Life Cycle Costs (LCC)

Groups: 
  • Design Projects
Category: 
  • Life Cycle Costs (LCC)
  • Environment
  • Buildings

Basic

Requirements and Criteria Type: 
  • Technical Specification (Requirement Specifications)

Main Objective: 

Motive

Investment and operating budgets are often not viewed together. If, for example, budget responsibility at the buyer is divided between an investment environment and an operating environment, the two environments will often have different incentives. For example, the investment environment's goal will be to achieve the lowest possible investment costs, while the operating environment will want the lowest possible operating costs. This difference has often resulted in sub-optimum technical and economic qualities and solutions for those who are going to administer, operate and maintain the solution, who will often end up with higher expenses than they would have had had they applied the life cycle perspective instead.

Acquisition costs (investment costs) account for approx. 50% of the total costs of a building during its entire service life. Other costs are linked to administration, operation and development. In sum, these are the life cycle costs (LCC) over its service life and per year, which are expressed as annual costs. If you only focus on the investment costs and do not assess options in relation to life cycle costs, you risk ending up with unnecessary operating and maintenance costs. Calculating life cycle costs provides an overview of when during the period of use maintenance, replacements and costs will come, meaning you will learn the actual costs of the project and achieve greater predictability regarding future costs.

Argument

The aim is to find the most cost-effective balance between administration, operation and development, investment costs and operating costs. Requiring calculations of life cycle costs ensures decisions are made based on a long-term, perspective and that they are of the right quality. It makes the total costs associated with constructing, administering, operating and maintaining the building visible. The Public Procurement Act therefore requires you to assess LCC. Using LCC therefore represents good administration of tax payers' money. This requirements specification sets out how you can use LCC as part of the decision-making process in execution.

Requirement Specification: 

Contractors must calculate two different alternatives based on life cycle costs pursuant to NS 3454:2013.

The contractor should do alternative assessments for the following elements:

  • Design and location of the building
  • Climatic buffer (roof and facade solution)
  • Energy concept
  • Operating and cleaning concept

Upon concluding the preliminary project and the detailed design project you must document how the calculations have affected the decisions that have been made, with the following conditions:

When assessing LCC you must compare different alternatives of the elements in the requirements specification when decisions are made about choices. For example, when a facade solution is discussed in a design team meeting, you should consider the impact of the various facade solutions on the annual costs. Assessments must only be made of solutions that are relevant to the building.

All LCC calculations must be collated in a report that shows the assumptions used in the calculations, a comparison of what was decided and why.

Documentation of the Requirement Specification: 

In the project, contractors must document that alternatives have been assessed with respect to expected life cycle costs in a report containing LLC calculations for the entire building pursuant to NS 3454:2013, with the following conditions:

  • LCC calculations must be based on economic service lives.
  • Base year and calculation interest for the calculation must be stated
  • Annual costs must be stated per square metre GIA and per user
  • Required rate of return 4%
  • Calculation period 60 years
  • The residual value after 60 years is set to 0
  • Administration costs must not be included
  • Energy price NOK 1 per kWh

 

You must document which historical figures have been used and on what the service lives of the various components are based.

Comparisons must be made for alternative assessments when this is relevant for decisions. This must be documented by both completed calculations and minutes from relevant design team meetings.

Information about the Requirement Specification: 

LCC are all the costs over the building's entire service life as defined in NS 3454:2013. This means acquisition costs and all of the costs associated with administration, operation, maintenance, replacement, development, supply, cleaning and residual value that accrue during the use phase. The disposal value is deducted, such that the residual value is set to 0.

Proposed indicators for calculating annual costs per indicator:
Building type NS 3031 Indicator NOK per
Office building FTEs
Kindergarten Kindergarten place
School building Pupil
Nursing home Resident day
Sports buildings User and use time
Cultural building User and use time

Where the client has historical figures from MOMD, these must be stated in the tender documentation. If you do not have such figures, you must obtain them. It is important that the figures are representative for the building you are going to erect. You will need help with this from a contractor if you do not have your own historical figures. This must be done prior to the tender competition and must be stated in the tender documentation.

(Since a need has been identified, different documents can be prepared such as response forms, background documents, guidance materials or enclosures, e.g. Excel calculations for LCC)

 

Advanced

Requirements and Criteria Type: 
  • Technical Specification (Requirement Specifications)

Main Objective: 

Motive

Investment and operating budgets are often not viewed together. If, for example, budget responsibility at the buyer is divided between an investment environment and an operating environment, the two environments will often have different incentives. For example, the investment environment's goal will be to achieve the lowest possible investment costs, while the operating environment will want the lowest possible operating costs. This difference has often resulted in sub-optimum technical and economic qualities and solutions for those who are going to administer, operate and maintain the solution, who will often end up with higher expenses than they would have had had they applied the life cycle perspective instead.

Acquisition costs (investment costs) account for approx. 50% of the total costs of a building during its entire service life. Other costs are linked to administration, operation and development. In sum, these are the life cycle costs (LCC) over its service life and per year, which are expressed as annual costs. If you only focus on the investment costs and do not assess options in relation to life cycle costs, you risk ending up with unnecessary operating and maintenance costs. Calculating life cycle costs provides an overview of when during the period of use maintenance, replacements and costs will come, meaning you will learn the actual costs of the project and achieve greater predictability regarding future costs.

Argument

The aim is to find the most cost-effective balance between administration, operation and development, investment costs and operating costs. Requiring calculations of life cycle costs ensures decisions are made based on a long-term, perspective and that they are of the right quality. It makes the total costs associated with constructing, administering, operating and maintaining the building visible. The Public Procurement Act therefore requires you to assess LCC. Using LCC therefore represents good administration of tax payers' money. This requirements specification sets out how you can use LCC as part of the decision-making process in execution.

Requirement Specification: 

Contractors must calculate two different alternatives based on life cycle costs pursuant to NS 3454:2013.

The contractor should do alternative assessments for the following elements:

  • Design and location of the building
  • Climatic buffer (roof and facade solution)
  • Energy concept
  • Operating and cleaning concept

Upon concluding the preliminary project and the detailed design project you must document how the calculations have affected the decisions that have been made, with the following conditions:

When assessing LCC you must compare different alternatives of the elements in the requirements specification when decisions are made about choices. For example, when a facade solution is discussed in a design team meeting, you should consider the impact of the various facade solutions on the annual costs. Assessments must only be made of solutions that are relevant to the building.

All LCC calculations must be collated in a report that shows the assumptions used in the calculations, a comparison of what was decided and why.

In addition, life cycle costs must be calculated for the entire building.

Documentation of the Requirement Specification: 

In the project, contractors must document that alternatives have been assessed with respect to expected life cycle costs in a report containing LLC calculations for the entire building pursuant to NS 3454:2013, with the following conditions:

  • LCC calculations must be based on economic service lives.
  • Base year and calculation interest for the calculation must be stated
  • Annual costs must be stated per square metre GIA and per user
  • Required rate of return 4%
  • Calculation period 60 years
  • The residual value after 60 years is set to 0
  • Administration costs must not be included
  • Energy price NOK 1 per kWh

 

You must document which historical figures have been used and on what the service lives of the various components are based.

Comparisons must be made for alternative assessments when this is relevant for decisions. This must be documented by both completed calculations and minutes from relevant design team meetings.

Information about the Requirement Specification: 

LCC are all the costs over the building's entire service life as defined in NS 3454:2013. This means acquisition costs and all of the costs associated with administration, operation, maintenance, replacement, development, supply, cleaning and residual value that accrue during the use phase. The disposal value is deducted, such that the residual value is set to 0.

Proposed indicators for calculating annual costs per indicator:
Building type NS 3031 Indicator NOK per
Office building FTEs
Kindergarten Kindergarten place
School building Pupil
Nursing home Resident day
Sports buildings User and use time
Cultural building User and use time

Where the client has historical figures from MOMD, these must be stated in the tender documentation. If you do not have such figures, you must obtain them. It is important that the figures are representative for the building you are going to erect. You will need help with this from a contractor if you do not have your own historical figures. This must be done prior to the tender competition and must be stated in the tender documentation.

(Since a need has been identified, different documents can be prepared such as response forms, background documents, guidance materials or enclosures, e.g. Excel calculations for LCC)

Criteria Relations and Conflicts: 

Miljøkompetanse hos tilbudt personell

Relatert kriterium

To ensure good LCC calculations, you can have a condition that the contractor has LCC competence.

Miljøkompetanse hos byggeplassledelsen

Relatert kriterium

To ensure good LCC calculations, you can have a condition that the contractor should have a certain level of LCC-competence.

Related links: 

Supporting documents/references

A good deal of information about LCC in procurements can be found on anskaffelser.no:

Published: 26. Jan 2018, Last modified: 26. Sep 2018