cost Charge under the Service Fee.

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ARTICLE XIV

BREACH, DEFAULT, REMEDIES AND TERMINATION

SECTION 14.1. REMEDIES FOR BREACH. The parties agree that, except as
otherwise provided in this Article with respect to termination rights, in the event that either
party breaches this Service Contract, the other party may exercise any legal rights it may have
under this Service Contract, under the Security Instruments or under Applicable Law to
recover damages, subject to Section 14.3 and subsections 1.2(3) and 14.2(D), or to secure
specific performance, and that such rights to recover damages and to secure specific
performance shall ordinarily constitute adequate remedies for any such breach. Neither party
shall have the right to terminate this Service Contract for cause except upon the occurrence of
an Event of Default.

SECTION 14.2. EVENTS OF DEFAULT BY THE COMPANY.

(A) Events of Default Not Requiring Previous Notice or Further Cure


Opportunity for Termination. Each of the following shall constitute an Event of Default by the
Company upon which the County, by notice to the Company, may terminate this Service
Contract without any requirement of having given notice previously or of providing any further
cure opportunity:

(1) Security for Performance. The failure of the Company to obtain,


maintain in full force and effect or renew within 30 days prior to expiration any Security
Instrument required by Article XVI as security for the performance of this Service Contract;

(2) Failure to Achieve Acceptance. Except to the extent excused due to the
occurrence of Uncontrollable Circumstances, the failure of the Company to achieve Acceptance
prior to the end of the Extension Period;

(3) Failure to Achieve the Biosolids Performance Standards relating to


Biosolids Quality. Except to the extent excused due to the occurrence of Uncontrollable
Circumstances, the failure of the Company to achieve the Biosolids Performance Standards
relating to the quality of the Biosolids in accordance with Section 6.10 within 180 days
following the Acceptance Date (or, if certified by the Company pursuant to Section 6.6, the
Provisional Acceptance Date);

(4) Failure to Meet the Effluent Guarantee. The failure of the Company to
meet the Effluent Guarantee, as specified in Appendix 10 with respect to termination under
this subsection, unless caused by Uncontrollable Circumstances;

(5) Failure to Meet the Odor Guarantee. The issuance by the County of (1) a
fourth or any subsequent Odor Citation (taking into account the provisions of

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subsection 10.3(J), and provided that in order for such termination to occur such fourth or
subsequent Odor Citation must be at least the second such Odor Citation in any calendar
year), or (2) a Sustained Odor Condition, in either case based on determinations made in
accordance with the applicable provisions of Section 10.3.

(6) Abandonment of the Facility. The abandonment or failure to operate all


or a portion of the Facility for two or more consecutive days in any Contract Year unless
caused by Uncontrollable Circumstances;

(7) Insolvency. The insolvency of the Company or the Guarantor as


determined under the Bankruptcy Code;

(8) Voluntary Bankruptcy. The filing by the Company or the Guarantor of a


petition of voluntary bankruptcy under the Bankruptcy Code; the consenting of the Company
or the Guarantor to the filing of any bankruptcy or reorganization petition against the
Company or the Guarantor under the Bankruptcy Code; or the filing by the Company or the
Guarantor of a petition to reorganize the Company or the Guarantor pursuant to the
Bankruptcy Code;

(9) Involuntary Bankruptcy. The issuance of an order of a court of


competent jurisdiction appointing a receiver, liquidator, custodian or trustee of the Company
or the Guarantor or of a major part of the Company’s or the Guarantor’s property, respectively,
or the filing against the Company or the Guarantor of a petition to reorganize the Company or
the Guarantor pursuant to the Bankruptcy Code, which order shall not have been discharged
or which filing shall not have been dismissed within 90 days after such issuance or filing,
respectively;

(10) Default of Guarantor. The failure of the Guarantor to make any payment
or perform any other obligation under the Guaranty in a timely manner, or the failure of the
Guarantor to comply with the terms and conditions of Section 16.1; or

(11) Guarantor Credit Standing. The failure of the Company to provide credit
enhancement when and as required by subsection 16.1(C).

(B) Events of Default Requiring Previous Notice and Cure Opportunity for
Termination. It shall be an Event of Default by the Company upon which the County may
terminate this Service Contract, by notice to the Company, if: (1) any representation or
warranty of the Company hereunder or the Guarantor under the Guaranty Agreement was
false or inaccurate in any material respect when made, and the legality of this Service Contract
or the Guaranty Agreement or the ability of the Company to carry out its obligations
hereunder or the ability of the Guarantor to carry out its obligation thereunder is thereby

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adversely affected; or (2) the Company fails, refuses or otherwise defaults in its duty (a) to pay
any amount required to be paid to the County under this Service Contract within 60 days
following the due date for such payment, or (b) to perform any material obligation under this
Service Contract (unless such default is excused by an Uncontrollable Circumstance as and to
the extent provided herein), except that no such default (other than those set forth in
subsection (A) of this Section) shall constitute an Event of Default giving the County the right
to terminate this Service Contract for cause under this subsection unless:

(1) The County has given prior written notice to the Company stating that in
its opinion a specified default exists, which gives the County a right to terminate this Service
Contract for cause under this Section, and describing the default in reasonable detail; and

(2) The Company has not initiated within a reasonable time (in any event
not more than 30 days from the initial default notice) and continued with due diligence to carry
out to completion all actions reasonably necessary to correct the default and prevent its
recurrence.

If the Company shall have initiated within such reasonable time and continued with due
diligence to carry out to completion all such actions, the default shall not constitute an Event
of Default during such period of time (in any event not more than 60 days from the initial
default notice) as the Company shall continue with due diligence to carry out to completion all
such actions.

(C) Other Remedies Upon Company Event of Default. The right of


termination provided under this Section upon an Event of Default by the Company is not
exclusive. If this Service Contract is terminated by the County for an Event of Default by the
Company, the County shall have the right to pursue a cause of action for actual damages and
to exercise all other remedies which are available to it under this Service Contract, under the
Security Instruments and under Applicable Law.

(D) Relationship to Liquidated Damages. Any liquidated damages payable by


the Company under this Service Contract shall cease to accrue on the Termination Date. The
Company shall be liable for all liquidated damages that have accrued up to the Termination
Date. The parties acknowledge and agree that such liquidated damages are intended solely to
compensate the County for costs and expenses associated with the specific circumstances
identified in the specific provisions providing for such liquidated damages and are not
intended to liquidate all damages that the County is likely to suffer in the event of a Company
Event of Default under this Article. Accordingly, except as specifically provided in Section 14.3
and except with respect to damages relating solely to the specific circumstances for which

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liquidated damages are provided under this Service Contract, the payment of any such
liquidated damages by the Company shall not serve to limit or otherwise affect the County’s
right to pursue and recover damages under subsection (C) of this Section.

SECTION 14.3. LIMITATION ON COMPANY LIABILITY.

(A) Initial Stated Monetary Limitation. The Company’s aggregate liability


under this Service Contract and, accordingly, the liability of the Guarantor under the
Guaranty Agreement, with respect to damages to the County arising out of the performance or
unexcused nonperformance of the Contract Services for the period beginning on the Contract
Date and ending on the date which is five years after the Acceptance Date, as a consequence of
a claim or suit initiated by the County, shall not exceed an amount equal to 75% of the
Design/Build Price.

(B) Reductions for the Payment of Delay-Liquidated Damages. The stated


monetary limitation on liability set forth in subsection (A) above shall be reduced during the
Term by the amount of any liquidated damages paid by the Company to the County in
accordance with Section 6.8 of this Service Contract. The parties acknowledge and agree that
such liquidated damages may not exceed the amount set forth in subsection 6.8(B).

(C) Stated Monetary Limitation for Contract Years Six through Ten. The
Company’s aggregate liability under this Service Contract and, accordingly, the liability of the
Guarantor under the Guaranty Agreement, with respect to damages to the County arising out
of the performance or unexcused nonperformance of the Contract Services for the period
beginning on the date which is five years after the Acceptance Date and ending on the date
which is ten years after the Acceptance Date, as a consequence of a claim or suit initiated by
the County, shall not exceed an amount equal to $40,000,000, as adjusted annually from the
Contract Date by the Facility Element Adjustment Factor.

(D) Stated Monetary Limitation for Contract Years Eleven through Fifteen.
The Company’s aggregate liability under this Service Contract and, accordingly, the liability of
the Guarantor under the Guaranty Agreement, with respect to damages to the County arising
out of the performance or unexcused nonperformance of the Contract Services for the period
beginning on the date which is ten years after the Acceptance Date and ending on the date
which is 15 years after the Acceptance Date, as a consequence of a claim or suit initiated by
the County, shall not exceed an amount equal to $34,000,000, as adjusted annually from the
Contract Date by the Facility Element Adjustment Factor.

(E) Stated Monetary Limitation for Contract Years Sixteen through the end of
the Term. The Company’s aggregate liability under this Service Contract and, accordingly, the

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liability of the Guarantor under the Guaranty Agreement, with respect to damages to the
County arising out of the performance or unexcused nonperformance of the Contract Services
for the period beginning on the date which is fifteen years after the Acceptance Date and
continuing until the end of the Term, as a consequence of a claim or suit initiated by the
County, shall not exceed an amount equal to $28,000,000, as adjusted annually from the
Contract Date by the Facility Element Adjustment Factor.

(F) Liability for Liquidated Damages and Other Reimbursements to the


County Relating to the Operations Services. The Company’s aggregate liability under this
Service Contract and, accordingly, the liability of the Guarantor under the Guaranty
Agreement, with respect to (1) the payment of liquidated damages pursuant to Article X of this
Service Contract, and (2) the payment of the reimbursements to the County provided for under
Article X of this Service Contract shall not exceed an amount equal to $10,000,000, as
adjusted annually by the Facility Element Adjustment Factor. No such payments to the
County, however, shall serve to reduce the stated monetary limitations on liability set forth in
this Section.

SECTION 14.4. APPLICABILITY AND INTERPRETATION OF THE


LIMITATIONS ON LIABILITY. The limitations on liability provided for in Section 14.3 apply
solely to (1) the liability of the Company and the Guarantor for damages to the County arising
out of the performance or unexcused nonperformance of this Service Contract as a
consequence of a claim or suit initiated by the County, and (2) the liability of the Company and
the Guarantor for certain liquidated damage and reimbursement payments to the County, as
specifically set forth in this Service Contract. The limitations on liability provided for in
Section 14.3 do not apply to any other liability, loss, damage, cost or expense that may be
incurred by the Company or the Guarantor in connection with this Service Contract, including
any of the following liabilities, losses, damages, costs or expenses:

(1) Any loss, cost or expense sustained by the Company in the performance
of the Design/Build Work or the Operation Services (including any obligations for payment to
laborers, suppliers and other subcontractors or any payments required pursuant to
subsections (D) and (E) of Section 11.2), or any other loss sustained by the Company, the
Guarantor, or any other party in connection with this Service Contract, the Guaranty
Agreement or other agreement relating to the performance of the Contract Services;

(2) Any loss, cost or expense sustained by the Company, the Guarantor, or
the Company’s surety in seeking to cure or prevent any breach of this Service Contract by the
Company;

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(3) Any fines or penalties levied or imposed by any Governmental Body;

(4) Any loss, cost or expense sustained by the Company in connection with
its indemnification obligations under this Service Contract; and

(5) Any payments made to the County or to any Indemnified Party in


connection with any Required Insurance under this Service Contract.

SECTION 14.5. EVENTS OF DEFAULT BY THE COUNTY.

(A) Events of Default Permitting Termination. Each of the following shall


constitute an Event of Default by the County upon which the Company, by written notice to
the County, may terminate this Service Contract:

(1) Representations and Warranties. Any representation or warranty of the


County hereunder was false or inaccurate in any material respect when made, and the legality
of this Service Contract or the ability of the County to carry out its obligations hereunder is
thereby adversely affected;

(2) Failure to Pay or Perform. The failure, refusal or other default by the
County in its duty: (1) to pay the amount required to be paid to the Company under this
Service Contract within 60 days following the due date for such payment; or (2) subject to Item
(3) of this subsection, to perform any other material obligation under this Service Contract
(unless such default is excused by an Uncontrollable Circumstance); or

(3) Failure to Comply with Applicable Law. The failure of the County to
comply with Applicable Law to the extent such failure to comply interferes with or otherwise
increases the cost or liability to the Company in performing the Contract Services (unless such
failure to comply is excused by an Uncontrollable Circumstance).

(4) Bankruptcy. The authorized filing by the County of a petition seeking


relief under the Bankruptcy Code, as applicable to political subdivisions which are insolvent or
unable to meet their obligations as they mature; provided that the appointment of a financial
control or oversight board by the State for the County shall not in and of itself constitute an
Event of Default hereunder.

(B) Notice and Cure Opportunity. No such default described in


subsection (A) of this Section shall constitute an Event of Default giving the Company the right
to terminate this Service Contract for cause under this subsection unless:

(1) The Company has given prior written notice to the County stating that a
specified default has occurred, which gives the Company a right to terminate this Service
Contract for cause under this Section, and describing the default in reasonable detail; and

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(2) The County has neither challenged in an appropriate forum the


Company’s conclusion that such default has occurred or constitutes a material breach of this
Service Contract nor corrected or diligently taken steps to correct such default within a
reasonable period of time not to exceed 30 days after the date of the notice given pursuant to
the preceding paragraph (but if the County shall have diligently taken steps to correct such
default within a reasonable period of time, the same shall not constitute an Event of Default for
as long as the County is continuing to take such steps to correct such default).

(C) Termination Liquidated Damages During the Operation Period. If this


Service Contract is terminated by the Company for cause as a result of an Event of Default by
the County following the Acceptance Date, the County shall pay the Company, as liquidated
damages upon any such termination, the same amount which would be payable under
Section 14.7 if this Service Contract were terminated during the Operation Period, according to
the month of termination, at the election of the County for convenience and without cause;
provided, however, that the County acknowledges that the provisions of subsection 5.6(C)
shall survive any termination of this Service Contract to the extent provided therein.

SECTION 14.6. COUNTY CONVENIENCE TERMINATION DURING THE


DESIGN/BUILD PERIOD.

(A) Termination Right and Fee. The County shall have the right at any time
prior to the Acceptance Date, exercisable in its sole discretion for any reason upon 30 days’
written notice to the Company, to terminate this Service Contract. Upon any such
termination, the County shall pay the Company all sums due the Company for all
Design/Build Work performed up to the Termination Date, subject to the maximum drawdown
schedule and payment procedures set forth in Article VII and Appendix 8, plus a termination
fee of $1,000,000; provided, however, that prior to the Construction Commencement Date
established pursuant to subsection 4.1(C), such termination fee shall be $750,000. In
addition, the Company shall be entitled to reimbursement of reasonable termination costs in
accordance with Section 14.9.

(B) Delivery of Design/Build Period Work Product to the County.


Concurrently with payment by the County to the Company of the amount due upon any
convenience termination of this Service Contract under this Section, the Company shall deliver
to the County all of its Design/Build Period work product produced hereunder during the
Term, which work product immediately shall become the property of the County. The
County’s use of any such work product for any purpose other than the Design/Build Work
shall be at its own risk and the Company shall have no liability therefor.

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SECTION 14.7. COUNTY CONVENIENCE TERMINATION DURING THE


OPERATION PERIOD.

(A) Termination Right and Fee. The County shall have the right at any time
during the Operation Period, exercisable in its sole discretion, for its convenience and without
cause, to terminate this Service Contract upon 60 days’ written notice to the Company. If the
County exercises its right to terminate this Service Contract pursuant to this Section, the
County shall pay the Company a convenience termination fee equal to $2,000,000. If this
Service Contract is renewed pursuant to Section 3.2, then the convenience termination fee
payable during the Renewal Term shall be zero.

(B) Uncontrollable Circumstances. In the event an Uncontrollable


Circumstance causes a total constructive loss of the Facility, or in the event an Uncontrollable
Circumstance causes an extraordinary increase in County costs, and thereupon the County
elects to exercise its right of convenience termination under this Section, the County shall not
be required to pay the Company the convenience termination fee set forth in subsection (A) of
this Section. A “total constructive loss” for this purpose shall be deemed to have occurred:
(1) if so determined by the casualty insurance carrier; or (2) if the Facility is substantially
inoperable for a period of at least six months following the occurrence of the Uncontrollable
Circumstance. “An extraordinary increase” in County costs shall be deemed to have occurred
for this purpose if costs proposed to be paid to the Company in a Contract Year resulting from
the Uncontrollable Circumstance would cause an increase of more than 20% from the prior
Contract Year in the total Service Fee payable under this Service Contract.

(C) Payment of Amounts Owing Through the Termination Date and


Termination Costs. Upon any termination pursuant to this Section, the Company shall also
be paid all amounts due for the Contract Services to be paid as part of the Service Fee but not
yet paid as of the Termination Date. In addition, the Company shall be entitled to
reimbursement of reasonable termination costs in accordance with Section 14.9.

SECTION 14.8. GENERAL PROVISIONS REGARDING CONVENIENCE


TERMINATION.

(A) Termination Fee Payment Contingent Upon Surrender of Possession.


The County shall have no obligation to pay the applicable termination fee provided for under
Sections 14.6 or 14.7, as applicable, except concurrently with the surrender of possession and
control by the Company of the Facility and the Site to the County.

(B) Adequacy of Termination Payment. The Company agrees that the


applicable termination fees and other termination payments provided for in Sections 14.6 and

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14.7, as applicable, shall fully and adequately compensate the Company and all
Subcontractors for all foregone potential profits, Loss-and-Expense, and charges of any kind
whatsoever (whether foreseen or unforeseen), including initial transition and mobilization
costs and demobilization, employee transition and other similar wind-down costs, attributable
to the termination of the Company’s right to perform this Service Contract; provided, however,
that the County acknowledges that the provisions of subsection 5.6(C) shall survive any
termination of this Service Contract to the extent provided therein.

(C) Consideration for Convenience Termination Payment. The right of the


County to terminate this Service Contract for its convenience and in its sole discretion in
accordance with Sections 14.6 and 14.7 constitutes an essential part of the overall
consideration for this Service Contract, and the Company hereby waives any right it may have
under Applicable Law to assert that the County owes the Company a duty of good faith dealing
in the exercise of such right.

(D) Completion or Continuance by County. After the date of any termination


under this Section, the County may at any time (but without any obligation to do so) take any
and all actions necessary or desirable to continue and complete the Contract Services so
terminated, including entering into contracts with other contractors and operators.

SECTION 14.9. OBLIGATIONS UPON TERMINATION OR EXPIRATION.

(A) Company Obligations. Upon a termination of the Company’s right to


perform this Service Contract under this Article, or upon the expiration of this Service
Contract under Section 3.1, the Company shall, as applicable:

(1) stop the Contract Services on the date and to the extent specified by the
County;

(2) promptly take all action as necessary to protect and preserve all
materials, equipment, tools, facilities and other property;

(3) promptly remove from the Facility all equipment, implements,


machinery, tools, temporary facilities of any kind and other property owned or leased by the
Company (including, sheds, trailers, workshops and toilets), and repair any damage caused by
such removal;

(4) clean the Facility and the Site and leave them in a neat and orderly
condition;

(5) subject to subsection (B) of this Section, promptly remove all employees
of the Company and any Subcontractors and vacate the Facility;

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(6) promptly deliver to the County a list of all supplies, materials,


machinery, equipment, property and special order items previously delivered or fabricated by
the Company or any Subcontractor for the Facility but not yet incorporated in the Facility;

(7) deliver to the County the Operation and Maintenance Manual and all
computer programs necessary to operate and maintain the Facility in accordance with the
Operation and Maintenance Manual, including all revisions and updates thereto;

(8) deliver to the County a copy of all books and records in its possession
required to be maintained under this Service Contract relating to the performance of the
Contract Services;

(9) provide the County with a list of all files, and access and security codes
with instructions and demonstrations which show how to open and change such codes;

(10) advise the County promptly of any special circumstances which might
limit or prohibit cancellation of any Subcontract;

(11) promptly deliver to the County copies of all Subcontracts, together with a
statement of:

(a) the items ordered and not yet delivered pursuant to each
agreement;

(b) the expected delivery date of all such items;

(c) the total cost of each agreement and the terms of payment; and

(d) the estimated cost of canceling each agreement;

(12) assign to the County any Subcontract that the County elects in writing,
at its sole election and without obligation, to have assigned to it. The County shall assume,
and the Company shall be relieved of its obligations under, any Subcontract so assigned;

(13) unless the County directs otherwise, terminate all Subcontracts and
make no additional agreements with Subcontractors;

(14) as directed by the County, transfer to the County by appropriate


instruments of title, and deliver to the Facility (or such other place as the County may specify),
all special order items pursuant to this Service Contract for which the County has made or is
obligated to make payments;

(15) promptly transfer to the County all warranties given by any


manufacturer or Subcontractor with respect to particular components of the Facility or the
Operation Services;

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(16) notify the County promptly in writing of any Legal Proceedings against
the Company by any Subcontractor or other third parties relating to the termination of the
Design/Build Work or the Operation Services (or any Subcontracts);

(17) give written notice of termination, effective as of the Termination Date,


promptly under each policy of Required Insurance (with a copy of each such notice to the
County), but permit the County to continue such policies thereafter at its own expense, if
possible;

(18) arrange its dealings with employees such that no “successor clause” or
accrued benefit liability will bind the County in the event the County determines to offer
employment to the Company’s employees at the Facility following the Termination Date; and

(19) take such other actions, and execute such other documents as may be
necessary to effectuate and confirm the foregoing matters, or as may be otherwise necessary or
desirable to minimize the County’s costs, and take no action which shall increase any amount
payable by the County under this Service Contract.

(B) Hiring of Company Personnel. Upon the termination or expiration of this


Service Contract under any provision hereof, the County or any successor operator of the
Facility designated by the County shall have the right to offer employment on any terms it may
choose to any Company employee employed full time at the Facility. No Company employment
agreement, job offer, letter or similar document may contravene this right. The County or its
designated successor operator shall extend any such job offer within 30 days prior to the
expiration or termination of this Service Contract. The Company shall assist and cooperate
with any such employee transition in the manner reasonably requested by the County.

(C) Continuity of Service and Technical Support. Upon the termination of


the Company’s right to perform this Service Contract under this Article or upon the expiration
of this Service Contract under Section 3.1, the Company, at the request and direction of the
County, shall provide for an effective continuity of service and the smooth and orderly
transition of management to the County or any replacement operator designated by the
County. Such service shall be for a period of up to 180 days and shall include providing
technological and design advice and support and delivering any plans, drawings, renderings,
blueprints, operating manuals, computer programs, spare parts or other information useful or
necessary for the County or any replacement operator designated by the County to carry out
and complete the Facility and to perform the Operation Services. In addition, the Company
shall provide the County and any replacement operator with a one-time training program
relating to the operation of the Facility, including any Capital Modifications thereto.

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(D) Company Payment of Certain Costs. If termination is pursuant to


Section 14.2 or upon the expiration of this Service Contract under Section 3.1, the Company
shall be obligated to pay the costs and expenses of undertaking its obligations under
subsection (A) of this Section. If the Company fails to comply with any obligation under this
Section, the County may perform such obligation and the Company shall pay on demand all
reasonable costs thereof subject to Cost Substantiation.

(E) County Payment of Certain Costs. If termination is for the convenience


of the County under Sections 14.6 or 14.7 or due to a County Event of Default pursuant to
Section 14.5, the County shall pay to the Company within 60 days after the date of the
Company’s invoice supported by Cost Substantiation all reasonable costs and expenses
incurred by the Company in satisfying its obligations under subsection (A) of this Section. In
addition, upon any termination of this Service Contract, the County shall be responsible for
the costs reasonably incurred by the Company in performing services directed by the County
pursuant to subsection (C) of this Section. All such costs shall be subject to Cost
Substantiation.

(F) Exit Test. Not later than 180 days following the Acceptance Date, the
Company shall prepare and submit to the County for its approval a plan for exit testing of the
Facility, which shall conform to the requirements of Appendix 13 in all respects. The County
shall submit its comments on the exit testing plan to the Company within 30 days after receipt
thereof, and the Company thereafter shall prepare a final exit testing plan, incorporating the
County’s comments, for submission to the County within 30 days. In the event the Company
has not been in compliance with the Performance Guarantees for the twelve consecutive
months preceding the Termination Date, the Company (or a third party at the County’s
option), at the request of the County and after reasonable notice to the Company, shall
perform the exit test of the Facility for compliance with the Exit Test Procedures and
Standards in the first month of the 3-month period preceding the Termination Date. If such
test shows that the Facility is operating out of compliance with the Exit Test Procedures and
Standards, then within 14 days after such test results, the Company shall submit to the
County a plan for remediation and retesting. The County shall have 14 days to approve such
plan, which approval shall not be unreasonably withheld. The Company shall make all capital
investment, repairs, replacements, renewals and operating changes necessary and take all
other actions which may be necessary to enable the Facility to meet the Exit Test Procedures
and Standards. The Facility shall then be re-tested to demonstrate that the necessary
corrective action has been taken and the Facility is in compliance with the Exit Test

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Procedures and Standards. No such testing or retesting shall relieve the Company of its
obligations under this Service Contract during the performance of the test or retest.

SECTION 14.10. SURVIVAL OF CERTAIN PROVISIONS UPON TERMINATION.


All representations and warranties of the parties hereto contained in this Service Contract,
each of the party’s indemnity obligations in this Service Contract with respect to events that
occurred prior to the Termination Date or during the Company’s provision of the transition
services under Section 14.9, and all other provisions of this Service Contract that so provide
shall survive the termination of this Service Contract, subject to any statute of limitation
provisions of Applicable Law. No termination of this Service Contract shall (1) limit or
otherwise affect the respective rights and obligations of the parties hereto accrued prior to the
date of such termination; or (2) preclude either party from impleading the other party in any
Legal Proceeding originated by a third-party as to any matter occurring during the Term to the
extent permitted under Applicable Law.

SECTION 14.11. NO WAIVERS. No action of the County or the Company


pursuant to this Service Contract (including any investigation or payment), and no failure to
act, shall constitute a waiver by either party of the other party’s compliance with any term or
provision of this Service Contract. No course of dealing or delay by the County or the Company
in exercising any right, power or remedy under this Service Contract shall operate as a waiver
thereof or otherwise prejudice such party’s rights, powers and remedies. No single or partial
exercise of (or failure to exercise) any right, power or remedy of the County or the Company
under this Service Contract shall preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.

SECTION 14.12. NO CONSEQUENTIAL OR PUNITIVE DAMAGES. In no event


shall either party hereto be liable to the other or obligated in any manner to pay to the other
any special, incidental, consequential, punitive or similar damages based upon claims arising
out of or in connection with the performance or non-performance of its obligations or otherwise
under this Service Contract, or the material falseness or inaccuracy of any representation
made in this Service Contract, whether such claims are based upon contract, tort, negligence,
warranty or other legal theory; provided, however, that the waiver of the foregoing damages
under this Section is intended to apply only to disputes and claims as between the County and
the Company. Nothing in this Section shall limit the obligation of either party to indemnify,
defend and hold harmless the other party and its indemnitees for any special, incidental,
consequential, punitive or similar damages payable to third parties resulting from any act or
circumstance for which either party is obligated to indemnify the other party and its
indemnitees in accordance with and to the extent provided hereunder.

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SECTION 14.13. FORUM FOR DISPUTE RESOLUTION. It is the express


intention of the parties that all Legal Proceedings related to this Service Contract or to the
Facility or to any rights or any relationship between the parties arising therefrom shall be
solely and exclusively initiated and maintained in courts of the State located in the County.
The Company and the County each irrevocably consents to the jurisdiction of such courts in
any such Legal Proceeding, waives any objection it may have to so laying the jurisdiction of any
such Legal Proceeding, and the Company waives its right to a trial by jury.

SECTION 14.14. NON-BINDING MEDIATION.

(A) Rights to Request and Decline. Either party may request Non-Binding
Mediation of any dispute arising under this Service Contract, whether technical or otherwise.
The non-requesting party may decline the request in its sole discretion. If there is
concurrence that any particular matter shall be mediated, the provisions of this Section shall
apply. The costs of such Non-Binding Mediation shall be divided equally between the County
and the Company.

(B) Procedure. The Mediator shall be a professional engineer, attorney or


other professional mutually acceptable to the parties who has no current or on-going
relationship to either party. The Mediator shall have full discretion as to the conduct of the
mediation. Each party shall participate in the Mediator’s program to resolve the dispute until
and unless the parties reach agreement with respect to the disputed matter or one party
determines in its sole discretion that its interests are not being served by the mediation.

(C) Non-Binding Effect. Mediation is intended to assist the parties in


resolving disputes over the correct interpretation of this Service Contract. No Mediator shall be
empowered to render a binding decision.

(D) Relation to Judicial Legal Proceedings. Nothing in this Section shall


operate to limit, interfere with or delay the right of either party under this Article to commence
judicial Legal Proceedings upon a breach of this Service Contract by the other party, whether
in lieu of, concurrently with, or at the conclusion of any Non-Binding Mediation.

Draft of October 17, 2008 179


ARTICLE XV

INSURANCE, UNCONTROLLABLE CIRCUMSTANCES


AND INDEMNIFICATION

SECTION 15.1. INSURANCE.

(A) Company Insurance. At all times during the Term, the Company shall
obtain and maintain the Required Insurance in accordance with Appendix 14 and shall pay all
premiums with respect thereto as the same become due and payable. The amounts set forth
in Appendix 14 shall be adjusted each Contract Year by the Facility Element Adjustment
Factor. The County shall remain responsible for obtaining and maintaining “builder’s risk”
insurance and all risk physical damage insurance relating to the Facility and shall pay all
premiums with respect thereto as the same become due and payable.

(B) Insurers, Deductibles and County Rights. All Required Insurance shall
be obtained and maintained from financially sound and generally recognized responsible
insurance companies meeting the qualifications set forth in Appendix 14. The insurers
providing Required Insurance shall be selected by the Company and authorized to write such
insurance in the State. The insurance coverage may be written with deductible amounts or
self insured retentions within the limits allowed in Appendix 14, and the Company shall be
responsible for any deductible amounts. The Company shall also be responsible for all
self-insured retentions contained in its insurance coverages, as well as any excluded losses if
such losses are within the liability of the Company hereunder. All policies evidencing such
insurance shall provide for: (1) payment into a trust account for payment of the losses to the
County, and to the Company as their respective interests may appear; and (2) at least 30 days
prior written notice of the cancellation thereof to the Company and the County. All policies
shall be written on the forms and in the manner set forth in Appendix 14. All policies of
insurance required by this Section, except professional liability and workers’
compensation, shall be primary insurance without any right of contribution from other
insurance carried by the County.

(C) Certificates, Policies and Notice. The delivery by the Company to the
County of certificates of insurance is required by this Service Contract as a condition to the
execution of this Service Contract (Required Design/Build Period Insurance) and as a
condition to the occurrence of the Acceptance Date (Required Operation Period Insurance). In
addition, the Company shall allow the County or its designated representatives to view copies
of the Required Insurance in the Company’s corporate offices located in Englewood, Colorado.
Not later than 45 days prior to the beginning of each Contract Year during the Term, the
Company shall furnish certificates of insurance to the County to confirm the continued

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effectiveness of the Required Insurance. Whenever a Subcontractor is utilized, the Company


shall either obtain and maintain, or require the Subcontractor to obtain and maintain,
insurance in accordance with the applicable requirements of Appendix 14.

(D) Maintenance of Insurance Coverage. If the Company fails to pay any


premium for Required Insurance, or if any insurer cancels any Required Insurance policy and
the Company fails to obtain replacement coverage so that the Required Insurance is
maintained on a continuous basis, then, at the County’s election (but without any obligation
to do so), the County, following a 30 day written notice to the Company, may pay such
premium or procure similar insurance coverage from another company or companies and
upon such payment by the County the amount thereof shall be immediately reimbursable to
the County by the Company. The Company shall not perform Contract Services during any
period when any policy of Required Insurance is not in effect. The Company shall comply with
all applicable Required Insurance in accordance with the requirements of this Service Contract
during the Term. The failure of the Company to obtain and maintain any Required Insurance
shall not relieve the Company of its liability for any losses intended to be insured thereby.
Should any failure to provide continuous insurance coverage occur, the Company shall
indemnify, defend and hold harmless the County Indemnitees in the manner provided in
Section 14.3 from and against any Loss-and-Expense arising out of such failure. The
purchase of insurance to satisfy the Company’s obligations under this Section shall not be a
satisfaction of any Company liability under this Service Contract or in any way limit, modify or
satisfy the Company’s indemnity obligations hereunder.

(E) County Insurance. The County shall obtain and maintain builder’s risk
insurance for the Design/Build Period in the full replacement value of the completed Facility.
On or before the Acceptance Date, the County shall obtain and maintain property insurance
for the Facility in the full replacement value thereof at all times during the Term after the
Acceptance Date. The Company shall be named as an additional insured on such insurance
during the Term.

SECTION 15.2. UNCONTROLLABLE CIRCUMSTANCES.

(A) Relief from Obligations. Except as expressly provided under the terms of
this Service Contract, neither party to this Service Contract shall be liable to the other for any
loss, damage, delay, default or failure to perform any obligation to the extent it results from an
Uncontrollable Circumstance. The parties agree that the relief for an Uncontrollable
Circumstance described in this Section shall apply to all obligations in this Service Contract,
except to the extent specifically provided otherwise, notwithstanding that such relief is
specifically mentioned with respect to certain obligations in this Service Contract but not other

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obligations. The occurrence of an Uncontrollable Circumstance shall not excuse or delay the
performance of a party’s obligation to pay monies previously accrued and owing under this
Service Contract, or to perform any obligation hereunder not affected by the occurrence of the
Uncontrollable Circumstance. The County shall pay the Service Fee during the continuance of
any Uncontrollable Circumstance, adjusted to account for any cost reductions achieved
through Company mitigation measures required by subsection (B) of this Section, as well as
for any cost increases to which the Company is entitled under subsection (C) of this Section.

(B) Notice and Mitigation. The party that asserts the occurrence of an
Uncontrollable Circumstance shall notify the other party by telephone, facsimile or e-mail
(accompanied by a telephone call to the County’s Contract Representative), on or promptly
after the date the party experiencing such Uncontrollable Circumstance first knew of the
occurrence thereof, followed within 15 days by a written description of: (1) the Uncontrollable
Circumstance and the cause thereof (to the extent known); and (2) the date the Uncontrollable
Circumstance began, its estimated duration, and the estimated time during which the
performance of such party’s obligations hereunder shall be delayed or otherwise affected. As
soon as practicable after the occurrence of an Uncontrollable Circumstance, the affected party
shall also provide the other party with a description of: (1) the amount, if any, by which the
Fixed Design/Build Price or the Service Fee is proposed to be adjusted as a result of such
Uncontrollable Circumstance; (2) any areas where costs might be reduced and the
approximate amount of such cost reductions; and (3) its estimated impact on the other
obligations of such party under this Service Contract. The affected party shall also provide
prompt written notice of the cessation of such Uncontrollable Circumstance. Whenever an
Uncontrollable Circumstance shall occur, the party claiming to be adversely affected thereby
shall, as promptly as practicable, use all reasonable efforts to eliminate the cause therefor,
reduce costs and resume performance under this Service Contract. While the Uncontrollable
Circumstance continues, the affected party shall give notice to the other party, before the first
day of each succeeding month, updating the information previously submitted. The party
claiming to be adversely affected by an Uncontrollable Circumstance shall bear the burden of
proof, and shall furnish promptly any additional documents or other information relating to
the Uncontrollable Circumstance reasonably requested by the other party.

(C) Conditions to Performance, Price and Schedule Relief. If and to the


extent that an Uncontrollable Circumstance expands the scope of the Company’s obligations
hereunder, interferes with, delays or increases the cost of the Company’s performing the
Contract Services in accordance herewith, the Company shall, subject to subsection (D) of this
Section, be entitled to relief from the performance of its obligations hereunder, an increase in

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the Fixed Design/Build Price or the Service Fee, or an extension of schedule, or any
combination thereof, which properly reflects the interference with performance, the amount of
the increased cost, or the time lost as a result thereof, in each case only to the minimum
extent reasonably forced on the Company by the event, and the Company shall perform all
other Contract Services. The proceeds of any Required Insurance available to meet any such
increased cost, and the payment by the Company of any deductible, shall be applied to such
purpose prior to any determination of cost increase payable by the County under this Section;
provided, however, that the Company shall not be required to pay any deductible in
connection with an Uncontrollable Circumstance with respect to any insurance required to be
obtained and maintained by the County hereunder. Any cost reduction achieved through the
mitigating measures undertaken by the Company pursuant to subsection (B) of this
Section upon the occurrence of an Uncontrollable Circumstance shall be reflected in a
reduction of the amount by which the Fixed Design/Build Price or the Service Fee would have
otherwise been increased or shall serve to reduce the Fixed Design/Build Price or the Service
Fee to reflect such mitigation measures, as applicable. In the event that the Company believes
it is entitled to any Design/Build Price, Service Fee or schedule adjustment on account of any
Uncontrollable Circumstance, it shall furnish the County written notice of the specific
adjustment requested and detailing the event giving rise to the claim within 30 days after the
giving of notice delivered pursuant to subsection (B) of this Section, or if the specific
adjustment cannot reasonably be ascertained and such event detailed within such 30-day
period, then within such longer period within which it is reasonably possible to detail the
event and ascertain such adjustment. Within 30 days after receipt of such a timely
submission from the Company the County shall issue a written determination as to the extent,
if any, it concurs with the Company’s claim for performance, price or schedule adjustment,
and the reasons therefor. The Company acknowledges that its failure to give timely notice
pertaining to an Uncontrollable Circumstance as required under this Section may adversely
affect the County. To the extent the County asserts that any such adverse effect has occurred
and that the adjustment to the Company or the additional cost to be borne by the County
under this subsection should be reduced to account for such adverse effect, the Company
shall have the affirmative burden of refuting the County’s assertion. Absent such refutation,
the reduction in adjustment to the Company and the reduction in additional cost to the
County asserted by the County in such circumstances shall be effective. The agreement of the
parties as to the specific relief to be given the Company hereunder on account of an
Uncontrollable Circumstance shall be evidenced by a Contract Administration Memorandum,
Service Contract Amendment or a Change Order, as applicable.

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(D) Cost Relief Associated with Uncontrollable Circumstance Delays


interfering with the Critical Path Completion Date. The parties recognize that,
notwithstanding the Company’s obligation to achieve Acceptance by the Scheduled Acceptance
Date, the Company intends to achieve Acceptance prior to the Scheduled Acceptance Date in
accordance with its critical path schedule. The date indicated in the Company’s critical path
schedule for the achievement of Acceptance shall be the “Critical Path Completion Date”. In
the event an Uncontrollable Circumstance interferes with the ability of the Company to achieve
Acceptance by the Critical Path Completion Date, the Company shall be entitled to a Fixed
Design/Build Price Adjustment in the amount of the reasonable delay costs incurred by the
Company in accordance with and subject to the following provisions and limitations:

(1) In order to be entitled to a Fixed Design/Build Price Adjustment under


this subsection, the Company must demonstrate the occurrence of an Uncontrollable
Circumstance that prevents the Company from achieving Acceptance by the Critical
Path Completion Date.

(2) The Company shall have a material obligation to provide, update and
maintain its critical path schedule in accordance with subsection 4.1(D). In the event of
delays not caused by Uncontrollable Circumstances, the Company shall adjust the
Critical Path Completion Date to account for such delays and such adjusted Critical
Path Completion Date shall be the basis for cost relief under this subsection. In no
event shall the Company be entitled to cost relief pursuant to this subsection for delays
caused by Company Fault or otherwise not attributable to an Uncontrollable
Circumstance.

(3) For purposes of obtaining relief pursuant to this subsection, the Critical
Path Completion Date shall be no earlier than December 29, 2011 and no later than the
Scheduled Acceptance Date.

(4) For purposes of this subsection, “delay costs” shall include and shall be
limited to (1) the costs reasonably incurred by the Company in connection with the
Uncontrollable Circumstance delay, which shall be limited to actual and direct general
conditions costs specifically relating to the performance of the Design/Build Work
(including added Subcontractor costs or equipment rental costs necessitated by the
delay), and (2) the costs reasonably incurred by the Company in mitigating the impact
of the delay on the performance of the Design/Build Work. Delay costs shall be subject
to Cost Substantiation in accordance with Section 17.6.

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(5) In no event shall the Company be entitled to compensation for delay


costs pursuant to this subsection in an amount greater than $1,100,000 for all claims
of the Company under this subsection; provided, however, that such dollar limitation
shall not apply to (1) delay costs associated with Uncontrollable Circumstance delays to
the extent such delay costs are incurred after June 30, 2012, or (2) delay costs
associated with a failure of the County to provide Influent in accordance with
subsection 6.2(A) to the extent such delay costs are incurred after March 29, 2012.

Nothing in this subsection shall limit or otherwise affect the Company’s obligations under this
Service Contract in the event of the occurrence of an Uncontrollable Circumstance, including
the Company’s obligations under this Section to mitigate the Uncontrollable Circumstance,
notify the County and bear the burden of proving the occurrence of an Uncontrollable
Circumstance and its impact on the Company.

(E) Change in Law Pertaining to Taxes. The Company shall be entitled to


Change in Law relief under this Section for a Change in Law pertaining to Taxes only to the
extent such Change in Law (1) imposes a new State or local Tax on the private provision of
wastewater treatment services or on any possessory interest or right to use or occupancy
conveyed under this Service Contract, (2) acts as a franchise, utility or similar Tax, or (3)
imposes a new State sales Tax or an increase in the rate of a State or local Tax currently
imposed on Contract Services. Nothing in this subsection shall limit or otherwise affect the
Company’s obligations under this Service Contract in the event of the occurrence of an
Uncontrollable Circumstance, including the Company’s obligations under this Section to
mitigate the Uncontrollable Circumstance, notify the County and bear the burden of proving
the occurrence of an Uncontrollable Circumstance and its impact on the Company.

(F) Certain Changes in Law occurring Outside the United States. The
Company shall be entitled to Change in Law relief under this Section for a Change in Law
occurring outside of the United States only to the extent such Change in Law (1) acts as a new
tariff, import/export restriction or embargo, and (2) increases the cost to the Company of
obtaining the membranes or blowers required for the performance of the Contract Services.
Nothing in this subsection shall limit or otherwise affect the Company’s obligations under this
Service Contract in the event of the occurrence of an Uncontrollable Circumstance, including
the Company’s obligations under this Section to mitigate the Uncontrollable Circumstance,
notify the County and bear the burden of proving the occurrence of an Uncontrollable
Circumstance and its impact on the Company.

(G) Capital Modifications. Before proposing any modification to the Service


Fee in its notice of requested adjustment under this Section, the Company shall determine

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whether any increased costs of operation and maintenance of the Facility resulting from an
Uncontrollable Circumstance can reasonably and prudently be reduced by the undertaking of
a Capital Modification. In the event that the Company makes such a determination, the
Company shall so advise the County in accordance with Section 11.5. The County shall
thereupon determine, in its sole discretion, whether such a Capital Modification shall be
undertaken and shall so advise the Company within 60 days after receipt of such notice by the
Company. In no event shall the Company undertake such Capital Modification except at the
express written direction of the County.

(H) Acceptance of Adjustment Constitutes Release. The Company’s


acceptance of any performance, price or schedule adjustment under this Section shall be
construed as a release of the County by the Company (and all persons claiming by, through, or
under the Company) for any and all losses or expenses resulting from, or otherwise
attributable to, the event giving rise to the adjustment claimed.

SECTION 15.3. INDEMNIFICATION BY THE COMPANY. The Company shall


indemnify, defend and hold harmless the County, and its elected officials, appointed officers,
employees, representatives, agents, consultants and contractors (each, a “County Indemnitee”),
from and against (and pay the full amount of) any and all Loss-and-Expense incurred by a
County Indemnitee to third parties arising from or in connection with (or alleged to arise from
or in connection with): (1) any failure by the Company to perform its obligations under this
Service Contract; or (2) the negligent acts, errors or omissions or willful misconduct of the
Company or any of its officers, directors, employees, agents, representatives or Subcontractors
in connection with this Service Contract. The Company shall also indemnify the County
Indemnitees as and to the extent provided elsewhere in this Service Contract. The Company’s
indemnity obligations hereunder shall not be limited by any coverage exclusions or other
provisions in any insurance policy maintained by the Company which is intended to respond to
such events. The Company shall not, however, be required to reimburse or indemnify any
County Indemnitee for any Loss-and-Expense to the extent caused by a failure of the County to
perform its obligations under the NPDES Permit, any Reclaimed Water Permit or Applicable
Law, the negligence or willful misconduct of any County Indemnitee or to the extent
attributable to any Uncontrollable Circumstance. A County Indemnitee shall promptly notify
the Company of the assertion of any claim against it for which it is entitled to be indemnified
hereunder, and the Company shall have the right to assume the defense of the claim in any
Legal Proceeding and to approve any settlement of the claim. These indemnification provisions
are for the protection of the County Indemnitee only and shall not establish, of themselves, any

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liability to third parties. The provisions of this Section shall survive termination of this Service
Contract.

SECTION 15.4. INDEMNIFICATION BY THE COUNTY. The County shall be


required to indemnify the Company Indemnitees only to the extent provided in
subsection 5.6(C).

Draft of October 17, 2008 187


ARTICLE XVI

SECURITY FOR PERFORMANCE

SECTION 16.1. GUARANTOR.

(A) Guaranty Agreement. The Company shall cause the Guaranty


Agreement to be provided on or before the Contract Date and maintained by the Guarantor
during the Term in the form attached hereto as a Transaction Form.

(B) Material Adverse Change to the Financial Condition of the Guarantor.


For purposes of this Section, a “Material Adverse Change” shall mean any change to the
financial condition of the Guarantor that actually has, or is reasonably likely to have, a
significant adverse effect on the Guarantor’s ability to perform its obligations under the
Guaranty Agreement, including any such change that results in its inability to meet the
following minimum financial requirements: (1) the maintenance of a net worth of no less than
$350,000,000; or (2) there has been no material change in the condition of the Guarantor’s
earnings, net worth, or working capital over the preceding 12 months which would reasonably
be anticipated to impair the Guarantor’s ability to meet its obligations under the Guaranty
Agreement. For purposes of this Section, “net worth” shall mean stockholder or shareholder
equity, as reported on the Guarantor’s balance sheet. Notwithstanding any of the forgoing, no
Material Adverse Change to the financial condition of the Guarantor shall be deemed to have
occurred under this Section to the extent that the Company or the Guarantor, at its sole cost
and expense, is able to obtain and maintain either a shadow or actual investment grade credit
rating for the Guarantor on its senior debt from one or more of the Rating Agencies. Any
credit rating analysis by any of the Rating Agencies pursuant to this Section shall assume a
hypothetical borrowing by the Guarantor of an amount at least equal to the then applicable
limit of liability provided for under Section 14.3. The Company shall immediately notify the
County of any Material Adverse Change to the financial condition of the Guarantor.

(C) Credit Enhancement. If a Material Adverse Change in the Guarantor’s


financial condition occurs, the Company shall, at its sole cost and expense and subject to
subsection (D) of this Section, cause to be provided credit enhancement of its obligations
hereunder within 30 days after such occurrence. Such credit enhancement shall be in the
form either of (1) an unconditional guarantee of all of the Company’s obligations hereunder
provided by a corporation or financial institution meeting the minimum financial requirements
set forth in Item (1) of subsection (B) of this Section and otherwise acceptable to the County, or
(2) subject to the approval of the County in its sole and absolute discretion, a substitute
instrument providing security for the performance of the Company’s obligations hereunder in
a form and manner acceptable to the County. In the event that the Company provides credit

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enhancement in the form of a replacement guarantor pursuant to Item (1) of this subsection,
the replacement guarantor shall become the Guarantor for purposes of this Service Contract
and the provisions of this Section shall apply equally to such replacement Guarantor.

(D) No Surety Liability for Credit Enhancement. In no event shall the Surety
be liable for any credit enhancement required in accordance with subsection (C) of this Section
under the Performance Bond or otherwise. In the event of a Material Adverse Change
occurring during the Design/Build Period, any credit enhancement required under subsection
(C) of this Section shall not be required to become effective until the Acceptance Date.

(E) Annual Reports. The Company shall furnish the County, within 180
days after the end of each fiscal year of the Guarantor, consolidating balance sheets and
income statements for the Guarantor attached to the audited year-end financial statements for
that fiscal year reported upon by the Guarantor’s independent public accountant. The
Company shall also furnish the County with copies of the quarterly and annual reports and
other filings of the Guarantor filed with the Securities and Exchange Commission.

SECTION 16.2. BONDS.

(A) Construction Performance and Payment Bonds. Within 30 days after the
Contract Date, the Company shall provide the Performance Bond and the Payment Bond, each
in an amount equal to the Fixed Design/Build Price relating to the construction work, as
financial security for the faithful performance and payment of its Design/Build Period
obligations hereunder. The Performance Bond and the Payment Bond shall be increased to
reflect any Fixed Design/Build Price Adjustments and shall remain in effect until the date
which is six months after the date of Final Completion. On or before the date any Capital
Modification is undertaken by the Company, the Company shall provide the Performance Bond
and the Payment Bond, each in an amount equal to the price relating to the construction
work, as financial security for the faithful performance and payment of its obligations
hereunder relating thereto. The Performance Bond and the Payment Bond shall be
substantially in the form set forth in the Transaction Forms and shall be issued by a surety
company: (1) approved by the County having a rating of “A” in the latest revision of the A.M.
Best Company’s Insurance Report; (2) be listed in the United States Treasury Department’s
Circular 570, “Companies Holding Certificates of Authority as Acceptable Sureties on Federal
Bonds and as Acceptable Reinsurance Companies”; and (3) holding a certificate of authority to
transact surety business in the State issued by the Director of the Department of Insurance.
In the case of the Design/Build Work, the Performance Bond and the Payment Bond shall
remain open until Final Completion, and in the case of any Capital Modification, the

Draft of October 17, 2008 189


Spokane County Regional Water Reclamation Service Contract
Facility - P5451- Article XVI - Security for Performance

Performance Bond and the Payment Bond shall remain open until the work relating thereto
has achieved final completion.

(B) Monitoring of Sureties. The Company shall be responsible during the


Term for monitoring the financial condition of any surety company issuing bonds under this
Service Contract and for making inquiries no less often than annually to confirm that each
such surety company meets the qualifications specified in this Section. In the event any
issuing surety company no longer meets the qualifications specified in this Section, the
Company shall promptly notify the County of such event and shall promptly furnish or
arrange for the furnishing of a substitute or an additional bond of a surety company that
meets the qualifications specified in this Section, unless the County agrees to accept the
surety company or agrees to an alternative method of assurance. Upon notice by the Company
of such an event, the County shall not unreasonably withhold its approval of such assurance.

SECTION 16.3. DESIGN/BUILD LETTER OF CREDIT.

(A) Terms and Purpose of the Design/Build Letter of Credit. The Company
shall provide the County with the Design/Build Letter of Credit in accordance with
subsection 7.5(D) within 10 days after the Contract Date and in any event prior to any
payment of the Design/Build Price to the Company under this Service Contract. The parties
acknowledge and agree that the Design/Build Letter of Credit is intended to satisfy the
retainage requirements of RCW 60.28.011. The Design/Build Letter of Credit shall be an
irrevocable direct pay letter of credit issued by a United States bank whose long-term debt is
rated “A” or better by any of the Rating Agencies and which maintains a banking office in the
State. The Design/Build Letter of Credit shall be continuously renewed, extended or replaced
in accordance with subsection 7.5(D) so that it remains in effect until 30 days after the date
that the County Engineering Representative determines that Final Completion has occurred in
accordance with Section 7.7, and shall be issued substantially in the form set forth in the
Transaction Forms. The stated amount of the Design/Build Letter of Credit shall in no way
limit the amount of damages to which the County may be entitled for any breach of the
Company’s Design/Build Work obligations under this Service Contract.

(B) County Drawing Rights. The Design/Build Letter of Credit shall


authorize the County to draw amounts required to cover: (1) any unpaid Taxes by the
Company in connection with the performance of the Design/Build Work, (2) any unresolved or
unbonded claims by third parties or Encumbrances in connection with the performance of the
Design/Build Work, (3) any claims of the County associated with the failure of the Company to
achieve Final Completion in accordance with Article VI., and (4) the full amount of the
Design/Build Letter of Credit in the event of a failure to replace the Design/Build Letter of

Draft of October 17, 2008 190


Spokane County Regional Water Reclamation Service Contract
Facility - P5451- Article XVI - Security for Performance

Credit in accordance with subsection 7.5(D) Notwithstanding the foregoing, the County shall
not draw on the Design/Build Letter of Credit to cover the items in (1) and (2) above to the
extent that the County has withheld payment with respect to such items under Section 7.6.
Any drawing by the County on the Design/Build Letter of Credit shall be consistent with the
requirements of RCW 60.28.011.

(C) Effect of Final Determination of Damages. In the event that, subsequent


to any drawing on the Design/Build Letter of Credit, it is determined by any court of
competent jurisdiction in a final non-appealable decision that such drawing was not to any
extent permitted hereunder, the County shall pay the amount wrongfully drawn to the
Company together with interest thereon at the Overdue Rate calculated from the date of
drawing to the date of payment to the Company.

SECTION 16.4. COSTS OF PROVIDING SECURITY FOR PERFORMANCE. The


cost and expense of obtaining and maintaining the Security Instruments required under this
Article as security for the performance of the Company’s obligations hereunder shall be borne
by the Company and included in the Fixed Design/Build Price or Service Fee, as applicable,
without additional reimbursement from the County.

Draft of October 17, 2008 191


ARTICLE XVII

MISCELLANEOUS PROVISIONS

SECTION 17.1. RELATIONSHIP OF THE PARTIES. The Company is an


independent contractor of the County and the relationship between the parties shall be limited
to performance of this Service Contract in accordance with its terms. Neither party shall have
any responsibility with respect to the services to be provided or contractual benefits assumed
by the other party. Nothing in this Service Contract shall be deemed to constitute either party
a partner, agent or legal representative of the other party. No liability or benefits, such as
workers compensation, pension rights or liabilities, or other provisions or liabilities arising out
of or related to a contract for hire or employer/employee relationship, shall arise or accrue to
any party’s agent or employee as a result of this Service Contract or the performance thereof.

SECTION 17.2. LIMITED RECOURSE TO COUNTY. No recourse shall be had


to the general fund or general credit of the County for the payment of any amount due the
Company hereunder, whether on account of the Service Fee, any indemnity payment, or for
any payment or claim of any nature arising from the performance or non-performance of the
County’s obligations hereunder. The sole recourse of the Company for all such amounts shall
be to the funds held in the County’s sewer enterprise fund, as described in the County’s
annual audit report. All amounts held in the sewer enterprise fund shall be held for the uses
permitted and required thereby, and no such amounts shall constitute property of the
Company.

SECTION 17.3. PROPERTY RIGHTS.

(A) Protection from Infringement. The Company shall pay all royalties and
license fees in connection with the Contract Services during the Term. The Company shall
protect, indemnify, defend and hold harmless the County Indemnitees, in the manner provided
in Section 15.3, from and against all Loss-and-Expense arising out of or related to the
infringement or unauthorized use of any patent, trademark, copyright or trade secret relating
to, or for the Contract Services. The Company shall not, however, be required to reimburse or
indemnify any person for any Loss-and-Expense to the extent due to the negligence or willful
misconduct of such person. The County shall provide reasonable cooperation in the defense of
any Legal Proceeding pursuant to this Section and the Company shall keep the County
informed of all developments in the defense of any such Legal Proceeding. The Company’s
indemnity pursuant to this Section shall apply only when infringement occurs or is alleged to
occur from the intended use for which the Deliverable Material, process or equipment was
provided by the Company pursuant to this Service Contract. Without limiting any of the
County’s rights upon termination in accordance with Article XIV, the provisions of this

Draft of October 17, 2008 C-192


Section 17.5 set forth the Company’s entire liability with respect to infringement. The
provisions of this Section shall survive termination of this Service Contract.

(B) Substitutes for Deliverable Material, Process or Equipment. In the event


the Company or the County is enjoined from using any Deliverable Material, process or
equipment, the Company, at its sole cost and expense, shall:

(1) acquire the right to legally use such infringing Deliverable Material,
process or equipment (or any affected Design/Build Work) under infringed
patents or copyrights; or

(2) modify or replace such Deliverable Material, process or equipment (or


any affected Design/Build Work) with un-infringed Deliverable Material, process
or equipment (or any affected Design/Build Work) equivalent in quality,
performance, useful life and technical characteristics and development;
provided, however, that any such modification or replacement shall be subject to
the County’s approval, which shall not be unreasonably withheld or delayed.

The Company shall consult with the County in determining the appropriate course of action
required pursuant to this subsection. However, the Company shall have the discretion to
determine, and the sole responsibility with respect to, the specific corrective action required
pursuant to this subsection. Unless otherwise agreed to by the parties, the Company’s
obligations under this Section shall not apply to (1) infringement resulting from County-
directed Change Orders, (2) infringement resulting from unauthorized additions, changes or
modifications to the Deliverable Material, process or equipment made or caused to be made by
the County subsequent to delivery by the Company, or (3) any claimed infringement which is
settled without the consent of the Company.

(C) Intellectual Property Developed by the Company. All intellectual property


developed by the Company at or through the use of the Facility or otherwise in connection
with the performance of the Contract Services shall be owned by the Company subject to the
terms and conditions of this Section, and is hereby licensed to the County on a non-exclusive
cost free, perpetual basis for use by the County and any successor operator of the Facility
(but, with respect to any successor operator, only in connection with the operation of the
Facility). Such intellectual property shall include technology, inventions, innovations,
processes, know-how, formulas and software, whether protected as proprietary information,
trade secrets, or patents. The County shall have an irrevocable, perpetual and unrestricted
right to use such intellectual property for the purposes of operating the Facility, whether
before or following the Termination Date. The County shall not license, transfer or otherwise
make available such intellectual property to any third-party without the written consent of the

Draft of October 17, 2008 C-193


Company, which consent is hereby granted for purposes of operating the Facility following the
Termination Date. The County’s use of any such intellectual property for purposes other than
in connection with the Facility shall be at its own risk and the Company shall have no liability
therefor.

SECTION 17.4. INTEREST ON OVERDUE OBLIGATIONS. Except as


otherwise provided herein, all amounts due hereunder, whether as damages, credits, revenue,
charges or reimbursements, that are not paid when due shall bear interest at the rate of
interest which is the Overdue Rate, on the amount outstanding from time to time, on the basis
of a 365-day year, counting the actual number of days elapsed, and such interest accrued at
any time shall, to the extent permitted by Applicable Law, be deemed added to the amount due
as accrued.

SECTION 17.5. NEGOTIATED FIXED PRICE WORK.

(A) Fixed Design/Build Price and Fixed Component of the Service Fee. The
Fixed Design/Build Price and Fixed Component of the Service Fee have been fixed and agreed
to by the parties based on the Company’s proposal submitted in response to the RFP, and is
not subject to Cost Substantiation. Notwithstanding the foregoing sentence, the Company
shall furnish the County with all cost information required by the County for the payment of
the Fixed Design/Build Price under Article VI and for the payment of the Service Fee under
Article XII.

(B) Negotiated Lump Sum Pricing of Work for Which the County is
Financially Responsible. This Service Contract obligates the County to pay for certain costs
resulting from Uncontrollable Circumstances and otherwise as more specifically provided
herein. It is the expectation of the parties, in general, that the County will pay for such costs
on a negotiated, lump sum basis, and that the lump sum price will be negotiated in advance of
the Company’s performance of the work. For example, if a Change in Law occurs, as required
under Section 15.2 the parties will assess the impact of the Change in Law, take all
appropriate mitigation steps, determine any necessary Design and Construction Requirement
Changes, Capital Modifications or modifications to the Operation Services and agree upon
lump sum pricing therefor. To facilitate such negotiations, the Company shall furnish the
County with all information reasonably required by the County regarding the Company’s
expected costs of performing the work and its mark-up. Once the parties agree upon the lump
sum price, the Company’s actual costs of performance shall not be subject to Cost
Substantiation unless after-the-fact Cost Substantiation with respect to all or a portion of the
Company’s actual costs was agreed to by the parties in establishing the lump sum price.

Draft of October 17, 2008 C-194


SECTION 17.6. COST SUBSTANTIATION OF WORK ALREADY PERFORMED.

(A) Cost Substantiation Generally. The Company shall provide Cost


Substantiation for the costs for which the County is financially responsible hereunder, other
than the Fixed Design/Build Price, the Fixed Component of the Service Fee and the costs for
which the parties have negotiated a lump sum price, all as and to the extent provided in
Section 17.5. In incurring costs which are or may be subject to Cost Substantiation, the
Company shall utilize competitive practices to the maximum reasonable extent (including,
where practicable and except with respect to costs of the Company to which the Fixed
Design/Build Price applies, obtaining three competing quotes or estimates for costs expected
to be in excess of $50,000), and shall enter into Subcontracts on commercially reasonable
terms and prices in light of the work to be performed and the County’s potential obligation to
pay for it.

(B) Costs Requiring Cost Substantiation. Cost Substantiation shall be


provided as soon as reasonably practicable after the costs which require substantiation have
been incurred by the Company. Examples of costs which require substantiation include
(1) work done on an emergency basis to respond to an Uncontrollable Circumstance, where it
is not reasonably practicable for the parties in advance to negotiate a lump sum price for the
work; and (2) work done by the Company under Section 14.9 upon the expiration or
termination of this Service Contract, to the extent such costs are the responsibility of the
County under Section 14.9. Cost Substantiation shall also be required where the parties
agree that the Company shall perform work on a cost-plus basis, subject to the limitations set
forth in subsections (D) and (E) of this Section.

(C) Cost Substantiation Certificate. Any certificate delivered hereunder to


substantiate cost shall state the amount of such cost and the provisions of this Service
Contract under which such cost is chargeable to the County, shall describe the competitive or
other process utilized by the Company to obtain the commercially reasonable price, and shall
state that such services and materials are reasonably required pursuant to this Service
Contract. The Cost Substantiation certificate shall be accompanied by copies of such
documentation as shall be necessary to reasonably demonstrate that the cost as to which Cost
Substantiation is required has been paid or incurred. Such documentation shall be in a
format reasonably acceptable to the County and shall include reasonably detailed information
concerning all Subcontracts and, with respect to self-performed work,

(1) the amount and character of materials, equipment and services


furnished or utilized, the persons from whom purchased, the amounts payable therefor and
related delivery and transportation costs and any sales or personal property Taxes;

Draft of October 17, 2008 C-195


(2) a statement of the equipment used and any rental payable therefor;

(3) employee hours, duties, wages, salaries, benefits and assessments; and

(4) profit, administration costs, bonds, insurance, taxes, premiums


overhead, and other expenses.

The Company’s entitlement to reimbursement of Cost Substantiated costs of the Company


shall be subject to the limitations set forth in this Section.

(D) Technical Services. Company personnel and personnel of


Subcontractors providing technical services shall be billed at their then currently applicable
rates for similar services on projects of similar size and scope to the Contract Services. The
Company shall use commercially reasonable efforts to use available Company personnel for
additional work hereunder before using Subcontractors.

(E) Mark-Up. On all costs incurred by the Company for work performed
directly by the Company or any of its Affiliates which are subject to Cost Substantiation, the
Company shall be entitled to a mark-up of 15% and will not be entitled to any other additional
compensation. On all costs incurred by the Company for work performed by Subcontractors,
the Company shall be entitled to a mark-up of 10% for risk, profit, administration, and all
other overhead. The price payable to all Subcontractors, including Subcontractor overhead
and mark-ups for risk and profit, shall be commercially reasonable. Notwithstanding any of
the foregoing, in no event shall the Company be entitled to any mark-up for work performed by
Subcontractors in connection with an Uncontrollable Circumstance. The only mark-up the
Company shall be entitled to with respect to work performed in connection with an
Uncontrollable Circumstance is the Company’s 15% mark-up applied solely to the direct labor
costs of the Company associated with the Uncontrollable Circumstance.

(F) Evidence of Costs Incurred. To the extent reasonably necessary to


confirm direct costs required to be Cost Substantiated, copies of timesheets, invoices, canceled
checks, expense reports, receipts and other documents, as appropriate, shall be delivered to
the County with the request for reimbursement of such costs.

SECTION 17.7. SUBCONTRACTORS.

(A) Use Restricted. The Company shall operate the Facility with its own
employees and in accordance with this Service Contract. Subcontractors may be used to
perform other Contract Services, subject to the County’s right of approval identified in
subsection (B) of this Section.

(B) Limited County Review and Approval of Permitted Subcontractors.


Except as provided in the next sentence, the County shall have the right, based on the criteria

Draft of October 17, 2008 C-196


provided below in this Section, to approve all Subcontractors which the Company is permitted
to engage under subsection (A) of this Section for Contract Services valued in excess of
$100,000 annually, which approval shall not be unreasonably withheld. County approval of
Subcontractors as provided in the preceding sentence shall not be required for: (1) Affiliates of
the Company; (2) equipment suppliers; (3) Governmental Bodies; (4) approved Subcontractors
listed in Appendix 15; and (5) Subcontractors hired by the Company for purposes of remedying
an emergency situation. The Company shall furnish the County written notice of its intention
to engage such Subcontractors, together with all information reasonably requested by the
County pertaining to the demonstrated responsibility of the proposed Subcontractor in the
following areas: (1) any conflicts of interest; (2) any record of felony criminal convictions or
pending felony criminal investigations; (3) any final judicial or administrative finding or
adjudication of illegal employment discrimination; (4) any unpaid federal, State, or local Taxes;
and (5) any final judicial or administrative findings or adjudication of non-performance in
contracts with the County or the State. In the event that the County fails to respond to any
such notice of intention within 30 after its receipt thereof, the County shall be deemed to have
approved the proposed Subcontractor. The approval or withholding thereof by the County of
any proposed Subcontractor shall not create any liability of the County to the Company, to
third parties or otherwise. In no event shall any Subcontract be awarded to any person
debarred, suspended or disqualified from State or County contracting for any services similar
in scope to the Operation Services or Design/Build Work.

(C) Subcontract Terms and Subcontractor Actions. The Company shall


retain full responsibility to the County under this Service Contract for all matters related to
the Contract Services notwithstanding the execution or terms and conditions of any
Subcontract. No failure of any Subcontractor used by the Company in connection with the
provision of the Contract Services shall relieve the Company from its obligations hereunder to
perform the Contract Services. The Company shall be responsible for settling and resolving
with all Subcontractors all claims arising out of delay, disruption, interference, hindrance, or
schedule extension caused by the Company or inflicted on the Company or a Subcontractor by
the actions of another Subcontractor. Subcontracts entered into by the Company for the
performance of the Contract Services shall neither supersede nor abrogate any of the terms or
provisions of this Service Contract.

(D) Indemnity for Subcontractor Claims. The Company shall pay or cause to
be paid to all direct Subcontractors all amounts due in accordance with their respective
Subcontracts. No Subcontractor shall have any right against the County for labor, services,
materials or equipment furnished for the Contract Services. The Company acknowledges that
its indemnity obligations under Section 15.3 shall extend to all claims for payment or damages

Draft of October 17, 2008 C-197


by any Subcontractor who furnishes or claims to have furnished any labor, services, materials
or equipment in connection with the Contract Services.

(E) Assignability. All Subcontracts entered into by the Company with


respect to the Facility shall be assignable to the County, solely at the County’s election and
without cost or penalty, upon the expiration or termination of this Service Contract.

SECTION 17.8. ACTIONS OF THE COUNTY IN ITS GOVERNMENTAL


CAPACITY.

(A) Rights as Government Not Limited. Nothing in this Service Contract


shall be interpreted as limiting the rights and obligations of the County under Applicable Law
in its governmental or regulatory capacity (including police power actions to protect health,
safety and welfare or to protect the environment), or as limiting the right of the Company to
bring any action against the County, not based on this Service Contract, arising out of any act
or omission of the County in its governmental or regulatory capacity.

(B) No County Obligation to Issue Governmental Approvals. The County


retains all issuance and approval rights it has under Applicable Law with respect to any
Governmental Approval required with respect to the Facility, the Design/Build Work or the
Operation Services, including all rights of review and approval conferred to the County from
Ecology under the Delegation Agreement, and none of such rights shall be deemed to be
waived, modified or amended as a consequence of the execution of this Service Contract. The
County shall not be deemed to be in breach of or in default hereunder as a result of any delay
or failure in the issuance or approval of any such Governmental Approval.

SECTION 17.9. ASSIGNMENT.

(A) By the Company. The Company shall not assign, transfer, convey, sell,
lease, encumber or otherwise dispose of this Service Contract, its right to execute the same, or
its right, title or interest in all or any part of this Service Contract or any monies due
hereunder whatsoever prior to their payment to the Company, whether legally or equitably, by
power of attorney or otherwise, without the prior written consent of the County. Any such
approval given in one instance shall not relieve the Company of its obligation to obtain the
prior written approval of the County to any further assignment. Any such assignment of this
Service Contract which is approved by the County shall require the assignee of the Company
to assume the performance of and observe all obligations, representations and warranties of
the Company under this Service Contract, and no such assignment shall relieve the Guarantor
of any of its obligations under the Guaranty Agreement, which shall remain in full force and
effect during the Term. The approval of any assignment, transfer or conveyance shall not

Draft of October 17, 2008 C-198


operate to release the Company in any way from any of its obligations under this Service
Contract unless such approval specifically provides otherwise.

(B) By the County. The County may not assign its rights or obligations
under this Service Contract without the prior written consent of the Company. The County
may however, assign its rights and obligations under this Service Contract, without the
consent of the Company, to another Governmental Body if such assignee assumes, and is
legally capable of discharging, the duties and obligations of the County hereunder.

SECTION 17.10. FACILITY TOURS. The Company shall conduct tours of the
Facility during normal business hours and take visitors through such portions of the Facility
as are suitable for such visitation in a manner which does not interfere with the Company’s
performance of its obligations hereunder.

SECTION 17.11. COMPLIANCE WITH MATERIAL AGREEMENTS. The


Company shall comply with its obligations under agreements of the Company which are
material to the performance of its obligations under this Service Contract, including all
Subcontracts.

SECTION 17.12. BINDING EFFECT. This Service Contract shall inure to the
benefit of and shall be binding upon the County and the Company and any assignee acquiring
an interest hereunder consistent with Section 17.9.

SECTION 17.13. CONTRACT ADMINISTRATION.

(A) Administrative Communications. The parties recognize that a variety of


contract administrative matters will routinely arise during the Term. These matters will by
their nature involve requests, notices, questions, assertions, responses, objections, reports,
claims, and other communications made personally, in meetings by phone, by mail and by
electronic and computer communications. The purpose of this Section is to set forth a process
by which the resolution of the matters at issue in such communications, once resolution is
reached, can be formally reflected in the common records of the parties so as to permit the
orderly and effective administration of this Service Contract.

(B) Contract Administration Memoranda. The principal formal tool for the
administration of routine matters arising under this Service Contract between the parties
which do not require a Service Contract Amendment shall be a “Contract Administration
Memorandum”. A Contract Administration Memorandum shall be prepared, once all
preliminary communications have been concluded, to evidence the resolution reached by the
County and the Company as to matters of interpretation and application arising during the
course of the performance of their obligations hereunder. Such matters may include, for

Draft of October 17, 2008 C-199


example: (1) claims for an increase or decrease of the Design/Build Price or Service Fee or
other demands for compensation or performance based on any provision of this Service
Contract; (2) issues as to the meaning, interpretation, application or calculation to be made
under any provision hereof; (3) the specific details and terms of any Change Order; (4) notices,
waivers, releases, satisfactions, confirmations, further assurances and approvals given
hereunder; and (5) other similar contract administration matters.

(C) Procedures. Either party may request the execution of a Contract


Administration Memorandum. When resolution of the matter is reached, a Contract
Administration Memorandum shall be prepared by or at the direction of the County reflecting
the resolution. The Contract Administration Memorandum shall be numbered, dated, signed
by the Contract Representative of each party, and co-signed by a Senior Supervisor for the
Company and by the County Utilities Director. The County and the Company each shall
maintain a parallel, identical file of all Contract Administration Memoranda, separate and
distinct from all other documents relating to the administration and performance of this
Service Contract.

(D) Effect. The executed Contract Administration Memoranda shall serve to


guide the ongoing interpretation and performance of this Service Contract. Any material
change, alteration, revision or modification of this Service Contract, however, shall be
effectuated only through a formal Service Contract Amendment authorized, approved or
ratified by resolution of the governing body of the County and properly authorized by the
Company.

SECTION 17.14. AMENDMENT AND WAIVER.

(A) Service Contract Amendments. Notwithstanding the provisions of


Section 17.13, no material change, alteration, revision or modification of the terms and
conditions of this Service Contract shall be made except through a written amendment to this
Service Contract duly authorized, approved or ratified by the County and duly authorized by
the Company (a “Service Contract Amendment”).

(B) Waiver. Any of the terms, covenants, and conditions of this Service
Contract may be waived at any time by the party entitled to the benefit of such term, covenant
or condition if such waiver is in writing and executed by the party against whom such waiver
is asserted.

SECTION 17.15. NON-DISCRIMINATION. The Company, its Subcontractor and


its suppliers in performing under this Service Contract shall not discriminate against any
worker, employee or applicant, or any member of the public, because of race, creed, color,
national origin, families with children, sex, marital status, sexual orientation, age or the

Draft of October 17, 2008 C-200


presence of any sensory, mental, or physical disability or the use of a trained dog guide or
service animal by a disabled person, nor otherwise commit an unfair employment practice.

SECTION 17.16. NOTICES.

(A) Procedure. All notices, consents, approvals or written communications


given pursuant to the terms of this Service Contract shall be: (1) in writing and delivered in
person; (2) transmitted by certified mail, return, receipt requested, postage prepaid or by
overnight courier utilizing the services of a nationally-recognized overnight courier service with
signed verification of delivery; or (3) given by facsimile transmission, if a signed original is
deposited in the United States Mail within two days after transmission. Notices shall be
deemed given only when actually received at the address first given below with respect to each
party. Either party may, by like notice, designate further or different addresses to which
subsequent notices shall be sent.

(B) Company Notice Address. Notices required to be given to the Company


shall be addressed as follows:

CH2M HILL Constructors, Inc.


717 W. Sprague Avenue
Suite 800
Spokane, WA 99201-0466

Attn: Dennis Nelson

With copies to:

CH2M HILL Constructors, Inc.


9191 S. Jamaica St.
Englewood, CO 80112

Attn: Dan Reynolds


Attn: Peter Hughes

(C) County Notice Address. Notices required to be given to the County shall
be addressed as follows:

Spokane County Division of Utilities


1026 W. Broadway Avenue
Spokane, WA 99260-0430

Attn: Water Reclamation Manager

With a copy to:

[_____________________________

Attn: [______________________]

Draft of October 17, 2008 C-201


SECTION 17.17. NOTICE OF LITIGATION. In the event the Company or
County receives notice of or undertakes the defense or the prosecution of any Legal
Proceedings, claims, or investigations in connection with the Facility, the party receiving such
notice or undertaking such prosecution shall give the other party timely notice of such
proceedings and shall inform the other party in advance of all hearings regarding such
proceedings.

SECTION 17.18. FURTHER ASSURANCES. The County and Company each


agree to execute and deliver such further instruments and to perform any acts that may be
necessary or reasonably requested in order to give full effect to this Service Contract. The
County and the Company, in order to carry out this Service Contract, each shall use all
commercially reasonable efforts to provide such information, execute such further instruments
and documents and take such actions as may be reasonably requested by the other and not
inconsistent with the provisions of this Service Contract and not involving the assumption of
obligations or liabilities different from or in excess of or in addition to those expressly provided
for herein.

[SIGNATURE PAGE FOLLOWS]

Draft of October 17, 2008 C-202


IN WITNESS WHEREOF, the parties have caused this Service Contract to be
executed by their duly authorized representatives as of the day and year first above written.

SPOKANE COUNTY, WASHINGTON

ATTEST:

SPOKANE COUNTY, a political subdivision CH2M HILL CONSTRUCTORS, INC.


of the State of Washington

_______________________________ Name:
[Print Name - President]
President, [Company Name]

_______________________________

_______________________________
Finance Director

_______________________________
Risk Manager

Approved as to form:

_______________________________
County Attorney

ATTEST: ATTEST:

_______________________________ _______________________________
County Clerk Printed Name:

Draft of October 17, 2008 C-203