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• How is escalation handled in the interval <br /> between budget and actual bid? <br /> As everyone is all too aware, prices increase in <br /> time, which in turn gives rise to escalation. The <br /> presence of escalation has to be confronted and <br /> _ dealt with in the overall process and reported to <br /> you separately. It is sometimes used as the <br /> scapegoat for all of a project's cost problems in <br /> situations where budget definitions and reports are <br /> obscure or too simplistic. In the initial budget <br /> presentation, the time basis for dollars used in <br /> calculations must be stated (preferably identified <br /> to an acceptable cost index) and the basis for an <br /> escalation contingency must also be stated. In <br /> practice, this means that initial budgets should <br /> preferably be based on "current dollars" - that is, <br /> - as if the project were bid on the day the budget <br /> was prepared. A separate allowance should be <br /> carried for escalation, which is estimated to take <br /> place from that date to the date of actual bid <br /> call. Naturally this is easier said than done, but <br /> an attempt must be made to provide for this <br /> • certainty of uncertainties along the following <br /> lines: <br /> 1. Examine and analyze what local construction <br /> prices have done over the last few years. <br /> 2. Determine what the current market status is. <br />'— 3. Determine what is forecasted beyond the <br /> current market status. <br /> 4. Estimate the short and long term price <br /> forecasts. <br /> Experience and judgement should then be used to <br /> determine a reasonable assessment of what <br /> escalation allowance is appropriate for inclusion <br /> in the budget. This allowance should be reported <br /> upon separately as the project develops and <br /> reconciled at the end of the process prior to bid. <br /> 15 <br />