PRIMES[6] Life Cycle Costs (LCC) in GPP

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Overview

LCC - the real price of products

How to use LCC in public procurement

When to use LCC in public procurement

LCC methodology/tools

Good practice examples

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

OverviewHow much does a product cost?

Standard product Green product

Cost

PricePrice

Use Use

DisposalDisposal

Cheapest price

Economically most

advantageous offer

Changing mindset

Life Cycle Costing (LCC)

Covers the entire lifecycle of a product or provision of a service, from raw material to disposal/recycling

Before use – Development, production and procurement

During use – operation with operating costs, service and usage of resources

After use – recovery with disposal, recycling or sales revenue

Source: Baltic GPP Green Public Procurement PPT– www.balticgpp.eu

Life Cycle Costing (LCC)

Source: SMART SPP project – www.smart-spp.eu

BENEFITS

Greater awareness of total costs

Greater transparency of future costs

Better prediction and planning

Helps on evaluation of bids in a more sustainable manner

More efficient use of public resources

Greater awareness and communication of savings

Use of LCC in public procurement

Source: © SMART SPP Project - www.smart-spp.eu

LCC, LCA and TCOTerminology

Life Cycle Costing (LCC): technique considering costs and benefits taking place during a specific phase of the lifecycle of a product

Life Cycle Assessment (LCA): considers the environmental impact of a product from cradle to grave.

Total Cost of Ownership (TCO): includes only direct costs for the owner of the product (purchasing price + cost of use + disposal)

The real costsInternal & External costs

External costsSocial costs:

environmental damage, climate change,

biodiversity loss, health issues

Internal costsTCO (price, usage,

maintenance, disposal)

Advanced LCC

Conventional LCC

= LCC which monetises environmental

externalities [Whole-life costing” (WLC)]

= costs for society of specific environmental

impacts, such as climate change or

acidification.

External LCC costs

Use of LCC in top ten EU MS

Source: 2012, CEPS, The uptake of green public procurement in the EU 27

Overview

LCC - the real price of products

How to use LCC in public procurement

When to use LCC in public procurement

LCC methodology/tools

Good practice examples

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

EU Procurement DirectiveRequirements (Directive 2004/24, art. 68) I

Costs related to environmental externalities

can only be taken into account if their monetary

value can be determined and verified.

In order to ensure that LCC is transparent and

embodies equal treatment, the methodology

(LCC tool used) must be indicated in

advance in the tender documents and

accessible to all interested parties.

EU Procurement DirectiveRequirements (Directive 2004/24, art. 68) II

The methodology must be based on

objectively verifiable and non-

discriminatory criteria and the data

required can be provided with reasonable

effort by 'normally diligent' operators,

including those from outside of the EU. Whenever a common method for the calculation of

life- cycle costs has been made mandatory by a

legislative act of the Union, that common method shall

be applied for the assessment of life-cycle costs (e.g.

Clean Vehicles Directive).

The Clean Vehicle DirectiveExternal LCC costs

Contracting authorities must take energy and

environmental impacts into account when purchasing

road transport vehicles (either in specifications or award

criteria)

Provides methodology for the monetisation of these

impacts

Model allocates a monetary value to several types of

emission – carbon dioxide (CO2), nitrous oxide (NOx), non-

methane hydrocarbons (NMHC) and particulate matter

Cost of lifetime emissions of each vehicle tendered to be

added to other direct costs such as purchase price, fuel costs

and maintenance.

LCC considerations (I)Savings on use of energy and water

Need of energy and water => strong impact on LCC

costs

Need of energy and water => strong environmental

impactGreek city saves on lighting costs

The City of Amaroussion in Greece examined the potential savings from

replacement of its street lighting equipment before going to tender. It found

that replacement of its old high-pressure mercury lamps with metal halide

lamps would lead to savings of approximately 40% per annum in terms of

electricity consumption.

Source: Buying Green! A handbook on green public procurement 2nd edition, European Commission 2011

Savings on maintenance and replacement

maximise the period until replacement

minimise the amount of maintenance work which needs

to be done.

Innovative example!

The use of ground granulated blast furnace slag in concrete may increase

the lifespan of buildings, and at the same time reduce the amount of

efflorescence (saltpetering) requiring maintenance.

This could reduce the total life-cycle cost when compared with other types

of concrete. consumption.

Source: Buying Green! A handbook on green public procurement 2nd edition, European Commission 2011

LCC considerations(II)

Savings on disposal costs

Often underestimated!

Can turn a bargain into an expensive purchase.

Range from cost of physical removal to paying for secure

disposal.Intelligent planning in building sector

In your call for tenders you could ask builders how much hazardous waste

they expect to produce during demolition and the cost of removing it. In

some cases, e.g. road building, it should also be possible to calculate the

profits to be made from using recycled waste materials, such as used

asphalt or demolished building materials.

Source: Buying Green! A handbook on green public procurement 2nd edition, European Commission 2011

LCC considerations(III)

Discount rate and data availability

Discount rate

Costs in the future are not worth as much as those

incurred today

Net present value: e.g. 1000€ invested today at 3%

interest would be worth 1030€ in 1 years‘s time.

Therefore, 1030€ spent in 1 year‘s time is only worth

1000€ at present time.

Data availability and reliability

Unpredictability of costs to be incurred in the future needs

independent, reliable cost estimates (e.g. future trend of

fuel prices)

LCC considerations(IV)

Data needed for calculations

A breakdown of the various costs of the product or service

An estimate of all costs

The discount rate and the inflation rate for the different

cost elements

The time frame in order to calculate the present net value

of the the product or service

LCC considerations(V)

Overview

LCC - the real price of products

How to use LCC in public procurement

When to use LCC in public procurement

LCC methodology/tools

Good practice examples

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

EX ANTE (pre-tendering phase)

Before the tendering procedure to:

help defining needs

decide on the best available environmental and economic

option to tender (planning)

Example:

Provide public transport tickets for administration instead of

purchasing new cars

Use of LCC in public procurement

DURING the tendering procedure

During the tendering procedure to:

compare the economic offers of products and services

Example:Assign a higher amount of awarding points to offers/bids with lower LCC

Use of LCC in public procurement

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

EX POST

After the tendering procedure to:

assess choice green vs. standard product

inform on the benefits obtained

gather information and enable better future planning

Use of LCC in public procurement

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Overview

LCC - the real price of products

How to use LCC in public procurement

When to use LCC in public procurement

LCC methodology/tools

Good practice examples

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Microsoft Excel® Tool (html-version: www.lcc-tool.eu)

Supports procurers in calculating life-cycle costs and CO2

emissions of innovative products and services

Graphical display of results and tender evaluation (up to

15 offers)

The Smart SPP LCC/CO2tool

Source: © SMART SPP Project - www.smart-spp.eu

Tool produced within EU-Project „Buy Smart+ Green

Procurement in Europe“ (IEE EC Funding programme)

General calculation tool to be used for electricity using

products

Website:

http://www.buy-smart.info/downloads2/downloads3

The BUY SMART+ tool

Source: Buy Smart+ at www.buy-smart.info

SEMCO has developed several excel tools for calculating

LCC in public procurement.

In addition to a general tool, specialised ones are available

for professional kitchens (fridges and freezers), indoor and

outdoor lighting and vending and coffee machines, light

vehicles

Website: http://www.msr.se/en

The Swedish Environmental Management Council (SEMCO)

Energy Calculator for PC Equipment

Website: http://www.eu-energystar.org/en/en_008.shtml

The ENERGY STAR ® tool

Overview

LCC - the real price of products

How to use LCC in public procurement

When to use LCC in public procurement

LCC methodology/tools

Good practice examples

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Kolding, DenmarkInterior and external lighting

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Founding member of :

Kolding, DenmarkGood practice example

Introduction:

Procurement of innovative, energy efficient

LED replacement light bulbs, for indoor and

outdoor use

aims to encourage sustainable product innovation for

energy efficient lighting technologies

Tender was devided in three sub-groups: low voltage

lights bulb, 230 volt halogen light bulbs and pins, 230

volt light bulbs

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Kolding, Denmark

Technical specifications:

Indoor lighting CRI (Colour Rendering Index)>80 Colour temperature (Kelvin) 2700-3000 General lighting-efficiency (lumen/watt)> 50 Effect lighting -efficiency (lumen/watt)> 40 Life-span (hours at L70)> 20000

Outdoor lighting CRI (Colour Rendering Index)>75 Colour temperature (Kelvin) 3000-4000 General lighting-efficiency (lumen/watt)> 50 Life-span (hours at L70)> 20000

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Kolding, Denmark

Award criteria:

Life-cycle costs have been given a weighting of

55%. These are broken down by: purchase price

(35%), lifetime (35%) and operating costs (30%)

Energy-efficiency (lumen/watt) (25%)

Light quality (CRI) (20%)

Results:

The deadline for responding to the call for tender is set

for the end of February. The results of the tender will be

available on the SMART SPP website when the process

is completed. Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Berlin, GermanyVehicles

© http://it.gdefon.com/download/vista_Strada_viale_Berlino_parco/411414/3000x1988

Berlin, GermanyGood practice example

Introduction:

procures a variety of vehicles every year

(approximately 200)

considering life cycle costs in the procurement process

of vehicles to include energy and environmental costs.

sustainability criteria included based on those required

by the Clean Vehicles Directive and were developed in

further detail to meet the needs of the police force and

adjusted to the current status quo of vehicle technology

Berlin, Germany

Technical specifications:

Meeting German 4 standard for particle emissions – this

allows the vehicle to be driven in German inner-city

environmental zones (‘Umweltzone’)

Carbon particulate filter (for diesel engines)

Meeting the Euro 5 European Emission Standard (the

most demanding standard at the time of tendering)

Berlin, Germany

Award criteria I:

The tender was awarded using a two-step process: 1) Assessment of technical aspects (40% of total points) and LCC

(60% of total points), which includes financial and environmental costs. A maximum of 40,000 points could be awarded.

2) The highest scoring bid from step 1, along with the bids which scored up to 10% less points, were then compared purely on the basis of their purchase price, awarding the tender then to the lowest bid.

Berlin, Germany

Award criteria II:

LCC including environmental costs: Maintenance costs were calculated based on calculations made using

co-efficients for future specific maintenance and repair work of the vehicles (e.g. tyres, window replacement). The environmental costs were calculated based on a) fuel consumption, b) energy consumption, c) CO2 emissions, d) NOx, e) non-methane hydrocarbons and f) particulate matter.

The lifetime cost calculation from the Clean Vehicles Directive was largely used as a basis for calculating the environmental costs.

Berlin, Germany

Results: There were no problems encountered with bidders being unable to

conform or meet the tender requirements. Also, the total number of bids received did not differ to the number

received from previous tenders. Due to the strict focus and the consideration of the various costs

during the products lifetime, the tender was awarded to the bidder who successfully complied with the predetermined environmental criteria and also satisfied the financial requirements imposed, thus also obtaining a positive economic result for the tendering authority.

Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net