PhD student, G. Mehedinţu, Prof. Univ. Dr. Ing. N. Postăvaru Life-cycle cost of a building in the new Romanian legislation PhD student, G. Mehedinţu, Prof. Univ. Dr. Ing. N. Postăvaru

Introduction Values: European regulations on public procurement  new evaluation system: the life-cycle cost of the construction Competitiveness Transparency Quality of received services Harmonization in European legislation

Updating the European and national legal framework To develop the international public procurement markets To stimulate the trade To encourage non-discriminatory practices To promote qualitative public investments Directive 2014/24/EU  Law 98/2016

Updating the European and national legal framework New procurement criteria for awarding contracts: Most advantageous tender Lowest price criterion used in most cases under the old legislation Best price-quality ratio determined on evaluation factors, as qualitative / environmental / social aspects regarding the public procurement contract Lowest cost determined by considering profitability, using as calculation factors such as the life-cycle cost

The concept of Life-Cycle Source: own elaboration

Life-Cycle Cost Analysis ISO/DIS 15686:2008-5 „Buildings and constructed assets -- Service-life planning -- Part 5: Life-cycle costing” Facility management costs Source: own elaboration

Life-Cycle Cost Analysis Acquisition costs: land acquisition, design and execution General Estimate Forecasting on parameters of BKI Baukosteninformationszentrum deutscher Architektenkammern (Buildings Cost Information Centre of the German Chamber of Architects) BKI documentation / Cost groups: Part 1: Buildings - 1. Level of group costs (e.g., Construction group costs 300 - Gross structure) Part 2: Coarse elements: 2. Level of group costs (ex. Groups of costs 300 - exterior walls) Part 3: 3. Levels of elements (ex. Groups of costs 331 – supporting elements)

Life-Cycle Cost Analysis Steps in forecasting the investment costs of buildings: Identification of the cost groups; Classification of the building into three quality categories: "simple”, "medium”, "high”; Inclusion into the quality standard: each type of activity is given a score based on the three levels of quality; Summing up the score for each item into a result that also represents a standard assignment at a quality level; Framing the whole project in one of the three quality categories; Assignment of a cost value for each level of quality and detail, according to the information provided by the BKI table; Identification of the price ranges, according to the tables provided by BKI.  Efficient method: estimation is done quickly and easily in the project management phase, based on existent data & desired quality requirements

Life-Cycle Cost Analysis No international structure No precisely (based on estimations by different degrees of security) Uncertainty from: time, trend of operating costs, inflation etc. Romania: 2010 – cost standards for construction costs (not mandatory)  to reduce the State expenditure GD. 363/2010 regarding investments objectives financed of public funds; Order no. 2748/2010 regarding construction types subject to funding; GD. 1394/2010 regarding the investments objectives financed from public funds from transport infrastructure field. Use of life-cycle cost calculation – only individual practices in intermediate phases Will be mandatory by the new law It provides Better investment and purchase decision Gives insight into the entire life of the building

Life-Cycle Cost Analysis Example: investment I vs. investment II & life of the building: 50 years Old practice: 𝐿𝐶𝐶𝐵 𝐼 (2016) = 𝐶 𝐴 (𝐼) 𝐿𝐶𝐶𝐵 𝐼𝐼 (2016) = 𝐶 𝐴 (𝐼𝐼) New practice: total costs for year 2066  NPV 𝑁𝑃𝑉= 𝑡=1 𝑇 𝐶 𝑡 (1+𝑟) 𝑡 NPV = net present value Ct = total cost r = discount rate T = number of analyzed periods 𝐿𝐶𝐶𝐵 𝐼 (2066) = 𝐶 𝐴 (𝐼) + 𝐶 𝑂 (𝐼) + 𝐶 𝑀 (𝐼) + 𝐶 𝑅 (𝐼) + 𝐶 𝐷 (𝐼) 𝐿𝐶𝐶𝐵 𝐼𝐼 (2066) = 𝐶 𝐴 (𝐼𝐼) + 𝐶 𝑂 (𝐼𝐼) + 𝐶 𝑀 (𝐼𝐼) + 𝐶 𝑅 (𝐼𝐼) + 𝐶 𝐷 (𝐼𝐼) 𝑳𝑪𝑪𝑩= 𝑪 𝑨 + 𝑪 𝑶 + 𝑪 𝑴 + 𝑪 𝑹 + 𝑪 𝑫

Conclusions Change in procurement legislation & regulations in construction industry Improve quality of services Develop competitiveness Support economic development Life-cycle cost analysis: (+) takes into account both initial and later costs (+) knowing them in early stages of the construction project (-) information about surface, functional units, time, cost categories etc. (-) are not accurate: there are based on assumptions of time and costs (-) estimations related to inflation, operating costs etc. can’t be approximated correctly