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,0 . . must be sold prior to September I, 1986, in order to be tax exempt (pending tax law amendments will affect their tax exempt status after that), Bond counsel will not approve the sale of such notes until the water rights evaluation is completed since that is a condition precedent to the granting of the Board's loan, which loan must be in place before the notes can be sold. If I have to go to a new engineering firm, I cannot possibly complete the water rights evaluation in time to permit the sale of the notes. Failure to gain tax exempt status for the notes may well make the project financially infeasible. Finally. I do not believe that limiting Bishop's indemnification responsibilities to "negligent acts" would pose a risk to the state. The only purpose of the water rights evaluation is to give the Board an independent assessment of the dollar value of the water rights which are being purchased by the project sponsor for the project. This. in turn, will establish the maximum amount of money which the Board can loan to the sponsor for the purchase of the water rights. Even if the evaluation were in "error," the Board's interests are amply protected by the fact that the money loaned to the sponsor is repayable and I will not make the loan at all unless the sponsor has satisfactory repayment capacity and secures the loan in a manner wholly acceptable to the Board. This is not a situation in which Bishop will have anything to do with the engineering for the structural features of the project. Thus, I do not see any reason why the state would be at risk in amending the indemnification clause as requested, Bovle Enqineerinq Corporation This firm was selected early this year to perform an appraisal level study on the proposed San Miguel Water Conservancy District project, which project has been authorized by the General Assembly. Boyle was vastly superior to all other engineering firms which sought to be considered. The contract for the work to be performed by Boyle has been satisfactorily negotiated, save for the issue concerning the indemnification clause. I was completing contract negotiations at the time Boyle was selected by the State Engineer's Office for the Arkansas River Compact litigation work. It was at that point that Boyle for the first time became'aware of the state's idemnification clause. They made their objections to that clause known to me immediately. I would point out that Boyle had previously contracted with the state but had not been required to sign the all-encompassing idemnification clause now contained in the "Special Provisions" (see their attached letter). Thus, they had no reason to expect a different clause than had been required of them in other contracts. -3-