![life_cycle_costing.jpg](/sites/default/files/styles/featured_box_portrait_mobile/public/publication/life_cycle_costing.jpg?h=3ca7f166&itok=6zpf0xi2)
Life Cycle Costing in Sustainable Public Procurement: A Question of Value
Life-cycle costing (LCC) moves beyond the purchase price of a good or service, to also include all other significant cost flows over the entire life period of a product or service. More specifically, LCC analysis thus also includes operating costs, end-of-life costs and the longevity and warranty time frames of the assets. Through this report IISD finds that, although many procurers have been using LCC as a decision-making tool, its use is not yet systematic. This observation leads to the conclusion that procurement policies, even sustainable public procurement ones, are suboptimal. A total of 24 issues are identified and discussed in this report.
The fact that LCC is not yet considered a critical component of sustainable public procurement emerges due to a number of factors. Among others, budgetary decisions based on life-cycle costing may imply higher up-front costs, which is often unattractive for governments who want to make procurement decisions based on the lowest possible costs. In the same vein, compared to financial returns, socioeconomic gains from procurement decisions are often not factored in sufficiently. However, the higher initial costs of using LCC are related to a number of non-budgetary causes. There are, for example, still many research gaps in the application of LCC. Similarly, a lack of competence in conducting LCC, and insufficient tools and data to do it properly, make its use much less attractive.
A lack of motivation to use LCC often arises from the fact that financial gains or long-term benefits from its use will likely occur after the original procurement decision maker's time in office. Therefore, LCC should become part of public expenditure policy. This requires a build-up of capacities, tools, platforms and expertise to do LCC properly. It also demands an understanding that higher investments may be necessary to reach success. In this regard, it could be useful if organizations are allowed to retain some savings achieved through SPP to invest back into new initiatives.
You might also be interested in
Avoiding Trade Concerns in the Design of Plastic Pollution Measures
IISD provides insights on aspects of WTO members' plastics that have created friction with trading partners and suggests recommendations for the adoption of such policies in the future.
WTO Joint Initiative on E-Commerce State of Play
A finalized legal text of the e-commerce joint statement initiative agreement may be within reach: this report provides an overview of how close the participants are to the finish line and what remains to be agreed on.
Modelling the Impacts of Policy Interventions for Agrifood Systems Transformation in Indonesia
This report provides context and insights for agrifood systems transformation efforts in Indonesia by detailing an innovative modelling approach and offering policy implications and next steps to inform the Indonesian government's development planning.
The Global Minimum Tax and Special Economic Zones
Guidance for governments on reforming tax incentives in special economic zones amid the global minimum tax.