va proposal 11-2-10 clean final final
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Proposal to the
Commonwealth of VirginiaAlcoholic Beverages Control
The PFM Group4350 North Fairfax Drive
Suite 580Arlington, VA
22203703 741-0175
Two Logan SquareSuite 1600
18th & Arch StreetsPhiladelphia, PA
19103215 567-6100
www.pfm.com
November 2, 2010
Public Financial Management, Inc.PFM Asset Management, LLCPFM Advisors
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November 2, 2010
Ron BellDirectorCommonwealth of VirginiaDepartment of General ServicesDivision of Purchases and Supply1111 E Broad St, Patrick Henry Building Fl 6Richmond, VA 23218
Dear Mr. Bell,
Please accept the following proposal to assist the Commonwealth of Virginia Department of AlcoholicBeverage Control with an analysis of alternate service delivery methods. The PFM Group (PFM) is thenations leading independent financial and management advisory firm for the public sector, and we are
the leader in providing financial advisory services for governments in the Commonwealth of Virginia. As aleader of our strategic consulting practice, I am dedicated to building strong relationships with theCommonwealth, and we have put together an experienced team that has worked both as seniorprofessionals in government and as financial and management consultants to government entities. Weare excited about the opportunity to work with you.
PFM is fully committed to providing the senior professionals and the resources necessary to serve theCommonwealths complex and challenging needs. As a partner at PFM, I will serve as EngagementDirector and will ensure that the necessary resources are provided to fully serve the needs of the OCTA.Randall Bauer will serve as project manager. Randall has led similar state projects at PFM; these haveincluded efforts for the States of Nebraska, Minnesota, Georgia, Illinois, Pennsylvania and New York. Inaddition to Randall and me, the proposed team brings high-level experience with state governmentsacross the country.
Government clients are our first and only priority, and we are dedicated to that work. PFM has a longhistory of service as a financial advisor to the Commonwealth and Virginia local governments; we areexcited about the opportunity to provide even broader services to the Commonwealth.
We understand that time is of the essence in this engagement and are committed to beginning work, onthe ground in Richmond, immediately upon being given notice to proceed. We sincerely appreciate theopportunity to present our team and qualifications. Thank you for your consideration, and please do nothesitate to contact Randall or me with questions and/or if further information is desired. We look forwardto working with you.
Sincerely,Public Financial Management
John CapeManaging Director
Public Financial Management, Inc.PFM Asset Management, LLCPFM Advisors
Two Logan SquareSuite 160018th & Arch StreetsPhiladelphia, PA19103-2770
215 567-4180215 567-4180 faxwww.pfm.com
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Firm Qualifications
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FIRM QUALIFICATIONS
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Public Financial Management, Inc. (PFM) was founded with a staff of 5 in1975 and has grown to be the nations largest independent financial andmanagement advisory service for state and local governments. PFM nowhas over 400 employees nationwide in 33 offices.
PFM has been the nations number one ranked financial advisor for sixconsecutive years. Depending upon needs, our clients can have access toany of our five primary business activities:
Financial Advising: managing transactions related to debt issuance;
Investment Management: providing investment advice and portfoliomanagement for working capital and bond proceeds;
Investment Consulting: structuring simple, reliable, and fundamentallysound asset management strategies and retirement plans;
Structured Products: developing innovative financing techniques andinvestment products.
Strategic Consulting: offering highly effective management, planningbudget and operations advice.
Regardless of which
service you may need, the
PFM Group of companies
serves only one interest:
that of our clients and no
one else.
This fact, coupled with our
proven track record and
comprehensive approach
to finance, makes the PFM
Group of companies a
leader in providing sound,
independent financial,
management and
investment advisory
services to local and state
governments.
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FIRM QUALIFICATIONS
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Strategic Consulting Services
While originally a financial advisory practice, PFMs lines of service havegrown to more fully serve the broad and complex needs of its clients. Its
Strategic Consulting practice was initiated 10 years ago, and it now includesover 30 professionals located in offices in Arlington, Philadelphia, AlbanyDes Moines, Atlanta, Orlando and San Francisco.
PFMs Strategic Consulting practice has engaged in literally scores oprojects with governments of similar scope and complexity. Its clients haveincluded the States of Georgia, Illinois, Minnesota, Nebraska, New YorkPennsylvania and Tennessee, as well as the Cities of Baltimore, Atlanta,Memphis and Dallas, Washington Metro Area Transit Authority and theDistrict of Columbia.
The PFM Strategic Consulting practice includes individuals with extensivestate government experience including John Cape, who served as BudgeDirector for the New York State Division of the Budget; Randall Bauer, whoserved as State of Iowa Budget Director; Vijay Kapoor, who served asExecutive Director of the Commonwealth of Pennsylvanias Office oManagement and Productivity; Seth Williams, who served as Deputy Directoof Management and Operations for the Office of the New Jersey Governorand Heidi Patterson, who served as Executive Director of the IowaAccountancy Examining Board.
In addition to this direct state government experience, nearly every memberof the PFM Strategic Consulting practice has project experience with largegovernments such as New York City, Philadelphia, Washington DC, DallasMinneapolis and St. Louis - on-the-job training is not necessary, and, as aresult, its project teams can quickly get up to speed and effectively managetight deadlines.
PFM serves its clients by creating project teams comprised of experts inspecific forms of government, governmental businesses and geographicregions. These project teams are designed to meet the specific needs oindividual clients. Our specialized project teams ensure that our clientsreceive complete and thorough advice directly from the optimal mix of thePFM Group companies professionals.
In the case of the Commonwealth of Virginia, this includes financiaadvisory professionals who have broad experience with state and locagovernments. JoAnne Carter directs the firms Virginia practice and advises
a mix of cities, counties and authorities including the Cities of Norfolk andPortsmouth, and the Counties of Arlington,Fairfax and Prince William. She
also advises the Virginia Port Authority, Fairfax Water and the District ofColumbia Water & Sewer Authority. Nelson Bush assists Virginia municipagovernments, operating authorities, the Commonwealth of Virginia, theCommonwealths agencies, and institutions of higher education with theinvestment of bond proceeds, operating funds, reserve funds, and moniesset aside to fund OPEB liabilities. Mr. Bush is also the Program Administratofor the Virginia State Non-Arbitrage Program (VA SNAP).
SELECTED PFM STRATEGICCONSULTING CLIENTS:
CALIFORNIA
Los Angeles County (LAFCO)City of Long BeachCity of Oakland
COLORADOCity of AuroraCity of Colorado Springs
DISTRICT OF COLUMBIADistrict of Columbia GovernmentWashington Metro Area TransitAuthority
ILLINOISGovernors Office of Managementand Budget
MARYLANDCity of BaltimoreMontgomery County
MINNESOTAMinnesota Management andBudgetCity of MinneapolisCity of St. Paul
MISSOURICity of Kansas CityCity of St. Louis
NEBRASKANebraska Department of
Administrative ServicesNEWYORK
New York Metropolitan TransitAuthorityNassau CountyCity of New York
NORTH CAROLINAWake County
OKLAHOMACity of Oklahoma City
PENNSYLVANIADepartment of Community andEconomic Development
City of PhiladelphiaTENNESSEE
State of TennesseeCity of Memphis
TEXASCity of AustinCity of Dallas
VIRGINIACityof PortsmouthCity of Virginia Beach
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FIRM QUALIFICATIONS
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PFMs project teams combine professionals based on geographic locationexperience and sector expertise. This approach is exemplified in thefollowing graphic:
The PFM Groups flexible project-oriented approach to staffing engagementsenables us to bring the proper mix of resources and experience to bear on agiven clients problem or transaction. In this case, the PFM team bringsstrategic planning and performance management experience from theStrategic Consulting practice and combines it with Virginia andtransportation-specific knowledge and experience located in its Arlington and
other offices.
Beginning with its work with the City of Philadelphia over a decade ago, andcontinuing with many governments today, PFMs Strategic Consultingpractice has helped to develop the standard for public sector multi-yearfinancial planning. From a $225 million deficit and junk bond credit ratingsin 1991, Philadelphia used its annual Five-Year Financial Plans to regaininvestment grade ratings and to achieve a series of surpluses that reached$295 million by 2001.
LocationsProject
Management
Products
Practices
ArbitrageRebate BalanceSheet
ManagementDebtIssuance FinancialPlanning InvestmentPolicies LeaseNegotiation PensionManagement PortfolioManagement
Be nchmarkingStrategicConsulting
GeneralMunicipalHealthcare&HigherEducation
Housing
InvestmentManagement InvestmentConsulting
PublicPower SchoolDistricts
SolidWaste SportsFacilities&ConventionCenters
StrategicConsulting Transpo rtation
Water&Wastewater Workforce&LaborDevelopment
Albany
AnnArborArlington
Atlanta
Austin
Boston
Charlotte
Chicago
Cleveland
DesMoinesFargo
Harrisburg
LongIsland
LosAngelesMalvern
Memphis
Miami
Milwaukee
MinneapolisNew YorkNewportBeachOaklandOrlando
PhiladelphiaPhoenixPittsburghPrinceton
SanFranciscoSeattle
St.Louis SanAntonio
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FIRM QUALIFICATIONS
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PFMs strategic consulting practice has moved beyond its local governmenroots and become increasingly involved with state-level work. The coleaders of the state strategic consulting practice, John Cape and RandalBauer, bring over 50 years of senior level state government experience; the
team brings a combined 100+ years of experience in state government.
PFMs state practice focuses on strong analytics, analysis and anunderstanding of the key issues that will impact state governmendecisionmaking.
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Key Staff Resumes
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KEY STAFF RESUMES
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John F. Cape, Managing Director is a national expert on state budgets andpublic policy, with over 30 years experience in the public sector. His PFMclients have included the Commonwealth of Pennsylvanias GovernorsOffice, Governors Budget Office, Department of Public Welfare, and NassauCounty, NY and Montgomery County, MD.
Prior to joining PFM, Mr. Cape served as the Director of the Budget for NewYork State. As Director, he was New Yorks chief financial officer and theprincipal fiscal advisor to the Governor, heading the Division of the Budgetwhose 350 staff members oversee a $113 billion operating budget and $50billion debt portfolio.
A nationally known speaker on state fiscal and policy issues, and arecognized advocate for fiscal integrity and transparency, Mr. Cape servesas a Senior Fellow of the Rockefeller Institute of Government, is a Fellow othe State Academy of Public Administrators, and has served on theExecutive Board of the National Association of State Budget Officers. He isthe 2006 recipient of the Center for Technology in Governments Rudolph W
Giuliani Leadership Award, and recipient of the American Society for PublicAdministrations Charles Evans Hughes Award.
During his tenure with New York State, Mr. Cape oversaw numerousorganizational, regulatory and tax changes regarding distilled spirits, theState Liquor Authority and the State Alcoholic Beverage Control Board
Randall Bauer, Director, joined PFMs strategic consulting practice in 2005His clients have included the States of Georgia, Illinois, MinnesotaNebraska, New York and Pennsylvania, and major local governments fromBaltimore, MD to Colorado Springs, CO. At PFM, he specializes in strategicand financial planning, process improvement and organizational change. He
has managed multiple projects for the State of Nebraska, as well as projectsfor the States of Illinois, Minnesota, Georgia, Pennsylvania and New YorkHe has also led revenue projection projects for Portsmouth, VA; Aurora andColorado Springs, CO; and Pittsburgh, PA.
Prior to joining PFM, Mr. Bauer served for nearly seven years as BudgeDirector for the State of Iowa. In that capacity, he was Governor ThomasVillacks chief adviser for the States $12 billion budget as well as a senioradviser on tax and public finance issues. During Mr. Bauers tenure, Iowacreated a new results-focused budget process, implemented a performancereporting system, and developed a web-based budget system. Prior to hiswork as State Budget Director, Mr. Bauer served for over ten years as asenior analyst for the Iowa Senate with primary responsibilities on budget
tax, transportation, infrastructure and economic development issues. Duringthat time, Mr. Bauer served as the Senate lead staff analyst for Iowasprivatization of its retail alcoholic beverages operation.
Valesa S. J. Wells, Senior Managing Consultant has been employed withPFM since 1995. As a Senior Managing Consultant in the Memphis officeMs. Wells has extensive experience advising cities, counties, and relatedgovernmental entities on a broad range of financial concerns
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KEY STAFF RESUMES
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.In conjunction with the firms Strategic Consulting practice, she has providedextensive budget development support to the City of New Orleans, and hasworked with Shelby County, TN on government streamlining initiatives. As afinancial adviser, Ms. Wells has worked with clients including the City ofMemphis, TN; Shelby County, TN, the Metropolitan Government of Nashvilleand Davidson County, TN; the City of Chattanooga, TN; and the MetroGovernment of Louisville/Jefferson County, KY.
Ms. Wells specializes in quantitative and technical financial analysisincluding debt analysis and the development of debt management and fundbalance policies. Ms. Wells also works closely with clients to developcomprehensive credit rating presentations that demonstrate the clientshistorical financial performance relative to industry benchmarksmanagement practices, and provides a detailed look into the clients long-term strategy for capital investment, economic development and debmanagement.
Seth Williams, Consultant, supports PFMs State Strategic Consultinggroup. Prior to joining PFM, Seth worked for the Office of the New JerseyGovernor as Cabinet Liaison and a Deputy Director of Management andOperations. He was the primary point of contact in the Governors Office onoperations, budget preparation, organizational management issues, andtactical activities for 12 cabinet departments and sub-cabinet agencies.
Seth co-led departmental budget preparation, strategy, and coordination foall departments/agencies in his portfolio; including oversight of testimonycontent, analysis of the impact on policy decisions and fiscal year revisions.
In addition to Seths other responsibilities, Seth was also a lead staff membe
to the New Jersey Commission on Government Efficiency and Reform (NJGEAR) where he managed all operations, created agenda, and draftedreports for the Commission appointed by the Governor. Select topicsincluded: Health Care Costs; enterprise-wide Information Technology statusPerformance Management actions; Personnel Management Reform; andCorrectional Sentencing Reform.
Heidi Patterson, Consultant, is based in the Des Moines office where sheis currently the lead consultant on projects including organizational reviewsfor the State of Pennsylvania Public Utility Commission and the City ofCleveland Public Utilities and a cost of service study for the City of BoisePlanning Division. Since joining PFM, she has been the lead consultant fothe City of Colorado Springs cost-saving initiatives and revenue analysis toachieve a sustainable funding structure; supported revenue analysis forclients in Kansas City and St. Louis in an effort to maximize revenueopportunites; as well as participated in an evaluation of proposed racino bidsfor the New York State Division of the Budget. Ms. Patterson also workedclosely with the Emergency Financial Manager of the Detroit Public Schoolson PFMs team to develop and implement fiscal control policies, proceduresand cost saving initiatives during a fiscal crisis.
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KEY STAFF RESUMES
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Prior to joining PFM, she served as the Executive Director of the IowaAccountancy Examining Board where she was responsible for the licensingand regulation of the States 10,000 CPAs and LPAs. Ms. Patterson alsoserved on the National Association of State Boards of AccountancyExecutive Director's Committee and the National CPA Mobility Taskforce. Inaddition, as the Executive Assistant to the Governors Chief of Staff and theDirector of the Iowa Department of Management, she supported strategicplanning and government accountability initiatives across State governmentMs. Patterson participated in multiple aspects of Iowa's Budgeting for Resultsefforts, including training and coordination on the performance measurescomponent of the web-based budget system and formulating communicationstrategies for lawmakers, constituents, and decision-makers.
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PROJECT APPROACH
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PROJECT APPROACH
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PFM is prepared to dedicate an experienced team beginning on day on ofthe signing of the contract that will immediately begin an in-depth analysisof the key issues facing the Commonwealth. With its experience, expertiseand quantitative skills, PFM will:
Identify retail privatization options. This will include:
1. Privatize retail functions creating liquor retail licenses. This analysiswill discuss:
a. Cap the number of licenses and auction them to the highesbidder; use population as the mdeans to apportion storesthroughout the state
b. Use a four-tired system of distribution that sets aside a specificnumber of licenses by type of store, based on overall squarefootage of retail space and linear shelf space for distilled spirits
c. Auction licenses by locality based on established minimum bids
2. Privatize retail functions creating liquor agent contracts (e.g. Ohiomodel)
a. Establish a commission rate based on sales volume and/or typeof sale
b. Use a four-tiered system of distribution that sets aside a specificnumber of agents by type of store, based on overall squarefootage of retail space and linear shelf space for distilled spirits.
c. Cap the number of licenses and issue RFPs to attract potentiaagents. Use population as the means to apportion storesthroughout the state.
3. Discussion of assumptions
a. ABC remains the wholesaler of distilled spirits
b. ABC supplies retail liquor licensees and agents who in turnserve retail and restaurant sectors
c. ABC applies mark-up and excise tax at the wholesale level
d. Current applicable state and local taxes on gross receipts andincome apply
e. Options 1 and 2 may be modified during the developmenprocess basd on further analysis
Based on this analysis, a final report will be provided in January 2011. TheCommonwealth may, at its discretion, require supplemental work to beperformed and included, subject to negotiation with PFM regarding anyadditional compensation, which may include the following options:
1. Issues and options for privatizing and licensing wholesale operationswhether in whole or int part
2. Issues and options that arise from the final JLARC Study on on theGovernors initial privatization plan
3. Issues and options that arise from certain legislative working groups
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PROJECT APPROACH
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To ensure that a full vetting has been done of the alternatives, the analysiswill include:
Analysis of the reasonableness of the assumptions and whether these
assumptions are supported by data and research The degree to which the assumptions (and projected revenue streams)
are susceptible to variation, based on sales volume, number of storesand other conditions
Risks faced by the Commonwealth based on the degree of riskassociated with the alternatives analyzed above
To ensure that the analysis includes the issues that may impact on itsresults, the PFM work will:
a. Examine current and post privatization sales volumesDetermine what the anticipated regional and statewide changesin volume will be under each scenario.
b. Evaluate the potential to attract customers for liquor and wineback from neighboring jurisdictions.
c. Examine price elasticity assumptions and the impact of potentiaprice increases on projected sales volumes. Identify potentiaprice impacts for a sample of premium and economy brands.
d. Examine minimum bids for retail stores and evaluate thelikelihood that projected revenues will be achieved based onother state experiences, changes in assumptions, etc.
e. Examine the value of license transferability and identify impactsto the revenue stream should this feature be eliminated (onlyapplies to license scenario).
f. Evaluate the impact of termed licenses.
Understanding the critical importance of timely analysis, PFM will begin theproject within one business day after award of contract. PFM will alsoprovidea report of analytical findings in draft form no later than November 26, 2010for management review. The report will outline assumptions, addresssensitivity and risk of failure; include test work and research supporting thefindings, etc. If applicable, the report wll also identify any other viablealternatives or modifications to Options #1 and # 2 that are not specificallyset forth in this statement of work or the final contract.
PFM will also provide the final interim report, including the associatedfinancial analysis and present to representatives from ABC and theGovernors office no later than December 1, 2010. PFM will also make, as
needed, presentations and/or testimony to members and committees of theGeneral Assembly before and during the General Assemblys 2011 regulasession, subsequent reports and analysis on options related to ABCprivatization, etc. PFM will provide the final report and present torepresentatives from ABC and the Governors office in January 2011 with afirm date to be set in conjunction with the schedule of the 2011 GeneraAssembly regular session.
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WORK PLAN
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Work Plan
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General Approach
As noted above, PFM is ready to begin this project on day one. TheEngagement Director, John Cape, will be on site and begin to develop the
day-to-day work plan and meet with appropriate Commonwealth subjecmatter experts. Randall Bauer will serve as the project manager, and he andJohn will serve as both subject matter experts and key staff. Given the quickturnaround, PFM will dedicate an experienced, senior team to the projectand John and Randy will be the primary project contacts.
The following is the expected high level project timeline:
Activity 5-Nov 12-Nov 19-Nov 26-Nov 3-Dec 1-Jan
Project Definition and Data/Research Review
Selected Analyst and Stakeholder Interviews
Other State Research and Benchmarking
Analysis and Options Definition and Development
Present Preliminary Results
Coordinate with Transportation Team in SIB Options
Develop Recommendations, Presentations and Reports
Presentations
Commonwealth of Virginia
Governor's Office of Mangement and Budget
ABC Privatization Analysis
October, 2010
Dates
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Cost and Price Proposal
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Cost and Price Proposal
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PFM proposes a fixed fee engagement for $75,000. In developing theprice proposal, PFM estimated the hours necessary, by classification ofthe individuals responsible for the work, using the following hourly rates:
Managing Director: $275/hour
Director/Senior Managing Consultant: $225/hour
Consultant $205/hour
Research Assistant/ $125/hour
Administrative Staff
The following identifies estimated hours for the project, based on likelytasks associated with the Commonwealths proposed statement of work:
Est.
Activity Man. Direct. r. Mng. Con. Consultant Associate Total Expenses
1 Project Definition and Data/Research Review 8 16 16 0 40
2 Selected Analyst and Stakeholder Interviews 4 12 12 0 28 $2,000
3 Other State Research and Benchmarking 0 8 16 6 30
4 Analysis and Options Definition and Development 16 24 40 0 80
5 Present Preliminary Results 8 8 8 2 26 $2,000
6 Coordinate with Transportation Team in SIB Options 4 8 8 0 20
7 Develop Recommendations, Presentations and Reports 8 24 32 4 68
8 Presentations 8 8 8 0 24 $3,000
Totals: 56 108 140 12 316 $7,000
*
Costs Category: Rate/Hr. Hours Total:
Managing Director $275 56 $15,400
Senior managing Consultant $225 108 $24,300
Consultant $205 140 $28,700
Associate/Researcher $125 12 $1,500
Total: $221 316 $69,900
Additional Expenses: $7,000
Total: $76,900
Hours
Commonwealth of Virginia
Governor's Office of Mangement and Budget
ABC Privatization AnalysisOctober, 2010
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Cost and Price Proposal
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As noted, this includes an estimate of probable expenses at the Virginia pediem. While we believe that these expenses will be commeasurate withexpected project activity which assumes 2 to 3 team on-site visits PFMhas committed to fully supporting any and all activities related to meetingsand/or presentations with other groups after submission of the projectdeliverables. While PFM assumes the business risk for expenses related tocompletion of the scope of work proposed, the scope of these activities isdifficult to estimate at this time. PFM would seek an agreement that, if traveand project expenses are materially beyond the above estimates due to theclients desire for more meetings or presentations than anticipated, PFM andthe Commonwealth will negotiate an agreed-upon resolution, with anyadditional agreed-upon reimbursement at Commonwealth reimbursementrates.