EU Directives

Until now LCC has been scarcely used in Public Procurement due to the difficulties in carrying out LCC (Ashworth et al., 2013; Kirkham, 2012). US, Japan, Switzerland

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and Norway apply LCC consistently as part of their procurement policy. Sweden, UK, Denmark, Germany, Netherlands, France and Austria report some form of LCC analysis. Some other countries such as Canada, Argentina, Spain, Italy, and Portugal report that they have experimented with LCC (Davis Langdon, 2007; Dragos & Neamtu, 2013). Davis Langdon (2007) and Dragos & Neamtu (2013) comment that in Europe Norway is the only European Union (EU) member state that has mandated LCC in public procurement. Other member states such as Sweden, Germany, France, UK and Netherlands have some level of implementation but do not have any legislation requiring LCC to be carried out as part of their public procurement processes (Davis Langdon, 2007).

The standards and guidance notes expound the benefits of LCC and in many instances provide a standard structure that was not there before their publication. However, they do not mandate the use of LCC on construction procurement in UK or Ireland. This leads to LCC being carried out on a voluntary basis by QSs and contractors using methodologies of their choice and their own in-house LCC tools (Dragos & Neamtu, 2013). The OGC and CWMF, which are government publications, do not legislate for LCC in the procurement process but are rather recommendations to carry out LCC on public works. This recommendation seems to be largely ignored, evidenced in the low application of the service in both UK and Ireland due to a number of barriers to implementation. (Chiurugwi et al., 2010; Hourigan, 2012; Olubodun et al., 2010; Opoku, 2013).

Though many procuring entities in the EU are using LCC as a decision making tool, its use is still far from systematic and the calculation methodologies are often adapted to the circumstances of the bid and left up to the contractor to present in a format and methodology of their choice (Pelzeter, 2007; Dragos & Neamtu, 2013).

On 26th February 2014, the EU introduced a new Directive on public procurement 2014/24/EU (EU, 2014). Dragos and Neamtu (2013, p. 19) state that the objectives of the new Directive are to “improve the efficiency of procedures” and to allow for

the “greater strategic use of public procurement to further environmental, social and industrial / innovation policies”. The scope of LCC in EU member states has been

expanded in the new Directive. Under the previous EU procurement rules (2004/18/EC) a contract could be awarded on either of two criteria; the lowest price tender or based on the Most Economically Advantageous Tender (MEAT) (EU,

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2004). Dragos & Neamtu (2013) outline that under the previous Directive when MEAT was selected tenders could be evaluated on the basis of LCC and not solely on the basis of lowest purchase price.

Under Article 67 of the new 2014/24/EU Directive, LCC will not only be applied to the MEAT award criteria, but will also form part of the lowest price tender award criteria (EU, 2014). This new EU Directive makes LCC a key requirement in public procurement, mandating its use on public works contracts (Dragos & Neamtu, 2013). The distinction now between MEAT and lowest price is blurred but Dragos & Neamtu (2013) explain that the difference will be that LCCs considered in lowest price will be based on a monetary evaluation only, while MEAT may include non- monetised externalities that do not necessarily have an effect on cost such as social considerations and environmental performance.

The Directive mandates that EU member states must have in place a national methodology of LCC for repeated or continuous application. This directive is yet to be transposed into UK and Irish legislation. In Ireland, the Environmental Protection Agency (EPA), in response to this Directive, has stated its intent to explore “the feasibility of developing a national methodology on life cycle costing for construction projects” (EPA, 2014, p. 32). As noted in section 2.4.5, a methodology

in this regard is provided by the SCSI in Ireland, but it is yet to be determined whether the Irish Government will implement this as the required methodology or instead develop a new national standard.

Another issue with engraining LCC in the Irish procurement process is that Ireland’s predominant procurement route is ‘traditional’, which means that the design must be complete prior to the tendering process (Hourigan, 2012). In traditional procurement and tendering the full design is already established prior to the contractor pricing the job and thus they have no real effect on the performance of the building in use because they have no input into the design. Thus a MEAT evaluation based on LCC would not yield any merit because all the contractors are pricing the same design and thus the building’s LCC should be the same no matter what contractor constructs it. Another EU Directive which has promoted the use of LCC is the Energy Performance Building Directive (EPBD) (2010/31/EU) (EU, 2010). This Directive was a recast of the original EPBD transposed into Irish Law from 2006. The recast

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Directive was subsequently transposed into Irish regulations by the Statutory Instrument (S.I), 243, in 2012 (Government-Publications, 2012). The EPBD and S.I. 243 obliges that energy performance information such as an energy performance Building Energy Rating (BER) is provided to building purchasers, tenants and users for consideration in property transactions (SEAI, 2015). A BER certificate is an indication based on an alpha-numeric scale of the energy performance of a building (SEAI, 2015). Article 11 of Directive 2010/31/EU states the building owner must receive “information regarding the cost-effectiveness of the recommendations made in the building energy rating certificate. The evaluation of cost effectiveness shall be based on a set of standard conditions, such as the assessment of energy savings and underlying energy prices and a preliminary cost forecast” (EU, 2010). This necessitates a monetary evaluation of the energy efficiency measures proposed by the BER assessor and is described in an advisory report submitted with the BER (SEAI, 2015). As will be outlined in the next section, LCC is the method used when evaluating building components and is especially applicable to sustainability and energy saving measures. LCC can do this by calculating the time it takes to payback an investment in an energy efficient technology (Gluch & Baumann, 2004; Kelly & Hunter, 2009). Although the Directive or related Irish legislation does not use the term LCC, it is evident that if a “preliminary cost forecast is required” an LCC of

the energy efficiency measures will be necessary.