Cost and EU Public Procurement Law

Life-Cycle Costing for Sustainability

Marta Andhov, Roberto Caranta, Anja Wiesbrock

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429594601
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Public institutions, companies and governments in the EU and around the world

are increasingly engaging in sustainable public procurement – a broad concept

that must consider the three pillars of economic equality, social welfare and public

health and environmental responsibility when designing public tenders and

finalizing government contracts.

This book contributes to the development of life-cycle criteria tools and methodologies

for public procurement in the EU. It collects both sector-crossing contributions

analysing the most relevant theoretical and legal aspects, including

both EU law and contract theory, and sector-specific contributions relating to

some of the most important sustainable goods and services markets. The book

starts with a chapter that discusses the different approaches to including sustainability

considerations in buying decisions by both private and public purchasers,

and then goes on to examine the EU law on LCC and how it is implemented

in different Member States. These chapters address the challenges in balancing

economic and sustainability objectives under EU internal market law. One

chapter develops the analysis with specific reference to public-private partnership.

Another chapter elaborates how multi-stakeholders' cooperation is necessary to

develop LCC, based on a case study of a lighting services procurement. Three

sector-specific studies relating to social housing, textile and clothing and IT close

the book.

With contributors from a range of backgrounds including law, business, management,

engineering and policy development, this interdisciplinary book provides

the first comprehensive study on LCC within the framework of EU public

procurement law.

Part I
Balancing economic and sustainability objectives under EU internal market law

1 What is life-cycle costing?

Jason J. Czarnezki and Steven Van Garsse

1.1 Introduction

Traditionally and not unexpectedly, when governments procure goods and services, the focus is on the lowest purchase price. The broader costs arising from production and distribution are often ignored, as are the future costs of use or disposal. For example, when tendering for a construction project for roads, environmental externalities or future cost of maintenance is in most cases not considered. However, those costs can be substantial, making the true costs of the good or service much higher than the initial purchase price. In other words, the initial cost is budgeted, but operating, maintenance, replacement, and disposal costs are not, nor are the costs borne by society at large and the natural environment.

An evolution in public procurement is underway. One of the major novelties in the EU public procurement law is the introduction of a life-cycle costing (LCC) approach in the evaluation of the most economically advantageous tender.¹ This novelty is not a coincidence but goes hand in hand with the rise of what is called sustainable public procurement – a broad concept that must consider the three pillars of economic (in)equality, social welfare and public health and environmental responsibility when initiating public tenders and finalizing government contacts.

Purchase price only reflects a narrow range of product information and final costs for consumers and society. Prices fail to incorporate indirect supply chain costs (environmental and social externalities) and benefits (positive eco-system services). To go beyond price, methodologies are necessary to take into account a broader range of costs and benefits related to product production, acquisition and use.² This brings us to the contemporary and ever-evolving concept LCC. Most simply, LCC can be seen as a tool that provides a structured approach that can assist in procuring entities in their selection and decision-making process when comparing projects for works, goods or services. LCC, in its fullest and purest form, attempts to measure and monetize the total cost of a product throughout its entire life cycle (extraction, production/manufacturing, packaging, distribution, use and disposal), though methodologies, scoping and terminology remain diffuse and in their infancy.³ In fact, many more or less related concepts exist such as life-cycle assessment (LCA), total cost of ownership (TCO), whole life cost (WLC), environmental LCC (E-LCC) and societal LCC (S-LCC), and even more methodologies are used to establish costs and benefits associated with those concepts. Most of these concepts face similar implementation challenges and pitfalls. Data challenges include the need for reliable real and historical data, needed data are not shared as parties see them as proprietary and commercially sensitive, necessary data are poorly documented, and inadequate understanding of how data can be analysed. Other difficulties include lack of agreement on and divergence of the methodological details, lack of common agreement on how to interpret some of the requirements of the methods used, lack of awareness of the benefits of the analysis, budget design and management, and rules on public expenditure often hinder the uptake of these concepts.⁴ It may therefore not come as a surprise that actors in the procurement process are slow and even reluctant in adopting LCC practices.⁵

1 Public Sector Directive, recital 92 and art 68.

2 See outcomes of the International Conference on Procurement Beyond the Price in special issue: Marta Andrecka (ed), ‘Procurement Beyond the Price’ (2017) 12 European Procurement Public-Private Partnership Law Review (further: EPPPL) 217.

3 Dacian C. Dragos and Bogdana Neamtu, ‘Sustainable Public Procurement in the EU: Experiences and Prospects’ in Francois Lichère and others (eds), Modernising Public Procurement: The New Directive (Djøf Publishing 2014) 324.

4 See: Jeroen B. Guinée and others, ‘Life Cycle Assessment: Past, Present, and Future’ (2011) 45 Environmental Science Technology 90; Konstantinos J. Liapis and others, ‘Commercial Property Whole-Life Costing and the Taxation Environment’ (2014) 32 Journal of Property Investment Finance 56.

This short introductory chapter attempts to answer the question of ‘What is life-cycle costing?’ We will first describe the narrative of LCA on which modern LCC is partially based. This chapter then defines LCC and discusses related and more or less similar terms such as WLC, TCO, E-LCC and S-LCC, in an attempt to standardize terminology throughout the other chapters in this edited volume. This first chapter is therefore primarily descriptive, endeavouring to create a common ground for proceeding chapters.

1.2 Life-cycle assessment

LCA is a methodology that assesses, in narrative and descriptive form, environmental and social impacts associated with all the stages of a product’s life from ‘cradle to grave’.⁶ While both qualitative information and quantitative data are gathered, LCA does not attempt to quantify all externalities and monetise them as is the case with LCC, which is discussed later.

5 Anthony P. Higham and others, ‘Life Cycle Costing: Evaluating Its Use in UK Practice’ (2015) 33 Structural Survey 73; Maria Rosa De Giacomoa and others, ‘Does Green Public Procurement Lead to Life Cycle Costing (LCC) Adoption?’ (2018) Journal of Purchasing and Supply Management 3.

6 See the different methodologies: Marzia Traverso, ‘Is Social Life Cycle Assessment Really Struggling in Development or Is It on a Normal Path towards Harmonization/Standardization?’ (2018) 23 The International Journal of Life Cycle Assessment 199.

As shown later, LCA was developed in the 1960s as a method for quantifying the environmental impact of products whereby all environmental burdens connected with a product or service had to be assessed, from raw materials extracted to waste removal. LCA addresses a variety of environmental impact questions. Therefore, depending on the scope and the nature of the product or service, it can provide a whole range of results.

In its early days, as concerns were raised over the potential shortage of raw materials and energy resources, LCA gained much interest from American and European private companies in assessing the packaging of products and pursuing alternative sources of energy.⁷ According to some scholars, a 1969 internal study for The Coca-Cola Company laid the foundation for the current methods of life-cycle inventory analysis in the United States.⁸ In the study, different beverage containers were compared to determine which container had the lowest environmental impact. ‘The study quantified the raw materials and fuels used and the environmental loadings from the manufacturing processes for each container’.⁹

During the oil crisis, LCA received attention as a solution to better manage energy resources, while in the late 1980s and the 1990s, LCA became a popular technique to analyse the environmental (e.g., toxic emissions, etc.) impact of products from cradle to grave.¹⁰ The strong involvement of the Society of Environmental Toxicology and Chemistry (SETAC), who organized many workshops and produced guidance in this period, comes as no surprise.¹¹ The International Organization for Standardization (ISO) also became involved, as well as the United Nations Environment Programme (UNEP) who, together with SETAC, launched in 2002 an international life-cycle partnership focused on improving tools, data and indicators.¹² All of this shaped the development of LCA over the years.

Now, LCA is a scientific, structured and comprehensive method that is internationally and to some extent standardized in ISO 14040 and 14044.¹³ For practitioners of LCA, ISO 14044 guidance details the requirements for conducting an LCA that addresses the environmental aspects and potential environmental impacts (e.g., use of resources and the environmental consequences of releases) throughout a product’s life cycle from raw material acquisition through production, use, end-of-life treatment, recycling and final disposal.¹⁴ There are three phases in an LCA study: (a) the goal and scope definition phase, (b) the inventory analysis phase and (c) the impact assessment phase, but there is no mention of costing.¹⁵ The International Reference Life Cycle Data System (ILCD) Handbook further specifies the broader provisions of the ISO 14040 and 14044 standards on environmental LCA.¹⁶

7 Guinée and others (n 4).

8 Robert G. Hunt and William E. Franklin, ‘LCA – How It Ca...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of contributors
• List of abbreviations
• Foreword
• Part I Balancing economic and sustainability objectives under EU internal market law
• Part II Sector-specific studies: experiences, shortcomings and the lessons learnt
• Index