Discount rate in the construction industry
The New Rules of Measurement (NRM) are published by the Royal Institute of Chartered Surveyors (RICS). They provide a standard set of measurement rules for estimating, cost planning, procurement and whole-life costing for construction projects.
NRM3: Order of cost estimating and cost planning for building maintenance works, defines a ‘discount rate’ as:
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The percentage rate required to calculate the present value of a future cash flow (i.e. used for bringing future costs to a comparable time base). For example, if investing at 3 per cent interest, then the present value is discounted by 3 per cent as it is worth less than future earnings due to interest. The discount rate is a factor or rate reflecting the time value of money that is used to convert cash flows occurring at different times to a common time base. |
Where the present value is:
'...the cost or benefit in the future discounted back to some base date, usually the present day, at a given compound interest rate'.
NRM3 defines the ‘treasury discount rate’ as:
'…the rate specified as the discount rate by the UK Government Treasury to be used as the discount rate for public sector whole life costing calculations.'
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