Life cycle costing

When purchasing goods and services, the most inexpensive offers are often not the most economic ones. Inexpensive products might cause higher follow-up costs compared to more expensive alternatives. Such higher costs might arise, for example, from the consumption of auxiliary materials or energy during the usage phase, the installation and maintenance costs and the costs at the end of the useful life (in particular costs for picking up, disposal and recycling). This includes the costs arising from external effects of the environmental pollution which are associated with the advertised capacity during the life cycle. Life Cycle Costing includes these factors in the calculation of the actual costs for a product. For that reason, the method can also be used to promote environmentally friendly products and thus contribute to relieving the environment.

Under procurement laws, it is permissible to take into account the life cycle costs in the assessment of offers (Sec. 59 of the VgV (Regulation on the Award of Public Contracts) 2016, Sec. 16 (8) of the VOL/A (Regulation on the Award and Contracts for Services, Part A)). A consideration of such costs has, in part, already been bindingly prescribed. That means that all German federal offices must consider the life cycle costs, when they assess offers for the procurement of products and services consuming energy (Art. 2 (3) of the AVV-EnEff (General Administrative Regulation for the Procurement of Energy-Efficient Products and Services) dated 18 January 2017).

If energy consuming products are the subject matter of a tender exceeding the EU thresholds, the energy efficiency must adequately be considered as an award criterion (Sec. 67 (5) of the  VgV 2016). That can be done, in particular, through considering the life cycle costs. Bidders must, in suitable cases, be requested to provide an analysis of minimized life cycle costs or the results of a comparable method to verify the efficiency (Sec. 67 (3) item 2 of the VgV 2016).
And, for the procurement of road vehicles, life cycle costs in the form of energy consumption and other environmental impacts must become part of the award criteria (Sec. 68 (2) item 2 of the VgV 2016) and must be assessed and calculated financially by using the method prescribed for such (Annex 3 to Sec. 68 (3) of the VgV 2016 “Method to Calculate the Operating Costs of Road Vehicles Arising during their Useful Life”).

Different tools have become available for calculating the life cycle costs:

• The general Excel tool of the German Environment Agency can be used to assess up to five different procurement options. It considers all essential cost categories, such as cost of acquisition, operating costs and costs of disposal. The tool was developed by the Öko-Institut e.V. on behalf of the German Environment Agency as part of the “National implementation of the new EU procurement guidelines“ project.
• A product-group specific Excel tool of the German Environment Agency provides assistance in the calculation of life cycle costs of computers, multi-functional devices, monitors, computing centres, floor coverings, refrigerators and dishwashers. This tool was also developed by Öko-Institut e.V. on behalf of the German Environmental Agency (research project “Scientific support of processes for an green public procurement”). 
• The Calculation Tools of the Berliner Energieagentur for the products groups of vehicles, household devices and IT can be used without any comprehensive prior knowledge. It enables a fast access to calculating life cycle costs.
• The life cycle costs for a high number of product groups and the arising CO2 emissions can be presented by using the LCC Tool of ICLEI / Öko-Institut. This tool is not only able to consider emissions arising during the usage phase, but also those caused by manufacturing, transport or disposal (so-called “grey emissions”).
• A tool for calculating the external costs arising during the useful life of road vehicles in accordance with the method prescribed in the Directive on the promotion of clean and energy-efficient road transport vehicles (Directive 2009/33/EG) was prepared as part of the Project Clean Fleets funded by the EU Commission.

The Life Cycle Costing Tool Picker which has been available on the website of the Competence Centre for Innovative Procurement since September 2016 supports in the selection of the most suitable life cycle costing tool.
A practical introduction to the calculation of life cycle costs and their use in procurement processes can be found in the Training Script Green Procurement, Part 2.