1.40 Escalation leads to estimated values increasing over time, often at different rates. Given that costs, income and benefits do not arise instantaneously, the Spreadsheet needs to take account of the effect of "escalation", particularly where this escalation represents a real terms increase in the value of all or some of the Spreadsheet inputs (i.e. the expected increase exceeds retail price inflation). Different input variables are subject to different pressures and should, where appropriate, be escalated by different indices.
1.41 The Green Book requires costs and benefits to be expressed in consistent price terms4, either in real (i.e. constant price) or nominal (money-of-the-day) terms. The Spreadsheet presumes that prices are modelled in nominal terms, although it can, if necessary, be amended to operate on a constant price basis. If Procuring Authorities require the discounted cash flow analysis to be undertaken on a real terms basis, then a number of adjustments will need to be made to certain Input and Default Values. In particular, Procuring Authorities will need to ensure that escalators used in the Spreadsheet are stated in terms that are consistent with the remainder of the discounted cash flow analysis.
1.42 All periods in the Spreadsheet are annualised. The length of the Contract Period and the Construction End Year are both Input Values to be determined by the Procuring Authority, as these will vary from project to project. The Spreadsheet is sufficiently flexible to enable Procuring Authorities to examine the VfM of projects that have prolonged construction periods (such as for street lighting or roads maintenance projects) and/or where the Unitary Charge is expected to commence in advance of the Construction End Year, although where there are more than two phases this will have to be smoothed before it is entered into the spreadsheet.
1.43 The Spreadsheet allows for four different escalators, namely:
• The "CapEx Escalator";
• The "OpEx (employment) Escalator";
• The OpEx (non employment) Escalator
• The "Unitary Charge Escalator";
4 See Section 5.42 of The Green Book (www.hm-treasury.gov.uk/greenbook)