85 M 102006 D Subcontractor Requirements for AP

85 M 102006 D

Subcontractor Requirements for AP 1000 Nuclear Projects SMWIA Power Generation Summit Presented By: 85 M 102006 D Ed Shyloski, Vice President, International Shaw Power Group– Nuclear Division June 19, 2008

Westinghouse Fifteen Year Investment in Passive Technology Modular Construction Passive Safety Systems Advanced Design Features 85 M 102006 D US Licensing Approval Reduced Components & Commodities Severe Accidents Mitigation Features Short Engineering and Construction Schedule

85 M 102006 D AP 1000 Proposed Sites

WEIGHT OF WESTINGHOUSE AP 1000 DUCTWORK, SUPPORT & CONNECTIONS UNIT Containment Auxiliary Radwaste Unit Diesel Generator 85 M 102006 D Annex AP 1000 Total Weight WEIGHT 335, 000 1, 000 120, 000 80, 000 200, 000 1, 735, 000 or 867. 5 Tons

WHO ARE YOU? WHO ARE YOU WORKING WITH? KNOW CARE 85 M 102006 D DON’T CARE DON’T KNOW

Demonstration of Quality Controls Prototypes • • • Execution of significant program, process, personnel, tooling, technology or software changes dictate proto-type demonstrations to identify deficiencies and weaknesses prior to full scale production Prototype trials allow for auditing the programmatic approaches, validation of quality controls, and certification of inspection and testing personnel Prototypes provide benefits well beyond electronic visualization FOAK Production 85 M 102006 D • Subjecting real FOAK fabrications to increased inspections, examinations and test increases customer confidence early in the fabrication and assures effectiveness of corrective actions

ASME Supply Program Development USA Fabrication Shops QAP Readiness for Nuclear: 85 M 102006 D • • Development of QA Program for Nuclear (NQA-1) Development of implementing procedures Potential Organizational restructuring Extensive training and certification of personnel Application for Nuclear Certifications (NPT, NS, NA) ASME Survey for demonstration of process controls Purchaser Qualification Audits

85 M 102006 D Purchaser, Owner & Regulator Oversight

Purchaser Oversight • Fabrication at key facilities is seen as extensions of the Construction Projects with dedicated EPC teams • Full time residency at fabrication facilities anticipated for Purchaser’s Quality Control and Expediting representatives with periodic surveillance by Quality Assurance 85 M 102006 D • Purchaser’s Engineering staff may be assigned to fabrication facilities on a full time or part time basis to facilitate communication and resolution of design related issues • Purchaser’s Management representation to be assigned to fabrication facilities to interface with Fabricator Management and assure common goals are being met

Owner Oversight • Owner’s representatives expected to provide rigorous oversight of Purchaser’s and Fabricator’s activities • Owners responsible for performing 100% of Inspections, Tests, Analyses and Acceptance Criteria (ITAAC) verification during construction and documentation of inspection results 85 M 102006 D ITAAC is part of the DCD and COLA, and provides reasonable assurance that the facility has been constructed and will be operated in conformity with the license, the provisions of the Atomic Energy Act, and the Commission’s rules and regulations (10 CFR 52. 97 (b)(1))

Regulator Oversight • Regulator oversight at fabrication facilities responsible for safety related fabrications is expected • Regulator inspections to encompass Owner, Purchaser and Fabricator Program implementation and effectiveness 85 M 102006 D • Regulator is responsible for witnessing a sample of Owner’s ITAAC related activities and documentation of inspection results

Shaw Subcontract Administration Effective Subcontract Administration is a means of accomplishing the following… • Providing “quality to standards” goods and services in a timely and in the manner per the terms of the agreement. • Assuring that the contracting parties’ rights are protected, while performance obligations are enforced. 85 M 102006 D • Minimizing risk to Owner, GC, and SC

SHAW SCA OBJECTIVES 85 M 102006 D Thorough Subcontract Administration will accomplish the following: • It will give our customers, contractors and vendors a favorable impression of the Company’s professionalism. • It will protect each party’s rights, while ensuring compliance with performance obligations. • It will provide the Company with an early warning of potential technical or commercial issues. • It will maintain an accurate record of events.

Company Performance Obligations Ø Under the auspices of the Consortium Agreement between Westinghouse Electric Company, LLC and Stone & Webster, Inc. , Shaw Nuclear Division will pursue several engineering, procurement, and construction (EPC) nuclear projects simultaneously. Each project has a significant subcontracting effort. Ø Due to the overlap in schedules, each project must be treated as a “First-of-a-Kind”. Therefore, it is critical to develop the right construction team composed of both Company and Subcontractor representatives in order to complete each project in a timely and adequate manner. 85 M 102006 D Ø Shaw intends to Subcontract any work outside its core competency

Proper Bidder Pre-Qualification is Critical Inherent with every subcontract is a potential for ‘Trouble’ if not managed properly. • Selection of the right bidders and ultimately the right subcontractors is our most important function. • The selection process is tedious and time consuming taking uncommon hard work to understand value-added. 85 M 102006 D • New nuclear construction will be First Of A Kind (FOAK) experience in decades for all parties in the relationship. We want to hire seasoned, proven subcontractors!

Selecting the “Right” Subcontractor 85 M 102006 D Just because subcontractors performed well for us in the past, doesn’t mean they’ll perform well in the future ! • Subcontractors must continually prove : – They are technically extremely competent; – They are very capable of performing in a timely and adequate manner; – They indeed have a proven “Safety” culture providing services in a safe manner. – They have a reputation for quality products and – They are competitive in price naturally.

Bidder Pre-Qualification Process • Potential Bidders are identified via: 85 M 102006 D – Owner Input – Local and U. S. Market Survey Solicitations – Trade Journals – Company Subcontractor Database (1700 + contractors as of May 31 st, 2008)

Bidder Pre-Qualification 85 M 102006 D • The Subcontracts Manager completes the evaluation and makes a recommendation. • The Bid Slate is reviewed and approved by the following: – – – – Safety Manager Quality Assurance Manager Construction Site Manager Project Manager Director of Subcontract Management Vice President of Construction Owner (when necessary per EPC contract)

85 M 102006 D Considerations When Selecting Subcontractors Considerations Differentiators Local / Regional Subcontractors National Subcontractors Safety (Sophistication Level / Recordable Incidents) – Is the Subcontractor committed to Safety? Do records verify the Subcontractor’s dedication to performing work in a safe manner? Smaller Local / Regional Subcontractors may not have the financial capability or inclination to invest in a rigorous Safety Program. Recordable incident rates for smaller projects tend to be skewed due to the ratio between manpower verses fewer recordable hours. Larger National Subcontractors normally invest more time and money in developing Safety Programs that are continually improved upon. They have a larger dedicated Safety Staff; ongoing training; and employee incentives to work safely. Recordable incident rates reflect larger recordable hours and are often below national averages. Quality Assurance / Quality Control (Nuclear Projects contain stringent QA / QC requirements) – Is the Subcontractor cognizant of Nuclear QA / QC requirements and prepared to implement the necessary standards of Quality? Smaller Local / Regional Subcontractors may not have a clear understanding of Nuclear QA / QC requirements; nor will they carry the necessary certifications or experience craft (for example, Nuclear Welding Programs / craft labor that are in compliance with ASME). May be reluctant to invest in QA / QC NQAM Appendix B improvement. Larger National Subcontractors may have a better understanding of NRC Quality requirements and are more receptive to meeting Shaw’s Quality objectives despite associated cost. They may have implemented ongoing Lessons Learned to continually improve Quality in their product delivery. Estimating Capabilities – Sophistication Level / Accuracy) What are the Subcontractor’s estimating capabilities? Is the Subcontractor willing to stand behind its estimate, or is it looking to be made whole via change order work? Smaller Local / Regional Subcontractors require complete designs for bidding purposes and any change is subject to schedule / cost adjustment. Larger National Subcontractors have a better understanding of specialty design completion status and its estimating accuracy and they are more likely to stand behind their estimates unless there is a significant change in scope.

Considerations When Selecting Subcontractors 85 M 102006 D Considerations Differentiators Local / Regional Subcontractors National Subcontractors Financial Resources Financial strength of Local / Regional Subcontractors may be low to moderate. There may be the need for financial guarantees such as Letter of Credit, Surety Bonds, etc. and these cost will be passed on to the Company. The financial strength of National Subcontractors is usually high. These Subcontractors can call upon Parent Guarantees or secure lines of credit to back their performance obligations at little or no cost to the Company. Supervision / Manpower Resources Local / Regional Subcontractors may not have the necessary categories of craft labor to run multiple projects in parallel and a limited ability to augment its workforce outside the immediate area. Management of daily operations will be performed by craft-based foreman with limited scheduling / planning capabilities. Small problems tend to become major obstacles. The Company will assume a higher risk when taking on lesser supervision and skilled craft. National Subcontractors normally have a larger pool of craft labor to draw upon. They also have existing relationships with regional labor and sometimes with International unions for additional supervision or manpower requirements. Often Field Management Personnel are promoted from within their own ranks providing for a devoted, experienced supervisory staff. Equipment Resources Local / Regional Subcontractors may have limited capital equipment and the facilities to maintain the same. Accordingly, there is a high reliance upon lease equipment, if available. Greater capital equipment ownership and maintenance facilities. Stronger business and cost relationships with major equipment suppliers should leasing be required.

Team Building Obstacles 85 M 102006 D Competent Subcontractors are becoming hard to find! Simultaneous growth in multiple industries, natural disaster work, and uncontrolled influences (such as an increased energy consumption and an escalation in labor and raw materials costs) are all having a impact upon the Subcontractor community. Team building obstacles include or have resulted in: • A smaller number of specialty subcontractors capable of complying with stringent safety / and quality requirements. Nuclear work is truly discriminating and not for everyone! • Subcontractors can be more selective in the type of risk they are willing to assume. There is a reluctance among subcontractors to expend the effort and cost associated in bidding on projects. • Tighter Financial Guarantees – Banks have over extended credit parameters thus, making it more difficult on prospective subcontractors to obtain letters of credit. (Shaw Power requires that Subcontractors provide a LOC in the amount of 25% of the Contract Price. ) • Tighter Insurance Coverage – There is a growing reluctance for Insurance companies to provide the more costly types of insurances associate with construction activities, such as “All Builder’s Risk”. Those that provide these types of insurance do so at a much higher cost thus, driving the smaller subcontractors out of business.

Ultimately, Who Is Responsible for Successful Subcontracting? Team Work Owner & Shaw Project Mgmt. Quality Subcontractor Policy Engineering Accounts Payable Cost 85 M 102006 D Procedure Subcontracts Department Law Tax Insurance Coordination Effective Communication Construction EHS Technical Information Manager Accountability Scheduling

Team Work 85 M 102006 D • It is SHARED responsibility to maximize the Owner’s, Westinghouse/Shaw, and Subcontractors interest when it comes to Safety, Quality, Schedule and Value. • “More important than the plan are peoples understanding, commitment, and followthrough” J. O. Stull, 1978.

Team Work 85 M 102006 D ONLY WHEN WE TAKE THE TIME TO INSURE PEOPLE HAVE THE KNOWLEDGE AND ARE ENGAGED DO GREAT THINGS HAPPEN!