Scope Project Development to Pass Investor Due Diligence
Scope Project Development Deliverables That Pass Commercial, Technical, E&S, And Legal DD
In the most recent edition of Notes on Project Development, titled How Balancing Cost, Speed, and Quality in Project Execution Attracts Capital, I shared a fundamental law of project management: Cost, Time, and Quality dictate Scope.
I shared how sacrificing quality for speed or cost during the project development phase leads to flawed documents, delayed financing, and fragile physical assets.
Scoping your project correctly means finding the deliberate balance between cost, speed, and quality that delivers acceptable outcomes for your stakeholders and rigorous evidence for your investors.
After sharing that note, a subscriber sent me a private message and asked this question: Is there a framework that generally helps a project owner properly size and scope a project, taking into consideration the iron triangle outcomes?
This note attempts to answer that question and provide a logical flow for project owners and managers to properly scope the development and construction of an infrastructure asset, ensuring that the project development activities being funded directly deliver an investable outcome.
The Prerequisite: The “Go/No-Go” Decision
Before a project owner and project manager dedicate substantial financial and human resources to scoping the detailed development and construction phases, the project must have rigorously passed the Concept Stage “Go/No-Go” decision.
The Concept Stage of project development acts as the essential filter. Too often, developers rush into feasibility studies and contract drafting for ideas that do not align with their corporate strategy or market reality. Proceeding without a firm “Go” decision or clear commitment from future beneficiaries leads to wasting scarce resources that could have been directed to more profitable alternatives.
To pass this check, the project must demonstrate high-level market viability, identifiable stakeholders, some form of initial commitment to support the project, and preliminary technical possibility before it is allowed to progress.
Only when a clear, evidence-based project rationale is established, and senior management has officially approved the concept, should the project manager proceed to scope the detailed evaluations of the Early, Mid, and Late stages of project development.
Determining Quality Measures in Project Development Deliverables
When scoping work in the project development phase—whether executing internally via your internal Project Development and Financing Office (PDFO) or outsourcing to an external consultant; Quality is the non-negotiable constraint.
Quality project development passes investor due diligence.
Therefore, when drafting scopes of work for the internal team or the external advisors, project managers must cover key areas that will be tested under the various forms of due diligence investors will carry out.
Scoping Project Development to pass Due Diligence
1. Commercial Due Diligence Requirements:
Clear Demand Analysis: Detailed market analysis and demand studies must provide investors with empirical proof that the infrastructure’s output will generate revenues purchased at a price that sustains debt service.
Empirical Defensibility: High-quality deliverables move beyond “optimism bias” and rely on concrete willingness-to-pay surveys, historical traffic or consumption data, and comprehensive macroeconomic assessments.
Revenue Certainty and Offtake: Robust demand linked to creditworthy offtakers secured through mechanisms that guarantee certain levels of revenue if the asset is for a few buyers or has such a strong demand from multiple end users.
Competitive Resilience: The commercial studies must deeply evaluate the competitive environment, and the developer’s ability to maintain pricing power against future market shifts and encroachment by competition into the area, where practical show long term exclusivity with off-takers.
2. Technical Due Diligence Requirements:
Strong correlation between Demand and Design: The technical design must clearly demonstrate how its specifications and layout will deliver the projected demand, with adequate headroom for mid-term growth
Site Suitability and Project Constructability: A bankable technical design includes a comprehensive assessment of geo-technical conditions of the site and construction plan and methodology that accounts for site realities, avoiding unbearable technical risks and construction delays.
Clear EPC Cost, Scope, and Schedule: Technical outputs must show a clear scope, schedule, and cost to deliver the design and construction requirements. It must also have a detailed Bill of Quantities (BoQ) validated against current unit costs, output-based performance standards, and a fixed completion schedule.
Whole-Life Costing that balances CAPEX with Future OPEX: A realistic cost that delivers the technical specifications designed with a clear, justifiable benchmarks when deriving the Capital Expenditure (CAPEX). Then properly benchmarked long-term Operational Expenditure (OPEX), modelling operating costs, staffing costs, maintenance schedules, and life-cycle replacement of key components for reliable performance throughout the project life.
3. Environmental and Social (E&S) Due Diligence Requirements:
International Standard Compliance: Quality E&S deliverables extend beyond local regulatory minimums. Environmental and Social Impact Assessments (ESIAs) and Management Plans (ESMPs) must comply with Good International Industry Practice (GIIP) and one or more these international standards Equator Principles, IFC Performance Standards, World Bank Standards, and AfDB Standards as applicable.
Proactive Stakeholder Engagement: Using frameworks like the IDEAS Framework (Identify, Define, Engage, Align, Succeed), the documents must prove that host communities and vulnerable groups have been actively consulted.
Detailed Mitigation Plans: Quality indicators include the presence of robust grievance redress mechanisms, Waste management, Biodiversity, Labour Management, Health, Safety, and Environment (HSE) management practices, and, where the project requires the displacement of livelihoods and settlements, meticulously planned Resettlement Action Plans (RAP) and/or Livelihood Restoration plans.
4. Legal Due Diligence Requirements:
Balanced Risk Allocation: The foundation of legal quality is an equitable risk allocation where risks are allocated to the parties best equipped to manage them operationally and bear their financial consequences.
Consistency: High-quality legal drafting ensures perfect consistency across all agreements (Concession, Supply, EPC, O&M). For example, force majeure clauses must align across contracts to prevent loopholes that could bankrupt the project.
Enforceability and Protections: The contracts must include clear dispute resolution mechanisms, termination clauses, lender step-in rights, and strictly defined liquidated damages for delays or performance failures.
Permits and Licenses: All licenses and permits to construct, own, and operate the assets must be obtained.
Be in the right name: All documents must either be in the name of the project SPV already or assigned or novated to the project SPV.
Strong governance and clear structure: must carefully provide clarity on a project's Financing, Operating, and Governance (FOG) structure. This process requires generating financing agreements that detail the parties, covenants, and obligations that fund the capital stack. Clear enforceable contracts even with other equity partners also involved in the operating structure ( EPC, O&M, Supply, offtake) and robust corporate governance frameworks defining board roles, executive oversight, management roles.
5. Financial Model Due Diligence Requirements:
Structural Integrity: A bankable model is flexible, transparent, and accurately tracks the cash flow waterfall. It must calculate vital metrics such as the Debt Service Coverage Ratio (DSCR), Loan Life Coverage Ratio (LLCR), Project IRR, and Equity IRR.
Stress Testing and Scenario Analysis: High-quality financial models do not present a static base case. They incorporate sensitivity analyses and create opportunities for simulations to demonstrate how the project withstands changes such as construction overruns, inflation, interest rate spikes, or demand shortfalls.
Comprehensive Business Plan and Information Memorandum: The financial structuring must be synthesized into a compelling IM and Business Plan, supported by an organized Data Room that accelerates lender due diligence. Remember to include these items in the scope to deliver.
Benchmarking Scope and Cost For Project Development
1. Project Complexity and Taxonomy
To ensure the scoped work delivers an investable asset, project owners must benchmark quality and costing against complexity drivers that depend on the type of project.
Greenfield vs. Brownfield:
Greenfield projects (built from scratch) require significantly higher project development budgets. They demand extensive site studies, comprehensive geotechnical surveys, full ESIAs, and complex land acquisition and right-of-way legalities.
Brownfield projects (upgrading existing assets) may require less foundational surveying but demand highly specialized technical due diligence and cost-auditing to assess existing asset degradation, integration interfaces, and hidden liabilities.
Linear vs. Site-Based Infrastructure:
Linear projects (e.g., toll roads, transmission lines, pipelines) cross multiple jurisdictions, municipalities, and ecosystems. This exponentially increases the complexity of stakeholder management, environmental footprint analysis, and Resettlement Action Plans, thereby driving up development costs.
Site-Based projects (e.g., standalone power plants, hospitals) generally possess a contained footprint, allowing for more concentrated and predictable E&S and geotechnical assessments.
Public-Private Partnerships (PPP) vs. Private Deals:
PPP projects involve heavy governmental interface, complex Concession Agreements, and strict Value for Money (VfM) and public affordability justifications. The legal, regulatory, and transaction advisory costs required to navigate public procurement, draft bid documents (RFQ/RFP), and negotiate with the state are significantly higher.
Private B2B Deals (e.g., commercial mini-grids) often utilize standardized power purchase agreements (PPAs) and face fewer political procurement hurdles, reducing the relative cost and timeline of the structuring phase.
Technology and Design Novelty:
Deploying proven technology lowers design costs because design blueprints, performance standards, and operational benchmarks are well-established and easily validated by Engineers.
New or complex technologies demand extensive engineering studies, bespoke performance guarantees, and heightened due diligence from lenders, drastically increasing the required advisory budget.
2. Benchmarking Against Historical Costs for Past Projects
To create realistic development and construction budgets, sophisticated infrastructure sponsors do not rely solely on theoretical estimates; they leverage historical costs from projects their team has handled before. Incorporating historical data is a critical step in cost control and feasibility validation.
Leveraging Institutional Memory: The project manager must review the post-mortem analyses, cost summaries, and variance reports from the company’s previous infrastructure deals. By understanding where previous projects experienced scope creep, delays, or cost overruns, the team can establish more accurate contingency reserves and baseline estimates.
Adjusting for Time and Context: Historical costs cannot be applied blindly. The project team must adjust past actuals using precise escalation factors that account for current inflation rates, foreign exchange volatility, and changes in the macroeconomic environment.
Evaluating Vendor Performance: Historical records also provide a benchmark for evaluating the past performance of specific engineering firms, E&S consultants, and legal advisors. If a previously used advisor consistently required expensive change orders to deliver quality work, the project owner knows to increase the budget or select a different firm based on that historical reality.
3. Benchmarking Costs as a Percentage of Total CAPEX
As a general industry benchmark, project development costs typically range between 5% - 10% of the total estimated Capital Expenditure (CAPEX). However, this is not a rigid rule; It is for a quick guess, not for determining budgets. My least recommended way of deriving a budget.
The project manager must scale this benchmark based on the specific risk profile of the asset. For highly complex mega-projects or pioneering technologies where extensive customized engineering and legal structuring are required, development costs can escalate toward 10%.
Conversely, for standardized, replicable assets (like a portfolio of identical solar mini-grids), the proportionate development cost per unit decreases due to economies of scale and standardized templates.
4 Other Cost and Scope Drivers
When considering the project development budget, there are other important considerations.
1. The Quality and Caliber of Advisory Services: No developer/project sponsor has all the requisite expertise in-house. You will likely require one or more external advisors to complete project development that raises construction capital.
To attract quality reputable firms, you require a reasonable budget that aligns with the cost of their expertise.
Think about it this way. In order to deliver their expertise for your benefit, advisory teams require time and energy, both of which are finite. The time and energy spent with your firm is time not spent on another customer. And if a firm has a reputation built over the years, there will be some competition for their time. Securing their support will likely be at a cost comparably higher than a less-known or less reputable firms.
Investors often place significant weight on advisor reputation, sometimes equating brand recognition with deliverable quality. While this may not always reflect reality, it is a factor project developers must consider.
Know that all else being equal, similar scopes may attract different prices from firms, often based on their reputation.
2. The Procurement Methodology: If the project requires the public procurement of a private partner, like EPC contractor, O&M, Supplier, through competitive bidding, then additional time or even costs are needed to fund the creation of tender documents of the Request for Qualifications (RFQ) to shortlist capable firms, and the Request for Proposals (RFP), managing the open tender process, holding bidder conferences, and evaluating proposals.
Bringing It All Home
Proper scoping of project development is not drafting a wish list; it is a strategic blueprint for de-risking the investment. It is a necessary precursor for translating a strong project concept into evidence-based language and documentation for investors to confidently deploy capital.
Navigating the “Iron Triangle” of cost, speed, and quality when developing projects is about embracing a fundamental mindset shift.
The most successful project developers and sponsors move beyond viewing project development as a mere administrative hurdle or a cost to be minimized. Instead, they recognize it as the value-creation phase of the entire asset lifecycle.
The phase where the idea takes shape and becomes capable of attracting construction finance to build the asset.
The quality must anticipate the investor’s due diligence process. Every deliverable, from the demand analysis to the environmental management plan, must be created with the understanding that it will face this rigorous scrutiny before raising capital, especially if the project is raising project finance.
To execute project development that passes due diligence, it must first be scoped and priced with exactly that in mind.
Reviewed to Complete This Note
The APMG Public-Private Partnership Cp3P Certification Guide
Ethics in Business Decisions and Competitive Advantage By John E. Triantis
Infrastructure Project Preparation Facilities - World Bank Documents and Reports
International Project Finance Law and Practice by John Dewar
Introduction to Project Finance in Renewable Energy Infrastructure, Including Public-Private Investments and Non-Mature Markets By Farid Mohamadi
Managing Infrastructure Projects 2nd Edition By Willie Tan
Navigating Project Selection and Execution for Competitive Advantage by John E. Triantis
Project Finance for Business Development by John E. Triantis
Project Finance in Theory and Practice: Designing, Structuring, and Financing Private and Public Projects, 4th Edition by Stefano Gatti
Project Financing 8th Edition by Frank Fabozzi, Carmel de Nahlik
Project Management: A Systems Approach to Planning, Scheduling, and Controlling By Harold Kerzner
The Equator Principles
The Law and Business of International Project Finance, 2nd Edition by Scott L. L. Hoffman