Total Cost of Ownership (TCO) & Life Cycle Costing (LCC)

Sources: Documentation from State of Massachusetts Procurement Information Center (PIC), City of
Fort Lauderdale, Laramie County School District and Cobb County among others.

Definitions

Total Cost of Ownership (TCO) refers to the sum of all costs incurred throughout the lifetime of owning
or using an asset; they typically go beyond the original purchase price. TCO enables decision makers to
look at asset procurement in a more strategic way (beyond the lowest bidder) and to level the playing
field when choosing among competitive bids where the lowest priced bid may or may not be the least
costly asset to procure.

Life Cycle Costing (LCC) is a technique to establish the total cost of ownership. It is a structured
approach that can assist management in the selection process. It can take into account any costs that
the selection team feels are appropriate. Maintenance, asset disposal, training, cost of upgrades, energy
consumption, resources used in manufacture and cost of duplicate service during installation are all
examples of costs that could be included in an LCC analysis.

Guidelines

The Program must include in the solicitation (Bid or RFP) relevant information about the product to be
procured so that data supplied by bidders can be compared in an apples-to-apples manner. This type of
information might include:

Particular application for which the product is intended.

Projected number of years of product use. (The solicitation may just state an operating time period.)

Operating environment (temperature, light, capability of product users).

The solicitation must describe how Life Cycle Cost will be applied in the award process. Factors not
described in the solicitation may not be used in the evaluation. The solicitation must describe all
relevant costs, along with appropriate supporting information, the bidder must provide.

Typical elements used in Life Cycle Costing awards may include:

Average unit price including, if applicable, recurring and nonrecurring charges.

Delivery, shipping and transportation costs.

Switching costs prepared by the Program that include a reasonable estimate of what it will cost to
switch from a current product or brand to another.

Support costs (e.g., manpower, energy, parts requirements, scheduled maintenance, and training).

Disposal costs.

Unit salvage or residual value.

Any other relevant information.

Language

Example #1:

If so specified in the ITB, the County may elect to evaluate equipment using Lifecycle Cost (LCC) analysis
to arrive at a total cost of ownership (TCO). In using LCC analysis, the County assumes the analysis
period will be ___ years. Factors such as the following may be considered: maintenance costs, cost of
supplies, labor intensity, energy usage, environmental impact, and residual value. The County reserves
the right to use those or other applicable criteria which, in its sole opinion, will most accurately estimate
total cost of use and ownership of the product(s) identified in this procurement. Bidders are asked to
provide the following estimates:

1. _________

2. _________

3. _________

Etc. _________

Example #2

Bidders are asked to itemize all costs and to provide specific hardware requirements. Costs should
include, but not be limited to, the following:

Basic cost of system

Add on costs

Implementation costs

Training costs

Original license fees and annual licensing fees

Annual maintenance and technical support costs

Hardware costs if provided by your firm

Any other options that may be recommended or not listed herein