Step 5. Development of Project Works

The project concept shall be developed on the basis of the data collected. Project design alternatives shall be developed that follow the concept. These alternatives shall be developed to a level of detail that allows their evaluation. Experts shall be involved in developing alternative designs of the project works.

Step 6. Stakeholder Participation

The feasibility study shall contain a process of consultation with project stakeholders. Stakeholders include the users of the project works (the public and the private sector), groups which may be directly affected by the works (property owners, residents in the project area), local bodies which may be required to operate and maintain the project works, and central government agencies whose plans and project in other sectors may affect or be affected by the project.

The personnel conducting the feasibility study shall coordinate their planning with other line agencies through a coordination committee. In addition, it may be necessary to establish a district level coordination committee to coordinate planning with the affected DDC and VDCs. These are described in the model project organisation in Part I, Chapter 5 Project Organisation and Part II, Chapter 10 Roles and Responsibilities of Committees. The public shall be consulted directly through meetings with user groups, Ward Committees, NGOs and others representing local interests.

Step 7. Preliminary Engineering
The preliminary engineering design shall establish the technical feasibility and initial cost estimate of viable alternatives. The following guidelines apply:

• Plans of each alternative may be expanded to show all the key components and their connections with one another.
• Typical cross-sections and details may be developed to demonstrate the technical feasibility of the project component and to enable a quick estimate of quantities.
• Key engineering calculations shall be carried out to prove technical feasibility.
• Any deviations from standards shall be identified. The implications and effects shall be discussed and agreed with stakeholders while comparing alternatives.
• The preliminary engineering design shall be in sufficient detail to permit costs to be estimated +/-25%.
• The preliminary engineering shall identify sources, suitability and costs of materials for construction. As a minimum it shall include a survey of materials sources in the project vicinity and may involve sample testing.

Step 8. Preliminary Cost Estimates

Preliminary cost estimates shall be prepared based on the following:

• The quantities of the civil works should be computed on the basis of the schematic plan, profiles and typical sections following standard methods of measurement.
• The quantities of metal work, electrical and mechanical parts shall conform to the schedule and specifications.
• The rate analysis for civil engineering items shall follow the norms and market prices of construction materials, labour and equipment hiring rates.
• The rate analysis for civil engineering items may be verified using the mean rates from contracts in the last 5 years.
• The rates of metal parts, electrical and mechanical parts may be based on price information from prospective suppliers.
• Industry norms may be used when available.
• The costs shall be broken down into local and foreign currency components, direct cost, overheads, taxes, physical and price contingencies.

Step 9. Economic and Financial Analyses

The following guidelines apply:

• The life of the proposed works, and the residual value at the end of the life, need to be determined. Guidance for sector-specific works is given in Part II, Chapters 18 to 26.
• The economic and financial analyses shall compare the benefits and costs of the project alternatives (the “with project” case) over the project life against projected conditions if no project were implemented (the “without project” case). Careful analysis is needed to define both cases.
• For economic analysis, nominal costs and benefits shall be converted to an economic basis by removing taxes and duties and applying shadow prices where appropriate.
• The construction cost, O&M cost, safety cost etc. shall be calculated over the construction and operating life of the project to generate the cost stream.
• Benefits shall be calculated over the operating life of the project to generate the benefit stream.
• Both cost and benefit streams shall be discounted and converted into present values using the discount rate specified by HMG/N.
• The economic indicators normally used to evaluate and compare alternatives are economic internal rate of return (EIRR), benefit-cost ratio (B/C), net present value (NPV) and incremental NPV.
• Where there is uncertainty on cost and benefit streams, sensitivity analyses shall be carriedout for 20% increase in construction costs, 100% increase in maintenance cost, 20% reduction in user costs, 30% reduction in growth of benefits or as specified in the TOR.
• For commercial projects, a financial analysis shall also be done using nominal costs and benefits.