Escalation is the change in the cost or price of specific goods or services in an economy over a period of time. In estimates, it is an allowance for the anticipated increase in costs before the work is carried out.
In UK practice the term is often used interchangeably with inflation, although escalation usually refers to particular resources, such as steel or labour, rather than the general price level. Under NRM 1 the allowance is shown separately as inflation, calculated from the estimate base date. Once a contract is let, the risk of escalation sits with whichever party the contract allocates it to:
- on a firm price contract, the contractor carries it and prices it into the tender;
- on a fluctuating price contract, the client pays the increases, usually through a formula based on published indices, such as the JCT fluctuations provisions or NEC4 secondary Option X1.
Related terms: Inflation, Fluctuations, Price Adjustment Formula, Estimate Base Date.
