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Life-cycle costing

Introduction

LCC is being applied by an increasing number of public authorities across the EU and in a range of sectors.

Under the 2014 EU procurement rules a contract must be awarded based on the most economically advantageous tender (MEAT).  A number of different approaches are available under this general heading, some of which may be considered appropriate for GPP. 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. But how do you define the cost?

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. Life-cycle costing (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

For further details on how LCC approaches can be used as part of public procurement procedures see Article 68(2) of Directive 2014/24/EU and Article 83(2) of Directive 2014/25/EU.


LCC tools developed by the EC

The European Commission is in the process of developing a series of sector specific LCC calculation tools which aim to facilitate the use of LCC amongst public procurers.


cleaningComputers and Monitors

cleaningIndoor Lighting

cleaningOutdoor Lighting

LCC tools for the following sectors will be available soon:

  • Vending Machines (autumn 2019)
  • Imaging equipment (autumn 2019)

Further information

  • The Buying Green! Handbook (third edition), published by the European Commission, contains a section dedicated to LCC.
  • A comprehensive overview of LCC approaches, tools and good practices can be found in the EU-funded SPP Regions report 'State of the Art Report: Life Cycle Costing' (2017) available from this page.
  • Further practical information on how LCC can be used in public procurement is available from the Procura+ Manual (2016). 
  • The Forum on Sustainable Procurement, established by the Danish Ministry of Environment and Food, has a number of product-specific tools to calculate the Total Cost of Ownership (TCO) (available in Danish). These are available here.
  • The National Agency for Public Procurement in Sweden have several product-specific LCC calculation tools available online (in English). These are available here.
  • The SMART SPP project developed and tested a tool for public authorities to assess LCC and CO2 emissions and compare bids. It is available here (in English and Spanish). 
  • The EU-funded Clean Fleets project also created an LCC tool for vehicle purchases, available here.
  • The European Commission has developed EU GPP Criteria and accompanying Technical Background Reports for some 20 key procurement categoriesto aid the inclusion of green requirements in public tender documents. Many of these include further information on LCC for specific sectors.