North Karnataka Urban Sector Investment Program, Tranche 1

Cost estimation—most of the reasons provided for the cost escalation were predictable, such as (i) higher bid premiums for civil works packages relative to engineering estimates, (ii) bidder concerns over timely payments (as the implementing agencies were small municipalities), (iii) difficulties in mobilizing resources for interior towns, and (iv) more thorough review of possible price risks was required. The frequent fluctuations in the rupee–dollar exchange rates during the project design period (2007—2008) may not have been so predictable but adequate contingency planning could mitigate this risk.