A package priced at £100,000 today becomes approximately £112,486 after three years if a constant annual escalation assumption of 4% is compounded. The arithmetic is simple. Choosing the right period is usually the harder part.
Projects do not buy every package on the completion date. Some materials may be ordered early, while later trades remain exposed for much longer. Applying the same period to the whole estimate can exaggerate one exposure and understate another.
Start with the price base date and a realistic procurement programme. Then decide which costs are fixed, which remain adjustable and when each package is likely to be committed. The model should follow those decisions.
| Purchase date | Base cost | At 4% a year |
|---|---|---|
| Now | £100,000 | £100,000 |
| After one year | £100,000 | £104,000 |
| After three years | £100,000 | £112,486 |
Illustrative compound escalation at a constant 4%. It is an arithmetic example, not a market forecast.
Check what the quotation already includes
A supplier may have priced for delivery at a future date. Adding escalation from today to that same date could duplicate an allowance already included in the offer.
Where an index is used, identify what it measures and whether it matches the package. A broad consumer measure and a construction output measure answer different questions. Neither removes the need to understand the contract’s price-adjustment provisions.
For early estimates, a simple scenario can be sufficient if its limitations are clear. Show the base cost, assumed annual movement and exposure period separately. A reviewer can then change one assumption at a time and see the effect.
The useful result is not just a future total. It is a record of which part of the programme creates the exposure.