What is 'life-cycle costing'?

The purchase price of a good or service is just one of the cost elements in
the whole process of procuring, owning and disposing. However, when
evaluating the environmental performance of such a good or service, it is
vital to consider all the costs incurred during its lifetime. This is known as
the ‘life-cycle costing’ approach.

Life-cycle costing should consider:

• purchase and all associated costs (delivery, installation,

commissioning, etc.)
• operating costs, including energy, spares, and maintenance
• end-of-life costs, such as decommissioning and removal

These costs should be factored in at the awarding stage.

Benefits of the life-cycle approach

1. All costs associated with a good or service become visible, especially

operating costs such as maintenance or energy consumption;
2. It allows an analysis of business function interrelationships. Low
purchasing costs may lead to high service costs in the future;
3. Expenditures in various stages of the life cycle are highlighted,
enabling public authorities to draw up budgetary predictions.

Importance for Green Public Procurement

The application of life-cycle costing in the tendering procedure may help

to procure a product with a better environmental performance. Such
scrutiny will reveal costs of resource use and disposal that may not
otherwise have received proper attention.

When the life-cycle cost of a contract is considered, green public

procurement clearly saves money and protects the environment at the
same time. By purchasing wisely, materials and energy can be saved,
waste and pollution reduced, and sustainable patterns of behaviour
encouraged.

The Commission services are currently examining the issue of life cycle
costing in the field of green public procurement and will shortly (early
2007) publish more detailed information in this respect