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  • Question

    Is there a standard escalation rate that GSA will accept?


    Answer

    There could be many variables. There should not be one escalation rate for all. Below is the GSA website where I found information on escalation rates. I hope this helps.
     
    http://www.gsa.gov/portal/content/101197

    • Future one-time costs, such as replacement costs, are established by escalating a known today’s value (using real growth rate) to its future value in the year it occurs, then discounting that value back to its present value (using a real discount rate). The formula for this is shown in the LCC Formulas Table 1-1.
    • For instances where an alternative has service life beyond the analysis period, allowance shall be made for the associated residual service worth. This calculation involves identifying the future residual value at the end of the analysis period, then discounting the amount back to the present. The future residual value can be approximated by multiplying the future investment value (less future salvage value at the end of its service life) by the proportion of time remaining in the analysis period, compared to its service life.
    • Annually recurring fixed costs include those costs where increases have no real growth, such as costs that increase at the general inflation rate. They can be represented by the formula shown in the LCC Formulas Table 1-1. Also in this table is the formula for recurring costs where recurring costs escalate. Both formulas involve multiplying a known cost (in today’s value) by a uniform present worth value.
    • Fuel costs represent a special case of recurring escalating costs. Uniform present worth values are available from NIST data, correlating specific fuel types by sector/location for a defined analysis period.For simplicity, demand charges may be assumed to escalate at the same rate as consumption charges.
    • Investment and replacement actions over time may impact recurring costs. For simplicity, unless otherwise directed, fluctuating recurring cost savings may be assumed to be proportionate to the savings realized at the start of the analysis period.
    • Calculate the savings to investment ratio (SIR) for comparisons of dissimilar alternatives, such as comparing an HVAC alternative to a lighting alternative. Calculate net savings for comparisons of similar alternatives, such as optimizing insulation thickness in a wall.
    • A sensitivity analysis is required whenever assumptions may be considered questionable. This simply requires conducting multiple LCC analyses using extremes of cost parameters in question.
    • Due to possible margins of error in estimating costs, alternatives with a life cycle cost differential of less than 10 percent can be judged inconclusive by GSA.
    • To define energy related cost impacts for alternatives that are influenced by weather and/or varying loads/schedules, the energy use modeling program DOE2 or other approved software shall be used.


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