3.

0 Construction Methods and Cost Estimate

3.1 Construction Approach

Constructing a natural gas pipeline within the existing TAPS ROW will require consideration of
the impacts to the TAPS pipeline operations, the impacts to the surrounding environment, and
the need to provide safe working conditions for the construction work force. The conceptual
design for the proposed pipeline is based on conventional open trench burial for most of the
project. However, it is anticipated that horizontal directional drilling (HDD) will be used to
construct the Gulkana River Crossing and that jack and bore technology will be used at some of
the major highway crossings. It is also anticipated that the pipe will be constructed above
ground at all fault crossings.

In typical soils it was assumed that a trencher or track excavator would be used. It was also
assumed that in soft rock a track excavator would be used and that in hard rock, drilling and
blasting in addition to a track excavator would be used. In all cases, it was assumed that the
open-cut trenching would occur during winter months.

It was assumed that both gravel and snow/ice workpads would be utilized. A 2-foot typical
thickness is sufficient to support heavy construction equipment and was assumed for the cost
estimate. In some areas along the pipeline alignment, a 2-foot thick gravel workpad will not
provide sufficient thermal protection for thaw unstable ground. In those areas, instead of
thickening the gravel pad, 4-inches of board insulation would be placed within the gravel pad to
provide the additional thermal protection required. Gravel workpad construction has three
possible configurations: re-grade existing workpad when sufficient gravel material exists,
construct new workpad with imported gravel fill, and construct new workpad with imported
gravel fill and 4-inch board insulation. Based on the available information, the cost estimate
assumes one-third of each type.

Adequate and available housing will be required for a large work force to complete this project.
The project site is located in a remote area between Delta Junction and Glennallen. Based on
observations made during a site visit, it was determined that insufficient housing was available
to support the project demand. The nearest cities that might provide sufficient quantities of
available housing would require up to 1.5 or more hours of drive time each-way depending on
weather conditions. Based on this observation, three Man-Camp facilities were included in the
cost estimate. It was also assumed that one of the camps would move twice or that two of the
camps would move once to keep the crews closer to the work during winter conditions. This will
provide an approximate 30-mile, or less, commute for construction workers. In addition, bus
transportation and snow removal equipment were included to assure delivery of the work force
in a timely matter.

3.2 Basis for Estimate

This feasibility level estimate of probable construction cost is based on the available data at the
time of its preparation. The cost estimating approach assumes a unit price, competitive bid
contracting mechanism. The estimating methods and procedures utilized represent the typical

ANGDA 24 September 2005

methods used by the construction industry. The estimates do not include costs for
environmental permitting and mitigation, and other institutional costs.

3.2.1 Labor Rates

Wage rates used in preparation of this estimate are based on Davis-Bacon Wage Rate, General
Decision: AK20030001 dated 20-May-05 AK1 for “Building and Heavy Construction”. The base
rate and fringe benefit rates are applicable to all areas of Alaska.

The following workweek schedule is used to calculate overtime hours for crafts and non-exempt
labor cost:

• Working Days/Week – 7

• Shifts/Day – 1

• Hours/Shift – 12

The payroll tax and insurance percentage used in calculating the labor rates is 29 percent. A
Travel and Per Diem rate of 15 percent of the “base rate” is added to the hourly labor rate for
craft labor, onsite supervision and onsite administrative personnel. This cost is compensation
for travel time to and from the site related to crew rotation.

3.2.2 Equipment Rates

Construction equipment ownership, operation and maintenance rates were selected from
“Rental Rate Blue Book for Construction Equipment, 1st Half 2005” (Equipment Watch 2005a).
Equipment annual hours were obtained from “Contractors Equipment Cost Guide, 1st Half 2005”
(Equipment Watch 2005b).

The conversion of Equipment “Outside Rental Rate” to contractor owned equipment “Hourly Use
Rate” is calculated by the following method. First, the monthly rental rate is multiplied by the
location factor. Second, the product is multiplied by 12 months and divided by the annual hours.
Third, the result of the second step is multiplied by an experienced based factor of 75 percent to
yield the contractors hourly “ownership expense” cost. Note that the contractors hourly
“ownership expense” cost is used to calculate equipment stand-by time were applicable.
Equipment “Hourly Operating Cost” is determined by multiplying the hourly operating cost by the
“location factor”.

3.2.3 Material Prices

Budgetary pricing for permanent materials and mechanical equipment are solicited from
vendors and manufactures. Other building material prices are from the current RS Means 2005
cost database, historical prices and estimator experience. The material prices are localized to
economic location using the RS Means City Cost Index for materials plus applicable escalation
from the cost database date of Jan 2005 to the estimate preparation date.

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3.2.4 Freight and Transportation

Freight and transportation cost are based on budgetary vendor/supplier transportation

quotations.

3.2.5 Sales Tax

The project is assumed to be Tax Exempt. Sales and use taxes are “Not Included”.

3.2.6 Production Rates

Crew production rates are based on estimator experience, equipment vendor supplied
information, caterpillar Performance Handbook, Edition 30, Part No SEBD0330, “Means
Productivity Standards for Construction” (RS Means 1994), and “Labor Estimating Manual”
(Mechanical Contractors Association of America, Inc. 1998).

3.2.7 Economic Location

The city of Anchorage was selected as the economic location. Labor, material and construction
equipment use rates are localized as explained above.

The estimate assumes that major material items, such as steel pipe material, will be
manufactured in other locations and shipped via marine transport to the Port of Valdez. Other
building materials will be purchased in or near Anchorage, and shipped by truck transporter to
the project site.

3.2.8 Escalation

Construction costs are escalated from the estimate preparation date to the Mid-Point of
Construction. The current MCP Index, provided in the US Government’s, PAX Newsletter
No.3.2.2, dated 15-Mar-05, was used to determine escalation.

The cost estimate assumes that the contract is awarded on August 2007 and construction
begins on March 2007. The mid-point of construction was calculated to be January 2008.

3.3 Summary of Estimate

A brief explanation of the cost estimate format and the respective cost summary tables is
presented below.

3.3.1 Cost Estimate Presentation

The cost roll-up provided in the cost estimate was developed to provide a systematic drill-down
of cost, beginning with Project Features. A cost summary of Project Features unit prices is
presented on the Cost Estimate Bid Form sheet. The Schedule Of Values sheet follows the
Cost Estimate Bid Form sheet and summarizes the detail provided on the Cost Estimate
Summary sheet. The Cost Estimate Summary sheet provides a columnar layout summary of
detailed costs for labor, small tools & supply, construction equipment, materials and
subcontracted work developed on Detailed Worksheets.

ANGDA 26 September 2005