In general, the escalation rates applied to costs incurred during the construction period are not constant. Depending on market conditions the cost of raw materials, transportation, qualified labour, and other costs related to construction can increase relatively quickly in comparison to more broadly based inflation measures. Therefore, rather than using a constant escalation rate, Partnerships BC applies an escalation profile in the financial model, determined by the QS, that changes from year to year. For example, the escalation rate for the first year may be five per cent, then eight per cent for second year, and four per cent for the fourth year.
In order to test the base range of values, a + / - percentage range around the assumed escalation rate for each year is used. For example, if a + / - one per cent sensitivity is used, and the base escalation for the first year of construction is five per cent, for the second year it is eight per cent, and for the third year it is four percent, the sensitivity ranges would become four per cent to six per cent; seven per cent to nine per cent; and three per cent to five per cent respectively. The result of the sensitivity analysis is then presented in a table that compares the impact of construction escalation rate changes on the ASP and on the NPC of both the PSC and the Shadow Bid. An example of this table is shown below in Figure 11.
Figure 11: Construction Cost Escalation Sensitivity
| Construction Cost Escalation | 1st Year ASP ($m) | |
| Base | 65 | 68 |
| +1% | 53 | 69 |
| -1% | 78 | 66 |