Opoku (2013), BSI/BCIS (2008), Ashworth (1996) and Cole & Sterner (2000) state that LCC can provide value for money for clients, particularly on public projects. The OGC (2007) also attributes LCC to assessing value for money and emphasises that it is the relationship between LCC and benefits for the client that constitutes value for money. Clift (2003) and Kirkham (2012) maintain that the earlier an LCC exercise can be introduced during the procurement process the greater the possibility of achieving cost reductions and reducing the negative impact of a particular product or service on the environment. The central benefit of LCC is that it enables a whole cost approach to the acquisition of a capital asset, giving the client a total cost view of the project rather than only considering the initial CAPex. LCC facilitates more effective and economically sound decision making enabling the client to view current and future cost demands and use this to assist in their financial management (Clift, 2003; Cole & Sterner, 2000; Olubodun et al., 2010). The central benefit outlined here can be analysed into a number of themes based on the function of its application.
2.5.1 Evaluating Design
Ashworth (1996), Churcher (2008) and Kirkham (2005) agree that one of the main purposes of LCC is to compare several design options from a number of competing proposals. Kirkham (2005) advises that LCC should be used to inform decisions during design and to reassure clients that the overall performance of the building, for the entire life cycle, is taken into consideration through alternative design solutions. These purposes are in line with the BSI/BCIS (2008) standard methodology, which describes the process as a comparative tool for assessing alternative building components and options. Schaude (2011) and Ashworth (1996) claim that LCC could demonstrate the cost savings over the life of an asset, from a more efficient but costly initial investment. The BS-ISO (2008, p. 18) concurs, stating that “LCC analysis may be used to demonstrate whether or not higher acquisition costs are justified by lower in-use costs and/or enhanced performance”. An example of LCC
being used in the evaluation of building components is effectively demonstrated in Wong et al. (2010) where the economic feasibility of office buildings with conventional and Transparent Insulation systems (TI-Facades) were evaluated. The results of the analysis showed that LCC could be used to evaluate the feasibility of low carbon technologies.
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WLCC can be used as a mechanism that can reveal construction costs within the context of its total life costs, where total cost of ownership of a building can be significantly more than its initial CAPex (Flanagan & Jewel, 2005; Cole & Sterner, 2000). However, Fuller & Petersen (1996) and Kishk et al. (2003) state this calculation does not, by itself, provide added value to the client because it is inappropriate to predict and decipher a standalone lump sum WLCC without comparing it to another alternative. They state that LCC is beneficial when it is used to compare how one built asset monetarily performs against a competing alternative design. The competing designs could be a traditional design to a more sustainable option, or refurbishment versus new construction (Gluch & Baumann, 2004).
2.5.2 Life Cycle Costing as a Measure of Sustainability
Kelly & Hunter (2009) and Gluch & Baumann (2004) ascertain that sustainable construction presumes a whole systems approach, which considers the environmental, social and economic consequences of any decision made within the construction industry. An applicable word in this definition is ‘whole’ as it accentuates the consideration of more than just the initial action. The SCI-Network (2011) maintains that clients implementing sustainable practices into their buildings should require the total cost of their investment in the building rather than just the initial CAPex. It is becoming increasingly important that clients use an investment appraisal technique that uses a whole life approach, to examine how better environmentally performing buildings could be built for a cost that can be evaluated and justified in commercial terms (Aye, Bamford, Charters, & Robinson, 2000; Kelly & Hunter, 2009; Cole & Sterner, 2000). Therefore, without a whole life consideration sustainability could not be measured. The BSI/BCIS (2008) substantiate this view by defining WLCC as a methodology for assessing the economic effects of sustainability which allows for more comprehensive decision making based on sustainable evaluation rather than initial costs alone.
Glauch & Baumann (2004) and Churcher (2008) suggest that a LCC cannot fully represent a measure of sustainability as environmental considerations cannot only be expressed in monetary terms. Glauch & Baumann (2004) and Aye et al. (2000) propose that LCC be used in tandem with Life Cycle Analysis (LCA), which is a better determinant of environmental performance as it focuses on embodied carbon rather than an exclusive monetary analysis. LCC complements LCA because many
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of the calculation metrics such as maintenance and replacement profiles, for the calculation of LCC, are also necessary in LCA (Davis Langdon, 2007).
Design decisions related to the building’s energy efficiency such as orientation, thermal efficiency and airtightness can influence the buildings costs in use and LCC can be used to evaluate whether additional sustainable attributes and energy efficiency measures are cost effective over a given study period (Cole & Sterner, 2000; Gluch & Baumann, 2004). Fuller & Petersen (1996) explain how LCC can be used to assess the increased value of energy conservation on projects, hence adding to the sustainability of the asset. Ashworth et al. (2013) note that this is evaluated by payback analysis carried out through LCC calculations (outlined in Section 2.9) and allows for different energy solutions to be selected based on their LCC.
The application of LCC in sustainable construction is evident in green building rating methodologies such as Building Research Establishment Environmental Assessment Methodology (BREEAM) and Leadership Energy Efficient Design (LEED). These systems provide a scaled rating based on a building’s sustainability in UK and US respectively. Both LEED and BREEAM provide rating points for the application of LCC (RICS, 2015).
2.5.3 LCC and Facilities Management
LCC can also be used to determine the maintenance and replacement cost of a component or system over a study period. This information can inform design decisions on Facilities Management (FM) issues such as cleaning, maintenance, energy efficiency, durability and disposal (BS-ISO, 2008). Cost consultants can build sophisticated maintenance plans and profiles, ideally consulting with facilities managers, to devise a life cycle strategy and carry out maintenance and replacement works in accordance with the expenditure set out in the strategy (BS-ISO, 2008; Kehily, 2011). This essentially provides a budget and template for cost control during the life of the building (Churcher, 2008; Kirkham, 2005; El-Haram et al., 2002). This framework, as Kirkham (2005) suggests, can also be used to collate actual operational data during the operational phase, providing a mechanism of recording LCC as well. He recommends that information obtained from the building ‘in use’ should be utilised for future operational decision making. However, as will be discussed in Section 2.6.2 the applicability of recorded data for use on another
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construction project and in another context is refuted by a number of eminent authors in the field (Ferry & Flanegan, 1991; Ashworth, 1996; Clift & Bourke, 1999).
BS 8544:2013 provides guidance for carrying out LCC during FM and in doing so provides a framework to collect real cost data during use (BSI, 2013a). If LCC is used to inform FM and likewise FM to inform meaningful assumptions and costs in LCC, there must be collaboration between the two disciplines early in the procurement process (McAuley et al. 2013; Eastman et al., 2011). Eastman et al. (2011) note with early stakeholder involvement a building which is end use orientated can be achieved.
2.5.4 Procurement & Tendering
Hourigan (2012) states that the majority of construction work in Ireland is procured through the traditional procurement and tender process. The traditional tender process does not lend itself to a meaningful evaluation of LCC as the design is already completed prior to the tenderer receiving the tender documents (Kehily, 2011). As stated previously in Section 2.4.6, the contractor in traditional procurement has no real influence outside the quality of construction, over the cost of the building in use, and thus a LCC by the contractor would be of no real benefit (Flanagan & Jewel, 2005). However, in design and build procurement the contractor does have an input into the design process and thus has a significant influence on how the building will perform during the occupancy stage (Chiurugwi et al., 2010; Opoku, 2013). As discussed in Section 2.4.6, under the CWMF in Ireland, tenders can be evaluated as the ‘Most Economic Advantageous Tender’ (MEAT) rather than just lowest cost. The CWMF (Dept. of Finance, 2009) state that MEAT is a tender arrangement which meets the current economic needs of the Government and also their economic needs of the future by evaluating a tender that takes into account more than just the lowest price. Kirkham (2012, p. 100) points out that MEAT is not the lowest construction cost “but the best balance of quality and whole life cost to meet the clients brief”. LCC is a criteria which is included in the MEAT award, thus it encourages contractors to develop, and clients to evaluate, a tender which will reduce the future maintenance and operational costs of an asset (Kirkham, 2012; Dragos & Neamtu, 2013). As previously outlined in Section 2.4.6, MEAT will become more engrained in the tender process in EU member states, due to a recent
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EU directive, which will necessitate it’s use. This will increase the use of LCC on publically procured projects where contractors have an influence on the design.
In UK, the Government introduced the Private Finance Initiative (PFI) in 1992 as a means of privately financing public projects (Boussabaine, 2007; Swaffied & McDonald, 2008). PFIs are based on a long term contract where the company employed provides public services after construction of a project has been completed (Davis Langdon, 2007; Swaffied & McDonald, 2008). The long term nature of these investments means that there is increased client interest in operational and maintenance costs, as they have to pay the contractor staged payments over an agreed period, typically twenty-five to thirty years (Ashworth et al., 2013; Swaffield & McDonald, 2008). The contractor bidding on a PFI project must submit a tender that includes both construction costs and LCC. Kehily (2011) states without a way of accurately profiling future maintenance and replacement costs over the evaluation period, the PFI tenderer could mistakenly over-bid the tender, even if they submitted a very competitive construction cost. Conversely they could underestimate their LCC leaving them under resourced and exposed to risk during the operational phase.
LCC is viewed as the most effective method of analysing long term costs on PFI projects (Davis Langdon, 2007; OGC, 2007; Swaffield & McDonald, 2008). This is evidenced in the increased use of LCC on PFIs compared to non-PFI projects (Meng & Harshaw, 2013; Opoku, 2013). Swaffield & McDonald (2008) maintain that these projects are more likely to apply LCC effectively. However, their research found that in certain circumstances such as during exceptionally busy times or when working with tight construction budgets LCC was not considered and decisions were based on initial costs alone. This is echoed in Meng & Harshaw (2013) who conclude that the introduction of PFI increases the use of LCC on those projects, but does not help overcome the traditional barriers to LCC.