Escalation can be defined as changes in price levels driven by underlying economic conditions. Escalation reflects changes in price-drivers such as productivity and technology, as well as changes in market conditions such as high demand, labor shortages, profit margins and so on. Escalation also includes the effects of, but differs from, inflation which is a general change in prices caused by debasement of the value of a currency. From an estimator’s perspective, escalation it is a unique “risk” cost that must be estimated. Complicating the issue, price escalation varies for different capital project components such as office and field labor, bulk materials, and equipment; it also varies by region and procurement strategy.
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