Measuring Performance in a Commercial Enterprise

Ken SmithSenior Vice President

September 12, 2006

Fluor Corporation’s Legacy

Founded more than 100 years ago

Executed more than 10,000 projects worldwide

Consistently ranked among the “Top 3” on ENR magazine’s “Design-Build Firms” and “The Top 400 Contractors” lists

One of the world’s safest contractors

Maintains a global presence:

Fluor is one of the world’s largest, publicly owned engineering, procurement, construction, and maintenance companies.

- Asia, 55 years- Africa, 41 years- Australia, 37 years- Europe, 59 years- Middle East, 59 years- South America, 61 years

Corporate Headquarters – Irvine, Texas

Fluor Industries and Clients

Worldwide Projects

Petrochemicals

Downstream

Government

Fernald Environmental

Restoration

Phillips S ZorbTexas EQUATE Project

Kuwait City, Kuwait

KodakXiamen, China

Chemicals

Copper SmelterQueensland, Australia

Mining

Infrastructure

LondonUnderground Ltd.

Government

Hanford Management Contract

Business Group Common Functions

Safety performance and Zero IncidentsSM culture Operating System Requirements

– Drives commonality across all operations globally

Project management Engineering Financial metrics and performance measurement Human Resources

– Global management focus Centralized corporate approach:

– Strategic planning– Business Risk Management Framework (BRMF)– Legal– Finance / cash management / SEC reporting– Public relations / government relations– Security / IR / ESH– Board of Directors / stakeholders

Safety Performance

Operating in 60 countries worldwide; 40,000-employee diverse workforce (with language, educational and cultural differences)

Managing and monitoring 270 million of safe work hours in 2005

Best in class performance– Management commitment to annual performance improvement

Fluor’s culture drives – Focus on precursors to prevent significant injuries/incidents– Continuous improvement– Rigorous reporting– Incident investigation and lessons learned

Senior management expectations are Zero Incidents and safety excellence

Safety – Lost Workday Case Rate

Safety – Recordable Incident Rate

Commercial Background

25 years in the EPCM industry

Experience includes three EPCM firms’ cultures to draw upon

Understand the unique differences in Commercial vs. Government client organizations

Recent 3-year President of Fluor’s Manufacturing & Life Sciences group

Commercial Industry differentiators– Commercial industry specialization & market niches – Global sales & execution platform– Flexible procurement requirements– Variety of commercial / contract structures– Individual / flexible client drivers – Business unit autonomy & internal decision making– Flexible Industrial Relations / partnerships with Labor

Personal Operating Philosophy

Focus on safety

Clear roles, responsibility, authority and accountability

Customers want to know three things:– How smart?– How much?– How long?

We owe our client to be the lowest cost producer for a given scope

Cradle-to-Grave project execution– Comprehensive risk management– Baseline Centric approach

Human capital management

Financial performance

“Bringing certainty to Technology Application,

Cost and Schedule”

“Bringing certainty to Technology Application,

Cost and Schedule”

Baseline CentricSM Approach

COST MODEL

• Basis of Estimate• Clarifications• Allowances• FOCUSSM

• CDR

PURCHASING• Scope Reviews• Buy Sheet Tracking• Bid Pkg. Cost Distribution

SCHEDULING• Quantities• Craft• Equipment / Material

COST CONTROL

• Changes• ROM Estimates

GENERAL CONDITIONS

• Staffing• Reimbursables

BASELINE

Baseline Centric Tools

Function– FOCUSsm process– Business Risk Management Framework

Cost– Detail quantity-based control estimates– Prologtm and MaterialManagersm for procurement– FDCost and ProfiToolsm for cost control– FDAS / SAP for accounting– Cost Summary Report for financial performance

Schedule– Primaveratm

– EZTrak– MileMarker

Baseline Centric Deliverables

Establish “A line in the sand early”

Accurate estimate– Detailed quantity takeoffs– Qualifications and clarifications– Allowances and exclusions

FOCUSsm sessions

Constructability reviews / alternative solutions

Value engineering

Manpower scheduling

Business Risk Management Framework

Snapshots during conceptual engineering; change management during detail design

Baseline Centric Flowchart

• Base• Approved Change Orders• Proper Format• Lien Releases

CONTRACTOR, VENDOR &

SUPPLIER INVOICES

PROJECT MANAGEMENT /

CONTROLS

• Confirm Payment From Client • Final Quality Check • Resolve Conflict• Release Payments

• Check Lien Waiver• Check Bonding / Insurance Validity• Check For Signed Contract

& Changes• Check For Proper Authorization• Check For Proper Amounts

- Contract - C.O.’s - Retention

• Check For Payment From Client • Approve For Check Selection

ACCOUNTSPAYABLE

FINANCIAL

• Check For Correct Format• Check % Base Complete • Check % Change Complete • No Sub Tier Claims• Approve For Processing • Disapprove (3 Day Cycle)

Safety– Monitor traditional safety trends– Application of Fluor’s safety alert system– Client feedback

Client satisfaction– Percentage of repeat business– Extensive client review process

Cradle-to-Grave project execution– Earned value management system– Independent project management review teams

Human capital– Turnover / retention

Financial performance– Margins: as sold vs. actual performance– Publicly traded company – stock price

Performance Measurement Approaches

Closing Thoughts

Challenge to provide commercial practices in the Government sector

Project execution success is driven by upfront planning and establishing an accurate Baseline

Managing people – We cannot lose sight of protecting the safety of our individual employees

If we take care of clients, execute projects effectively, protect our employees, then we’ll

achieve financial success

If we take care of clients, execute projects effectively, protect our employees, then we’ll

achieve financial success