life cycle costing (LCC)

Life cycle costing (LCC) is a methodology for calculating all costs generated by a procurement throughout its entire lifetime — from acquisition and commissioning through operation and maintenance to disposal. Rather than focusing solely on the purchase price, LCC provides a comprehensive picture of what a product, service or building actually costs over time.

How does life cycle costing work?

When a contracting authority applies LCC in a procurement, all relevant costs over the full lifetime of the subject matter are calculated. This typically includes:

• Acquisition costs — purchase price, delivery, installation and transition costs
• Operating costs — energy consumption, consumables and day-to-day use
• Maintenance costs — servicing, repairs and upgrades
• End-of-life costs — disposal, recycling or decommissioning
• Environmental externalities — greenhouse gas emissions and other pollutant emissions, provided they can be quantified and verified

Under EU Directive 2014/24/EU, Article 68, the calculation methodology must be specified in the procurement documents so that all suppliers can prepare their bids on equal terms.

Why is life cycle costing important?

Acquisition costs typically account for only 20–40% of total expenditure over an asset's lifetime, with 60–80% arising during the usage and disposal phases. By evaluating total lifetime costs, contracting authorities can identify solutions that deliver genuine value rather than simply the lowest price tag.

LCC can be used as an award criterion in the tender documents, or as a requirement in the requirements specification. A supplier with a higher purchase price may therefore win the competition if they can demonstrate lower costs over time. Tools like Cobrief can help suppliers identify and understand which LCC elements the contracting authority emphasises in the evaluation.

It is worth noting the distinction between LCC and two related concepts: TCO (Total Cost of Ownership) covers ownership costs without environmental externalities, while LCA (Life Cycle Assessment) maps environmental impact without cost calculations. LCC can encompass both dimensions.

Effective use of life cycle costing leads to better decisions for both contracting authorities and suppliers. By considering the full cost picture early in the process, organisations can avoid situations where the cheapest solution today becomes the most expensive in the long run.