PAI Section

5. Project Administration Actions

PAI No.

5.07

Paragraph No/s.

Q/A No.

0328

QUESTION:

PAI 5.07 para 4 states, "Normally, the borrower finances the cost overrun from its own resources, and the sector division or RM does not need to refer the matter to higher authorities unless the project benefits are seriously affected. When the borrower is unable to finance the cost overrun except through a change in scope, utilization of surplus funds from another project, supplementary financing from ADB or other external sources, the procedures relating to a major change in scope apply (PAI 5.04)" As per PAI 5.04 Para 7 "if the cost change is estimated in excess of 15 percent of the total project cost, regardless of ADB’s contribution, then the change in scope is considered as major". OAGA noted a case where the awarded bids of the civil works contract package was USD 127.7 million, USD 27.0 million higher than the estimated costs as stated in the RRP of USD 100.7 million. Further the cost increase was 19% of total project cost of USD 140.9 million. The governmet agreed to finance the cost overrun of USD 27 million. On this basis: 1.In acordance with PAI 5.04 para 7, is it REQUIRED to obtain approval for a major change of project scope due to change in cost estimate (over 15%). 2. In accordance with PAI 5.07 para 4, Is it NOT REQUIRED to obtain approval for a major change in project scope due to change in cost estimate given that the government has agreed to finance the total cost overrun.

ANSWER:

PAI 5.04 para. 7 is referring to the cost implications resulting from a change in the project scope. In particular, it calls for the mission leader to assess the value of the change in scope and if the cost is greater than 15% then this will trigger a major change of scope process. PAI 5.07 para. 4 is referring to cost overruns with causes similar to those in the example you mention where the cost overrun resulted from the award bids of a contract package being 19% higher than the estimated costs. This increase in cost was not the result of a change in the scope of the project so PAI 5.04 para. 7 does not apply. The difference between the two PAIs is the reason for the overrun. Consequently there is not a conflict.