From: John Graham
Subject: Los Angeles Settlement

We have reached an important milestone today concerning events in Los Angeles - an agreement with the Los Angeles City Attorney to settle all civil claims regarding billings by our Los Angeles office to the City of Los Angeles.

If it is approved by the appropriate City agencies, the agreement will resolve the lawsuit brought by the City Attorney in July 2004, as well as all issues raised by the City Controller and the City Attorney involving bills from the Los Angeles office under all City contracts.

We have agreed to pay $4.5 million and to waive payment of approximately $1.3 million the Department of Water and Power (DWP) owes the firm for unpaid invoices from 2003 and 2004.

As you know, we conducted an extensive internal investigation of these issues. On the basis of that investigation, the agency believes some senior executives of the Los Angeles office, who are no longer with the firm, caused certain bills to be presented to the City that appear to be improper and indefensible. We turned over the results of our investigation to the appropriate federal and county authorities, and we continue to cooperate fully with them.

This is a significant payment, substantially more than the amount of questioned billing, but our firm's reputation for honesty and integrity is a vital business asset and I am convinced that the cost of a prolonged legal and political battle would ultimately be far greater to our reputation than the cost of this settlement. This agreement also will allow us to avoid significant litigation expense, and it will help us focus more resources on serving our clients instead of defending these actions.

The agreement will not resolve all matters related to the events in Los Angeles, but it is a major step forward.

We have apologized to the citizens of Los Angeles and taken full responsibility for any billing issues there. Other than these recent problems in our Los Angeles office, we have never had an issue of this type in the almost 60-year history of our firm.

We also have taken steps to ensure the integrity of our billing process. These include:
· A strong and entirely new management team in Los Angeles
· Improved procedures and oversight for financial reporting
· A requirement that employees must now personally certify the accuracy of time billed to clients
· A new agencywide case-based ethics training curriculum
· The launch of a hotline to allow anonymous reporting of any inappropriate acts
· The elimination of all political contributions using company funds

· Engaging independent auditors to test compliance with our policies and procedures by conducting audits on a continuing basis

Our news release is attached for your information. As always, please contact your general manager, regional president, or me if you have any questions or concerns. Direct any media inquiries to Richard Kline.

Thank you for the great work, personal integrity, and professionalism you bring to our clients every day.