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In September,the FHL held a second pre-bid field meeting which was attended by 14 prequalified contractors.
<br /> Of these contractors,only two submitted bids on October 1st. The bids ranged from$1,733,000 to $1,826,700,
<br /> compared to our engineer's original estimates for these projects of$1,078,000, as outlined in our 2010 loan
<br /> application. Further research into the discrepancy between the original engineer's estimates and these bids
<br /> showed a number of places where the estimate was off. Specifically, 1) during final design of the projects in
<br /> 2011, amounts of concrete and riprap doubled, 2) the contractors placed significant markups on the
<br /> manufactured slide gates and the subcontracted SCADA elements, and 3) contractors' lump sum prices for
<br /> mobilization,bonding, and insurance, as well as dewatering, demolition, and earthworks, were approximately
<br /> double what our engineer had estimated. By unit cost,these new bids were very closely in line with each other
<br /> and with the bids from the year before. Therefore,the FHL Board has concluded that the bids are appropriate.
<br /> The FHL Board has decided to accept the $1,733,000 bid for the headworks and diversion dam repair and
<br /> replacement and the Van Bibber Creek and Ralston Creek siphons rehabilitation. The anticipated construction
<br /> timeframe is November, 2012 through March, 2013, although the contractor has the option to complete the
<br /> siphon projects the following winter should their construction be in danger of running into the irrigation
<br /> season. Adding 10% for contingency($173,300) and $110,000 for construction oversight by our engineer, as
<br /> well as factoring in the $414,500 project costs which have already been submitted to the CWCB under the
<br /> existing loan contract,we would like to amend our loan request to 9Q%of$2,430,800 plus a 1%Loan Service
<br /> Fee, or $2,209,597. This represents an increase of $798,829 (or 57%) above the existing loan amount of
<br /> $1,410,768. The small projects listed under the original loan that remain unaddressed will now be moved to
<br /> the FHL's regular operating expenses over time,as they are less urgent.
<br /> The FHL Board has had lengthy discussions this past year, since receiving the initial high bids,regarding the
<br /> undesirable possibility of needing to approach our shareholders with a second assessment increase to cover the
<br /> loan payments for unanticipated project costs. To avoid placing such a burden on our shareholders, the FHL
<br /> has decided to sell its surplus properties in an effort to fund the difference between our original loan amount
<br /> and this amended request. Ideally,the FHL will sell the properties in time to directly pay project invoices from
<br /> the earnings, and we won't need to make any draws on the loan above the original loan amount. Because of
<br /> the chance that the properties won't sell in time or at a sufficient amount to cover project costs above our
<br /> original loan amount,the FHL Board feels it is necessary to increase the loan amount at this time to secure the
<br /> ability to cover project costs.
<br /> If the properties do not sell in time to directly pay project costs,we will draw on the additional loan amount to
<br /> pay project invoices. Once the properties do sell, all earnings will be directed to loan payments so that our
<br /> shareholders need not see a second project-related assessment increase. If the properties do not sell for
<br /> sufficient funds to cover the difference between our original loan amount(already covered by 2011 assessment
<br /> increase) and the final project cost, the FHL will have no choice but to increase assessments on our
<br /> shareholders as appropriate in March, 2014. The FHL has sufficient savings to cover loan payments, even at
<br /> the increased total loan amount, at least through that date. Delaying a potential assessment increase until this
<br /> date allows the Board sufficient time 1)to attempt to sell assets to cover project costs above the original loan
<br /> amount,2)to finish the capital projects and determine the final project costs and loaned amount,and 3)to give
<br /> our shareholders advance notice of assessment increases,if any.
<br /> Updated company financial statements are attached. Please contact me with any questions or comments.
<br /> Sincerely,
<br /> A7 1
<br /> Mary Jay Vestal,P.E.
<br /> Director
<br /> Farmers' High Line Canal and Reservoir Company
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