construction and refurbishment of earthen irrigation channel banks

It is known that maintenance costs of channels generally increase in time, but notenough data may always be available to make sound estimates of this relationship.In these situations, realistic assumptions will have to be made using best judgement.If applicable, amounts for damages should be recognised in the evaluation. Thiswould involve an assessment of the probability of a claim arising, its size, theprobability of the claim succeeding and the size of the final settlement.Water losses should be included as a cost in the evaluation where they exist and canbe quantified and captured. The economic value of the water losses will depend onthe particular circumstances and regulatory regime of each supply system.Depreciation should not be included in the cash flow as it is an accounting item, nota cash item. The cost of financing should also not be included, as it is covered byusing the appropriate discount rate. Sunk costs or any other costs already spentshould not be included, as life cycle analysis is about future costs.A factor that impacts directly on a life cycle cost analysis is the nature of theenterprise. Publicly owned enterprises may not receive any taxation benefits arisingfrom deductable expenses such as maintenance, while private enterprises will haveallowable expenses incurred, discounted by the prevailing company tax rate,provided that the business makes a taxable profit.The incorporation of taxation effects into life cycle cost analysis needs to becarefully considered to ensure future cash flows are correctly projected.It is recommended that costs allowed as deductions and costs allowed to becapitalised are separately identified in the analysis model so that the correct taxationtreatment can be applied.While interest charges and other costs of borrowings are generally allowable taxdeductions, their effects are built into the selected discount rate and they are notincluded separately in the analysis.13.4.6.1 Capital CostsUnit costs will vary widely, not only with prices of labour, plant and materials atthe time, but also general conditions that affect construction activities.General conditions that affect costs include the size of project, economies ofscale, availability of suitable materials, accessibility to site, weather conditions,competitive interest in work, details of design and tolerances permitted byconstruction specifications.Tight specifications and construction tolerances add significantly to costs, andrealistic requirements need to be established for general channel bank work.In some past situations, quite stringent specifications have been applied that arereally more appropriate to major earth works projects, rather than theconstruction of channel banks that are typically not much more than one metrehigh. Where ever possible, the liberalisation and simplification of channel bankspecification should be pursued to lower construction costs.Construction and Refurbishment of Earthen Channel Banks August 2002 - Edition 1.0 13-23