PRIMES [6] Life Cycle Costs (LCC) in GPP Presented by (Insert own logo)

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

Overview How much does a product cost? Standard product Green product Cost Price Use Disposal

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–

Life Cycle Costing (LCC) Source: SMART SPP project –

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 -

LCC, LCA and TCO Terminology  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 costs Internal & External costs External costs Social costs: environmental damage, climate change, biodiversity loss, health issues Internal costs TCO (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 Directive Requirements (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 Directive Requirements (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 Directive External 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 impact Greek 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 2 nd 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 2 nd 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 2 nd 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: higherlower 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:  Supports procurers in calculating life-cycle costs and CO 2 emissions of innovative products and services  Graphical display of results and tender evaluation (up to 15 offers) The Smart SPP LCC/CO 2 tool Source: © SMART SPP Project -

 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: The BUY SMART+ tool Source: Buy Smart+ at

 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: The Swedish Environmental Management Council (SEMCO)

 Energy Calculator for PC Equipment  Website: 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, Denmark Interior and external lighting Source: © Image courtesy of Stuart Miles at FreeDigitalPhotos.net Founding member of :

Kolding, Denmark Good 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)  General lighting-efficiency (lumen/watt)> 50  Effect lighting -efficiency (lumen/watt)> 40  Life-span (hours at L70)> Outdoor lighting  CRI (Colour Rendering Index)>75  Colour temperature (Kelvin)  General lighting-efficiency (lumen/watt)> 50  Life-span (hours at L70)> 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, Germany Vehicles ©

Berlin, Germany Good 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