Life-cycle costing

The European Commission (EC) has developed a series of sector specific Life-cycle costing (LCC) calculation tools which aim to facilitate the use of LCC among public procurers in line with Article 68 of Directive 2014/24/EU and Article 83(2) of Directive 2014/25/EU. Other LCC tools have been developed by other entities.

When you purchase a product, service or work, you always pay a price. Purchase price, however, is just one of the cost elements in the whole process of purchasing, owning and disposing. LCC means considering all the costs that will be incurred during the lifetime of the product, work or service:

• Purchase price and all associated costs (delivery, installation, insurance, etc.)
• Operating costs, including energy, fuel and water use, spares, and maintenance
• End-of-life costs (such as decommissioning or disposal) or residual value (i.e. revenue from sale of product)

LCC may also include the cost of externalities (such as greenhouse gas emissions) under specific conditions laid out in the directives. The current (2014) Directives require that where LCC is used, the calculation method and the data to be provided by tenderers are set out in the procurement documents. Specific rules also apply regarding methods for assigning costs to environmental externalities, which aim to ensure that these methods are fair and transparent.

LCC makes good sense regardless of a public authority’s environmental objectives. By applying LCC public purchasers take into account the costs of resource use, maintenance and disposal which are not reflected in the purchase price. Often this will lead to ‘win-win’ situations whereby a greener product, work or service is also cheaper overall. The main potential for savings over the life-cycle of a good, work or service are:

• Savings on use of energy, water and fuel
• Savings on maintenance and replacement
• Savings on disposal costs

[Cost or price will form part of the assessment of any procedure and is usually one of the most influential factors. Costs may be calculated on the basis of a product’s life-cycle. Life-cycle costing (LCC) means considering all the costs that will be incurred during the lifetime of the product, work or service. For further details on how LCC approaches can be used, see Article 68 of Directive 2014/24/EU and Article 83(2) of Directive 2014/25/EU.]