or more of the conditions of perfect competition is 

 violated. 



(2) The surrogate value approach involves the 

 approximation of opportunity costs based on an 

 equivalent use or condition. Surrogate values are 

 frequently used in restricted markets and in non- 

 market situations. 



(d) Proper NED analysis requires that project 

 NED costs and benefits be compared at a common 

 point in time. Costs are calculated in annualized 

 terms (see 2.1.3). 



2.12.3 Planning setting. 



The basis for the evaluation rests in a thorough 

 analysis of expected conditions in the future with a 

 project and without a project. This requires identifi- 

 cation of those resources that will be affected by a 

 project; the current value of such uses is measured 

 as the economic worth to the Nation of the serv- 

 ices associated with those uses. 



2.12.4 Evaluation procedure: General. 



(a) Resources required or displaced to achieve 

 project purposes by project installation and/or op- 

 eration, maintenance, and replacement activities 

 represent a NED cost and should be evaluated as 

 such. Resources required or displaced to minimize 

 adverse impacts and/or mitigate fish and wildlife 

 habitat losses are also NED costs. Costs for fea- 

 tures not required for project purposes, avoiding ad- 

 verse effects, and/or mitigating fish and wildlife 

 habitat losses are not project-related NED costs 

 and should not be evaluated. 



(b) Base all NED costs on current costs adjusted 

 by the project discount rate to the beginning of the 

 period of analysis as defined in Section I, 2.1.2(c). 

 Compute all costs at a constant price level and at 

 the same price level as used for the computation of 

 benefits. Base current costs on the price level at 

 the time of the analysis. These costs will be updat- 

 ed in the year(s) the project is submitted for author- 

 ization and/or appropriations. Discount deferred 

 costs to the end of the installation penod, using the 

 applicable project discount rate. Increase costs in- 

 curred before the beginning of the period of analy- 

 sis by adding compound interest at the applicable 

 project discount rate from the date the costs are in- 

 curred to the beginning of the period of analysis. 

 Convert all NED costs to an annual equivalent 

 value over the period of analysis. 



(c) Project NED costs may be adjusted by an al- 

 lowance for the salvage value of land, equipment, 

 and facilities that would have value for nonproject 

 uses at the end of the penod of analysis. Signifi- 



cant salvage values of replaceable items (e.g., gen- 

 erators) will normally become adjustments to 

 allowances for replacement costs. 



2.12.5 Evaluation procedure: Implementation 

 outlays. 



The NED costs of implementation outlays include 

 the costs incurred by the responsible Federal entity 

 and, where appropriate, contributed by other Feder- 

 al or non-Federal entities to construct, operate and 

 maintain a project in accordance with sound engi- 

 neering and environmental pnnciples and place it in 

 operation. These costs are the remaining postauth- 

 orization planning and design costs; construction 

 costs; construction contingency costs; administra- 

 tive services costs; fish and wildlife habitat mitiga- 

 tion costs; relocation costs; histoncal and archae- 

 ological salvage costs; land, water, and mineral 

 rights costs; and operation, maintenance, and re- 

 placement costs. 



(a) Postauthorization planning and design costs. 

 The costs are the direct cost for investigations, field 

 surveys, planning, design, and preparation of speci- 

 fications and construction drawings for structural 

 and nonstructural project measures. In the evalua- 

 tion procedure, base these costs on the actual cur- 

 rent costs incurred by the responsible Federal 

 entity for carrying out these activities for similar pro- 

 jects and project measures. They may be computed 

 as a percentage of construction costs when there 

 is a documented basis for the rate used. Make ad- 

 justments when appropriate to reflect circum- 

 stances special to the project under consideration. 



(b) Construction costs. These costs are the direct 

 cost of installing project measures. They should be 

 based on the market value of goods and services 

 required to install project measures, including those 

 measures required for avoiding adverse erv/iron- 

 mental effects and public health and safety risks. 

 They include the cost of purchased materials (in- 

 cluding associated transportation costs); equipment 

 rental or purchase; construction wages or salanes 

 (including social security and fringe benefit costs); 

 and contractors' management, supervision, over- 

 head, and profit. Base such costs on current con- 

 tract bid items in the project area or on the current 

 market value of purchased materials and services, 

 etc. 



(c) Construction contingency costs. These are 

 project costs normally added to reflect the effects 

 of unforeseen conditions on estimates of construc- 

 tion costs. They are not an allowance for inflation 

 or for omissions of work items that are known to be 

 required. They are included to cover unforeseen 

 construction problems. These costs will vary with 

 the intensity of the surveys and investigations per- 



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