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Cost and EU Public Procurement Law: Life-Cycle Costing for Sustainability
 2019025280, 2019025281, 9780367181987, 9780429060045

Table of contents :
Cover
Half Title
Series Page
Title Page
Copyright Page
Contents
List of contributors
List of abbreviations
Foreword
PART I: Balancing economic and sustainability objectives under EU internal market law
1 What is life-cycle costing?
2 The European Union law of life-cycle costing
3 Life-cycle costing in the Member States: does the tool meet its goals?
4 Life-cycle thinking and public-private partnerships
PART II: Sector-specific studies: experiences, shortcomings and the lessons learnt
5 Moving to a quintuple helix approach in SPP: collaboration and LCC for lighting procurements
6 LCC criteria for procurement of ITC goods and services: the need for a flexible approach
7 The role of ecolabels in creation of life-cycle criteria: the case of textile and clothing products
8 Life-cycle costing within the construction sector: a tool for social housing?
Index

Citation preview

Cost and EU Public Procurement 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. Marta Andhov is an Assistant Professor in public procurement at Faculty of Law, University of Copenhagen, Denmark. Roberto Caranta is a Full Professor with the Law Department of the University of Turin, Italy. Anja Wiesbrock is a Senior Advisor at the Research Council of Norway.

Routledge Research in International Economic Law

Defences in International Investment Law Francis Botchway WTO Trade Remedies in International Law Roberto Soprano Cohesion and Legitimacy in International Investment Law Public International Law and Global Administrative Law Perspectives Chisomo Kapulula International Challenges in Investment Law and Arbitration Edited by Mesut Akbaba and Giancarlo Capurro State Interest and the Sources of International Law Doctrine, Morality, and Non-Treaty Law Markus P. Beham Trade Facilitation in the Multilateral Trading System Genesis, Course and Accord Hao Wu Asian Perspectives on International Investment Law Edited by Junji Nakagawa Cost and EU Public Procurement Law Life-Cycle Costing for Sustainability Edited by Marta Andhov, Roberto Caranta and Anja Wiesbrock

For more information about this series, please visit https://www.routledge.com/ R out ledge-R e sea rch-i n-I nter nat iona l-E conom ic-L aw/ bo ok-ser ie s/ INTECONLAW

Cost and EU Public Procurement Law

Life-Cycle Costing for Sustainability

Edited by Marta Andhov, Roberto Caranta and Anja Wiesbrock

First published 2020 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2020 selection and editorial matter, Marta Andhov, Roberto Caranta and Anja Wiesbrock; individual chapters, the contributors The right of Marta Andhov, Roberto Caranta and Anja Wiesbrock to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Developing Life Cycle Analysis: Life Cycle Criteria Tools and Methodologies for Public Procurement in the EU (Conference) (2018 : Universitetet i Oslo). | Andhov, Marta, editor. | Caranta, Roberto, editor. | Wiesbrock, Anja, editor. Title: Cost and EU public procurement law : life-cycle costing for sustainability / edited by Marta Andhov, Roberto Caranta and Anja Wiesbrock Description: Abingdon, Oxon ; New York, NY Routledge, 2020 | Series: Routledge research in international economics | Includes bibliographical references and index. Identifiers: LCCN 2019025280 (print) | LCCN 2019025281 (ebook) | ISBN 9780367181987 (hardback) | ISBN 9780429060045 (ebook) Subjects: LCSH: Government purchasing—Law and legislation— European Union countries—Congresses. | Sustainable development— Law and legislation—European Union countries—Congresses. Classification: LCC KJE5632.A8 D48 2019 (print) | LCC KJE5632.A8 (ebook) | DDC 343.24/034—dc23 LC record available at https://lccn.loc.gov/2019025280 LC ebook record available at https://lccn.loc.gov/2019025281 ISBN: 978-0-367-18198-7 (hbk) ISBN: 978-0-429-06004-5 (ebk) Typeset in Galliard by codeMantra

Contents

List of contributors List of abbreviations Foreword

vii ix xi

PART I

Balancing economic and sustainability objectives under EU internal market law

1

1 What is life-cycle costing?

3

J A S ON J. C Z A R N E Z K I A N D S T E V E N VA N G A R S S E

2 The European Union law of life-cycle costing

20

M A R T A A N DHOV, R OBE R T O C A R A N T A A N D A N J A W I E S BR O C K

3 Life-cycle costing in the Member States: does the tool meet its goals?

36

R AQU E L C A RVA L HO

4 Life-cycle thinking and public-private partnerships

65

S T E V E N VA N G A R S S E

PART II

Sector-specific studies: experiences, shortcomings and the lessons learnt

79

5 Moving to a quintuple helix approach in SPP: collaboration and LCC for lighting procurements

81

R ODR IG O L O Z A N O, S IG R I D P E T T E R S S É N , A N E T T E JON S Ä L L , C A M I L L A N I S S A N D BJÖR N BE R G S T R ÖM

vi Contents

6 LCC criteria for procurement of ITC goods and services: the need for a flexible approach

100

R A L U C A S U C I U A N D DAC I A N C . DR AG O Ș

7 The role of ecolabels in creation of life-cycle criteria: the case of textile and clothing products

123

M A Ł G OR Z A T A K O S Z E W S K A

8 Life-cycle costing within the construction sector: a tool for social housing?

158

DE I R DR E H A L L OR A N

Index

181

Contributors

Marta Andhov, Assistant Professor in Public Procurement Law, at the Centre for Enterprise Liability (CEVIA), Faculty of Law, University of Copenhagen, Denmark. Björn Bergström,  Lawyer at Ramberg Advokater, specializing in public procurement and commercial law. Roberto Caranta, Professor of Administrative Law and Economic Law at the Law Department of the University of Turin, Italy. Raquel Carvalho, Associate Professor at the Research Centre for the Future of Law (CEID), Universidade Católica Portuguesa (UCP) Law School, Portugal. Jason J. Czarnezki,  the Gilbert and Sarah Kerlin Distinguished Professor of Environmental Law, and Associate Dean and Executive Director of Environmental Law Programs at the Elisabeth Haub School of Law at Pace University, USA. Dacian C. Dragoș, the Jean Monnet Professor of Administrative and European Law and co-director of the Center for Good Governance Studies at the Public Administration and Management Department, Babes-Bolyai University, Romania. Steven Van Garsse, Associate and Executive Professor at University of Hasselt and Antwerp/Antwerp Management School, Belgium. Deirdre Halloran, PhD Candidate at the Centre for Housing, Law, Policy and Research at National University Ireland, Galway, Ireland. Anette Jonsäll  Project Manager for “Innovation and regional growth driven by Public Procurement”. The project is owned by Region Gävleborg and ­fi nanced by the Swedish Agency for Economic and Regional Growth. Małgorzata Koszewska,  Associate Professor and Leader of the Sustainability & Circularity Research Team at the Faculty of Management and Production Engineering at the Łódź University of Technology, Poland. Rodrigo Lozano, Professor at the University of Gävle, Sweden.

viii Contributors Camilla Niss, Assistant Professor in Industrial Management at the University of Gävle, Sweden. Sigrid Petterssén, Project Manager for ‘Innovation and regional growth driven by Public Procurement’. Raluca Suciu,  Lecturer, PhD at the Public Administration Department at Babeș-Bolyai University, Romania. Anja Wiesbrock, Senior Advisor at the Research Council of Norway.

Abbreviations

CJEU Commission Public Sector Directive

Court of Justice of the European Union European Commission Directive 2014/24/EU on public procurement and repealing Directive 2004/18/EC [2014] OJ L94/65 EU European Union GPP Green Public Procurement LCC Life-Cycle Costing EU Public Procurement law The 2014 Directive 2014/24/EU, together with, and Directive 2014/25/ EU on procurement by entities operating in the water, energy, transport and postal services sectors [2014] OJ L94/243; Directive 2014/23/EU on the award of concession contracts [2014] OJ L94/1; Directive 2009/81/EC on defence and sensitive security procurement [2009] OJ L 216; Remedies Directive 92/13/EEC for the utilities sector OJ L 076; Remedies Directive 89/665/ EEC for the public sector OJ L 395; Directive 2007/66/EC amending remedies directives OJ L 335/31 MS Member States SMEs Small and Medium Enterprises SPP Sustainable Public Procurement Utility Directive Directive 2014/25/ EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/ EC [2014] OJ L94/243

Foreword

Editors’ note The topic for this book emerged from the conference ‘Procurement Beyond the Price’ organized by Dr Marta Andhov at the Faculty of Law, University of Copenhagen in May 2017. The idea was further fine tuned during a research stay at Prof. Robero Caranta’s home institution (University of Torino), where a series of intellectually stimulating conversations on Sustainable Public Procurement (SPP) and specifically issues of Life-Cycle Costing (LCC) led to the crystallization of the book. With the help of CEVIA1 and SMART Project, 2 a research workshop on ‘Developing Life Cycle Analysis: Life Cycle Criteria tools and methodologies for public procurement in the EU ’ was held at the Oslo University on 23 April 2018, where the editorial team was expanded with the addition of Dr Anja Wiesbrock. All of the contributions to this book are based on papers presented at the workshop in Oslo, where all participants benefitted from feedback and input to their draft chapter from fellow colleagues. This interdisciplinary book brings all the debates and hard work together, with the underlying aim of contributing to the development of life-cycle criteria tools and methodologies for public procurement in the EU.

The scene Public institutions, companies and governments in the EU and around the world are increasingly engaging in SPP – 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. The purchase price only reflects a narrow range of product information. Prices fail to incorporate indirect supply chain costs (environmental and social externalities) and benefits (positive eco-system services). To go beyond price, complex methodologies are necessary to take into account a broader range of costs and benefits related to product production, acquisition and use. 1 Centre for Enterprise Liability, Faculty of Law, University of Copenhagen. This book contributes to CEVIA’s research project on Private Governance. 2 European Union’s Horizon 2020 Research and Innovation Programme under Grant Agreement No. 693642, project SMART (Sustainable Market Actors for Responsible Trade).

xii Foreword LCC is designed to fill this gap by evaluating the costs and benefits of a product throughout its entire life cycle, though methodologies remain in their infancy. LCC builds on existing life-cycle valuation tools that assess environmental impacts associated with all the stages of a product’s life from ‘cradle-to-grave’, by translating these impacts into a single metric – monetary cost. One of the major novelties in the 2014 EU public procurement directives was the introduction of an LCC approach in the evaluation of the most economically advantageous tender. This cost-effectiveness approach implies that in the evaluation of the price-quality ratio of the goods and services tendered, all the costs ­associated to the life cycle of the production and the distribution of the products, including long-term costs borne by the contracting authority and costs imputed to environmental externalities, can be taken into account. The application of this approach, however, raises several questions and faces a variety of practical challenges. To avoid distortions of competition, life-cycle considerations must be based on non-discriminatory criteria that can be effectively and objectively verified. When contracting authorities assess the costs using an LCC approach, they shall indicate in the procurement documents the data to be provided by the tenderers and the method, which the contracting authority will use to determine the LCC on the basis of these data. The method must comply with a number of conditions, including being based on objectively verifiable and non-discriminatory criteria. Developing LCC methodologies is effort-intensive, because such methodologies must be tailored on a specific product/service group or category. Challenges include long supply chains spanning the four continents and the difficulty in ­assessing – not to say measuring – non-monetary values like the respect for human dignity or the protection of biodiversity. Developing such methodologies rests on public institutions, including the Commission and contracting authorities, possibly through associations and networks to scale up the costs and efforts involved in the exercise. Certifiers, including ISO, also have a role to play. The development of LCC methodologies requires cooperation between specialists from many sectors (supply chains and logistics, engineering, information technology, public administration etc.) and legal professionals. Whilst the former may tell us what is doable in practice, and how it can be done, the latter must ensure that all legal requirements are met. Building on these needs, this book is intended as the start of an interdisciplinary dialogue between authors having different backgrounds in engineering, policy development, management and other business sciences, with a number of legal scholars tasked with clarifying the new EU rules concerning LCC. Given that LCC methodologies must be tailored to very diverse products and service categories, more interdisciplinary work involving contributions from even more specific fields will be needed in the future.

Book structure and outline The book collects both sector-crossing contributions analysing the most relevant theoretical and legal aspects, including both the EU law and contract theory (Part 1), and sector-specific contributions relating to some of the most

Foreword  xiii important sustainable goods and services markets (Part 2). The latter chapters show how LCC is used today in practice and might be further developed in specific sectors and beyond. The book opens with an introductory chapter on terminology and different approaches to including sustainability considerations in buying decisions by both private and public purchasers (Chapter 1). Czarnezki and Van Garsse answer the question of ‘What is life-cycle costing?’ by first describing the narrative of life-­ cycle assessments on which LCC is based. This chapter then defines LLC and discusses related and similar terms such as impact valuation, true cost of ownership and true cost accounting to provide a standardized terminology throughout the other chapters in this volume. In Chapter 2, the editors proceed to examine the EU law on LCC. To safeguard unhindered competition on the internal market, the EU law provides more and more detailed guidelines for contracting authorities wishing to buy in sustainable ways. The 2014 reform was fundamental in this respect. Generally speaking, the lawmakers made the legal framework for SPP much clearer. The new rules on LCC, however, demand much effort to become operational and pitfalls need to be mapped and properly understood. In Chapter 3, Carvalho provides a comparative analysis of selected Member States’ experiences in developing and applying LCC methodologies. The chapter includes not just good practices but highlights lingering issues as to the way EU law is drafted and interpreted across Europe. While the experience in the application of the 2014 Directives is per force limited, the Member States have been implementing the Directive 2009/33/EC (now repealed), on the promotion of clean and energy-efficient road transport vehicles for years. This directive makes LCC semi-mandatory when buying vehicles. Moreover, some Member States had already been experimenting with LCC. Chapter 4 develops the analysis with specific reference to public-private partnership contracts (PPPs). PPPs bring improved operational efficiency and, perhaps most importantly, a long-term life-cycle perspective on the facility maintenance. Government carries out an ex ante assessment to identify whether the PPP project is likely to achieve ‘value for money’. Van Garsse points out that life-cycle analysis (LCA) is a core component of the value for money assessments and assists public managers in their decision-making process. This chapter presents the main methodologies tried and tested in PPPs in Europe: it addresses their challenges and identifies the lessons that may be learned for other types of procurement. As a bridge between these more general chapters and those which are sector specific, Chapter 5 elaborates how multi-stakeholders’ cooperation is necessary to develop LCC based on a case study of a lighting services procurement. Lozano and others propose to move from an approach engaging solely supplier and procurer in SPP to the application of a collaborative approach. The proposal is empirically grounded on a function procurement project (of lightening) in Bollnäs, Sweden, focusing foremost on economic sustainability. Further follow sector-specific studies relating to Information and Communication Technologies (ICT) (Chapter 6), Textile and Clothing (Chapter 7) and

xiv Foreword Construction – Social Housing (Chapter 8). These studies focus on real-life LCC – and labels – experiences, their shortcomings and the lessons, which might be drawn from them. In Chapter 6, Suciu and Dragoș focus on identifying good practice models for LCC in public and private ICT procurement, in order to aggregate the basic components of an LCC approach that can be applied in public sector procurement. The authors apply a qualitative research methodology based on extensive interviews, as an instrument for gathering insights from the ICT sector companies and from the procurement experts in Romania. The chapter showcases the practical challenges associated with LCC. In Chapter 7, Koszewska assess the role of eco-labels for textile and clothing products in GPP and identifies the main trends and challenges for the future, including the development of sector-specific LCC methodologies. The chapter analyses the scope and market size of textile and clothing products in public procurement, discusses the current and possible future use of eco-labels and GPP criteria for textile products in the SPP as well as the importance of Product Environmental Footprint (PEF) and the Organization Environmental Footprint (OEF) for public procurement. Chapter 8 maps the development of an LCC framework for contracting authorities when procuring Social Housing in the EU. By employing qualitative modes of enquiry, the research comprehensively maps the legal framework and the literature specific to LCC for construction procurement, its development since the 1970s, the methodologies and standard measurements that have been advanced, the importance of the procurement route and the advantages and barriers to its use. Halloran assesses LCC use in the Social Housing Sector in the EU, with a focus on Ireland and its development of a national methodology for LCA and its use in its national framework for rapid housing.

What we have learned and the way forward The main lesson we have learned from the research flowing through this book is that LCC is neither impossible nor for the faint-hearted. Starting with the latter claim, a number of difficulties indeed arise when trying to develop and implement LCC methodologies. Regarding terminology, as shown in Chapter 1, different words not always denoting discrete concepts abound in this area. While conducting research for this book, on several occasions the authors came across solutions which were presented as instances of LCC, but actually they were cases of LCA if not simple total cost of ownership (TCO). Different terminological preferences also exist among different disciplines and sciences. These many differences are not just relevant because they make interdisciplinary dialogue more urgent – and this book was thought as an answer to this need. They make collecting best practices and disseminating them to practitioners more difficult, hindering the uptake of LCC. Problems in designing and developing LCC methodologies are even greater and more impactful. They are so relevant to have impacted the implementation

Foreword  xv in the Member States of Directive 2009/33/EC (the Clean Vehicles Directive). These problems are systematically analysed in Chapter 3, including with reference to the directive just mentioned, and dealt upon in most of the chapters in this book, such as, for instance, in Chapter 8. Indeed, all chapters bear witnesses to these difficulties. As Chapter 1 indicates as a way of warning: Calculating LCC is a complex task that requires making assumptions about future costs, and the cost of externalities. Assessing these costs inevitably includes an element of unpredictability (for example on maintenance costs, energy consumption, as well as the product’s actual lifespan, the need for replacing products or parts). Still, as the many examples collected in Chapter 3 and the sector-specific analysis in Chapters 5 to 8 show, LCC is in one form or the other already happening and – as shown in Chapters 2 and 3 – the EU legal framework is enabling contracting authorities to pursue sustainability through the use of LCA and LCC methodologies. Seen from the view point of EU law, a main advantage of Article 68 of Public Sector Directive lays in its plasticity. All aspects in the life cycle of the good or service to be purchased, including externalities, may be included in LCC. But it is not necessary to include all of them. This plasticity allows regulators and buyers to pick and choose those aspects they think that are more important, but also to both embrace LCC to the extent it is already based on well-tested methodologies and to experiment. In regulating LCC, the EU law also lays down safeguards for fair competition in the internal market (and beyond). This is inevitable. It also brings medium or long-term benefits for sustainability. Requiring, as discussed in Chapter 2, ‘objectivity’ in the assessment of LCC benefits, EU law is consistent with the basic tenets of the scientific revolution started in earnest in the closing decades of the sixteenth century. Claims must be verifiable, including those pertaining to sustainability. ‘Objectivity’ will help in developing sound LCC methodologies and in discarding approaches which do not partake credible information. While the focus in this book is on public procurement, commercial buyers too benefit from methodologies capable of calculating purchasing and operational costs. As recalled in Chapter 1, TCO, a predecessor to both LCA and LCC was taken up very early in the private sector. Sound LCC methodologies will allow commercial buyers to vindicate their sustainability claims, which are often today part of CSR policies. Monetization as required in Article 68 of Public Sector Directive goes a step farther, opting for a specific way to account for benefits that may help contracting authorities in making their choices in a transparent way. Monetization is, however, the last step in taking into account the different aspects in the life cycle of the goods or services to be purchased. It requires full maturity in the capacity of assessing those aspects, and, as is often stressed in the different chapters of this book, developed science based on a huge load of verified data. While the process is ongoing, using LCA as clearly allowed under Article 67 of Public Sector Directive is without doubts the preferred option for SPP.

xvi Foreword The legal framework being both in place and supportive of both SPP in general and LCC and LCA in particular as explained in Chapter 2, the (further) uptake of both depends on policy actions. Seen from the point of view of EU policy, it is clear that the sustained uptake of LCC, and more generally of SPP, requires additional efforts on the part of the EU both in developing or contributing in developing LCC methodologies, and in promoting their use by contracting authorities in the Member States and by the EU institutions themselves when they are acting as buyers. Concerning the development of LCC methodologies, both Chapters 4 and 5 clearly show that collaboration between the public and the private sector in all their articulations is both essential for and conductive to the creation of tools and practices in LCA and LCC. The difficulties in the enterprise having been already avowed, clearly more effort is needed in the development of LCC methodologies. The somewhat discouraging conclusions in Chapter 6 according to which the ‘Commission LCC tool for computers and monitors, made available at the end of 2018, seems minimalistic and unambitious when compared to the previous debates on the potential of LCC to change the practice of public procurement’ may be replicated in other areas as shown in Chapter 8. Chapter 8 shows how labels may be used to make it easier for public buyers – and buyers more generally – to pursue sustainability.3 Lessons from long practice in the textile industries are particularly interesting, and their relevance for other industries deserves further investigation. This in turn calls for a holistic approach to LCC law making and interpretation, starting with a closer integration between the rules on labels on the one hand and those on LCA and LCC on the other hand.4 Given the complexity inherent in LCC, and to a less extent in LCA as well, effective promotion of their adoption requires both supporting networks for the exchange of best practices and formation on the ground for contracting officials. In the end, it is upon the choices made by those officials that the future of SPP hinges. Marta Andhov Roberto Caranta Anja Wiesbrock

3 Roberto Caranta, ‘Labels as Enablers of Sustainable Public Procurement’ in Beate Sjåfjell and Anja Wiesbrock (eds), Sustainable Public Procurement Under EU Law (Cambridge University Press 2016) 99. 4 See: Jason J. Czarnezki, ‘EU and US Discretion in Public Procurement Law: The Role of Eco-Labels and Life-Cycle Costing’ in Sanja Bogojevic, Xavier Groussot and Jörgen Hettne (eds.), Discretion in EU Procurement Law (Hart Publishing 2019) 211–247.

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

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.

4  Jason J. Czarnezki and Steven Van Garsse 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 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

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. 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.

What is life-cycle costing?  5 gathered, LCA does not attempt to quantify all externalities and monetise them as is the case with LCC, which is discussed later. 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 con-

7 Guinée and others (n 4). 8 Robert G. Hunt and William E. Franklin, ‘LCA – How It Came about – Personal Reflections on the Origin and the Development of LCA in the USA’ (1996) 1 The International Journal of Life Cycle Assessment 4; Guinée and others (n 4); Walter Klöpffer, ‘Life Cycle Assessment: From the Beginning to the Current State’ (1997) 4 Environmental Science Pollution Research 223; Ralph E. Horne, ‘Life Cycle Assessment: Origins, Principles and Context’ in Ralph Horne and others (eds), Life Cycle Assessment: Principles, Practice and Prospects (CSIRO Publishing 2009) 1. 9 Klöpffer (n 8); Hunt and Franklin (n 8). 10 ibid. 11 Guinée and others (n 4). 12 ibid; Horne (n 8). 13 In fact, LCA was never standardized in details and discussions remain on interpretation of some of the requirements. See Guinée and others (n 4).

6  Jason J. Czarnezki and Steven Van Garsse ducting 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 LCA quantifies resources consumed and emissions as well as the environmental and health impacts and resource depletion issues that are associated with any specific goods or services, covering climate change, seasonal smog, toxicity, human cancer effects and material and energy resource depletion.17 ‘Crucially, it allows for direct comparison of products, technologies and so on based on the quantitative functional performance of the analysed alternatives’.18 LCA is increasingly being used in the marketing context, often through published environmental product declarations.19 (Note that in the public procurement context, economic entities will be the ones delivering this information to contracting authorities.) LCA relies on five principles: (1) bringing a wide range of environmental problems into an integrated assessment framework, (2) capturing these problems in a scientific and quantitative manner, (3) allowing environmental pressures and impact potentials to be related to any defined system, such as a particular type of goods, a service, a company, a technology strategy, a country, etc., (4) integrating the resource use and emissions over the entire life cycle of the analysed system, from the extraction of natural resources through material processing, manufacturing, distribution and use, up to recycling/energy valorization and the disposal of any remaining waste and (5) facilitating comparisons of the environmental performance of different systems/options on an equal basis and helping to identify areas for improvement.20 Environmental LCA is ‘structurally open’ to growing into the full sustainability assessment that LCC seeks to become, where cost is integrated.21

14 International Organization for Standardization (ISO), Environmental Management – Life Cycle Assessment – Requirements and Guidelines (14044:2006 July 2006). 15 Scientific Applications International Corporation (SAIC), Life Cycle Assessment: Principles and Practice (EPA/600/R-06/060, National Risk Management Research Laboratory; US Environmental Protection Agency 2006). 16 Marc-Andrea Wolf and others, The International Reference Life Cycle Data System (ILCD) Handbook (JRC Reference Reports, EUR 24378 EN, Publication Office of the European Union 2012). See also Pankaj Bhatia and others, ‘Product Life Cycle, Accounting and Reporting Standard’ (Greenhouse Gas Protocol, World Resources Institute and WBCSD 2011). 17 Wolf and others (n 16). 18 ibid. 19 ISO (n 14). 20 SAIC (n 15). 21 Wolf and others (n 16).

What is life-cycle costing?  7

1.3  Life-cycle costing Ironically, LCC predates LCA 22; not in the scenario currently contemplated, but in a far simpler context. ‘Conventional’ LCC was considered a financial appraisal tool. In fact, LCC techniques are tools that evaluate the present and future costs of goods or projects throughout their life cycle. They enable a better assessment of the long-term implications of options under consideration and therefore a better decision-making. In order to compare several options, one of the key elements of performing an LCC analysis is discounting future costs to net present value.23 LCC analysis are, in other words, based on a forecast of the future. Thus, different cost estimation methods can be applied. The decision to use LCC depends on the availability of data and the phase in which the calculations are done. 24 Fabrycky and Blanchard described three different ways to estimate costs: (1) estimating by engineering procedures, (2) estimating by analogy and (3) parametric estimating methods.25 Also, more advanced methods of cost estimation have been suggested and used for LCC; for example, methods based on activity-based costing, a technique used by controllers to allocate (indirect) costs to products and services.26 Furthermore, the time-value of money needs to be accounted for in the calculations, implying that future cash flows should be discounted to present value.27 Therefore, a decision on a discount rate, and as some suggest even on an inflation rate, must also be made.28 Scholars furthermore acknowledge the stochastic nature of LCC calculations and suggest sensitivity analyses and the use a computerized mathematical technique (e.g., Monte Carlo Simulation) to deal with the uncertainty.29 This conventional concept of LCC goes back to the US defence sector.30 In the middle of the last century, the acquisition of weapon systems was very much focused on performance and initial cost. This led to growing criticism. Focusing on acquisition price was, in fact, short-sighted. Technological evolution and the arms race between the United States and the Soviet Union led to many new weapon systems, but growing complexity caused an exponential rise in the costs 22 Thomas E. Swarr and others, ‘Environmental Life-Cycle Costing: A Code of Practice’ (2011) 16 The International Journal of Life Cycle Assessment 389. 23 Higham and others (n 5). 2 4 ibid. 25 Eric Korpi and Timo Ala-Risku, ‘Life Cycle Costing: a Review of Published Case Studies’ (2008) 23 Managerial Auditing Journal 243. 26 ibid. 27 ibid. 28 ibid. 29 Korpi and Ala-Risku (n 25); Wolter J. Fabrycky and Benjamin S. Blanchard, Life-Cycle Cost and Economic Analysis (Prentice Hall 1991). 30 Mark G. Twomey, A Review of Selected USAF Life Cycle Costing Models (Master of Science in Logistics Management Thesis, Air Force Institute of Technology, Air University 1991); Korpi and Ala-Risku (n 25); Helena Estevan and Bettina Schaefer, Life Cycle Costing; State of the Art Report (ICLEI 2017).

8  Jason J. Czarnezki and Steven Van Garsse of maintenance and use.31 In some cases, it was even cheaper to buy new systems than to maintain older ones. These changes called for a more global approach leading to a better equilibrium between initial costs and costs of maintenance and use, as well as more transparency in the decision-making process. In response, LCC was introduced in the US defence sector.32 LCC was defined as the total cost to the government for acquiring, operating, supporting and disposing of a system over its lifetime.33 In the following decades, LCC gained growing importance in other market sectors (e.g., aviation) as well as the academic sector.34 This comes as no surprise considering the technical evolution where mainframe computers were replaced by more powerful micro and personal computers making LCC calculations more accessible and feasible.35 This technological revolution also gave rise to computer models used to analyse and simulate costs. LCC was often seen as a technique to establish the TCO (see also later), which certainly was from a historic perspective in its early stages. However, in its modern and current meaning, LCC has evolved and it includes quantification of product externalities. LCC, therefore, now demands both measurement and monetization. For example, Rebitzer and Hunkeler (2003) define LCC: as an assessment of all costs associated with the life cycle of a product that are directly covered by any one or more of the actors in the product life cycle (supplier, producer, user/consumer, EOL-actor (End of Life-actor), with complimentary inclusion of externalities that are anticipated to be internalized in the decision-relevant future.36 LCC has thus evolved from being a purely economic tool to a tool relevant for sustainability purposes. This is also clear from the new ISO 20400:2017, which provides guidance to organizations on integrating sustainability within procurement.37 Since sustainability is becoming more and more important, certain modern LCC tools include an environmental impact assessment.38 Indeed, LCC can include capture, measure, quantify and monetize environmental, social and health impacts of products and services (see later S-LCC and E-LCC).

31 32 33 3 4 35 36

ibid. Twomey (n 30). ibid. ibid. ibid. Gerald Rebitzer and David Hunkeler, ‘Life Cycle Costing in LCM: Ambitions, Opportunities, and Limitations: Discussing a Framework’ (2003) 8 The International Journal of Life Cycle Assessment 253. 37 ISO, Sustainable Procurement – Guidance (20400:2017 April 2017). LCC is defined as a ‘method for calculating the costs of goods or services throughout their life cycle’, while life cycle is described as ‘consecutive and interlinked stages of a goods or services system, from raw material acquisition or generation from natural resources to final disposal.’ ibid. 8 Dacian C. Dragos and Bogdana Neamtu, ‘Sustainable Public Procurement: Life Cycle Costing 3 (LCC) in the New EU Directive Proposal’ (2013) 1 EPPPL 19.

What is life-cycle costing?  9 As noted by the Commission in 2012, an integrated, authoritative approach for such an integrated life-cycle sustainability assessment still needs to be developed.39 This broader perspective on LCC was taken up in recent EU public procurement law and policy where LCC is a very important element in the effort to shift the paradigm of public procurement beyond the confinement of using solely the purchase price of a good or service.40 Under EU public procurement law, a contract must be awarded based on the most economically advantageous tender (MEAT).41 The most economically advantageous tender from the point of view of the contracting authority shall be identified on the basis of the price or cost, using a cost-effectiveness approach, such as LCC. As the Commission explains: Life-cycle costing (LCC) means considering all the costs that will be incurred during the lifetime of the product, work or service: Purchase price and all associated costs (delivery, installation, insurance, etc.); Operating costs, including energy, fuel and water use, spares, and maintenance; Endof-life costs (such as decommissioning or disposal) or residual value (i.e. revenue from sale of product).42 Article 68 of Public Sector Directive is devoted entirely to LCC. LCC can apply to both costs borne by the contracting authority and other users. Furthermore, Article 68 states that: Costs imputed to environmental externalities linked to the product, service or works during its life cycle, provided their monetary value can be determined and verified; such costs may include the cost of emissions of greenhouse gases and of other pollutant emissions and other climate change mitigation cost. The assessment of LCC must be based on objectively verifiable and non-­ discriminatory criteria and that when no established method exists, the applied method shall not unduly favour or disadvantage certain economic operators.43 The EU public procurement law requires that where LCC is used, the calculation method and the data to be provided by tenderers are set out 39 Joint Research Center, Life Cycle Indicators for Resources, Products and Waste (JRC Technical Reports, EUR 25466 EN, Publication Office of the European Union 2012). 40 Dragos and Neamtu (n 3) 324. See also Estevan and Schaefer (n 29); Carl Dalhammar, ‘The Application of ‘Life Cycle Thinking’ in European Environmental Law: Theory and Practice’ (2015) 12 Journal of European Environmental Planning Law 118; Beatriz Martínez Romera and Roberto Caranta, ‘EU Public Procurement Law: Purchasing Beyond Price in the Age of Climate Change’ (2017) 12 EPPPL 291. 41 Public Sector Directive art 67. 4 2 Commission, ‘Life-Cycle Costing’ (Environment 21 December 2017) available at accessed 21 January 2019. 43 Public Sector Directive, art 68(2)(b).

10  Jason J. Czarnezki and Steven Van Garsse in the procurement documents. Specific rules also apply to the methods for assigning costs to environmental externalities, which aim to ensure that these methods are fair and transparent.44 The method used for the assessment of costs imputed to environmental externalities shall be: (a) based on objectively verifiable and non-discriminatory criteria and shall not unduly favour or disadvantage certain economic operators, (b) accessible to all interested parties and (c) the data required can be provided with reasonable effort by normally diligent economic operators, including economic operators from third countries party to the GPA or other international agreements by which the Union is bound.45 Whenever a common method for the calculation of LCC is made mandatory by a legislative act of the EU, that common method shall be applied for the assessment of LCC.46 Currently, this only applies in relation to road transport vehicles under the Clean Vehicles Directive,47 which provides both a common methodology and minimum costs to be assigned to certain environmental externalities if these are monetized.48 Again, a movement towards LCC is important since purchase price alone does not reflect the financial and non-financial gains that are offered by environmentally preferable assets as they accumulate during their operations and use stages.49 Different approaches to LCC are used in a number of sectors.50 LCC has recently proved to be feasible in the following markets: office and server IT equipment51; vehicles, indoor and outdoor lighting52; fuel and furniture; services such as electricity, transport, waste handling and catering beverages; construction of new buildings or refurbishment of existing buildings53; railways and roads.54 Moderate applicability has been experienced for paper and food catering, couriers and postal services, as well as landscaping.55 Although no common methodology exists, over the years attempts have been made for

4 4 45 4 6 47 48 49 50

51 52 53 54 55

Commission, Buying Green! A Handbook on Environmental Procurement (3rd ed, 2016). Public Sector Directive, art 68(2). ibid. Council and Parliament Directive 2009/33/EC of 23 April 2009 on the promotion of clean and energy-efficient road transport vehicles [2009] OJ L120/5, art 5–6. Commission, ‘Life-Cycle Costing’ (n 42). Dragos and Neamtu (n 38). Eg. Automated Cost Estimating Integrated Tools (ACEIT) available at: accessed 25 February 2019; Kosten Referential Model or ISSO Knowledge Base (Construction and Installation Technology) available at: accessed 25 February 2019; ISSO available at accessed 25 February 2019. See: Raluca Suciu and Dacian Dragos, ‘LCC Criteria for Procurement of ICT Products and Services: the Need for Taking a Flexible Approach’ Chapter 6 of this book. See: Rodrigo Lozano and others, ‘Moving to a Quintuple Helix Approach in Sustainable Public Procurement: Collaboration and LCC for Lighting Procurements’ Chapter 5 of this book. See: Deidre Halloran, ‘LCC within the Construction Sector: a Tool for Social Housing?’ Chapter 8 of this book. Dragos and Neamtu (n 3) 332. ibid.

What is life-cycle costing?  11 creating more common, standardized approaches to calculating LCC in different fields. Noteworthy examples include the following56: • • • • •

Commission’s calculator for LCC for vehicle procurement.57 A tool for assessing both LCC and CO2 emissions in procurement, developed within the SMART-SPP project.58 An LCC tool developed within the BUY SMART project.59 A common European methodology for LCC and a companion, guiding document in the construction sector.60 The BS ISO 15686-5 (2008) standard for property LCC.

1.4  Whole life costing The terms LCC and WLC are often used interchangeably.61 However, some literature does differentiate the two concepts. For example, LCC is sometimes described as a financial tool for early-stage product or project evaluation and initial investment appraisal.62 WLC is then described as a tool for management through its life cycle that also takes operational costs into account. A more or less similar approach can be found in BS ISO 15686-5:2008 where WLC is defined as follows: the ‘methodology for the systematic economic consideration of all WLCs and benefits over a period of analysis, as defined in the agreed scope’. Hence, WLC is considered to have a broader scope than LCC emphasizing not only economic life-span but also the entire span of real property existence including non-construction costs such as finance, business costs, incomes from sales/disposals, etc. and also external social/environmental costs and benefits (Figure 1.1).63 In WLC, all costs or expenses made by the organization are attributed to the systems or products they produce.64 WLC takes account of the total costs of making or purchasing and then owning (or even leasing), operating, maintaining and managing the requirement (including its end of life, including de-­ commissioning, disposal or resale) over a specified period of time. 56 Commission, ‘Life-Cycle Costing’ (n 42). 57 Available at: accessed 19 January 2019. 58 Available at: accessed 19 January 2019. 59 Available at: accessed 19 January 2019. 60 Davis Langdon Management Consulting, Life Cycle Costing (LCC) as a Contribution to Sustainable Construction: A Common Methodology Literature Review (Final Report 2007). 61 Holger König and others, A life Cycle Approach to Buildings (Institut für internationale Architektur-­Dokumentation GmbH & Co 2010) 13. 62 ibid. 63 Konstantinos J. Liapis and others, ‘Commercial Property Whole-Life Costing and the Taxation Environment’ (2014) 32 Journal of Property Investment Finance 56, 59 (citations omitted). 6 4 Willem D. Hazenberg, Selection and Decision-Making Criteria for a Distributed Control Systems in the Process Industry (Master Thesis, Business Administration in Information Management, Newport International University 2009).

12  Jason J. Czarnezki and Steven Van Garsse

Whole Life Cost (WLC)

Non Construction Costs

Construction

Life-Cycle Cost (LCC)

Maintenance

Operation

Income

Occupancy

Externalities

End of Life

Figure 1.1  W hole life costing. Source: Adapted from Society of Chartered Surveyors Ireland available at accessed 5 March 2019.

1.5  Total cost of ownership TCO comes, as many of the other concepts, from the business sector. It received special attention in the 1980s and the 1990s as a purchasing tool.65 The focus is on the cost of a product in the value chain from a single business or user perspective. ‘The total cost of ownership examines the cost associated with purchased goods and services throughout the entire supply chain’.66 As opposed to conventional LCC, cost of development is not included.67 The focus is on the cost after the system or product is purchased.68 Determining the TCO has long been used by firms as a way to consider not just the acquisition costs when making purchasing decisions, but also the costs of operation, maintenance and disposal after acquisition by the user.69 The concept is also used by NATO. According to NATO research/documents, TCO represents all costs associated with the

65 See Lisa M. Ellram and others, ‘Retail Logistics’ (1989) 19 International Journal of Physical Distribution Logistics Management 29; ‘[I]ndeed, the concept of Total Cost of Ownership (TCO) has been around in the business world for a while, and was really popularized by the Gartner Group in relation to Information Technology, where the approach has probably seen its greatest adoption (the Gartner Group started discussing this as far back as 1987)’. Martin Flusberg, ‘Don’t Pass (Up) the Buck: Understanding Total Cost of Ownership Leads to Long-Term Savings’(Powerhouse Dynamics, 3 December 2013) available at: ­accessed 21 January 2019. 66 Estevan and Schaefer (n 30). 67 Anna Bladh and Anna Strom, Total Cost of Ownership: Revealing the True Cost of Owning and Operating Equipment (Master Thesis, Technology Management, Lund University 2008) 21. 68 Steffen Landscheidt and Mirka Kans, ‘Method for Assessing the Total Cost of Ownership of Industrial Robots’ (2016) 57 Procedia CIRP 746. 69 Andreas Ciroth and others, Environmental Life Cycle Costing (David Hunkeler, Kerstin Lichtenvort and Gerald Rebitzer eds, 1st ed, CRC Press 2008).

What is life-cycle costing?  13 ownership of a system except non-linked fixed costs that are related to the running of the organization.70 Non-linked costs are costs that cannot be readily associated with the system, unlike linked costs that can be associated with the acquisition, operation, support and disposal of the system. Variable costs are fluctuating costs that are affected by the existence of the system. An example of a variable cost is the cost of fuel. Fixed costs are costs that do not vary because of the existence of the system.71 Internal costs, part of TCO, are typically assessed from the perspective of a single market actor.72 As a result, TCO does not consider external costs, and it excludes the use and end-of-life phases if the focal actor does not internalize these costs.73 This, in turn, likely excludes entire categories of environmental, social and health impacts and affected parties. Most TCO techniques were developed and ‘applied in the framework of decisions over products or investments requiring high initial capital, such as buildings, energy systems, transport systems, military equipment, and durable goods in general’.74 TCO does not have an environmental focus unless those costs are somehow internalized; rather it focuses on economic viability or performance.75

1.6  The need for inclusion of social and natural capital Traditional economic valuation fails to extend beyond financial and asset capital, ignoring both natural and social capital, because of its narrowly defined perspective.76 Natural capital, also known as ecosystem services, refers to ‘[t]he stock of renewable and non-renewable natural resources (for example: plants, animals, air, water, soils, and minerals) that combine to yield a flow of benefits to people’.77 The exclusion of natural capital from basic economic decisions prevents firms from adequately addressing dependencies and associated risks, where externalities are actually indirectly internal. The definition of social capital varies, but generally refers to the resources and relationships provided by people and society. This encompasses human capital (people’s skills, knowledge and wellbeing), social capital (societies’ shared values, norms and institutions) and relationship capital (connections and network).78 Similarly, social capital must be included in LCC analyses, not just because doing so would include broader perspectives and

70 Marcel Smit, ‘NATO Initiatives to Improve Life Cycle Costing’ (TNO Defence, Security and Safety 2009). 71 ibid. 72 Traverso (n 6). 73 ibid. 74 Fabio De Menna and others, Methodology for Evaluating Life Cycle Cost (LCC) (R efresh, Commission April 2016). 75 Guinée and others (n 4). 76 Ernst and Young (EY), ‘Total Value: Impact Valuation to Support Decision-Making’ (2016) 5. See also Rashila Kerai, ‘Impact: What’s It Worth?’ (The Sustainability Yearbook, RobecoSAM 2017) 13. 7 ‘National Capital Protocol: Food and Beverage Sector Guide’ (National Capital Coalition 2016). 7 78 Martina La Valle, ‘Glossary Full-Cost Accounting’ (Food and Agriculture Organization of the United Nations April 2016) 59; See also Tristan Claridge, ‘Definitions of Social Capital’ (Social

14  Jason J. Czarnezki and Steven Van Garsse additional interested actors, but also in order to ensure that dependencies and risks are considered. When considering the interests of actors beyond the producer or user, such as those actors interested in or affected by the product and/or its life cycle, the inclusion of social and natural capital is necessary. Even from the perspective of a singular firm or user, there is a growing realization that both natural and social capital must be incorporated into decision-making for proper opportunity and risk analysis, and in order to consider impacts on humans and the environment that are of concern to that firm or user. An extension of this traditional economic valuation, therefore, requires a broader perspective, time span and assessment of costs not directly borne by the focal actor. This broader analysis can be understood in the context of the complementary LCA framework and broader LCC techniques (see later).79

1.7  Environmental LCC An E-LCC methodology takes into account the main internal environmental cost categories plus external environmental costs, though not other societal costs. (Here, E-LCC can be likened to GPP, while S-LCC can be analogous to SPP as discussed later.) Relying on the LCA framework, E-LCC considers costs borne by one or more actors who are connected to the product’s life cycle, indirectly and directly, extending both upstream and downstream in the product’s lifespan occurring within the ‘decision relevant future’.80 These actors might be suppliers, manufacturers, users, consumers or end-of-life actors.81 To be introduced into an ‘accounting’ LCC process, environmental costs must be expressed in monetary terms. In other words, environmental costs would be quantified and monetized so they can be considered as an additional cost input in an E-LCC analysis. This is even more challenging when social costs are considered (see later). A case study of organic versus conventional extra-virgin olive oil illustrates the need for E-LCC and the need to account for external costs: If one does not consider the external costs, the organic oil has a higher cost profile that is due to its lower agricultural yields. However, when external costs and less tangible, hidden, and indirect costs are included, this results in the organic oil having a lower total cost compared to the conventional oil.82

79 80

81 82

Capital Research 2004) available at accessed 27 February 2019. See also TCO as a broader concept: Total Cost of Ownership (Sustainable Purchasing Leaderships Council) available at accessed 21 January 2019. See Katherine Fiedler and others, ‘Life Cycle Costing and Food Systems: Concepts, Trends, and Challenges of Impact Valuation’ (2018) 8 Michigan Journal of Environmental Administrative Law 1, 11; citing Ciroth (n 70) 4. Ibid pt 1.4. Ibid 120.

What is life-cycle costing?  15 E-LCC, however, is information intensive, requiring data on costs of the complex interaction between a product and the environment from cradle to grave.83 Data may not be readily available for analyses of products and systems, or for certain categories of externalities. ‘If all needed data are not available, then scenario development, forecasting, or other estimation methods may have to be employed’.84 Environmental costs that might be considered in an LCC analysis for a food product or system include, but are not limited to, air pollution, biodiversity loss, climate change, deforestation, greenhouse gas emissions, land use, soil erosion, waste and water pollution. Some of these costs overlap with social and health costs, and vice versa.85

1.8  Societal LCC S-LCC is the term used when considering costs from a broader perspective including all social welfare, economic and environmental externalities. Generally, S-LCC, sometimes referred to as true cost accounting, assesses ‘all costs associated with the life cycle of a product that are covered by anyone in the society, whether today or in the long-term future’.86 The Lexicon of Sustainability defines true cost accounting as ‘a practice that accounts for all external costs – ­including environmental, social and economic – generated by the creation of a product’.87 It should be noted that environmental, social and economic dimensions comprise the three pillars of sustainable development as defined by the EU and other entities.88 The consideration of all human and non-human impacts is consistent among these definitions of S-LCC. Figure 1.2 compares the scope of C-LCC, E-LCC and S-LCC. Social and health costs that might be considered include, but are not limited to, animal welfare, antibiotic resistance, child labour, foodborne pathogens, healthcare costs, obesity, subsidies, taxes for welfare and social services and worker’s rights.89 These social and health costs span impacts from production to consumption. 83 Dragos and Neamtu (n 4) 325. 84 Ciroth (n 69). 85 Savanna Henderson and others, ‘The Real Cost of Food: Examining the Social, Environmental and Health Impacts of Producing Food’ (True Cost Accounting Report, Food Tank 2015). 86 Other terms that may be used to describe this analysis include triple bottom line, true cost accounting, full cost accounting, natural capital accounting or cradle to grave. 87 ‘True Cost Accounting: The Real Cost of Cheap Food’ (Lexicon of Sustainability 5 February 2014) available at accessed 7 March 2019. 88 ‘Sustainable Development’ (Commission 2 June 2017) available at accessed 7 March 2018. 89 ibid.

16  Jason J. Czarnezki and Steven Van Garsse

Figure 1.2  C  omparison of C-LCC, E-LCC and S-LCC. Source: David Hunkeler and others (eds), Environmental Life Cycle Costing (1st ed, CRC Press 2008).

1.9 Conclusion Sustainability is high on the International European agenda. For example, ­Target 12.7 of the Sustainable Development Goals focuses specifically on promoting ‘public procurement practices that are sustainable, in accordance with national policies and priorities’.90 To prevent shifting of burden focus is needed on the entire value chain; in other words, the WLC needs to be taken into account. It is, therefore, no surprise that LCC is gaining more and more attention in public procurement law, policy and practice. The enormous economic importance of public procurement in the EU makes it an important driver for sustainability and the transformation of markets and also leverage to foster innovation and environmentally and socially sustainable growth. However, implementing life-cycle thinking is not a walk in the park. Public purchasers using LCC in a sustainability context will face many challenges. Calculating LCC is a complex task that requires making assumptions about future costs and the cost of externalities. Assessing these costs inevitably includes an element of unpredictability (e.g., on maintenance costs, energy consumption, as well as the product’s actual lifespan, the need for replacing products or parts). This chapter provides insights into the concepts, main features and challenges of LCC. In the interest of academic consistency and clarity, scholars should note, as this chapter stresses, the difference between the TCO, LCA and LCC, and E-LCC, S-LCC and WLC, as seen in Figure 1.3.91 90 General Assembly, Transforming Our World: The 2030 Agenda for Sustainable Development (UN Doc A/RES/70/1, 21 October 2015) 12.7. 91 Norwegian Agency for Public Management and eGovernment (Difi), ‘Forskjellen mellom TCO, LCC og LCA’ (Eng: The Difference between TCO, LCC and LCA) 18 September 2018)

What is life-cycle costing?  17

Figure 1.3  Defining different LCC concepts. Source: Authors’ own translation on the basis of Norwegian Agency for Public Management and eGovernment (Difi), ‘Forskjellen mellom TCO, LCC og LCA’ (Eng: The Difference between TCO, LCC and LCA).

While challenges exist in defining and implementing LCC methodologies, LCC can be an important instrument at several stages of the procurement cycle (e.g., needs analysis, estimate costs, evaluation of tenders) and an important step towards more green and socially responsible public procurement.

References Marta Andrecka (ed), ‘Procurement Beyond the Price’ (2017) 12 European Procurement Public-Private Partnership Law Review 217. Pankaj Bhatia and others, Product Life Cycle, Accounting and Reporting Standard (Greenhouse Gas Protocol, World Resources Institute and WBCSD 2011). Anna Bladh and Anna Strom, Total Cost of Ownership: Revealing the True Cost of Owning and Operating Equipment (Master Thesis, Technology Management, Lund University 2008) 21. Andreas Ciroth and others contributions in David Hunkeler and others, Environmental Life Cycle Costing (1st ed, CRC Press 2008). Tristan Claridge, Definitions of Social Capital (Social Capital Research 2004). Commission, Buying Green! A Handbook on Environmental Procurement (Publications Office of the European Union 3rd edn, 2016). Commission, Life-Cycle Costing (Environment 21 December 2017). Council and Parliament Directive 2009/33/EC of 23 April 2009 on the Promotion of Clean and Energy-Efficient Road Transport Vehicles [2009] OJ L120/5. available at accessed 21 January 2019.

18  Jason J. Czarnezki and Steven Van Garsse Jason J. Czarnezki, Green Public Procurement: Legal instruments for Promoting Environmental Interests in the United States and European Union (Uppsala University 2019). Carl Dalhammar, ‘The Application of “Life Cycle Thinking” in European Environmental Law: Theory and Practice’ (2015) 12 Journal of European Environmental Planning Law 118. Davis Langdon Management Consulting, Life Cycle Costing (LCC) as a Contribution to Sustainable Construction: A Common Methodology Literature Review (Final Report 2007). 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. Fabio De Menna and others, Methodology for Evaluating Life Cycle Cost (LCC) (REFRESH, Commission April 2016). Dacian C. Dragos and Bogdana Neamtu, ‘Sustainable Public Procurement: Life Cycle Costing (LCC) in the New EU Directive Proposal’ (2013) 1 European Procurement Public-Private Partnership Law Review 19. 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. Lisa M. Ellram and others, ‘Retail Logistics’ (1989) 19 International Journal of Physical Distribution Logistics Management 29. Ernst and Young (EY), ‘Total Value: Impact Valuation to Support Decision-Making’ (EYGM 2016). Helena Estevan and Bettina Schaefer, Life Cycle Costing; State of the Art Report (ICLEI 2017). Wolter J. Fabrycky and Benjamin S. Blanchard, Life-Cycle Cost and Economic Analysis (Prentice Hall 1991). Katherine Fieldler and others, ‘Life-Cycle Costing and Food Systems: Concepts, Trends, and Challenges of Impact Valuation’ (2019) 8 Michigan Journal of Environmental Administrative Law 1. Martin Flusberg, Don’t Pass (Up) the Buck: Understanding Total Cost of Ownership Leads to Long-Term Savings (Powerhouse Dynamics 3 December 2013). General Assembly, Transforming Our World: The 2030 Agenda for Sustainable Development (UN Doc A/RES/70/1, 21 October 2015) 12.7. Jeroen B. Guinée and others, ‘Life Cycle Assessment: Past, Present, and Future’ (2011) 45 Environmental Science Technology 90. Willem D. Hazenberg, Selection and Decision-Making Criteria for a Distributed Control Systems in the Process Industry (Master Thesis, Business Administration in Information Management, Newport International University 2009). Savanna Henderson and others, The Real Cost of Food: Examining the Social, Environmental and Health Impacts of Producing Food (True Cost Accounting Report, Food Tank 2015). Anthony P. Higham and others, ‘Life Cycle Costing: Evaluating its Use in UK Practice’ (2015) 33 Structural Survey 73. Ralph E. Horne, ‘Life Cycle Assessment: Origins, Principles and Context’ in Ralph E. Horne and others (eds), Life Cycle Assessment: Principles, Practice and Prospects (CSIRO Publishing 2009). Robert G. Hunt and William E. Franklin, ‘LCA – How It Came about – Personal Reflections on the Origin and the Development of LCA in the USA’ (1996) 1 The International Journal of Life Cycle Assessment 4.

What is life-cycle costing?  19 Joint Research Center, Life Cycle Indicators for Resources, Products and Waste (JRC Technical Reports, EUR 25466 EN, Publication Office of the European Union 2012). Rashila Kerai, ‘Impact: What’s It Worth?’ in The Sustainability Yearbook (Robeco SAM 2017) 13. Walter Klöpffer, ‘Life Cycle Assessment: From the Beginning to the Current State’ (1997) 4 Environmental Science Pollution Research 223. Holger König and others, A life Cycle Approach to Buildings (Institut für internationale Architektur-Dokumentation GmbH & Co 2010) 13. Eric Korpi and Timo Ala-Risku, ‘Life Cycle Costing: a Review of Published Case Studies’ (2008) 23 Managerial Auditing Journal 243. Martina La Valle, Glossary Full-Cost Accounting (Food and Agriculture Organization of the United Nations April 2016) 59. Steffen Landscheidt and Mirka Kans, ‘Method for Assessing the Total Cost of Ownership of Industrial Robots’ (2016) 57 Procedia CIRP 746. Konstantinos J. Liapis and others, ‘Commercial Property Whole-Life Costing and the Taxation Environment’ (2014) 32 Journal of Property Investment & Finance 56. Beatriz Martínez Romera and Roberto Caranta, ‘EU Public Procurement Law: Purchasing Beyond Price in the Age of Climate Change’ (2017) 12 European Procurement Public-Private Partnership Law Review 291. National Capital Coalition, ‘National Capital Protocol: Food and Beverage Sector Guide’ (2016).Gerald Rebitzer and David Hunkeler, ‘Life Cycle Costing in LCM: Ambitions, Opportunities, and Limitations: Discussing a Framework’ (2003) 8 The International Journal of Life Cycle Assessment 253. Scientific Applications International Corporation (SAIC), Life Cycle Assessment: Principles and Practice (EPA/600/R-06/060, National Risk Management Research Laboratory; US Environmental Protection Agency 2006). Marcel Smit, NATO Initiatives to Improve Life Cycle Costing (TNO Defence, Security and Safety 2009). Thomas E. Swarr and others, ‘Environmental Life-Cycle Costing: a Code of Practice’ (2011) 16 The International Journal of Life Cycle Assessment 389. 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. Mark G. Twomey, A Review of Selected USAF Life Cycle Costing Models (Master of Science in Logistics Management Thesis, Air Force Institute of Technology, Air University 1991). Marc-Andrea Wolf and others, The International Reference Life Cycle Data System (ILCD) Handbook (JRC Reference Reports, EUR 24378 EN, Publication Office of the European Union 2012).

2 The European Union law of life-cycle costing Marta Andhov, Roberto Caranta and Anja Wiesbrock

2.1 Introduction EEC (now EU) public procurement law was developed to enhance the free movement of goods and the free provision of service. ‘Buying national’ was at the core of domestic procurement law, and the directives were seen as a way to enforce non-discrimination among European economic operators.1 This was the reason for harmonization in the recitals of Directive 71/305/EEC on works procurements. ‘Co-ordination of national procedures for the award of public works contracts’ was seen as an instrument to attain the freedom of establishment and the freedom to provide services.2 Environmental and more widely understood sustainability concerns came later and were for a long time looked upon with suspicion before being embraced in the last reform of EU public procurement law (Section 2.2).3 Some institutions in the EU, and notably the Commission, are still concerned about the possible misuse of sustainability to reintroduce unlawful discrimination among economic operators. The 2014 rules on LCC must be read as an attempt to ‘square the circle’, allowing contracting authorities to take into account all aspects of the life cycle of the goods or services purchased while ensuring the level playing field for all competitors (Section 2.3). The new rules on LCC, however, demand much effort to become operational, and pitfalls need to be mapped and properly understood (Section 2.4). Short conclusions will achieve this chapter (Section 2.5).

1 Council Directive 71/304/EEC of 26 July 1971 Concerning the Abolition of Restrictions on Freedom to Provide Services in Respect of Public Works Contracts and on the Award of Public Works Contracts to Contractors Acting Through Agencies or Branches [1971] OJ L185/1. 2 Council Directive 71/305/EEC of 26 July 1971 Concerning the Co-ordination of Procedures for the Award of Public Works Contracts [1971] OJ L185/5. 3 See the contributions collected by Marta Andrecka in a special issue: Procurement Beyond the Price (2017) 3 European Procurement and Public-Private Partnership Law Review (EPPPL).

European Union law of life-cycle costing  21 As Advocate General Kokott put it in her conclusions in the infringement procedure against the Netherlands, a case also known as Max Havelaar: Whether and to what extent environmental and social considerations may be taken into account and, in particular, reference may be made to environmental and fair trade labels, is a question of fundamental importance for the further development of the public procurement law. In giving its answer, the Court is faced with the challenge of finding an equitable balance between the requirements of the internal market and environmental and social concerns, without, however, ignoring the practical requirements of award procedures. On the one hand, there can be no discrimination between potential tenderers or partitioning of markets. On the other hand, contracting authorities must be allowed to procure environmentally friendly, organic and fair trade products without excessive administrative burdens.4 The EU law on LCC – and more generally on SPP – is very much about striking this balance between non-discrimination among the EU economic operators on the one hand and pursuing environmental and social consideration on the other hand. With the 2014 reform, the legislation can be seen as consolidating – and at times overtaking – the acquisition of the case law of the CJEU which has much contributed to enabling sustainable public procurement.5

2.2  From ‘secondary’ to ‘strategic’ The different considerations relating to the environment, to social policy and to SMEs – or at least the first two – have traditionally been labelled as ‘secondary considerations’ in opposition to market integration being the primary objective of EU public procurement legislation.6 The chosen adjective implied passing a judgement on the relative importance of different policies. The term ‘horizontal policies’ was the suggested alternative.7 The 2011 Commission’s ‘Green Paper

4 Case C-368/10, Commission v the Netherlands [2012] ECR 1–28. 5 Beate Sjåfjell and Anja Wiesbrock, ‘Why Should Public Procurement be about Sustainability?’ and Suzanne Kingston, ‘The Uneasy Relationship between EU Environmental and Economic Policies. The role of the Court of Justice’, both in Beate Sjåfjell and Anja Wiesbrock (eds), Sustainable Public Procurement Under EU Law (Cambridge University Press 2016); Roberto Caranta, ‘The Changes to the Public Contract Directives and the Story They Tell about How EU Law Works’ (2015) 52 Common Market Law Review 391. 6 Term used inter alia in by Martin Burgi, Dacian Dragos and others in their chapters in Roberto Caranta and Martin Trybus (eds), The Law of Green and Social Procurement in Europe (Djøf Publishing 2010). 7 Sue Arrowsmith and Peter Kunzlik, ‘Public Procurement and Horizontal Policies in EC Law: General Principles’, in Sue Arrowsmith and Peter Kunzlik (eds), Social and Environmental

22  Marta Andhov et al. on the modernisation of EU public procurement policy: Towards a more efficient European Procurement Market’ instead referred to ‘complementary objectives’, in a way putting sustainability on the same footing as other objectives, including economic efficiency.8 The Green Paper opens with a reference to the Europe 2020 strategy for smart, sustainable and inclusive growth.9 Public procurement is said to play a key role in this by (a) improving framework conditions for business to innovate, making full use of demand side policy; (b) supporting the shift towards a resource efficient and low-carbon economy, for instance, ‘by encouraging wider use of green public procurement’ and finally (c) improving the business environment, especially for innovative SMEs.10 A specific part of the 2011 Green Paper is dedicated to what is referred to as ‘strategic use of public procurement in response to new challenges’.11 Even though the EU can be seen leading the World in developing SPP, it is worth noting that these policy developments go well beyond Europe.12 Target 12.7 of the sustainable development goals (SDGs) focuses specifically on promoting ‘public procurement practices that are sustainable, in accordance with national policies and priorities’.13 Law has followed policy to a considerable extent. Sustainability has taken a relevant place in the 2014 legislative framework and especially in the Public Sector Directive.14 The focus of this chapter is on this directive, as it brought about a more detailed regime when compared with the Utility Directive and even more so when compared with the Concessions Directive. The 2011 Commission proposal for what has in the meantime become the Public Sector Directive closely follows the Green Paper. The proposal insists right from the beginning on the role public procurement may play in fostering development and distinguishes two complementary objectives for the Policies in EC Procurement Law: New Directives and New Directions (Cambridge University Press 2009) 35 and subsequent; see also, highlighting the difficulty to distinguish between the two sets of considerations, Mario E. Comba, ‘Green and Social Considerations in Public Procurement Contracts: A Comparative Approach’ in Robrto Caranta and Martin Trybus (eds), The Law of Green and Social Procurement in Europe (Djøf Publishing 2010) 307 and subsequent. 8 Commission, ‘Green Paper on the Modernisation of EU Public Procurement Policy: Towards a More Efficient European Procurement Market’ COM (2011) 15 final. 9 Commission, ‘Communication from the Commission: EUROPE 2020 – A Strategy for Smart, Sustainable and Inclusive Growth’ COM (2010) 2020 final. 10 Caranta (n 5) 394; Martin Trybus and Marta Andrecka, ‘Favouring Small and Medium Sized Enterprises with Directive 2014/24/EU?’ (2017) 3 EPPPL 224–238. 11 Commission (n 8) 33 ff. 1 2 See Roberto Caranta, ‘Helping Public Procurement Go Green: The Role of International ­Organisations’ (2013) EPPPL 49 ff. 13 United Nations Environment Programme, 2017 Global Review of Sustainable Public Procurement (2017) V; see Sjåfjell and Wiesbrock (n 5) 2 f. 14 Marta Andrecka and Katerina Peterkova Mitkidis, ‘Sustainability Requirements in EU Public and Private Procurement – A Right or an Obligation?’ (2017) 1 Nordic Journal of Commercial Law (NJCL) 56–87.

European Union law of life-cycle costing  23 new rules.15 Drawing from the consultation process, the Commission acknowledges that On the strategic use of public procurement to achieve the societal goals of the Europe 2020 strategy, stakeholders’ opinions were mixed. Many stakeholders, especially businesses, showed a general reluctance to the idea of using public procurement in support of other policy objectives. Other stakeholders, notably civil society organisations, were strongly in favour of such strategic use and advocated far-reaching changes to the very principles of the European Union public procurement policy.16 This explains why the Commission has chosen, somewhat inconsistently with the idea of ‘complementary objectives’, to follow an ‘enabling approach’ to SPP. According to the proposal, [t]he proposed Directive is based on enabling approach providing contracting authorities with the instruments needed to contribute to the achievement of the Europe 2020 strategic goals by using their purchasing power to procure goods and services that foster innovation, respect the environment and combat climate change while improving employment, public health and social conditions.17 ‘Enabling approach’ means that generally neither the MS nor their contracting authorities are under a duty to choose sustainable products or services going beyond the mandatory rules indicated in Article 18(2) Public Sector Directive.18 This cannot detract from the fact that the new Directive, while safeguarding fair and unhindered competition in the internal market, has given an important contribution to the development of SPP, even going beyond the somewhat tepid Commission’s proposal. The role played by public procurement in achieving the Europe 2020 agenda is stressed already in Recital 2.19 Besides Article 18(2),

15 16 17 18

COM (2011) 896 final, 2; Sjåfjell and Wiesbrock (n 5) 1 f. ibid 5. ibid 9. See also Recital 95 which recalls that there are some exceptions: e.g., Regulation (EC) No. 106/2008 (so called EU Energy Star Regulation) introduced obligations on contracting authorities to require in their public contracts a certain level of energy efficiency, and Directive 2009/33/EC on promotion of clean and energy-efficient vehicles introduced obligations on contracting authorities to take energy or other environmental impacts into account in their public procurement decisions (now repealed by Directive 2019/1161). For in-depth analysis of Article 18(2) see: Marta Andhov, ‘Contracting Authorities and Strategic Goals of Public P ­ rocurement – A Relationship Defined by Discretion?’ in Sanja Bogojevic, Xavier Groussot and Jörgen Hettne (eds), Discretion in EU Procurement Law (Hart Publishing 2019). 19 See also Recital 47 with specific reference to research and innovation and again Recitals 95 f and 123; the link with innovation is particularly strong, and the Europe 2020 strategy is referred expressly in Article 2(1)(22), when defining innovation.

24  Marta Andhov et al. which to the least indicates that contracting authorities cannot downplay existing environmental and social standards, 20 and besides the rules on award criteria that will be examined specifically in the next paragraph, the Public Sector Directive widened the scope both for award to sheltered workshops and similar economic operators and for requiring environmental certification schemes such as the Eco-Management and Audit Scheme (EMAS). The Directive also further tinkered with the rules on technical specifications. Possibly, and more importantly, and going even beyond what the CJEU was ready to allow based on the previous rules, the Directive allowed contracting authorities to have recourse to labels on a fairly generous basis.21 To keep the delicate balance, the Public Sector Directive also contains safeguards against discrimination among economic operators coming from different MS. All ‘enabling’ provisions come with such safeguards. At times, this light tension is written beautifully, as in Recital 74 clarifying that [t]he technical specifications drawn up by public purchasers need to allow public procurement to be open to competition as well as to achieve objectives of sustainability.22 The requirement of the ‘link to the subject matter’ of the contract as a condition for sustainable buying has been generalized throughout the Directive.23 Arguably, and more importantly, as it will be better shown when dealing with award criteria, the Directive has reiterated the seminal Concordia Bus requirement that environmental or other benefits are capable of being objectively assessed and evaluated.24 To safeguard unhindered competition on the internal market, EU law provides today more and more detailed guidelines for contracting authorities wishing to buy in sustainable ways. The 2014 reform was fundamental under this respect. Generally speaking, the lawmakers made the legal framework for SPP much clearer.

2.3  Award criteria and LCC The Public Sector Directive in clarifying the legal landscape and thus in enabling SPP is most apparent in relation to LCC. Using LCC, LCA and similar tools, looking into other factors than asking price, was possible even before the 20 See also Recital 41. 21 Further analysis in Roberto Caranta, ‘Labels as Enablers of Sustainable Public Procurement’ in Sjåfjell and Wiesbrock (eds), (n 5) 99. 22 The balance is instead struck between sustainability and value for money in Recital 91. 23 Andrecka and Peterkova Mitkidis (n 14). Abby Semple, ‘The Link to the Subject-Matter: A Glass-Ceiling for Sustainable Public Contracts?’ in Sjåfjell and Wiesbrock (eds), (n 5) 66 ff arguing for a loose approach to the requirement. 2 4 Case C-513/99 Concordia Bus Finland Oy Ab, formerly Stagecoach Finland Oy Ab v Helsingin kaupunki and HKL-Bussiliikenne C:2002:495 [2002] ECR I-07213.

European Union law of life-cycle costing  25 2014 reform.25 As Recital 96 points out, the new Directive does however clarify the fundamental characteristics of and legal conditions for using LCC by devoting a specific provision to it (the Article 68).26 This provision is specifying the general rules on contract award laid down in Article 67. The drafting of Article 67 is cumbersome (to put it gently), and this against the aim of achieving clarity ostensibly pursued by the law maker.27 The main points relevant to the understanding of the specific provision on LCC are as follows: i There is only one award criterion, the most economically advantageous tender (MEAT). ii The MEAT may take the forms28 of lowest price, best quality for given price, best price-quality ratio (the old MEAT in Directive 2004/18/EC)29 which may include LCA,30 and costs-effectiveness (including LCC).31 iii Contracting authorities have wide discretion in choosing the relevant quality aspects, including, but not limited to,32 design for all users, social, environmental and innovative characteristics33; however, the criteria chosen must be linked to the subject-matter of the public contract in question; Article 67(3) departs from the doctrine previously adhered to by the Commission by clarifying that criteria are so linked ‘where they relate to the works, supplies or services to be provided under that contract in any respect and at any stage of their life cycle, including factors involved in: (a) the specific process of production, provision or trading of those works, supplies or services; or (b) a specific process for another stage of their life cycle, even where such factors do not form part of their material substance’.34 As it has

25 Dacian C. Dragos and Bogdana Neamtu, ‘Life-Cycle Costing for Sustainable Public Procurement in the European Union’ in Sjåfjell and Wiesbrock (eds) (n 5) 117. 26 See also Recital 96. 27 See the first phrase in Recital 89: ‘The notion of award criteria is central to this Directive. It is therefore important that the relevant provisions be presented in as simple and streamlined a way as possible.’ 28 According to Recital 92, it is not possible to have recourse to award criteria not having a price or cost component; it does not however specifically refer to fixed price. 29 Tobias Indén, ‘Article 67. Contract Award Criteria’ in Michael Steinicke and Peter L. Vesterdorf. EU Public Procurement Law (Nomos C.H. Beck Verlag and Hart 2018) 716. 30 See Recital 89. 31 See also Recital 90 see Dragos and Neamtu (n 25). 32 Recital 92. 33 Recital 91 refers to Article 11 TFEU, which requires that environmental protection requirements is integrated into the definition and implementation of the Union policies and activities, and indicates the directive ‘clarifies how the contracting authorities can contribute to the protection of the environment and the promotion of sustainable development, whilst ensuring that they can obtain the best value for money for their contracts’; see Marta Andrecka, ‘Corporate Social Responsibility and Sustainability in Danish Public Procurement’ (2017) 3 EPPPL 341; Anja Wiesbrock, ‘An Obligation for Sustainable Procurement? Gauging the Potential Impact of Article 11 TFEU on Public Contracting in the EU’ (2013) 40 Legal Issues of Economic Integration 105. 3 4 See also below in this paragraph, with reference to LCC.

26  Marta Andhov et al. been remarked, this implies that ‘the link between the award criteria and the subject matter of the contract has been relaxed’.35 iv The award criteria ‘shall not have the effect of conferring an unrestricted freedom of choice on the contracting authority. They shall ensure the possibility of effective competition and shall be accompanied by specifications that allow the information provided by the tenderers to be effectively verified in order to assess how well the tenders meet the award criteria’. As Recital 90 clarifies ‘Contracts should be awarded on the basis of objective criteria that ensure compliance with the principles of transparency, non-­ discrimination and equal treatment, with a view to ensuring an objective comparison of the relative value of the tenders in order to determine, in conditions of effective competition, which tender is the most economically advantageous tender’.36 The Public Sector Directive is here consolidating the teaching in EVN Wienstrom, a case concerning the purchase of energy from renewable sources.37 The CJEU held that ‘where a contracting authority lays down an award criterion indicating that it neither intends, nor is able, to verify the accuracy of the information supplied by the tenderers, it infringes the principle of equal treatment, because such a criterion does not ensure the transparency and objectivity of the tender procedure’.38 v Finally, the contracting authority shall specify in the procurement documents the relative weighting of each of the criteria chosen or, if this is not possible their decreasing order of importance.39 Summing up, the relevant indication from Article 67 is that elements from the life cycle of the goods or services to be procured may be integrated in the award criteria provided that transparency requirements are met and ‘objectivity’ in the evaluation is assured. This compact is summarized in Recital 92: The chosen award criteria should not confer an unrestricted freedom of choice on the contracting authority and they should ensure the possibility of effective and fair competition and be accompanied by arrangements that allow the information provided by the tenderers to be effectively verified. Article 68 of Public Sector Directive builds on the definition of life cycle in Article 2(20) of the directive and specifies and enriches Article 67 along two lines: (i) costs that may be taken into account, (ii) objectivity and other requirements upholding non-discrimination, including choice of the LCC methodology.

35 Indén (n 29) 714; see also 726 ff. 36 See also Recital 92; ibid 724 ff. 37 Case C-448/01, EVN and Wienstrom [2003] ECR I‑14527; see Thomas Gliozzo, ‘L’admissibilité d’un critère environnemental au regard de la réglementation communautaire des marchés’ Actualité Juridique Droit Administratif, 2004, 334. 38 Paragraph 51. 39 See Indén (n 29).

European Union law of life-cycle costing  27 Article 2(20) provides a widely encompassing definition of life cycle. According to this provision, ‘life cycle’ means all consecutive and/or interlinked stages, including research and development to be carried out, production, trading and its conditions, transport, use and maintenance, throughout the existence of the product or the works or the provision of the service, from raw material acquisition or generation of resources to disposal, clearance and end of service or utilization. Recital 97 goes more into detail in describing the various stages of the life cycle,40 also taking into account the indication coming from the fundamental judgement of the Court of Justice in Max Havelaar.41 The same recital sets out one clear limit to what can be included under the life cycle: the condition of a link with the subject-matter of the contract excludes criteria and conditions relating to general corporate policy, which cannot be considered as a factor characterising the specific process of production or provision of the purchased works, supplies or services. Contracting authorities should hence not be allowed to require tenderers to have a certain corporate social or environmental responsibility policy in place.42 Mandatory environmental and even more social standards pertaining to the supplier rather than to the goods or services supplied are however relevant under Article 18(2) of Public Sector Directive, and their breach might lead to the exclusions from the procedures.43 The indication in Recital 97 must be therefore read 40 ‘[C]ontracting authorities should be allowed to use award criteria or contract performance conditions relating to the works, supplies or services to be provided under the public contract in any respect and at any stage of their life cycles from extraction of raw materials for the product to the stage of disposal of the product, including factors involved in the specific process of production, provision or trading and its conditions of those works, supplies or services or a specific process during a later stage of their life cycle, even where such factors do not form part of their material substance. Criteria and conditions referring to such a production or provision process are for example that the manufacturing of the purchased products did not involve toxic chemicals, or that the purchased services are provided using energy-efficient machines. In accordance with the case-law of the Court of Justice of the European Union, this also includes award criteria or contract performance conditions relating to the supply or utilization of fair trade products in the course of the performance of the contract to be awarded. Criteria and conditions relating to trading and its conditions can for instance refer to the fact that the product concerned is of fair trade origin, including the requirement to pay a minimum price and price premium to producers’. 41 Case C-368/10, Commission v Netherlands ECLI:EU:C:2012:284. 4 2 See also the analysis by Indén (n 29) 728. 43 See Articles 57(1) and (4)(a); see also Articles 69(3) on the mandatory exclusion of abnormally low tenders and 71(1) on subcontractors. Council Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts (1986) OJ L 395 33

28  Marta Andhov et al. as a prohibition to impose higher than mandatory standards on suppliers which are not related to or go beyond the subject-matter of the contract.44 Recital 98 instead reaffirms the application of the limits to workers’ rights set in Di-rective 96/17/EC 45 and in the rich case law which goes well beyond that EU secondary law measure.46 Article 68(1) introduces a distinction among the different costs arising during the life cycle. The provision includes first of all costs which are borne by the contracting authority or other users and in this it follows a total cost of ownership – TCO approach.47 These include acquisition, use, maintenance and end of life costs.48 The other costs that may be considered are those ‘imputed to environmental externalities linked to the product, service or works during its life cycle’. These costs are not reflected in the price of the goods or services procured and are therefore usually borne by the society at large rather than by the contracting authority.49 These costs include ‘the cost of emissions of greenhouse gases and of other pollutant emissions and other climate change mitigation costs’. Article 68(1) begins introducing ‘objectivity’ safeguards only when dealing with the latter category of costs (environmental externalities), but there is no reason why those safeguards should not apply with reference to those elements considered in TCO. Environmental externalities may be taken into account only provided, and in so far as, that ‘their monetary value can be determined and verified’.50 Objectivity is further married to transparency in the following section of Article 68. Contracting authorities using LCC must indicate in the procurement documents the data to be provided by the tenderers and the method, which will be used to determine the LCC. Moreover, the method must fulfil a number of conditions which to a large extent coincide with those required for labels under Article 43 of Public Sector Directive. Under Article 68(1), the LCC method (i) must be based on ‘objectively verifiable and non-discriminatory criteria’; reiterating the prohibition of discriminatory contract design laid down in Article 18(1) of the directive, it is also indicated that, unless the method used was established for being applied repeatedly, which would exclude (or rather lessen) 4 4 Michael Steinicke, ‘Article 2. Definitions’ in Michael Steinicke and Peter L. Vesterdorf (eds), EU Public Procurement Law (Nomos C.H. Beck Verlag and Hart 2018) 186. 45 See now Directive (EU) 2018/957 of the European Parliament and of the Council of 28 June 2018 amending Directive 96/71/EC concerning the posting of workers in the framework of the provision of services (2018) OH L 173/16 4 6 See the contributions collected by Albert Sanchéz Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discusion after Regiopost (Hart 2018). 47 See Jason J. Czarnezki and Steven Van Garsse, ‘What Is Life Cycle Costing?’ Chapter 1 of this book. 48 A somewhat different list may be found in Recital 96, but they are anyway both simply indicative; see also Tobias Indén, ‘Article 68. Life-Cycle costing’ in Michael Steinicke and Peter L. Vesterdorf (eds), EU Public Procurement Law (Nomos C.H. Beck Verlag and Hart 2018) 7. 49 Abby Semple, A Practical Guide to Public Procurement (OUP 2015) 191. 50 See also Recital 96: referring to ‘costs imputed to environmental externalities, such as pollution caused by extraction of the raw materials used in the product or caused by the product itself or its manufacturing, provided they can be monetized and monitored’.

European Union law of life-cycle costing  29 ­ iscrimination concerns, the method shall not ‘unduly favour or disadvantage d certain economic operators’. Moreover, (ii) the chosen methodology must not only be accessible to all interested parties but, to avoid limiting competition from outside Europe, the data required must be such that they may be ‘provided with reasonable effort by normally diligent economic operators, including economic operators from third countries party to the GPA or other international agreements by which the Union is bound’.51 One remarkable exception in the convergence between the rules on labels and those on LCC is that Article 68 does not require a participatory procedure for developing LCC methodologies.52 The difference may be partly explained with the fact that while labels often are set by private organizations and aim at setting industry-wide standards, LCC methodologies maybe developed by an individual contracting authority, possibly with reference to a specific award procedure. However, given the inputs in terms of expertise, time and funds needed to develop LCC methodologies, the effort, even when led by the public sector, could well benefit from a participatory approach and the involvement of NGOs and industry.53 Moreover, given the relevance of life-cycle thinking in designing labels and the potential for convergence between labels and LCC requirements, the directive could have gone further in laying down common governance rules in this area. Instead, Article 68(3) simply – and redundantly – provides that whenever an LCC method has been made mandatory under EU law, this method must be applied.54 A list of those methodologies is attached to the directive as Annex 13. Actually Annex 13 included only one, referred to Directive 2009/33/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of clean and energy-efficient road transport vehicles.55 Directive (EU) 2019/1161 of the European Parliament and of the Council of 20 June 2019 amending ­Directive 2009/33/EC on the promotion of clean and energy-efficient road transport vehicles has however done away with the obligation on the assumption that contracting authorities are preferring better suited methodologies.56 51 See also, more generally with reference to award criteria and contract performance conditions, Recital 98. 52 On issues of eco-labels and LCC in textile sector, see Małgorzata Koszewska, ‘The Role of Eco-Labels in Creation of LCC: The Case of Textile and Clothing Products’ Chapter 7 of this book. 53 The need of data from industry to develop LCC methodologies is highlighted by Dragos and Neamtu (n 25)129 f. 54 Recital 96 makes some more sense, indicating that when one methodology is provided, its use should be made mandatory; but this is left to specific secondary law provisions. 55 (2009) OJ L 120/5; see the analysis by Indén (n 48) 740 f; see also Commission, ‘Proposal for a Directive of the European Parliament and of the Council Amending Directive 2009/33/EU on the Promotion of Clean and Energy-Efficient Road Transport Vehicles’ COM (2017) 653. 56 (2017) OJ L 188/116; see Recital 24: “Life-cycle costing is an important tool for contracting authorities and contracting entities to cover energy and environmental costs during the life-cycle of a vehicle, including the cost of greenhouse gas emissions and other pollutant emissions on the basis of a relevant methodology to determine their monetary value. Given the scarce use of the methodology for the calculation of operational lifetime costs under Directive 2009/33/EC and

30  Marta Andhov et al. The Commission is empowered to update the Annex in case new legislation mandating use of LCC with reference to certain goods or services is approved.57 Developing common methodologies would indeed bring benefits in terms of both limiting fragmentation and increasing legal certainty in this already complicated area.58 Making the use of those methodologies mandatory might however be a double-­edged sword as the reform of the Clean Vehicles Directive shows.

2.4  A long and uncertain road for the full uptake of LCC Article 68 of Public Sector Directive goes a long way in clarifying the legal regime for LCC incorporating environmental externalities. Since the introduction of the new provision LCC have been seen as a tool with a great potential to significantly facilitate SPP by encouraging contracting authorities to ‘think outside the (price) box in the context of sustainable public procurement’.59 Several actors took upon themselves to meet this call. The already available tools for calculation of LCC include: •









57 58 59

6 0

SMART SPP LCC and CO2 emissions tool focusing on calculating LCC and important emissions (CO2, carbon dioxide, mono-nitrogen oxides and nitrogen dioxide, sulphur dioxide, non-methane hydrocarbon). Clean Fleets project LCC tool – an excel spreadsheet including series of preset formulas to be used to determine LCC for cars and vans (compliant with Clean Vehicle Directive). Umwelt Bundesamt: Berechnungswerkzeug für Lebenszykluskosten (Life-cycle Costing calculation tool – in Germany) focusing on such product groups as PCs, monitors, servers, dishwashers, refrigerators etc. National Agency for Public Procurement in Sweden – tool developed for household appliances (washing machines, freezers, dishwashers, fridges), indoor and outdoor lighting60 and vehicles. Danish Ministry of Environment and Food LCC tool focusing on product groups such as self-service machines, bulbs and lighting system, office IT equipment, refrigerators and freezers. the information provided by contracting authorities and contracting entities on the use of own methodologies tailored to their specific circumstances and needs, no mandatory methodology should be required to be used, but contracting authorities and contracting entities should be able to choose any life-cycle costing methodology in order to support their procurement processes on the basis of the most economically advantageous tender (‘MEAT’) criteria as described in Article 67 of Public Sector Directive  and Article 82 of Directive 2014/25/EU, taking into account cost-effectiveness over the lifetime of the vehicle, as well as environmental and social aspects”. See also Recital 129. Dragos and Neamtu (n 25) 127. Dacian Dragos and Bogdana Neamtu, ‘Sustainable Public Procurement, Life-Cycle Costing in then New EU Directive Proposal’ (2013) 1 EPPPL 19; whether this will actually happen is debated: see also, on a more pessimistic tone Semple (n 49) 159 and 191. See Chapter 5 of this book by Lozano and others ‘Moving to a Quintuple Helix Approach in Sustainable Public Procurement: Collaboration and LCC for Lighting Procurements’.

European Union law of life-cycle costing  31 • •

EU financed LCC calculation tool for goods whose substantial cost comes from electricity use.61 EU LCC tool for specific products – it has been promised since 2016, and was made available in December 2018. However, as Suciu and Dragos argue in Chapter 6 the tool looks unambitious compared to previous literature debates.

Unfortunately, the majority of these tools are not representing LCC methodologies, rather they are TCO tools. The present tools are primarily focused on financial returns while wider socioeconomic are not factored in. This may be due to reported research gaps in the application of LCC, and lack of data that would allow for acceptable degree of certainty and objectivity. While the new provisions in LCC have been mostly welcomed optimistically, they may open the discussion about the legality of custom developed LCC methodologies to be used with reference to one specific procurement. Recital 96 and Article 68(2) are indeed inconsistent. According to the Recital, Such methods can be established at national, regional or local level, but they should, to avoid distortions of competition through tailor-made methodologies, remain general in the sense that they should not be set up specifically for a particular public procurement procedure. Article 68(2), instead, clearly allows for an LCC methodology established for just one procurement.62 This is probably due to some last minutes lack of coordination between the articles and the recital, due to the fact that the original proposal did require LCC methodologies to be developed for repeated application.63 While the Article for sure takes precedence over the recital, establishing LCC methodologies is a very effort intensive exercise, and doing it in view of repeated application is obviously the only sensible approach in almost all cases. However, a contracting authority might well want to test a new LCC methodology in a specific procedure before adapting and adopting it based on the lessons learned.64 Also, in very complex projects awarded through competitive dialogue, it might be sensible to fine-tune the LCC methodology after the dialogue phase. The contracting authority having at that stage a clear idea of what the participants can deliver in terms of quality, including environmental quality.65 61 Update on life-cycle costing (LCC) project (Studio Fieschi & Soci and Scuola Superiore Sant ‘Anna, 2016) available at accessed 20 March 2019. 62 Semple, (n 49) 191; see also the discussion in Sue Arrowsmith, The Law of Public and Utilities Procurement, 3rd (Sweet & Maxwell, 2014) 797. 63 See Indén, (n 48) 741. 6 4 See also Dragos and Neamtu (n 25) 132. 65 Public Sector Directive, Article 30(2) only requires contracting authorities to set out set out and define the chosen award criteria, which is understood as being something more general than specifying the contract award criteria as required under Article 29(1) for the competitive procedure with negotiations.

32  Marta Andhov et al. Besides these finer legal points, the uptake of LCC methodologies much depends on the actual development of methodologies to be used by contracting authorities.66 The availability of methodologies is largely dependent on sectors in which contracting authorities operate.67 In fact, even though LCC is widely acknowledged as a potentially effective policy tool for sustainable public procurement, there are many practical challenges related to its use. These include the lack of data and uncertainties related to the concepts, definitions and methodologies to be applied. A meaningful LCC analysis is dependent on comprehensive data on costs of the complex interaction between a product and the environment. The availability of such data and the ability to accurately value environmental costs in economic terms constitute a persistent challenge in applying LCC.68 The difficulty in calculating environmental costs, the absence of common and accepted methodology to monetize externalities and the resulting diversity of terminology and methodologies mean that LCC in practice is a challenging tool to use. Moreover, short procurement budget periods, risk and uncertainty on price change and new technologies may all work against following a LCC approach. The perceived complexity of LCC and the lack of user knowledge pose a further challenge to its increased use. As the chapter on textiles shows,69 the lack of expertise of procurers and tenderers in engaging with meaningful LCC calculation often leads to the use of other venues than LCC as part of the award criteria. Technical specifications, technical criteria, contract clauses and labels and other certifications are used as alternatives. If the road ahead for the development of environmental LCC is not devoid of obstacles, the same legal framework is yet to be devised concerning the inclusion of social considerations in LCC. As shown, Article 68 of Public Sector Directive focuses exclusively on environmental aspects. Concerning social considerations, the only indication comes from Recital 96 hopefully declaring that the feasibility of establishing a common methodology on social life cycle costing should be examined, taking into account existing methodologies such as the Guidelines for Social Life Cycle Assessment of Products adopted within the framework of the United Nations Environment Programme. The fact that Article 68 is silent on social aspects does not mean that contracting authorities cannot incorporate them in their LCC methodologies.70 66 See also Dragos and Neamtu (n 25) 127 f. 67 On the available tools in ICT see: Raluca Suciu and Dacian Dragos ‘LCC Criteria for Procurement of ICT Products and Services: The Need for Taking a Flexible Approach’ (Chapter 6); textile: Małgorzata Koszewska ‘The Role of Eco-Labels in Creation of LCC: The Case of Textile and Clothing Products’ (Chapter 7); and housing: Deidre Halloran, ‘LCC within the Construction Sector: a Tool for Social Housing? (Chapter 8) in this book. 68 See the chapter on housing (Chapter 8). 69 See Chapter 7. 70 Semple (n 49) 204; but see the discussion in Indén (n 48) 739 f.

European Union law of life-cycle costing  33 Social-LCC will still have to meet the same requirements as laid down in Article 68, with ‘objectivity’ and ‘monetization’ probably going to present significant challenges.71 Adding social aspects to the equation depends on the adoption of a methodology integrating LCA, LCC and Social-LCC. This requires not only the harmonization of these three methods as well as finding a way of overcoming cross-method challenges.72 It also poses additional challenges related to the need of capturing not only direct impacts, but also indirect consequences. It has been suggested that, contrary to the process-approach taken in environmental LCA, the application of social LCA may require the adoption of an organizational approach, since social impacts are generally determined by the conduct of the companies which are engaged in the life cycle.73 It is, however, difficult to imagine how such an approach could be reconciled with the requirement that award criteria for public procurement contracts must be linked to the subject matter of the contract.

2.5 Conclusions Building on the case law inaugurated by Concordia Bus, the Directive goes a long way into creating a balanced checklist for the use of environmental (and social) criteria in public procurement across the different phases of the procedure. Those criteria (i) must be linked to the subject matter of the contract, which however includes any criterion related ‘to the works, supplies or services to be provided under that contract in any respect and at any stage of their life cycle’ (Article 67(3)). (ii) They must be susceptible of objective evaluation. (iii) They must be not discriminatory and accessible to all interested parties.74 Some differences still exist in the SPP checklist concerning, for instance, the standard setting procedure, which was already discussed above, but also accessibility to economic operators. Concerning this latter aspect, the rules on LCC are somewhat more stringent than what is required in the standard checklist, in that a no more than a ‘reasonable effort’ may be required. Concerning labels, instead, it is upon the economic operator to demonstrate that it has no possibility of obtaining the specific label required or an equivalent one within the relevant time limits and that this is not due to reasons attributable to it (Article 43(1)). Developing easy to use LCC methodologies and making contracting authorities aware of them is what is required now.

71 Dragos and Neamtu (n 25). 72 Rizal Taufiq Fauzi and others, ‘Exploring the Current Challenges and Opportunities of Life Cycle Sustainability Assessment’ (2019) 11 Sustainability 636 f. 73 Louise Camilla Dreyer and others, ‘A Framework for Social Life Cycle Impact Assessment’ (2006) 11(2) The International Journal of Life Cycle Assessment 88–97. 74 See also Dragos and Neamtu (n 25).

34  Marta Andhov et al.

References Marta Andhov, ‘Contracting Authorities and Strategic Goals of Public Procurement – a Relationship Defined by Discretion?’ in Sanja Bogojevic, Xavier Groussot and Jörgen Hettne (eds), Discretion in EU Procurement Law (Hart Publishing 2019) 117–137. Marta Andrecka, ‘Corporate Social Responsibility and Sustainability in Danish Public Procurement’ (2017) 12 EPPPL 3/341. Marta Andrecka (ed.) special issue, ‘Procurement Beyond the Price’ (2017) 12 EPPPL 3/217–218. Marta Andrecka and Katerina Peterkova Mitkidis, ‘Sustainability Requirements in EU Public and Private Procurement – A Right or an Obligation?’ (2017) 1 Nordic Journal of Commercial Law (NJCL) 56–87. Sue Arrowsmith and Peter Kunzlik, ‘Public Procurement and Horizontal Policies in EC Law: General Principles’ in Sue Arrowsmith and Peter Kunzlik (eds), Social and Environmental Policies in EC Procurement Law: New Directives and New Directions (­Cambridge University Press 2009) 9–54. Roberto Caranta, ‘Helping Public Procurement Go Green: The Role of International Organisations’ (2013) 8 EPPPL 1/49 ff. Roberto Caranta, ‘The Changes to the Public Contract Directives and the Story They Tell about How EU Law Works’ (2015) 52 Common Market Law Review 391. Roberto Caranta, ‘Labels as Enablers of Sustainable Public Procurement’ in Beate Sjåfjell and Anja Wiesbrock (eds), Sustainable Public Procurement Under EU Law (Cambridge University Press 2016) 99–113. Roberto Caranta and Martin Trybus (eds), The Law of Green and Social Procurement in Europe (Djøf Publishing 2010). Mario E. Comba, ‘Green and Social Considerations in Public Procurement Contracts: A  Comparative Approach’ in Robrto Caranta and Martin Trybus (eds), The Law of Green and Social Procurement in Europe (Djøf Publishing 2010) 299–319. Commission, ‘Communication from the Commission: EUROPE 2020 – A Strategy for Smart, Sustainable and Inclusive Growth’ COM (2010) 2020 final. Commission, ‘Green Paper on the Modernisation of EU Public Procurement Policy: ­Towards a More Efficient European Procurement Market’ COM (2011) 15 final. Dacian C. Dragos and Bogdana Neamtu, ‘Life-Cycle Costing for Sustainable Public Procurement in the European Union’ in Beate Sjåfjell and Anja Wiesbrock (eds), Sustainable Public Procurement Under EU Law (Cambridge University Press 2016) 114–137. Tobias Indén, ‘Article 67. Contract Award Criteria’ in Michael Steinicke and Peter L. Vesterdorf (eds), EU Public Procurement Law (Nomos C.H. Beck Verlag and Hart 2018) 716. Suzanne Kingston, ‘The Uneasy Relationship between EU Environmental and Economic Policies. The Role of the Court of Justice’ in Beate Sjåfjell and Anja Wiesbrock (eds), Sustainable Public Procurement Under EU Law (Cambridge University Press 2016) 23–49. Albert Sanchéz Graells (ed), Smart Public Procurement and Labour Standards. Pushing the Discusion after Regiopost (Hart 2018). Abby Semple, A Practical Guide to Public Procurement (OUP 2015). Abby Semple, ‘The Link to the Subject-Matter: A Glass-Ceiling for Sustainable Public Contracts?’ in Beate Sjåfjell and Anja Wiesbrock (eds), Sustainable Public Procurement under EU Law (Cambridge University Press 2016) 50–74.

European Union law of life-cycle costing  35 Beate Sjåfjell and Anja Wiesbrock, ‘Why Should Public Procurement be about Sustainability?’ in Beate Sjåfjell and Anja Wiesbrock (eds), Sustainable Public Procurement under EU Law (Cambridge University Press 2016) 1–22. Martin Trybus and Marta Andrecka, ‘Favouring Small and Medium Sized Enterprises with Directive 2014/24/EU?’ (2017) 12 EPPPL 3/224–238. Anja Wiesbrock, ‘An Obligation for Sustainable Procurement? Gauging the Potential Impact of Article 11 TFEU on Public Contracting in the EU’ (2013) 40 Legal Issues of Economic Integration 105.

3 Life-cycle costing in the Member States* Does the tool meet its goals? Raquel Carvalho

3.1 Introduction The 2014 directives have provided life-cycle costing (LCC) as a possible award mechanism. As discussed in more detail in the second chapter of this book, although the previous directives had already moved towards the implementation of horizontal policies, with the 2014 directives the ‘sustainability-friendly approach’ almost ‘took over’ the realm of public procurement.1 Several significant provisions embody those policies,2 one of the most significant thereof concerning life-cycle costing (LCC).3 However, calculating life-cycle costs is a complex task and the implementation of LCC requires overcoming multiple obstacles. Whilst other chapters in this book discuss the practical challenges related to the use of LCC in different sectors, this chapter focuses on the transition of the directive’s provisions on LCC into national law and the legal challenges faced by national contracting authorities. As Schebesta argues, EU public procurement law allows the approach to sustainable procurement to be ‘rather unspecified and seem[s] to legitimize a degree of experimentation with respect to green procuring’.4 It is therefore interesting to analyse how selected Member States (MS) have transposed the directive’s provisions concerning this matter.5 Faced with a ‘novelty’, at least in what concerns * This paper is financially supported by national funds through FCT – Foundation for Science and Technology, IP, within the Project UID/DIR/04859/2013. 1 See: Marta Andhov, Roberto Caranta and Anja Wiesbrock, ‘The European Union Law of LCC’ Chapter 2 of this book; Dacian Dragos and Bogdana Neamtu, ‘Life-Cycle Costing for Sustainable Public Procurement in the European Union’ in Beate Sjäfjell and Anya Wiesbrock (eds), Sustainable Public Procurement under EU Law – New Perspectives on the State as Stakeholder (Cambridge University Press 2016) 114–115; Marta Andhov, ‘Contracting Authorities and Strategic Goals of Public Procurement – A Relationship Defined by Discretion?’ in Xavier Groussot and Bogojevic (eds), Discretion in EU Procurement Law (Hart Publishing 2019). 2 From generic provisions concerning the principles to award criteria provisions, including the foreseen provisions regarding eco-labelling, object matter, and execution conditions. 3 Roberto Caranta, ‘The Changes to the Public Procurement Directives and the Story They Tell about How EU Law Works’ (2015) 52 Common Market Law Review 391, 397; Hanna Schebesta, ‘EU Green Public Procurement Policy: Modernisation Package, Eco-Labelling and Framing Measures’ in Sarah Schoenmakers and others (eds), State Aid and Public Procurement in the European Union (Intersentia 2014) 129, 133. 4 Schebesta (n 3) 133. 5 The following transposition laws were consulted (on March 2018): Public Contracts Code (Decree-Law no. 18/2008, 29th January, with the latest amendment of 2017) – Portugal; Ley

Life-cycle costing in the Member States  37 LCC, national transpositions have generally contented themselves with copying the Public Sector Directive’s provisions, not taking the opportunity to differentiate or propose different approaches concerning the contract’s subject-matter, or to enshrine different policies or methodologies. This is in spite of the fact that many of them already had empirical experience in the use of LCC methodology. Before analysing in detail the implementation into national law of the LCC provisions contained in the 2014 directives, the chapter draws on the experience of Directive 2009/33/EC (the Clean Vehicles Directive), which establishes a mandatory LCC methodology. Subsequently, the chapter identifies common premises in LCC methodology and discusses difficulties, challenges and solutions resulting from MS’ experiences in implementing LCC. Behind the background of a comparative analysis of MS’ experiences in developing and applying LCC methodologies regarding several goods, services and works, the usefulness of this methodology along with its main challenges, namely legal constrains and the difficulties in applying the methodology itself are analysed. The chapter concludes by pin pointing good practices and identifying solutions to overcome those weaknesses.

3.2  Mandatory methodology – the clean vehicles directive Before going deeper into the analysis of the concrete experiences of the MSs in implementing LCC, it is relevant to analyse the mandatory methodology set in the Clean Vehicles Directive, how it was implemented and what issues and eventually solutions can be identified. Furthermore, the EU documents regarding

9/2017, de 8/11 (art. 148) – Spain; The Public Contracts Regulations 2015 (art. 68) – UK; Loi 2015-899, 23/7/2015 modifié par la Loi 2017-86, 27/1/2017 and Décret no. 2016-360 du 25 mars 2016 relatif aux marchés publics – France (this last Decrét was revoked on 1 April 2019 accordingly to accessed 6 April 2019); Section 17 – The Public Procurement Act (2016:1145) – Sweden; The Public Procurement Act (Act No. 1564 of 15 December 2015) – Denmark; 1397/2016 Act on Public Procurement and Concession Contracts – Finland; Act CXLIII of 2015 on Public Procurement – ­Hungary; 134/2016 Coll. Act of 19 April 2016 on Public Procurement – Czech Republic; Public Procurement Act 1.07.2017 – art. 86 – Estonia; Decreto legislativo 18 Aprile 2016, no. 50 (aggiornato 2017) – art. 96 – Italy; German public procurement law is set out in the following laws and ­regulations: Part IV of the German Act against Restraints of Competition (GWB); the Regulation on the Award of Public Contracts (VgV); the Utilities Regulation (SektVO); the Procurement Regulation on Defence and Security (VSVgV); the Procurement Regulation on Construction Works (VOB/A); the Procurement Regulation on Concessions (KonzVgV); and the Procurement Regulation on the Award of Public Contracts under the EU thresholds (UVgO) for the Federal Republic and the Federal states Bavaria, Hamburg and Bremen – ­G ermany; The Act Amending the Public Procurement Law Act and Certain Other Acts of 22 June 2016, designed to transpose Directives 2014/24/EU and 2014/25/EU, entered into force on 28 July 2016 the ‘Transposition Act’ – Poland; Romania has transposed the 2014 Directives through several laws (not accessible in English). It is important to stress that some MS have transposed this matter within several dispositions. Some national laws already dealt with LCC prior to the implementation of Public Sector Directive and were therefore also considered.

38  Raquel Carvalho this directive offer a very revealing statement of how complexity and rush can undermine a very interesting tool in SPP. The Clean Vehicles Directive intended to promote ‘clean and energy efficient road transport vehicles’. It was implemented with considerable delay in some MS, mostly because of the complexity of some of its provisions. As the Commission Report on the application of Directive 2009/33/EU shows, ‘in most cases, the process of transposition involved amendments of existing public procurement acts, rather than adoption of new legislations’.6 Directive 2009/33/EU was the first legislative measure to foresee sustainability-based obligations, which could be met either by technical specifications or by award criteria.7 It foresaw a methodology for calculating ‘lifetime operational costs for energy consumption, CO2 emissions, and pollutant emissions of vehicles’.8 The Commission has provided a portal with further explanations regarding, among other requirements, costs calculation, and a Clean Vehicle Portal with a specific calculation methodology for measuring CO2 emissions.9 By the time of the report, it was already recognized that the absence of data such as reports from the MSs and ‘comprehensive data’ hampered the assessment of the directive impact.10 Data availability and accuracy (including post-implementation) was, by then, a major drawback in this area. In order to address this difficulty, the Electro-mobility Observatory (EEO) was launched, aiming to ‘ensure collection and dissemination of key statistical data’, while procedure simplification was thought to be another way of solving the problem.11 The delay in the transposition ‘prevented any major impact of this legislation’, although economic operators referred an ongoing change in attitude on the part of contracting authorities visible in the establishment of public policies regarding ‘cleaner and more energy efficient vehicles’.12 Another difficulty reported was the lack of standard regarding measuring CO2 emissions on heavy-duty vehicles. Therefore, a specific calculation methodology for buses was developed.13 6 Commission, ‘The Council, the European Economic and Social Committee and the Committee of the Regions on the Application of Directive 2009/33/EU on the Promotion of Clean and Energy Efficient Road Transport Vehicles’ (Further: Report) COM (2013) 214 final 3. Portugal, Czech Republic and Denmark respected the transposition date. For an overview of the transposition process, see table 1 of the Report. 7 24 MS have foreseen all the options and their reasoning relies on the limited experience they have had since the transposition. To see which MS allowed both hypotheses or just one or a combination of factors foreseen in the Public Sector Directive art 5(3), please consult table 2 of the Report. 8 Report (n 6) 2. 9 Commission, Mobility and Transport, ‘Lifetime Cost Tool-Box’ available at accessed on 10 April 2019. See also Commission, ‘Promotion and Procurement of Clean and Energy Efficient Vehicles (CLEAN FLEETS)’ available at accessed on 26 March 2019. 10 Report (n 6) 6. 11 Report (n 6) 9. 12 Report (n 6) 6–7. 13 Report (n 6) 7.

Life-cycle costing in the Member States  39 In September 2015, a final Report by the Commission regarding the Ex-post Evaluation of Directive 2009/33/EC was published.14 It confirmed the difficulties in assessing the impact of the directive’s implementation. Yet there were some case studies to ‘illustrate examples for the assessment of the methodology of monetisation of costs’.15 The main conclusions with respect to the LCC methodology were: a b

c

limited effectiveness of the directive due to the absence of “a definition of what a ‘clean vehicle’ is and of relevant provisions for minimum requirements”; ‘perceived complexity of monetisation methodology and the much greater preference by public authorities for the use of the other options given in the Directive’ and ‘the absence of any harmonised community standard for measuring fuel consumption or CO2 emissions in the case of heavy-duty vehicles, the category of vehicles where public procurement [had] the greatest potential, [meant] that [it was] difficult for most contracting authorities to obtain objective, comparable data on these vehicles’.16

One of the most important recommendations was to amend the directive: to promote the use of the monetisation option as this is the only option that explicitly internalises operational costs. This requires actions to address the (perceived) complexity of the approach. Potential supporting actions include ensuring that contracting authorities are equipped with a user-friendly tool for performing the calculations. The Clean Fleets Lifecycle Costing Tool (Clean Fleets 2014) is an existing spreadsheet tool capable of performing the monetisation calculations, but its effectiveness might be substantially increased if it were converted into a web-based tool and then more widely publicised (potentially even referenced in the legislation itself).17 Furthermore, the introduction of ‘a voluntary framework to facilitate Member States reporting’ was recommended.18 Considering all the challenges, several methodology changes were suggested: (1) taking into account the different market prices of different fuels; […] (2) Update the emissions costs factors in light of technical progress; […] 14 Commission, ‘Ex-Post Evaluation of Directive 2009/33/EC on the Promotion of Clean and Energy Efficient Road Transport Vehicles’ (Further: Final Report) COM (2015) vii. 15 ibid i. 16 ibid iii and ff. 17 ibid vi. 18 ibid vii.

40  Raquel Carvalho (3) Index emissions costs to inflation; […] (4) Clear up remain areas of ambiguity in the methodologies; […] (5) monetisation should not be the only option […].19 In November 2017, a proposal for revising the Clean Vehicles Directive was tabled by the Commission.20 The proposal aimed to stimulate ‘clean mobility solutions in public procurement’, promoting several ways of procurement other than purchase. It set ‘minimum procurement targets for each category of vehicle and for each Member State’ and stated that ‘the methodology for monetisation of external effects would be abolished’.21 Putting it short, the proposal for reviewing the directive: a

b c d

States that ‘the evaluation noted […] as key reasons behind the Directive’s limited impact’, among others, the ‘complicated provision on using the monetisation methodology: the evaluation noted that public bodies rarely use this methodology because it is so complex’.22 Establishes six policy options, two of them considering the ‘use [of] the monetisation methodology’.23 Recital 14, however, still proclaims the importance of LCC methodology but it foresees it as non-mandatory, preferring the tailor-made solution.24 A three-year period report, in which the number and type of vehicles bought should be included, becomes mandatory.

This is clearly a drawback for mandatory LCC methodologies. Directive (EU) 2019/1161 of the European Parliament and of the Council of 20 June 2019, which amends the Clean Vehicles Directive, was however published on July 17th.25 Several articles were modified and Article 6, which imposed the mandatory methodology, was repealed. The main suggestions contained in the “Ex_Post Evalutation” regarding this issue were thus received. Recital 24, specifically devoted to LCC, explains that “given the scarce use of 19 ibid 190–191. 20 The European Parliament has been supportive of this development. 21 Gregor Erbach, ‘Review of Clean Vehicles Directive’ (2018) Briefing, EU Legislation in Progress. 22 Commission, ‘Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/33/EU on the Promotion of Clean and Energy-Efficient Road Transport Vehicles’ COM (2017) 653 final 2017/0291 (COD) 5. 23 ibid 7 ff. Options 3 and 4 remove the monetisation methodology. 24 Groen and others report several ‘methods for global sensitivity analysis (…) that quantify the contribution to output variance’: regression coefficients; Pearson correlation coefficient; (rank) correlation coefficient; key issue analysis, which applies a first-order Taylor expansion around the LCA model to estimate the output variance, thus avoiding sampling; and an amplitude sensitivity test. See: Evelyne A. Groen and others, ‘Methods for Global Sensitivity Analysis in Life Cycle Assessment’ (2017) 22(7) The International Journal of Life Cycle Assessment 1125. 25 In OJ L 188/116. According to article no. 3, the directive “shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union”.

Life-cycle costing in the Member States  41 the ­methodology for the calculation of operational lifetime costs under Directive 2009/33/EC and the information provided by contracting authorities and contracting entities on the use of own methodologies tailored to their specific circumstances and needs, no mandatory methodology should be required to be used, but contracting authorities and contracting entities should be able to choose any life-cycle costing methodology in order to support their procurement processes on the basis of the most economically advantageous tender (‘MEAT’) criteria”. Furthermore, (1) the exchange of best knowledge and best practices between MS is established in Article 8 and (2) a follow up of the implementation solutions is foreseen in Article 10, which also imposes on the Commission a reporting duty to the European Parliament and to the Council on the implementation of this Directive based upon the MS reports.

3.3  Elements to consider when applying LCC methodologies There are several other experiences, documents and guidelines concerning the use of LCC methodologies that are relevant in identifying both the challenges posed by the use of LCC and some solutions. Generally speaking, the diagnosis made in the previous section is confirmed. As Perera and Martinet-Fay state, LCC implementation, ‘is still far from being systematic and the calculation methodologies are sometimes far from robust’.26 Existing reports demonstrate that a number of premises have to be considered that determine the success of implementing LCC methodologies in any specific case. These are (1) the range of the products, goods and services to be subjected to LCC, (2) the range of the life cycle and (3) the Member States’ economic development. The following section illustrates the importance of considering each of these points.

3.3.1  Products/goods/services range determination First of all, it is important to point out that not all goods, products and services can be assessed using LCC methodology. So, the first premise is to determine the range of procurement issues that can be submitted to this type of assessment. There is an extensive list of GPP reports where LCC methodology has been tried.27 By consulting GPP completed 28 or ongoing projects, 29 it is possible to 26 Oshani Perera and Clarita Martinet-Fay, ‘Life Cycle Costing in Sustainable Public Procurement: A Question of Value’ (2009) 3 International Institute for Sustainable Development (IISD) 17. 27 The list of projects is available at accessed 6 April 2019. 28 The list of completed projects is available at accessed 6 April 2019. 29 The list of ongoing projects is available at accessed on 6 April 2019. These projects, besides those mentioned above, also include gardening and water.

42  Raquel Carvalho identify the goods, products and services ready for LCC, namely: building,30 catering,31 data centres, eco-innovation, energy using products,32 energy efficiency, health sector, printing services, public lighting,33 road construction, timber, transport and waste sector. Some EU GPP Criteria documents already have a very developed LCC methodology related to environmental concerns, considering a wide range of phases and focusing mainly on the costs with gas emissions, energy and so on. These reports have also identified the key aspects of environmental concerns and identified some ways of approaching them. For instance, regarding computer acquisitions, the EU GPP Criteria consider energy consumption, hazardous substances, product lifetime extensions and end of life management34; concerning furniture, they take into account components, manufacturing, packaging, distribution and end of life impact.35 One of the most comprehensive reports concerning this matter is the 2017 ‘Life Cycle Costing State of the Art Report’.36 It contains a considerable number of examples of national experiences, and it confirms earlier studies37 to the effect that the major, most developed areas where LCC methodology is applied are building, vehicles procurement, IT,38 computers and (indoor and outdoor) lighting.39 LCC is however also used in other areas. For instance, the procurement of a wastewater recycling system for the Austrian Mint used an award criterion 90% of which was based on LCC.40 In light of the above, it is clear that the LCC range of application is very wide and diverse. 30 See: Deidre Halloran, ‘LCC within the Construction Sector: A Tool for Social Housing?’ Chapter 8 of this book. 31 For an analysis of a catering service in a school in Turin, using GPP information see Alessandro K. Cerutti and others, ‘Modelling, Assessing, and Ranking Public Procurement Options for a Climate-Friendly Catering Service’ (2019) 23 The International Journal of Life Cycle Assessment 95; City of Turin, Italy, ‘Monitoring Low Carbon, Sustainable Catering Services’ (2014) 47 GPP in Practice. 32 See the list at Topten Pro – ‘Purchasing Guidance for Professionals’ available at: accessed 17 December 2018. 33 See: Rodrigo Lozano and others, ‘Moving to a Quintuple Helix Approach in Sustainable Public Procurement: Collaboration and LCC for Lighting Procurements’ Chapter 5 of this book. 34 Commission, ‘Commission Staff Working Document – EU GPP Criteria for Computer and Monitors’ SWD (2016) 346 final 5. 35 Commission ‘Commission Staff Working Document – EU Green Public Procurement Criteria for Furniture SWD (2017) 283 final/2, 3. 36 Helena Estevan and Bettina Schaefer, Life Cycle Costing State of the Art Report (Local Governments for Sustainability, European Secretariat 2017) available at accessed on 28 March 2019. 37 Perera and Martinet-Fay (n 26) 3; PricewaterhouseCoopers, Collection of Statistical Information on Green Public Procurement in the EU – Report on Data Collection Results’ (PricewaterhouseCoopers and Significant and Ecofys 2009). 38 See: Raluca Suciu and Dacian Dragos, ‘LCC Criteria for Procurement of ICT Products and Services: The Need for Taking a Flexible Approach’ Chapter 6 of this book. 39 See: Lozano and others (n 33). 40 Federal Procurement Agency, Austria, ‘Procurement of a Wastewater Recycling system for the Austrian Mint (2016) 58 GPP in Practice.

Life-cycle costing in the Member States  43 3.3.2  The range of the life cycle The next important decision concerns the delimitation of the relevant aspects in the life cycle. Not all goods or services have the same life cycle, meaning that associated costs depend on their different life phases. Some of the above-mentioned EU GPP Criteria documents already have a quite developed LCC methodology related to environmental concerns, considering a wide range of phases and focusing mainly on the costs with gas emissions, energy and so on. These reports have also identified the key aspects of environmental concerns and established some ways of approaching them. For instance, regarding computer acquisitions 41 and furniture,42 the EU GPP Criteria consider a wide range of phases. In the ‘EU GPP Criteria for paints, varnishes and road marking’,43 two kinds of products (computers/printers and paints/varnishes) were compared in what concerns life stages and costs to be considered, and it was concluded that many procured items, such as computers or printers, require electricity and consumables to function and the costs of these can often exceed the initial purchase cost of the item. For paints and varnishes the life time costs are generally only incurred at the point of painting. Regarding the latter, other costs should be considered: cost of purchasing and delivery (e.g., cost per litre of paint or varnish as delivered); spreading rate to meet performance criteria (e.g., amount of paint required to cover a given surface area); lifetime performance (time between repaints to maintain performance criteria); and disposals costs (disposal of unused paints).44 A study regarding furniture has considered materials, manufacturing, packaging, distribution, use and end-of-life (EoL). This study assessed 109 reports. After considering also other studies, it was concluded that (1) the main costs in furniture regard materials and components and (2) the most variable phase cost analysis is end-of-life due to the materials used in the furniture and the complexity of recycling furniture components and recovering energy from furniture waste because of components separation.45 Concerning textiles, several aspects

41 GPP Criteria for Computers and Monitors (n 34). 42 GPP Criteria for Furniture (n 35). 43 Commission ‘Commission Staff Working Document – EU Green Procurement Criteria for Paint, Varnishes and Road Marking’ SWD (2017) 484 final. 44 ibid 39. 45 Shane Donatello and others, Revision of the EU Green Public Procurement (GPP) Criteria for Furniture (Technical Report, Final Version, Publications Office of the European Union ­August 2017) 12.

44  Raquel Carvalho are to be considered in order to ‘reduce the life cycle costs associated with their laundering, maintenance and end of life’.46 As already remarked, one of the most significant and developed sectors is the building sector. The procurement for the Ministry of Finance office building in the Netherlands (2006–08) used the LCC analysis ‘to confirm the market prices for selected systems and components’. All stages of the building’s life were considered, and for a period of 15 years; all financial parameters were uniformly applied to all cost groups. The main benefits were in many ways typical for the LCC model utilized in the Netherlands itemization process for public procurement; access to government-­supported databases of prices, costs and standard design solutions contributed to the optimization of solutions; access to benchmark data and reasonably accurate historical data reduced risks; analysis of the results led to procurement using public/private cooperation […].47 Norway, although not an MS, has also been implementing LCC with a wide lifespan consideration. In Porsgrunn’s Hospital building, LCC methodology included capital, management, operation, maintenance and development costs, and project designers were contractually obliged to submit annual cost calculations along with other pre-project materials, a practice implemented in public procurement law; both the total asset and all the stages were subject to analysis, except disposal costs. A 40-year period was considered, but calculations for an appraisal period of 60 years were also made, as it was a new building. Financial parameters were uniformly applied to all cost groups and one of the recommendations had a strong focus on energy use.48 In Finland, the ‘Jyväskylän Optimi’ project was set out to develop new, innovative goals as regards the procurement procedure for the lifetime duration of a new facility and applied an LCC methodology. There was a new goal concerning the risk-transfer ‘of exceeding the agreed limits of energy consumption from the customer to the service provider’. This experience demonstrated that energy consumption goals could go further because ‘in similar projects carried out after this one in other cities, targets set were stricter and bids committing to lower energy use thresholds were made’.49 Bulgaria had some similar concerns when building ‘Flora’ Exposition Centre in Burgas. It was ‘decided to replace the existing textile exposition pavilion 46 Commission ‘Commission Staff Working Document – EU Green Public Procurement Criteria for Textiles Products and Services’ SWD (2017) 231 final 32–33. See: Małgorzata Koszewska, ‘The Role of Eco-Labels in Creation of LCC: The Case of Textile and Clothing Products’ Chapter 7 of this book. 47 Davis Langdon Management Consulting, Life Cycle Costing (LCC) as a Contribution to Sustainable Construction – Final Guidance (2007) 47. 48 ibid 48. 49 City of Jyväskylä, Finland, ‘Promoting Life-cycle Thinking in Construction’ GPP in Practice, available at accessed 27 March 2017.

Life-cycle costing in the Member States  45 with a modern building’ based on ‘three pillars – functionality, aesthetics and economy’. A life-cycle approach stopping short of a full LCC methodology was applied, considering ‘building orientation, assuring natural lighting, good insulation, protecting building from overheating with appropriate landscaping’ and so on.50 Examples of the use of life-cycle approaches, and at times full-blown LLC methodologies are to be found also outside works procurements. In 2012, the Romanian city of Baia Mare wanted to buy buses and required them to be EEV (Enhanced Environment friendly Vehicles). LCC methodology was used and it required acquisition price, fuel consumption, maintenance and operational costs. The total cost of procurement [was] higher than previous purchases, but this [was] partly compensated by lower lifetime costs of the new vehicles. The buses [were] the first EEV buses ordered in Romania, with greenhouse gas emissions considerably lower than previous diesel buses.51 All these examples show product-related considerations and lifespan costs. And, not all of them implied the same range of costs precisely because the life-cycle range is not the same for all.

3.3.3  Member States’ economic development A variable to be considered in LCC implementation is the stage of MS’ economic development, where budgetary constraints can be a severe limit. Not all MS share the same stage of financial health and economic development. These variables can be determinant in the implementation of public policies, mainly when they have higher initial costs. Some MS had the need for financial assistance in recent years, which highly constrained their economic freedom as regards budget allocation resources. Pressured by tax payers, the Treasury and EU fiscal and budgetary policies, contracting authorities ‘tend to favour much lower levels of discount than their private sector counterparts and closely follow the rates recommended’.52

3.4  Challenges and difficulties related to the use of LCC A wide range of challenges and difficulties can be identified when trying to implement LCC, both concerning its practical application and related to contracting authorities’ legal constraints. The following section will discuss each of these constraints separately, even though they are in practice interconnected. 50 Burgas City, Bulgaria ‘Building a Green ‘Flora’ Exposition Centre in Burgas’ (2017) 71 GPP in Practice, available at accessed 7 March 2019. 51 Commission, Buying Green! – A Handbook on Green Public Procurement (3rd ed, European Union 2016) 56. 52 ibid.

46  Raquel Carvalho 3.4.1  Contracting authorities’ legal constrains To enshrine LCC methodology in procurement entails answering the big question of how to explain to tax payers that spending up-front more money to take into account environmental (and social) features is the most suitable decision to ensure the best value for their money. Governments are being pressured to ‘roll out economic stimulus packages that have a strong focus on sustainable development’ but with the main goal of reducing ‘energy and material inputs, lowers wastes and improves livelihoods’.53 Despite this difficulty, there are some experiences showing that money may in the end be saved. For instance, in 2011 Ville de Venelles, a French Municipality, launched a procedure concerning cleaning products for its schools and the ‘tender demonstrated that environmentally-­ friendly substitutes for all common cleaning products [were] available, without increasing the overall cost of the contract’.54 Another example comes from Portugal. In June 2011, as part of a project to install renewable energy equipment in several buildings, the municipality of Olhão procured 50 solar panels to heat the water of a swimming pool through a thermal system. It was a sustainable choice regarding construction and aiming not only at a reduction in energy consumption, but also at the use of clean energy in direct substitution for natural gas. As maintenance operations were reduced, the life costs of the facility diminished.55 One of the biggest challenges in public procurement is therefore to switch the award criteria from MEAT to ‘best value across the project/product life cycle’.56 One must not be misled by the idea that only the award criteria are relevant for LCC. As established in the EU public procurement law, sustainability and life-cycle thinking must be embedded throughout the all procurement process: from the decision to procure to the design of the procurement documents (including specifications), to award criteria and contract execution. Although the procurement directives deals with LCC within award criteria, LCC may be used to ‘design environmentally and socially preferable tender specifications’.57 Furthermore, LCC is also relevant for deciding the type of 53 Perera and Martinet-Fay (n 26), 1. 54 Ville De Venelles, France, ‘Cleaning Products for Schools’ GPP in Practice, available at accessed 8 March 2019. 55 SCI-Network `Sustainable Construction and Innovation through Procurement’ (eds. Franziska Singer and Simon Clement, Accompanying publication to ‘Procuring Innovative and Sustainable Construction – A Guide for European Public Authorities’ (The SCI-Network Consortium, ICLEI 2012) 32. 56 Perera and Martinet-Fay (n 26) 5. 57 ibid 10; see also Petra Ferk and Boštjan Ferk, ‘Implementation of Directive 2014/24/EU in the Republic of Slovenia’ in Mario Comba and Steen Treumer (eds), Modernising Public Procurement (Edward Elgar 2018) 209. In Slovenia, ‘The LCC method is not widely used in public procurement practice, as it is used mainly in preparing investment documentation for certain construction projects’. Germany, for instance, used the lowest price criterion in the construction of the Berlin Institute for Medical Systems Biology, but it included the use of recycled concrete in its technical specifications. Experience show that this material creates ‘a more circular lifecycle for buildings’ State of Berlin, Germany ‘Using Recycled Concrete in the Construction

Life-cycle costing in the Member States  47 contract: whether it is better to purchase a good or to lease it, considering, for instance, the maintenance costs and end-of-life costs. Finally, using LCC methodology may also impact contracting authorities’ organization as it favours purchasing groups.58

3.4.2  Practical challenges and difficulties when applying LCC Bearing in mind the Clean Vehicles Directive diagnosis and MS’ LCC experiences, it is possible to identify several difficulties in the implementation of LCC methodologies. The concept (and number of stages) of life cycle differs. Furthermore, there are more data available in some areas than in others.

3.4.2.1  Data availability and accuracy Data collection allows comparability between products and services and solutions. To perform a LCC analysis, it is necessary to collect the relevant data of the product or service, including lifespan, purchase price, initial costs with installation and capital investment, consumption and maintenance costs, taxes and disposal or end-of-life costs.59 There are two types of data: (i) ‘data to determine the framework parameters’. They allow contracting planning, one of the directive’s goals: period of time, discount rate ‘or other economic parameters needed to compare costs in different moments of time’60; (ii) data describing the product or service, mainly its life cycle, in line with the directives provisions: lifespan, purchase price, initial costs such as installation and investments, operational costs (consumptions), maintenance costs (spare parts, fixed costs), taxes and fees, end of life costs, remain value. Data to be collected depend on the product or service. So, there is a need to customize instruments to every group of products or services or even, in certain cases, within the same group of products, some additional features to a certain kind of product (see Section 3.3.1). It is often difficult to obtain data because, on the one hand, some information is only known to suppliers, such as lifespan, future costs, maintenance; on the other hand, although contracting authorities have some relevant information concerning previous consumption of energy or even products, fixed costs or

of New Buildings’ (2017) 75 GPP in Practice. Sometimes, the real challenge is to include these concerns within technical specifications. This was the lesson learned from the City of Ghent, Belgium, ‘Green Procurement of Cleaning Products’ (2017) 70 GPP in Practice. For the GPP Good Practices, available at accessed 6 April 2019. 58 Perera and Martinet-Fay (n 26) 11. 59 Furthermore, even the relevant stages may vary depending on whether a product or a service is concerned. For instance, it is highlighted that it can be interesting to analyse the design phase of a product as it ‘strongly predetermines its behaviour in the subsequent phases’ see: Gerald Rebitzer and others, ‘Life Cycle Assessment – Part 1: Framework, Goal and Scope Definition, Inventory Analysis and Applications’ (2004) Environment International 701, 702. 60 Estevan and Schaefer (36) 23.

48  Raquel Carvalho investments, that information is dispersed in the bureaucratic structure rather than collected in databases. Perera and Martinet-Fay identify other difficulties (within the building sector) in collecting data and retrieving published data due to the ‘geographical variances in life cycle cost characteristics of constructed assets, and the durability and performance of construction components in lower income countries’.61 Still, the building sector is one of the most developed ones in applying LCC methodology. The 2016 ‘Report on Environmental and Economic Advantages of Nearly Zero Energy Building Renovation (NZEBR)’ compared four States’ experiences and standards in the building sector. This report describes several experiments on the economic impact of energy consumption and regarding the period of time needed to make the new approach more attractive. The conclusion was that despite some different approaches, all regulations have in common to group the expenses in life cycle of buildings into the following cost groups: Cost of investment; Cost for annually occurring operation including energy use, maintenance and repair; Cost for non-annually occurring replacement; Cost for end of life – demolition, disposal and residual value.62 While renovation under the new approach took more time, the energy costs and environmental impact were higher in the traditional solution. The report also demonstrated another variable factor regarding the geographical and economic development of the countries’ partners: ‘in the Nordic countries the investment costs are higher but there is better potential in life cycle cost savings compared to more southern countries’.63 Another difficulty related to data collection is the lack of industrial standards describing the life cycle of some goods or services.64 This difficulty was identified in France, back in 1997, regarding the College Maximilien Perrot of Alfortville’s project. LCC methodology was used and LCC analysis was prepared to illustrate likely future costs required to build and exploit the building. ‘Due to the prestigious and non-standard characteristics of the building, carrying out the LCC was considered in itself as a risk identification and mitigation experience’.65 Still, lack of standards do not extend to all goods or services. For instance, the Public Procurement Agency in Slovenia tendered for road transport vehicles specifying that all vehicles must meet the latest EU emission standards or equivalent and 61 Perera and Martinet-Fay (n 26) 7. 62 Report on Environmental and Economic Advantages of NZEBR Compared to Traditional Renovation available at accessed 28 March 2019. 63 ibid 81. 64 The absence of standards was one of the difficulties also identified in the implementation of the Clean Vehicles Directive; Commission, ‘Ex-Post Evaluation of Directive 2009/33/EC on the Promotion of Clean and Energy Efficient Road Transport Vehicles’ (Final Report) COM (2015) iii and ff. 65 Davis Langdon (n 47) 42.

Life-cycle costing in the Member States  49 not exceed certain maximum CO2 emission levels. This feature was included in LCC methodology and its implementation, including specifications [which] led contractors to submit offers for vehicles with lower CO2 emissions. The decrease in CO2 emissions ranged from 3g/km to 45 g/km per vehicle, depending on the lot.66 The lack of standardization hinders data collection. This is also responsible for another difficulty: the incomparability of data recorded in different accounting systems by different entities. Public databases are therefore often incomplete and with no uniform criteria in data presentation. This randomness in aggregated data hinders comparison and leads to difficulties in LCC implementation. The problem gets bigger with cross-border procurement, as databases may not be compatible among different countries.67 Related to this latter difficulty is the ‘poor quality of existing data’, which impairs thoughtful planning and decision-­making regarding the design of a concrete LCC methodology. As was remarked, lack of properly structured data makes it difficult to track the real costs of procurement and leads to a situation in which procurers are encouraged to buy the cheapest product without considering the life-cycle costs, as purchase price is what is most closely monitored.68 Some instability regarding data is however unavoidable. Some products/services are very instable regarding their costs. This relates to raw material costs (oil, energy, for instance) and fiscal costs. Perera and Martinet-Fay address this difficulty, within the building sector, referring the ‘fluctuations in commodity and electricity prices when commissioning buildings and infrastructure developments’.69 An experience in Denmark regarding exemption in taxes and registration for electric vehicles (2008–16) made a great difference in LCC costs.70 Contracting authorities’ inability ‘to reconcile capital and revenue budgets’ is another problem.71 Public budget methodology works against LCC implementation. Most of the times, LCC requires a multi-year budget approach, which is neither welcome nor suitable for financial public rules. Moreover, not all budgetary responsibilities are with the same public entity, which can make all the financial procedure much more complex. Finally, the benefits of using LCC are not all, always and at the same time obtained by public entities. 66 Buying Green! (n 51), 73. 67 In this sense, Perera and Martinet-Fay (n 26) 7. 68 Simon Clement (ed), ‘The Procura+ Manual – A Guide to Cost-Effective Sustainable Public Procurement’ (2nd ed, ICLEI 2007) 34. 69 Perera and Martinet-Fay (n 26) 7. 70 Estevan and Schaefer (n 36) 33. 71 Perera and Martinet-Fay (n 26) 5. Procura+ manual also identifies the complexity of accounting systems of public administrations as a major difficulty, see: Clement (n 68) 34.

50  Raquel Carvalho Finally, according to Perera and Martinet-Fay, LCC methodologies involve methods of financial evaluation that calculate and analyse simple payback, net present value (NPV) and internal rate of return (IRR). Procurers across the world are largely unfamiliar with the two latter methods. Even when expertise exists, considerable debate and uncertainty surround the selection and use of appropriate discounting rates.72

3.4.2.2  Environmental complexity related issues Issues of data reliability and data collection imply additional difficulties concerning environmental externalities. Environmental externalities are set as an example of costs to be considered by Article 67 of Public Sector Directive. They must be treated as indirect costs not considered under the other costs. These externalities ought to be monetized and internalized. EU GPP Criteria documents are a very useful tool in this matter because they have identified the key aspects of environmental concerns and established ways of approaching them. For instance, in construction, the key areas of environmental impacts regard energy, depletion of natural resources, gas emissions, waste generation during site preparation, construction, use and demolition of the building, air quality and water consumption during use.73 The EU Commission itself has been including a number of environmental requirements in its calls for tender for supply of furniture, which address the entire life-cycle. Bidders must undertake to comply with sustainability criteria for each stage in the lifetime of the furniture.74 One of the most relevant environmental issues is energy use and consumption. In Denmark, in 2012, a framework agreement on computers for 40 municipalities was established where total LCC was a factor of evaluation of the bids (energy consumption of the equipment in on, stand by and off mode). This allowed the calculation of a three-year period of energy consumption. Money savings for each municipality were also calculated.75 Implementing the Clean Vehicles Directive in Germany Sec. 68 (2) item 2 of the VgV 2016 (Regulation on the Award of Public Contracts) states that the award criteria must enshrine life-cycle costs in the form of energy consumption and other environmental impacts. Those costs must be assessed and calculated financially by using the method prescribed in Annex 3 to Sec. 68 (3) of the VgV 2016: ‘Method to Calculate the Operating Costs of Road Vehicles Arising 72 Perera and Martinet-Fay (n 26) 6. 73 Commission, ‘Commission Staff Working Document – EU GPP Criteria for Office Building Design, Construction and Management’ (2016) 180 final 8. 74 Buying Green! (n 51), 36. 75 Estevan and Schaefer (n 36) 19.

Life-cycle costing in the Member States  51 during their Useful Life’.76 However, not all environmental information may be converted into data, measured or quantified, just like not all environmental issues may be monetized, meaning that some may be left out in the process.   Therefore, ‘the environmental issues add uncertainty to the analysis: due to its complexity and natural unforeseeable feature, regarding the consequences, its temporal appearance and full disclosure’.77 Hence, the decision-making procedure becomes uncertain, regarding not only the definition of the problem but also the forecast of outcomes as well. On the other hand, this feature leads contracting authorities to over-simplify ‘environmental problems into a monetary dimension’.78 The 2014 directives are particularly aware of CO2 emissions, and green policies within the public sector have set the carbon emissions at their central stage. Regarding public procurement, some products/services are more suitable than others for implementing this policy, namely: ‘electricity, construction, paper, textiles, transport, office IT equipment, food and beverages, and cleaning services’.79

3.4.2.3  Users’ knowledge There is a lack of expertise among contracting authorities in performing LCC analysis and therefore in ‘implementing its findings in procurement decision’. This difficulty was acknowledged, in Portugal, by the Municipality of Olhão in the above-mentioned project, recognizing ‘that it required support to procure using whole life costing as it did not possess the skills and knowledge within its own team to make such decisions without external help’.80 Also, in The Procura+ Manual, this struggle in obtaining know-how in order to define what an ‘environmentally and/or socially preferable product or service is, and how to include demands in tendering’ is one of the diagnosed challenges.81 The use of this methodology implies a prognosis judgement for future procurement procedures. But this forecasting activity is only and truly relevant if the previous analysis and experience are sound and relevant. Although there are guides and LCC experience, this kind of information is either not easy to find82 or too complex to apply, as happens with the Clean Vehicles Directive. This makes contracting 76 Umwelt Bundesamt, ‘Life Cycle Costing’ (22 September 2017) available at accessed 6 April 2019. 77 Estevan and Schaefer (n 36), 25 where further references can be found. 78 ibid. 79 Perera and Martinet-Fay (n 26) 8. 80 Clement (n 55) 42. 81 The lack of knowledge was also a barrier identified in the implementation of innovative public procurement in the waste sector; Peter Defranceschi and others, ‘Promotion of Public Procurement of Innovation for Resource Efficiency and Waste Treatment/Guide: Lessons of PPI4Waste for Contracting Authorities to Uptake PPI in the Waste Sector’ (2017) 6. 82 In this sense, Perera and Martinet-Fay (n 26), 7.

52  Raquel Carvalho authorities and economic operators wary of more tools or rules, as most of the time, neither of them masters that knowledge.83 Concepts such as internal rate of return, financial value, technical features of products or even the very particular concepts within the LCC tool, such as lifespan, can make the use of this methodology hard.

3.4.2.4  Other difficulties There are other difficulties, such as the MS’ different fiscal systems and fee structures. These divergences pose some difficulties with both cross-board procurement and rigorous cost calculation. More generally, in advocating the use of LCC, it is important that we acknowledge that the science of LCC is far from perfect. Its findings will be skewed based on how future costs are perceived and forecasted, the reliability of the data used, what discounting rates are applied and what stages of asset life cycle are included in the analysis. Additional uncertainties arise when quantifying the lowered risks, avoided environmental damage, avoided clean-up costs, and non-financial benefits such as the contributions to social cohesion through the creation of jobs, livelihoods and new industries. Forecasting such costs and benefits with an acceptable degree of certainty is very challenging.84 Another prominent issue related to environmental externalities is the lack of risk assessment and numbness towards future changes. Neither of them is being considered in most LCC analysis. The same analysis can be made regarding innovation, whether or not related with environmental issues.85

3.5  Possible solutions Experiences in LCC implementation have allowed the identification of difficulties and challenges and pointed to some possible solutions. Methodologic vulnerabilities are identified as some of the barriers to the ‘application [of the methodology] by Public Administrations’.86 Regarding organizational and budgetary problems, Perera and Martinet-Fay suggest that ‘better value for tax payers’ money is delivered when life cycle 83 For instance, a difficulty concerning this vulnerability was reported in Bremen, Germany, regarding Green electricity; Free Hanseatic City of Bremen, Germany ‘Green Electricity for Bremen’s Public Buildings’ GPP in Practice. 84 Perera and Martinet-Fay (n 26) 3. 85 Risk management was identified in InnoBuild, an ongoing project, by 2016, particularly when there was uncertainty ‘related to the product or service that is procured’ see: accessed 18 December 2018, 10. 86 Fabio Iraldoand others, ‘The Relevance of Life-Cycle Costing in Green Public Procurement’ (2016) 1 Economics and Policy of Energy and the Environment 23.

Life-cycle costing in the Member States  53 costing or “whole life value thinking” is applied at the level of resource allocation’. For instance, the UK Wakefield Council using whole life costing principles, ‘determined that a product called Durakerb offered better value for money than comparable cheaper traditional products, despite a 235% higher purchase price’. Besides the price, other costs were considered such as delivery, use and disposal. Additionally, the Council also considered social, environmental and other economic impacts throughout the product’s life. And it was decided to use ‘output performance specification’, allowing the use of recycled materials. The use of the above-mentioned product had substantial environmental impact regarding carbon emissions (around 73% reduction).87 Another UK project (gas-powered generators for the Olympic Village) evidenced the same feature: although it was more expensive, ‘gas-powered generators have significantly lower fuel costs than diesel generators’. But the environmental impacts were also felt in the reduction of lorries for fuel delivery, decreasing road nuisance and congestion. In the end, ‘gas generators were estimated to produce 10,470 fewer tonnes of CO2 than the diesel generators – a 22% reduction. An overall economic cost saving of around £13 million (€16 million) was achieved’.88 The Procura+ Manual has more examples concerning not only power but also financial savings in the building sector.89 We should be focusing our attention on those who allocate budgets and scrutinize the use of public funds rather than on those who are able to make procurement decisions only within strict budgetary and financial limits.90 It is important to demonstrate that ‘when using a LCC approach in calculating the financial impact of GPP, the outcome is that with an average level of GPP of 45% (indicator 1), the average financial impact of GPP is −1%’.91 This will probably ease tax payers’ worries about how their money is being spent. It is necessary to change the ‘purchase price only’ mindset within contracting authorities’ structure.92 This needs database to function properly. It also benefits from a transparent and clear publicity policy towards civil society. This last issue can be easily related to contracting authorities’ legal obligations to give reason for their choices.93 One of the solutions which can be implemented as a first attempt to address the inaccuracy of budgetary data is ‘price ceiling’. It is an indication of the extra money that the contracting authority is willing to pay for 87 Clement (n 55) 43. 88 ibid 45. 89 Clemet (n 68) e.g. 12 and 53. 90 ibid 17. 91 PricewaterhouseCoopers (n 37) 69. 92 One of the reasons that justifies innovation in the water sector is conservative procurement, whose ‘current approaches give preference to the lowest cost offers, neglecting longer-term operational or lifecycle costs’, see: Water PiPP Consortium, ‘How-To Guide for Implementation of Innovation Oriented Public Procurement (IOPP) Procedures (EU Level) (2015) 3. 93 Although these obligations are legally set within public procedure and therefore substantially aimed at bidders. Nevertheless, the duty to give reasons fulfils a public interest concerning public power transparency.

54  Raquel Carvalho sustainability.94 Most of the contracting authorities having tried to implement LCC have not followed one specific methodology; yet, there seem to be two key issues when building an LCC methodology: (1) the time required and (2) the ‘time value’ placed on contracting authorities’ funds.95 Green policies, including those concerning the development or adoption of LCC methodologies, would be better pursued when assigned to a higher level of the public administration: the burden of responsibility for conducting LCC and getting it right would then be moved higher up the government hierarchy where allocating funds for modelling and research might be somewhat easier. Government may also make efficiency gains, as individual organizations will not need to devote resources and replicate efforts in conducting LCC analyses on their own.96 This policy option could also contribute a solution to budgetary concerns.97 Concerning the lack and inaccuracy of data, there are some solutions to consider. First, it is necessary to select a suitable range of products and services.98 Then, collection of data regarding users’ knowledge may be achieved thanks to data from contract execution. To monitor the life cycle of a product, service or work, it is useful not only to gather accurate data, but also to be able to compare it with the original estimations. This monitoring will definitely help in addressing data vulnerability, which is why the implementation of monitoring systems should be mandatory for contracting authorities. The more data is collected, the easier it will be to include penalties in public contracts regarding cost overruns. For instance, the Region of Emilia-Romagna (Italy) launched a public procurement for the collection, transportation and disposal of hazardous and non-­hazardous hospital waste foreseeing the use of LCC methodology according to ISO standard 14040, and the winning suppliers were required ‘to report on these findings following the end of the first year of the contract’.99

94 In this sense, Procura+ Manual (n 68). This Manual gives an example: ‘a call for tender could be designed to allow a maximum of 100 points for a bid in the award phase. Of these 100 points, a maximum of 5 points could be allocated for fulfilling environmental criteria, the other 95 for price. Assuming that an increase in price of 5% above the cheapest offer leads to a 5-point deduction in the price category, all those products which have been allocated 5 points for environmental performance but have more than 5% extra cost compared to an equivalent alternative will not be awarded the contract. The public authority will not spend more than 5% extra’. 95 Perera and Martinet-Fay (n 26) 11. 96 ibid 13. 97 ibid 17. 98 Guide: PPI4Waste lessons for PPI uptake in waste sector, available at accessed 29 March 2019, 7. 99 Region of Emilia-Romagna, Italy, ‘Collection, Transportation and Disposal of Hazardous and Non-Hazardous Hospital Waste’ (2015) 57 GPP in Practice, available at accessed 29 March 2019.

Life-cycle costing in the Member States  55 The problem of scattered information could be solved, as evidenced in the construction sector, by adopting either one or both of the following solutions: either the life-cycle cost calculation is tasked to ‘independent experts’ or to the bidders themselves.100 The latter option is however very difficult to implement because of the lack of know-how regarding the whole range of goods to be supplied in construction, the additional costs to obtain information in public procurement and its broad scope and it may lead to falsified results. One must not forget the know-how that LCC implementation can bring to contracting authorities themselves, not only when considering the knowledge of how to design and apply the procedure, but also the data that can be assembled. Returning to the experience of Olhão, the municipality, facing the lack of expertise, ‘identified a local government agency, the Regional Agency for Energy and Environment of the Algarve, which had the necessary expertise’. This administrative body comprises several regional and national entities, charging low rates for services due to its not-for-profit status. The resulting procurement process, managed by the Agency, saw the appointment of a specialist company to deliver installation and management of the equipment and systems required.101 To address the limited know-how, The Procura+ Manual suggests the simplification of award criteria and the use of ecolabels when difficulties concern environmental issues, and suggests that the ‘green criteria’ can be set in the ‘subject matter of the contract; the technical specifications for the product/work/­service; the selection criteria for candidates; the contract award criteria; the contract performance clauses’.102 In order to create useful databases, it is necessary to set legal rules concerning the design and the feeding of databases. As Perera and Martinet-Fay state, ‘to produce internationally comparable LCC outputs, quite some effort and funding will be needed to maintain normalized databases at a national or regional level’, and they give, as an example, in the building sector, the European Committee for Construction Economics (CEEC) Code of Measurement for Cost Planning [which] provides a basis for the cross-­border cost comparison of buildings. The Code defines standard cost groups for both construction and operating costs and might well be considered for an LCC framework.103 Moreover, to spread knowledge about LCC among contracting authorities several MS have developed general tools and general legal frameworks and even

100 101 102 103

Estevan and Schaefer (n 36) 24. Clement (n 55) 42. Procura+ Manual, (n 68) 21. Perera and Martinet-Fay (n 26) 7.

56  Raquel Carvalho some manuals or guides.104 In one instance, a municipality used the Danish EPA Total Cost Ownership tool in its public procurement regarding lighting procedure. There was the challenge of comparing distinct types of light sources, as the procedure documents did not bind the tenderers to use a single type of technology. The tool demonstrated that it was possible to save both energy and money. The tool was welcomed by suppliers.105 Likewise, the Swedish National Agency for Public Procurement established several LCC tools within sustainability criteria, namely regarding the lighting system.106 In 2010 in the Netherlands, it was decided that public procurement had to be implemented as 100% sustainable procurement by 2015 so that green criteria should be included in all tenders. In order to achieve such degree of implementation, some tools were used, such as DuboCalc, which is a free software to assess and monetize the environmental impacts of a product/design based on life-cycle analysis. Regarding public procurement procedures, the documentation given to economic operators includes this assessment tool. Bidders were, yet, ‘not put off by being asked’ to use this tool regarding recycled and reused materials, long life and low temperature asphalt, cement, replacement in concrete and so on.107 This complex tool is recommended to be applied to major projects, although it has proved to be a ‘good measure for sustainable material and energy use’.108 Nevertheless, the tool requires to be customized, and it is only useful if there is a design stage. Otherwise, the CO2 performance ladder is a better approach.109 Spain also has some building guides that have resulted from past experiences; two guides were developed: the Guide for the Sustainable Development of Urban Development Projects was created by SPRILUR in collaboration with IHOBE, while the Guide for Environmentally Sustainable Industrial Buildings was developed by IHOBE in collaboration with SPRILUR.110 One of the consequences is the increased use of those guidelines by contracting authorities. 104 For some related experiences see accessed 29 March 2019. 105 Estevan and Schaefer (n 36) 21. 106 The product groups are: IT and Telecom, Building and property; Cleaning and chemicals; Vehicles and transport; Office and textiles; Food; Nursing and care; Toxic-free preschool see: accessed 29 March 2019. 107 Rijkswaterstaat, Netherlands ‘Using LCA and CO2 Performance to Assess Bidders’ (2013) 36 GPP in Practice, available at accessed 29 March 2019. 108 ibid. 109 ibid; see also Frankfurt municipality’s ‘Guidelines for Economic Building’ (2015) 49 GPP in Practice, available at accessed 29 March 2019. 110 The contracting authority for the construction, renovation and design of buildings in the Basque Country has used, as ‘part of [the] award criteria, the degree of sustainability of the proposed project’, applying the guides for sustainable development. Those guides included ‘measures to reduce the impacts in a number of key environmentally sensitive areas (explained below in greater detail) that occur during the different stages of the building’s lifecycle, i.e., the design, construction, maintenance, and end of life stages. ‘Greening the Construction,

Life-cycle costing in the Member States  57 Germany has a general administrative regulation regarding energy efficiency as well, allowing the use of LCC in the bid assessment. When the bids ‘concerning the procurement of products and services [entail] energy consumption’, LCC is to be considered by all federal agencies111 and is foreseen in Sec. 59 of the VgV (Regulation on the Award of Public Contracts) 2016, and in Sec. 16 (8) of the VOL/A (Regulation on the Award and Contracts for Services, Part A). The German Environment Agency site identifies some LCC tools that have become available: (i) general Excel tool of the German Environment Agency that enables the analysis of five different procurement options regarding costs of acquisition, operating costs and costs of disposal, developed by the Öko-Institut e.V. on behalf of the Agency; (ii) another tool developed for computers, multi-functional devices, monitors, computing centres, floor coverings, refrigerators and dishwashers; (iii) the calculation tools of the Berliner Energieagentur for the product groups of lighting, vehicles, household devices, IT and green electricity; (iv) the ICLEI/Öko-Institut LCC tool for a high number of product groups and CO2 emissions; (v) the clean vehicles LCC tool within the 2009/33/EU Directive. Germany inclusively has a tool that helps in the selection of the most suitable life-cycle costing tool called ‘Life Cycle Costing Tool Picker’.112 In June 2011, the Smart-SPP project produced an LCC-CO2 tool user guide to assist in procurement decision-making, particularly with innovative procurement.113 It contains a tool ‘designed to accompany a Procurement Guide to driving energy efficient innovation through sustainable procurement, which particularly focuses on engagement with the market prior to tendering’,114 providing assessment on LCC and CO2 emissions and a tender evaluation. It considers products’ life cycle, from production to disposal, including operation costs in a wide perspective all costs and CO2 emissions for materials and services relevant during the use of the product, such as electricity, fuel, gas, other consumables, training, service and maintenance, and others (e.g. taxes, insurance costs, etc.).115 The same Smart-SPP project also produced a Guide for public authorities to pursue energy innovation.116

111 112 113 114 115 116

Renovation and Design of buildings in the Basque Country, Spain (2014) 44 GPP in Practice available at accessed 29 March 2019. Art. 2 (3) of the AVV-EnEff (General Administrative Regulation for the Procurement of Energy-­Efficient Products and Services) dated 18 January 2017. For further details see accessed 29 March 2019. Aure Adell and others, LCC-CO2 Tool User Guide Visual Guide to Using the Life-Cycle Costing and CO2 Assessment Tool (LCC-CO2 Tool) (The SMART SPP consortium, ICLEI 2011). ibid 5. ibid 6. Simon Clement and others, ‘Driving Energy Efficient Innovation through Procurement – A Practical Guide for Public Authorities’ (The SMART SPP consortium, ICLEI 2011).

58  Raquel Carvalho Finally, one must not forget that in a globalized world, it is useful to train and develop networking. Networking will enable the discovery of new tools and methodologies for facing challenges. The exchange of experiences is one of the solutions pointed out in the Guide: PPI4Waste lessons for PPI uptake in waste sector for the waste sector.117 Most of the above-mentioned guides also demonstrate that collaboration between contracting authorities and economic operators is a relevant tool in LCC implementation.118 Concerning data complexity in LCC, the EU GPP Criteria documents go some way in providing help having identified the key aspects regarding environmental issues and provided some solutions to address them.119 Environmental complexity may be overcome with a clear, steady legal framework and clearly defined public policies in connection with the legal design and functioning of databases. Bearing in mind that not all externalities are convertible into data nor monetizable, it is imperative that the framework analysis is thoroughly and previously displayed,120 in order to ensure the ‘quality of life cycle cost accounting’. Nevertheless, cost instability regarding some products/ goods, including price fluctuation due to uncertain fiscal or fee costs, remains. One of the possible solutions for this kind of fluctuations, when applying LCC methodology, is reference to ‘average prices’.121 Uncertainty related to innovation, whether or not linked to environmental issues, can be addressed by adding a ‘piloting phase’. In the Driving energy efficient innovation through procurement – A practical guide for public authorities, two possible alternative actions are suggested: either ‘letting a competitive tender for a small volume to pilot the solution or introducing a testing phase into a full tender’.122 The success of the methodology relies on knowing when to use it. There are products, services and works that are far more suitable for being evaluated by LCC, such as ICT equipment, vehicles, indoor and outdoor lighting, fuel, electricity, transport, waste handling, new buildings, railways and roads. There are already some studies demonstrating that the award criteria for some products should not rely solely upon price, when comparing green and non-green purchasing, although, for other products, the same conclusion could not apply, as, for instance, for clothing and electricity.123 In 2015, Öko-Institut e.V conducted a study including 15 product groups and services, calculating purchase and consumption-related energy and material and disposal costs, if relevant. It was concluded that using LCC to purchase about ten products (e.g., cars, indoor and outdoor lighting, buildings) 117 Defranceschi and others (n 81). 118 Adell and others (n 113) 7–8. 119 Commission, ‘Staff Working Document – EU GPP Criteria for Office Building Design, Construction and Management’ (2016) 180 final, 8. 120 Mary Ann Curran, ‘Life Cycle Assessment: A Review of the Methodology and Its Application to Sustainability’ (2013) 2(3) Current Opinion in Chemical Engineering 273, 275 ff. 121 Perera and Martinet-Fay (n 26) 7. 122 Clement and others (n 116) 38. 123 Estevan and Schaefer (n 36) 30.

Life-cycle costing in the Member States  59 lead to less overall costs; as for the other five, the environmental variants were more expensive.124 According to the Pricewaterhouse Coopers Study, purchasing, operational and disposal costs were evaluated, and it was concluded that while reduction costs could be achieved by buying green, textiles, paper and electricity from 100% renewable sources could ‘lead to non-negligible increases in costs’.125 Regarding risk and innovation, there are also some solutions that can be tried. Since innovation is one of the 2014 Directives goals, innovative procurement must be underpinned. An experience in Helsinki, Finland, in 2012, lead to the conclusion that ‘another way to increase the amount of service from a product is to increase its longevity’. The Helsinki Metropolitan Area Reuse Centre’s four shops for reused goods redistribute over a million items per year, making significant savings in life-cycle resource use ‘when compared with the sale of equivalent quantities of new products’.126

3.6  Conclusion: is LCC a useful tool? There is consensus that the use of LCC methodology has several valuable impacts regarding not only best value for money, but also the best environmental impact, including concerning climate change.127 While coming somewhat short of expectations,128 LCC appears as one of ‘the specific tools to be used in order to advance the goals of sustainable public procurement’.129 LCC is mainly dedicated to evaluating cost. This tool is a step forward in the development of cost analysis, namely as regards the assessment of the value of goods, services or works by considering many requirements neglected before. Furthermore, it allows alternative assessments, an advantage for the ‘best value for money’ criterion and the uptake of sustainable options.130 Regarding environmental and social costs, it seems that no major problem will arise concerning those costs that can be monetized, but there are some difficulties already identified concerning non-monetized ones. Hence, some differences should be considered in the development of each externality’s methodology. Nevertheless, the effective experiences both within some MS and within the EU can set out a relatively steady framework, acting primarily as guidelines for other MS less ahead with implementation, since almost all MS have completed the Public Sector Directives’ transposition with non-creative and uncritical solutions. After acquitting experiences, additional mandatory rules might be drafted. 124 ibid 32. 125 Estevan and Schaefer (n 36) 32. 126 Stefan Giljum and others, ‘EIO Thematic Report – A Systemic Perspective on Eco-Innovation’ (Eco-Innovation Observatory 2013) 18. 127 Beatriz Martinez Romera and Roberto Caranta, ‘EU Public Procurement Law: Purchasing beyond Price in the Age of Climate Change’ (2017) 12 EPPPL 281–292, 292. 128 Estevan and Schaefer (n 36) 32. 129 Dragos and Neamtu, (n 1)116. 130 ibid 117.

60  Raquel Carvalho This overview of MS’ experiences allows us to conclude that the LCC methodology is to be customized to the good, service or work procured. Second, that it is very important to consider all the phases of the life of the product, work or service, even though these phases can be somewhat different in every case. Furthermore, the main environmental concerns are those established in the EU directives: emissions and energy costs. The building blocks for a mandatory methodology in the near future in IT technology such as computers and imaging equipment are there.131 Experience is also advanced enough concerning waste water infrastructure, road design, construction and maintenance, office building design, construction and management, furniture, paints, varnishes, road marking and textiles. Although the consideration of life-cycle costing started in the defence sector,132 as Mary Ann Curran states, ‘what started as an approach to compare the environmental goodness (greenness) of products has developed into a standardized method for providing a sound scientific basis for environmental sustainability in industry and government’.133 A different approach has also been advocated. Instead of a unique mandatory methodology, it seems preferable to have guidelines broadly publicized, including large-scale demonstration projects that take into account both local and cross-border economic, social and environmental benefits; case studies on applying LCC analyses in procurement decisions; case studies on how LCC has been applied to areas of frequent public sector spending, such as food; furniture; office equipment such as computers, printers and photocopiers; building and construction; building retrofits; cleaning materials and vehicles; case studies on how avoided pollution and clean-up costs are factored into LCC; case studies on how non-financial social benefits, such as improved productivity, better work-life balance and the creation of sustainable livelihoods, can be accounted for.134

131 For some related experiences see: accessed 29 March 2019. Federal Procurement Agency, Austria, ‘Procurement of Energy and Resource Efficient Desktop Computers’ (2016) 67 GPP in Practice; Scottish Government, United Kingdom, ‘Purchasing Framework for Energy Efficient Client Computer Systems’ (2017) 69 GPP in Practice; Helsinki City Council, Finland, ‘Framework Contract for Energy Efficient IT Equipment and Services’ (2016) 59 GPP in Practice; Procurement Agency of the Federal Ministry of the Interior, Germany. ‘Framework Contract to Purchase Thin Client Computer Systems, Germany (2016) 59 GPP in Practice; Durham County Council, United Kingdom, ‘Refurbishment of Redundant ICT Equipment, (2015) 57 GPP in Practice; Consip, Italy ‘ICT Equipment and Management Services’ (2014) GPP in Practice; Estonian Centre of Registers and Information Systems, Estonia, ‘Low Environmental Impact PCs and Monitors’ (2013) 37 GPP in Practice; Stockholm County Council, Sweden, ‘Environmentally-Friendly Office IT Equipment in Stockholm’ GPP in Practice; Gipuzkoa Provincial Council (Basque Country), Spain ‘Framework Contract for Green IT Equipment in Gipuzkoa’ GPP in Practice; Communauté Urbaine de Dunkerque, France ‘Framework for Green IT Equipment’ GPP Case Studies. 132 Estevan and Schaefer (n 36) 4. 133 Curran (n 120) 275 ff. 134 Perera and Martinet-Fay (n 26) 7.

Life-cycle costing in the Member States  61 Whatever approach is preferred, LCC, while in itself a useful multidisciplinary tool, cannot however achieve sustainability alone. Not only LCC is just part of a wider and broader methodology, but it also intends to assess much more than the traditional requirements, only achieving its best result when combined with other tools like LCA or TCO.135 A combination of tools allowing the inclusion of sustainability concerns which elude monetization seems to be the goal: ‘LCC analysis would be then just one piece of a wider number of elements to take into account when preparing and evaluating a public procurement process’. Other impacts, such as social and innovative ones, must be considered so that, by including all, “this approach is closer to the ‘cost-effectiveness’ and the ‘price-quality ratio’ concepts of the Directive”.136 As discussed in Chapter 1, there are methodologies far more comprehensive than the LCC, which deals only with costs which may be monetized.137 While being a step forward, the LCA only goes half way towards sustainability.138 Acting on the comprehensive concept of sustainability means establishing ‘clear links with many issues of concern: poverty, equity, environment quality, safety, population control […] People, Planet, [and] Profit’.139 That is, ‘the inclusion of three dimensions – environment, economy and ­society – has reached consensus, when measuring progress towards sustainable development’.140 LCC methodologies are particularly fit to assess monetized costs. Yet, will there be any room for other approaches determining ‘cost’ or ‘quality’?141 Other methodologies might reveal other costs that may have been hidden but ‘are by no means negligible’, and it might be important to bring them ‘into the procurement decision moment’.142 When looking at some of the existing methodologies, one can give some examples of a wider approach.143 135 Estevan and Schaefer (n 36) 34. 136 ibid. 137 See: Jason J. Czarnezki and Steven Van Garsse, ‘What Is Life Cycle Costing?’ Chapter 1 in this book. 138 Moreover, it is necessary to distinguish risk assessment from life-cycle assessment. Risk assessment is far more complex than life-cycle assessment, but it would be very helpful in concessions procurement, for instance. It implies assessment in a wider framework and the consideration of much more activities embodied in the concession. 139 Reinout Heijunges and others, ‘Life Cycle Assessment and Sustainability Analysis of Products, Materials and Technologies. Toward a Scientific Framework for Sustainability Life-Cycle Analysis’ (2010) 95 Polymer Degradation and Stability 422, 423. 140 Sabrina Neugebauer and others, ‘From Life Cycle Costing to Economic Life Cycle Assessment – Introducing an Economic Impact Pathway’ (2016) 8 Sustainability 428, 429. 141 As Hanna Schebesta states, “The CJEU confirmed that the most economically advantageous tender (MEAT) award criteria may be not only economic but also qualitative”, which allows other considerations when composing the criteria besides the price or monetary cost. The major difficulty lies in the conciliation of different requirements (3) 135. 142 Estevan and Schaefer (36) 4. 143 This can be a reason to perform a preliminary market consultation. Estevan and Schaefer analyse all the moments where these methodologies may be useful, Life Cycle Costing State of the Art Report (Local Governments for Sustainability, European Secretariat 2017) (36) 10.

62  Raquel Carvalho One promising tool is the Sustainable Asset Valuation: it ‘is an assessment methodology that helps governments and investors steer capital towards sustainable infrastructure’. It evaluates cost of risk, cost of externalities and costs of emerging risks. SAVi identifies a range of economic, social and environmental risks and simulates how these risks will change and affect project cash flows across the asset life cycle. This is possible because the SAVi system dynamics model simulates how the asset impacts and is impacted in turn by the economic, social and environmental ‘system’ within which it is located. SAVi can hence value in financial terms a complex and dynamic range of risks, as well as indirect costs, intangible costs and opportunity costs.144

References Marta Andhov, ‘Contracting Authorities and Strategic Goals of Public Procurement – A Relationship Defined by Discretion?’ in Sanja Bogojevic, Xavier Groussot and Jörgen Hettne (eds), Discretion in EU Procurement Law (Hart Publishing 2019), 117–137. Aure Adell and others, LCC-CO2 Tool User Guide Visual Guide to Using the Life-Cycle Costing and CO2 Assessment Tool (LCC-CO2 Tool) (The SMART SPP Consortium, ICLEI 2011). Roberto Caranta, ‘The Changes to the Public Procurement Directives and the Story They Tell about How EU Law Works’ (2015) 52 Common Market Law Review 391, 397. Alessandro K. Cerutti and others, ‘Modelling, Assessing, and Ranking Public Procurement Options for a Climate-Friendly Catering Service’ (2019) 23 The International Journal of Life Cycle Assessment 95. City of Turin, Italy, ‘Monitoring Low Carbon, Sustainable Catering Services’ (2014) 47 GPP in Practice. Simon Clement (ed), The Procura+ Manual – A Guide to Cost-Effective Sustainable Public Procurement’ (2nd ed, ICLEI 2007). Simon Clement (ed), Procuring Innovative and Sustainable Construction – A Guide for European Public Authorities (The SCI-Network Consortium, ICLEI 2012). Simon Clement and others, Driving Energy Efficient Innovation through Procurement – A Practical Guide for Public Authorities (The SMART SPP Consortium, ICLEI 2011). Commission, Buying Green! – A Handbook on Green Public Procurement (3rd ed, European Union 2016) 56.Commission, ‘Commission Staff Working Document – EU GPP Criteria for Office Building Design, Construction and Management’ (2016) 180 final. Commission, ‘Commission Staff Working Document – EU GPP Criteria for Computer and Monitors’ SWD (2016) 346 final, 5. Commission, ‘Commission Staff Working Document – EU Green Procurement Criteria for Paint, Varnishes and Road Marking’ SWD (2017) 484 final. Commission, ‘Commission Staff Working Document – EU Green Public Procurement Criteria for Textiles Products and Services’ SWD (2017) 231 final. 144 In SAVI, Sustainable Asset Valuation accessed 4 April 2019. I wish to thank Oshani Perera for the kind collaboration regarding SAVi.

Life-cycle costing in the Member States  63 Commission, ‘Commission Staff Working Document – EU Green Public Procurement Criteria for Furniture SWD (2017) 283 final/2, 3. Commission, ‘Ex-post Evaluation of Directive 2009/33/EC on the Promotion of Clean and Energy Efficient Road Transport Vehicles’ COM (2015). Commission ‘Proposal for a Directive of the European Parliament and of the Council Amending Directive 2009/33/EU on the Promotion of Clean and Energy-Efficient Road Transport Vehicles’ COM (2017) 653 final. Commission ‘The Council, the European Economic and Social Committee and the Committee of the Regions on the Application of Directive 2009/33/EU on the Promotion of Clean and Energy Efficient Road Transport Vehicles’ COM (2013) 214 final. Mary Ann Curran, ‘Life Cycle Assessment: A Review of the Methodology and Its Application to Sustainability’ (2013) 2(3) Current Opinion in Chemical Engineering 273. Davis Langdon Management Consulting, Life Cycle Costing (LCC) as a Contribution to Sustainable Construction – Final Guidance (2007). Peter Defranceschi and others, ‘Promotion of Public Procurement of Innovation for Resource Efficiency and Waste Treatment/Guide: Lessons of PPI4Waste for Contracting Authorities to Uptake PPI in the Waste Sector’ (2017) 6. Shane Donatello and others, Revision of the EU Green Public Procurement (GPP) criteria for Furniture (Technical Report, Final Version, Publications Office of the European Union August 2017). Dacian Dragos and Bogdana Neamtu, ‘Life-Cycle Costing for Sustainable Public Procurement in the European Union’ in Beate Sjäfjell and Anya Wiesbrock (eds), Sustainable Public Procurement under EU Law – New Perspectives on the State as Stakeholder (Cambridge University Press 2016) 114–137. Gregor Erbach, ‘Review of Clean Vehicles Directive’ (2018) Briefing, EU Legislation in Progress. Helena Estevan and Bettina Schaefer, Life Cycle Costing State of the Art Report (Local Governments for Sustainability, European Secretariat 2017). Federal Procurement Agency, Austria, ‘Procurement of a Wastewater Recycling system for the Austrian Mint’ (2016) 58 GPP in Practice. Petra Ferk and Boštjan Ferk, ‘Implementation of Directive 2014/24/EU in the Republic of Slovenia’ in Mario Comba and Steen Treumer (eds), Modernising Public Procurement (Edward Elgar 2018) 201–231. Stefan Giljum and others, ‘EIO Thematic Report – A Systemic Perspective on Eco-­ Innovation’ (Eco-Innovation Observatory 2013) 18. Evelyne A. Groen and others ‘Methods for Global Sensitivity Analysis in Life Cycle Assessment’ (2017) 22(7) The International Journal of Life Cycle Assessment 1125. Reinout Heijunges and others, ‘Life Cycle Assessment and Sustainability Analysis of Products, Materials and Technologies. Toward a Scientific Framework for Sustainability Life-Cycle Analysis’ (2010) 95 Polymer Degradation and Stability 422. Fabio Iraldo and others, ‘The Relevance of Life-Cycle Costing in Green Public Procurement’ (2016) 1 Economics and Policy of Energy and the Environment 23. Sabrina Neugebauer and others, ‘From Life Cycle Costing to Economic Life Cycle ­A ssessment – Introducing an Economic Impact Pathway’ (2016) 8 Sustainability 428. Oshani Perera and Clarita Martinet-Fay, ‘Life Cycle Costing in Sustainable Public Procurement: A Question of Value’ (2009) 3 International Institute for Sustainable Development (IISD) 17. PricewaterhouseCoopers, Collection of Statistical Information on Green Public Procurement in the EU – Report on Data Collection Results (PricewaterhouseCoopers and Significant and Ecofys 2009).

64  Raquel Carvalho Gerald Rebitzer and others, ‘Life Cycle Assessment – Part 1: Framework, Goal and Scope Definition, Inventory Analysis and Applications’ (2004) 30 Environment International 701. Beatriz Martinez Romera and Roberto Caranta, ‘EU Public Procurement Law: Purchasing beyond Price in the Age of Climate Change’ (2017) 12 EPPPL 281–292. Hanna Schebesta, ‘EU Green Public Procurement Policy: Modernisation Package, Eco-Labelling and Framing Measures’ in Sarah Schoenmakers and others (eds), State Aid and Public Procurement in the European Union (Intersentia 2014) 129, 133. Leonardo A. Sierra and others ‘A Review of Multi-Criteria Assessment of the Social Sustainability of Infrastructures’ (2018) 187 Journal of Cleaner Production 496. Mari Ann Simovart and Kadri Härginen, ‘Estonia: Faithful in Transposing, Stumbling on Domestic Needs’ in Mario Comba and Steen Treumer (eds), Modernising Public Procurement (Edward Elgar 2018) 38–64. Andrea Sundstrand and Robert Ågren, ‘The Implementation of Directive 2014/24/EU in Sweden: A Sanguine Approach’ in Mario Comba and Steen Treumer (eds), Modernising Public Procurement (Edward Elgar 2018) 260–277.

4 Life-cycle thinking and public-private partnerships* Steven Van Garsse

4.1 Introduction Public-private partnerships (PPPs or P3s) have become a widespread phenomenon all over the world. The PPP technique supports the development of crucial infrastructure such as roads, bridges, light and heavy rail, airports, power plants and energy and water distribution networks.1 As an illustration of their sheer volume, 1749 PPPs worth a total of €336 billion have reached financial close in the European Union (EU) since the 1990s, according to the European Court of Auditors.2 Although PPP as an instrument has been criticized lately, PPPs are still seen as an important instrument to fill the infrastructure gap, which currently stands at about $1 to 1.5 trillion annually.3 This also brings in massive opportunities from a sustainability perspective as PPPs have an ability to generate socio-­ environmental benefits.4 In fact, PPPs have attracted attention as a possible mechanism to deliver the Addis Ababa Action Plan, a forward-looking framework for financing sustainable development and a means to implement the 17 sustainable development goals (SDGs).5 Indeed the SDGs can only be realized

* I specially thank Yseult Marique (Essex/Speyer), Loth Van Der Auwermeulen (University of Hasselt) and the editors of this book for their useful comments. Needless to say that any shortcomings, errors or mistakes are exclusively my own. 1 World Bank, ‘Benchmarking Public-Private Partnerships Procurement 2017’ (2016) 14 accessed 6 February 2019. 2 European Court of Auditors, ‘Public Private Partnership in the EU: Widespread Shortcomings and Limited Benefits’ (2018) 15 accessed 6 February 2019. 3 BCG, ‘Bridging the Gap: Meeting the Infrastructure Challenge with Public-Private Partnerships’ (2013) 6 accessed 6 February 2019. 4 Annalisa Aschieri, Public-Private partnerships and Sustainable Development in the European Union: Another Reason to Foster the Promotion of PPPs as Viable Alternatives in the Delivery of Public Services and Infrastructure (Universitaire Pers Maastricht 2018). 5 Motoko Aizawa, ‘A Scoping Study of PPP Guidelines’ (2018) Desa Working Paper No. 164 ST/ ESA/2018/DWP/154, 3 available at accessed 6 February 2019.

66  Steven Van Garsse with a strong commitment to global partnership and cooperation, as explicitly expressed in goal number 17: ‘a successful sustainable development agenda requires partnerships between governments, the private sector and civil society’ and also ‘encourage and promote effective public, public-private and civil society partnerships, building on the experience and resourcing strategies of partnerships.’ In Europe, PPPs are seen as an important tool to deliver the Europe 2020 strategy focusing on smart, sustainable and inclusive growth.6 In many countries, the use of PPPs is related to achieving the objective of ‘value for money’ in comparison to other infrastructure delivery models.7 Value for money is about the optimal use of resources. It means ‘achieving the optimal combination of benefits and costs in delivering services users want’.8 The cost element usually represents the life-cycle cost (LCC) of the project to deliver the associated value, whereas value comprises the quality and quantity of service or performance level over the same period.9 Typically, PPPs have an inbuilt incentive for private actors to reduce operating costs and to consider the LCC of the project. PPPs are therefore very relevant for using LCC techniques to evaluate both the direct and the indirect costs resulting from the design, construction, operational management and disposal of a building throughout its entire service life.10 The large size of PPP projects, the long term of PPP contracts, the focus on outputs rather than on inputs, the integration of several phases of a project into one contract and the use of LCC techniques create unique opportunities in tackling environmental and social challenges. This chapter explores how LCC is relevant to PPPs. It also studies linkages with sustainability. The first section (‘Public-private partnership versus traditional public contracting’) looks at the concept of PPP in relation to traditional public procurement. The second section (Life-cycle thinking, value for money and public sector decision-making’) analyses the current use of LCC thinking in public decision making on PPPs and focusses primarily on the concept value for money and public sector comparator (PSC). The third section (‘Life-cycle thinking and private sector decision-making’) considers the relevance of LCC in relation to the decision-making of private parties involved in PPP procurement. The fourth section (‘Conclusion’) will summarize the main findings. 6 Commission, ‘Europe 2020 A Strategy for Smart, Sustainable and Inclusive Growth’ COM (2010) 2020 final. 7 Tahir M. Nisar, ‘Value for Money Drivers in Public Private Partnership Schemes’ (2007) 20 International Journal of Public Sector Management 147. 8 PPP Knowledge Lab, ‘Assessing Value for Money of the PPP’ available at accessed 6 February 2019. 9 European PPP Expertise Centre (EPEC), ‘Value for Money Assessment’ (EPEC/EIB 2015) 7. 10 Mohamed A. El-haram and others, ‘Development of a Generic Framework for Collecting Whole Life Cost Data for the Building Industry’ (2002) 8(2) Journal of Quality in Maintenance Engineering 144.

Life-cycle thinking and public-private partnerships  67

4.2  Public-private partnership versus traditional public contracting There is no universally accepted definition of PPP. PPPs involve private sector supply of infrastructure assets and services that have traditionally been provided by the government.11 The World Bank, for example, defines PPPs as: long-term contracts between a private party and a government agency, for providing a public asset or service, in which the private party bears significant risk and management responsibility.12 This definition makes clear what (most) PPPs have in common: projects are long term, usually bundling design, construction and maintenance and possibly operation and with the objective of providing a public service. They also involve performance-based elements with private capital at stake and associated risk allocation between the public and private actors and the long-term contracts incorporate life-cycle objectives. PPP-contracting is by nature very different from traditional public contracting. In the case of PPPs, all phases (design, construction, etc.) are awarded to a single contractor, typically a consortium (a group of companies typically including a construction company and a maintenance company) which in turn incorporates a specific company, a special purpose vehicle (SPV), to deliver the project.13 Under traditional procurement, the different project phases are split and contracted out to separate private contractors at different moments.14 In construction projects, the government employs an architect, hires consultants (an engineer, a surveyor) and organizes a tender for a construction contract. After the construction is completed, a tender is launched for its maintenance, cleaning, etc. This implies that the government is responsible for, and bears most of the risks associated with, the integration and optimization (but not necessarily implementation) and the timing of the various project activities. The obligations and financial commitments of all parties are therefore quite clear and 11 International Monetary Fund (IMF), ‘Public-Private Partnerships’ (2014) 4 available at accessed 6 February 2019. 12 World Bank Group ‘What are Public Private Partnerships?’ available at accessed 6 ­February 2019. 13 Economic and Social Commission for Asia and the Pacific (ESCAP) ‘Special purpose vehicle’ available at accessed 6 February 2019; Marta Andrecka, ‘Institutionalised Public-Private Partnership (IPPP) as a Mixed Contract in the Regime of the New Directive 2014/24/EU’ 3/2014 EPPPL 174; Abu Naser Chowdhury and Po-Han Chen, ‘Special Purpose Vehicle (SPV) of Public Private Partnership Projects in Asia and Mediterranean Middle East: Trends and Techniques’ (2010) 2(1) Institutions and Economies (formerly known as International Journal of Institutions and Economies) 64. 14 Darrin Grimsey and Mervyn Lewis, ‘Public Private Partnerships and Public Procurement’ (2007) 14(2) Agenda: A Journal of Policy Analysis and Reform 171.

68  Steven Van Garsse the government bears most of the (interface) risks. By contrast, PPPs are characterized by a high level of risk transfer from the government to the contractor.15 Risk allocation and sharing are of the essence of PPPs: the SPV is responsible for design risks, construction risks and several risks related to maintaining and operating the facility. The SPV brings in its skills, knowledge and experience on all phases of the project – particularly the design and maintenance phase – to cope with those risks. Another distinctive feature between conventional procurement and PPP relates to which party raises funds for the project. Conventional procurement contracts are most of the time publicly financed (‘on balance’), while PPPs use private funds.16 This means that the SPV borrows funds to construct the new asset and taxpayers’ money is used to pay unitary charge payments over the contract term upon availability of the asset (often resulting in ‘an off-­balance’ sheet treatment) for the government involved.17 The rationale for doing PPPs, especially in the so-called design-build-­fi nancemaintain and operate format (DBFMO), a format used in English Private ­Finance Initiative (PFI) contracts18 and the French ‘contrat de partenariat’,19 is based on several claims. A first claim pertains to the fact that PPPs have the potential to close the infrastructure gap by leveraging scarce public funding and introducing private sector technology, knowhow and innovation. A second claim is hat PPPs lead to earlier delivery of a planned capital investment programme because of the additional funding that complements traditional budgetary envelopes.20 Also, it is argued that a government can transfer most of the risks compared to traditional procurement projects and that private parties are strongly incentivized to manage those risks.21 A third claim is that PPPs offer more certainty over construction costs, improving operational efficiency and delivering assets that are better maintained than in normal procurement during the contract period. This could provide benefits for users of these assets and also 15 Philippe Burger and Ian Hawkesworth, ‘How to Attain Value for Money: Comparing PPP and Traditional Infrastructure Public Procurement’ (2011) OECD 1, 5; Graeme Hodge, ‘Risks in Public-Private Partnerships: Shifting, Sharing or Shirking?’ (2004) 26(2) Asia Pacific Journal of Public Administration 155. 16 On the leading role of the UK: Ronald W. McQuaid and Walter Scherrer, ‘Public Private ­Partnership – Comparative Issues in the UK, Germany and Austria’ (11th International Public Private Partnerships Conference, University of Iaşi, Iaşi, Romania, 25–27 May 2005) and also 2/2008 UDK: 35 EU, Uprava, letnik VI, 9. 17 In case of DBFM contracts. In case of concession contracts, users are directly paying to the concessionaire for using the asset. 18 Jason Fox and Nicholas Tott, The PFI Handbook (Jordan publishing Ltd 1999). 19 Stéphane Saussier and Phuong Tra Tran, ‘L’Efficacité des Contrats de Partenariat en France: une Première Evaluation Quantitative’ (2012) 140 Revue d’Economie Industielle 81; François Brenet and Fabrice Melleray, Les Contrats de Partenariat de L’Ordonnance du 17 juin 2004 (Litec 2005). 20 Commission, ‘Guidelines for Successful Public-Private Partnerships’ (2003) 23 accessed 6 February 2019. 21 ibid; Rory Hearne, ‘Origins, Development and Outcomes of Public Private Partnerships in ­I reland. The Case of PPPs in Social Housing Regeneration’ (2009) Combat Poverty Agency. Working Paper Series 09/07, 23–24.

Life-cycle thinking and public-private partnerships  69 lead to longer assets lives.22 A fourth claim is that PPPs reduce the LCC of the project, as there is a focus on long-term, life-cycle maintenance and management of the facility and as private parties can bring in their own solutions within the limits of the output specifications of the PPP-project.23 For the same reason and in comparison to traditional public contracts, PPPs can offer opportunities in relation to the circular economy and environmental sustainability.24 However, they will not automatically do so. Contracting authorities need to prescribe or at least stimulate private partners to do so. Well-chosen output specifications, close cooperation, early involvement of private partners, outspoken ambitions in the tender documentation and carefully considered award criteria will be an important leverage in obtaining environmental and social goals.25

4.3  Life-cycle thinking, value for money and public sector decision-making As public procurement and PPPs are more and more seen as a strategic tool to foster sustainability and innovation the question arises how to decide on the best way of delivering the project and how to unlock the full potential of sustainability aspects in PPP-projects over their lifetime. Besides the elements mentioned in the previous section, it is submitted that the permanent strive in PPPs for value for money can act as an important driver. Value for money is usually put forward as the key factor to develop a project under the format of a PPP. The government often carries out, and is sometimes even obliged to carry out, an ex ante assessment as to whether or not the PPP project is likely to achieve added value.26 In the Netherlands, the government is obliged to carry out an ex ante comparison using first a public private comparator (PPC) and later in the process a public sector comparator (PSC).27 The PPC is intended to provide a government with insight into the advantages and disadvantages of a PPP scenario (compared to a scenario based on traditional 22 HM Treasury, ‘Managing Public Money’ (2013) para 5.9.1 accessed 6 February 2019; NAO, ‘PFI1 and PF2’ (2018) 10 accessed 6 February 2019. 23 Cf very critical: Committee of Public Accounts, Private Finance Initiatives (HC 2017–19, 894) 5 and 9 accessed 6 February 2019. 2 4 Takashi Hongo, ‘Circular Economy Potential and Public–Private Partnership Models in Japan’ in Chapters, Economic Research Institute for ASEAN and East Asia (ERIA 2014) available at accessed 6 February 2019. 25 Marlies Hueskes and others, ‘Governing Public–Private Partnerships for Sustainability: An Analysis of Procurement and Governance Practices of PPP Infrastructure Projects’ (2017) 35/6 International Journal of Project Management 1184. 26 See also Anthony Boardman and Mark Hellowell, ‘A Comparative Analysis and Evaluation of Specialist PPP Units: Methodologies for Conducting Value for Money Appraisals’ (2017) 19(3) Journal of Comparative Policy Analysis: Research and Practice 191. 27 Obligation for projects in housing that reach a €25 mio threshold and in infrastructure €60 mio.

70  Steven Van Garsse public contracting). A PSC gives an idea of the total project LCC delivered using a public approach. As the Dutch Guidance explains: The aims of the PSC are twofold: 1. It provides an insight of the total costs, income and risks over the project life using public procurement. The results can be used as a benchmark in the subsequent public procurement. 2. You can use the benchmark to make a comparison with the final PPP tender proposal. The results of the comparison show whether the bids resulting from a PPP procurement are better value for money compared to a public procurement option.28 In Flanders (Belgium), the United Kingdom, Australia and in many other countries, governments have developed similar tools over the years.29 Typically, a PSC/PPC is a theoretical calculation of the total costs for the public sector of developing and operating infrastructure and/or a service using traditional delivery models.30 The cash-flow of estimated payments is discounted, and the sum of all cash-flow for the entire duration of the project represents the PSC/ PPC.31 Often, also revenues of the project are taken into account. The results of the value for money assessment can be used to assist public managers in their decision-making process at several stages: 1 In the appraisal stage: to initiate a project and/or the selection of the delivery method 2 In the award stage of the contract, using the analysis as a benchmark 3 During performance of the contract, as a tool to monitor and evaluate value for money and to assess the impact of the potential project amendments on the value for money 4 Once the PPP is completed (ex post), to assess whether PPP projects and PPP programmes have achieved their planned objective and whether or not value for money has been achieved 28 Dutch Guidance Available at accessed 6 February 2019. 29 EPEC, ‘Value for Money Assessment’ (EPEC/EIB 2015). 30 Carlos Oliveira Cruz and Rui Cunha Marques, Infrastructure Public-Private Partnerships: Decision, Management and Development (Springer 2013) 22. 31 Thomas Ekstrom and Michael Dorn, ‘Public-Private Partnerships in Defence Acquisition’ in Michael Eßig and Andreas (eds), Performance Based Logistics (Glas, Springer 2014); Saša Marenjak, ‘Usaid Business Enabling Project Report: Guide to Implementation of Value-For-Money Methodology in Public-Private Partnerships and Concessions’ (2013) 7 available at accessed 6 February 2019; The Commonwealth of Virginia, ‘Value for Money Guidelines’ (2016), 3 accessed 6 February; Michael Regan, Peter E. D. Love and Jim Smith, ‘Whole Life C ­ osting of Infrastructure Investment: Economic and Social Infrastructure Projects in Australia’ (­Proceedings of the International Conference on Smart Infrastructure and Construction, ­University of ­Cambridge, Cambridge Centre for Smart Infrastructure and Construction) 701.

Life-cycle thinking and public-private partnerships  71 Depending on the stage, the context of the project and process of the PPP, the value for money assessments play different roles: an ‘eye-opener’, ‘awareness-­ raiser’, a ‘gate-keeper’, a ‘negotiation tool’ and even a ‘bid sanity check’.32 Value for money assessments using PSCs or PPCs can be theoretically seen as an important driver for LCC in the decision-making process of the government. However, in practice the PPP’s value for money assessments and related calculations are not without challenge. In the United Kingdom, criticism towards application of PSCs arose33: ‘Departments have failed to gather the data on project performance that is needed to underpin the main assumptions in the VFM quantitative tool’.34 The French Court of Auditors also flagged weaknesses in the use of PSCs, namely: ‘detecting inter alia the use of unreliable data on costs; over-optimistic revenue forecasts, and in a lot of cases biased analyses in favour of PPPs’.35 Overall, the academic literature confirms these findings, flagging that PSCs are prone to errors in calculations.36 It also underlines the lack of a common methodology to determine the discount rate applied in assessing future costs, while that rate is key to determine the outcome of the calculations. Some authors have found that adjusting by ‘1% the discount rate could influence the final PSC by 7%–10%’.37 Tinkering with the discount rate can easily change a negative assessment into a positive one.38 The OECD has endorsed similar concerns, highlighting that the PSC ‘serves as a hypothetical risk-adjusted cost of public delivery of the project’.39 Yet, the different factors that need to be used to make such a calculation are: open to manipulation with the purpose of either strengthening or weakening the case for public-private partnerships (e.g. much depends on the discount rate chosen or on the value attributed to a risk transferred).40 32 EPEC, ‘Value for Money Assessment’ (EPEC/EIB 2015). 33 NAO‚ ‘Review of the VFM Assessment Process for PFI’ (2015) available at accessed 6 February 2019. 3 4 ibid. 35 Cour des comptes, ‘Rapport Public Annuel 2015’ 158 available at accessed 6 February 2019. 36 Cruz and Marques (n 30) 24. 37 ibid 25. 38 World Bank Institute (WBI) and Public-Private Infrastructure Advisory Facility (PPIAF), ‘Value-­ for-Money Analysis – Practices and Challenges: How Governments Choose When to Use PPP to Deliver Public Infrastructure and Services Report’ (2013) 26. Available at accessed 6th February. Patrick DeCorla-Souza, ‘Development of a Transparent Framework for Pre-Procurement Evaluation of Public–Private Partnership Project Delivery Options. Transportation Research Record’ (2018) 2672(4) Journal of the Transportation Research Board 1. 39 OECD, ‘Recommendation of the Council on Principles for Public Governance of Public-Private Partnerships May 2012. Principles for the Public Governance of Public-Private Partnerships’ (2012) available at accessed 7 February 2019. 40 ibid.

72  Steven Van Garsse Furthermore, scholars argue that traditional value for money assessments are very much oriented towards financial and economic benefits, whereas the public interest is much broader.41 Sustainability concerns may – and should – be factored in. Notwithstanding the above, national audit bodies and best practices of international organizations continue to promote value for money assessments.42 Moreover, a shift may be observed. Value for money assessments were created as a technique to asses value for money in PPP-projects. Today they are becoming a technique to assess the best delivery model in large public investments and to assess the costs, effectiveness, efficiency and economy of a (large) project during its life cycle and to guide and support related decisions.43 The criticisms of PSCs have led to increasing attention for LCC and LCA in PPPs in search of ways to try to respond to the weaknesses that have been identified in the assessment methods that were used in existing assessment methods. Experience in PPP projects has helped to learn useful lessons about the methodologies used to assess the costs of projects. First, a high level of expertise is required to carry out these assessments. Second, good quality data is needed so that the LCC assessment methodologies can be applied. Third, methods and data analysis are sensitive to manipulation and over-optimism. Fourth, the use of common, more standardized techniques is less prone to criticism. With these caveats in mind, LCC assessments are of such a nature as to contribute to better costing forecasts of projects. Yet, overall, one needs to keep a critical mindset towards these assessments when it comes to the actual result and take them with ‘a pinch of salt’ as a supportive tool in the public decision-making process. Furthermore, the concept of value for money itself and the focus of PSCs is changing. Whereas current PPPs were mostly driven by a traditional, more economic-­oriented value for money concept, those projects have little or no concerns for the three pillars of sustainable development – economic, social and environmental. The United Nations is therefore promoting a new approach called People-first PPP. People-first PPP is based on what the UN calls a ‘Value for 41 Eduardo Parisi, ‘The Evaluation of PPP projects: Is It Only a Matter of Value for Money?’ available at accessed 7 February 2019. 4 2 OECD (n 39) 35–36. 43 Global Infrastructure Hub, ‘A Practical Guide for Governments, Informed by a Country-­ Lens Review of Leading Practices Project Preparation Report Chapter 5 Project feasibility, Reviews and Approvals’ 71 available at accessed 6 February 2019; Asian Development Bank, ‘Value for Money Guidance Note on Procurement’ (2018) 20 available at ­accessed 7 February 2019; Burger and Hawkesworth (n 15); OECD, ‘Getting Infrastructure Right a Framework for Better Governance’ (2017) 10 available at accessed 7 February 2019; FinInfra, ‘Plan Type du Rapport d’Evaluation Préalable des Modes de Réalisation‘ (2017) available at accessed 7 February 2019.

Life-cycle thinking and public-private partnerships  73 People’ approach, defined and delimited by guiding principles to foster the implementation of transformative projects that delivers the following five outcomes: (i) Increase access to essential services and lessen social inequality and injustice; (ii) Enhance resilience and responsibility towards environmental sustainability; (iii) Improve economic effectiveness and sustainability; (iv)  Promote replicability and the development of further projects; and (v) Fully involve all stakeholders in the projects.44 At present, a UNECE Working Party on PPP is developing a proper common evaluation methodology for scoring and assessing PPP projects.45

4.4  Life-cycle thinking and private sector decision-making Life-cycle thinking matters very much for the private sector – however, different actors may have different reasons to find LCC useful to their decision-making process. First, the contracting partners (especially in regards to constructing, design etc.) seem to consider that LCC is an important element in PPPs.46 The private partners need an overall view of the project LCC in order to decide whether to invest more upfront, in order to make higher savings in the long term.47 The idea is, for instance, that specific roofing techniques may cost more than a normal roof. Yet, they may help save high levels of energy over the life of the project, hence generating savings that will cover (and more than that) the upfront investment. As a result, LCC is mostly interesting for economic actors who intend to be involved with the project in the longer term and who are in a position to be strategic about managing risks and ‘long-term financial implications of design decisions’.48 This applies especially when the same company is in charge of both the construction and maintenance phases in PPPs. Also, interesting is another argument brought into the debate by Moir and others arguing that 4 4 United Nations, ‘Foundations and Generations: The Evolution of Public-Private Partnerships towards the United Nations Sustainable Development Goals. Note by the Bureau’ (2018) ECE/ CECI/WP/PPP/2018/12. 45 Fourth International PPP Forum, ‘The Last Mile: Promoting People-First PPPs for the UN 2030, Agenda for Sustainable Development’ (Palais des Nations, Room XVIII Geneva, Switzerland 7–9 May 2019). 4 6 Xianhai Meng and Fiona Harshaw, The Application of Whole Life Costing in PFI/PPP Projects (School of Planning, Architecture and Civil Engineering, Queen’s University Belfast 2013) 769, 774 available at accessed 6 February 2019. 47 Edward R. Yescombe, Public-Private Partnerships: Principles of Policy and Finance (Elsevier 2011). 48 Akinrata Ebunoluwa Bimbola, ‘Life Cycle Costing (LCC) in Nigerian Construction Industry: Barrier and Drivers Facing Its Implementation’ (2016) World Scientific News 141, 149.

74  Steven Van Garsse with the advent of PPP/PFI projects one of the most substantial barriers to the implementation of the life-cycle costing (LCC) technique in the UK construction industry, the separation of capital and operational expenditure, has been diminished.49 Second: funding and insurance organisations may have their own reasons to be interested in LCC: LCC can be used in their due diligence enquiries in order to assess how robustly cost estimates have been prepared and how successfully the risks of designing and delivering property projects have been tackled.50 It is indeed important for funding and insurance organizations to better understand how financial risks may arise in projects. Various issues may arise during the building phase, such as unexpected ground conditions, inclement weather, labour/material shortages, time overruns, defects and/or poor budgeting. When they fund long-term PFI projects (lasting over 25 years), funding and insurance organizations need a better grasp of these factors so as to understand the future costs of the building and the level of reliability in any exercise associated to their prediction’.51 However, although LCC has a lot of potential there are also some issues. The main obstacle for economic actors arises in the practical implementation of LCC. In 2013 Meng et al found that there are only ‘few studies that have really documented and reported on the (actual) use LCC in PFI/PPP projects’ and furthermore there was ‘a lack of consistency in using LCC in PPPs’.52 Consequently, the authors conducted an empirical study to provide empirical evidence for the application of LCC in PFI/PPP practice. They analysed qualitative data collected from case studies and quantitative data collected from a questionnaire survey. Their study suggested that LCC ‘was starting to be more used in PFI/PPP practice to reduce long term costs and increase long-term value for money’.53 Their study also found that 49 Stuart Moir and Graeme Bowles, ‘Abstract. The Application of the Life-Cycle Costing Technique on UK PPP/PFI Education Projects: Theory Versus Practice in Proceedings of the 18th CIB World Building Congress’ (2010) available at accessed 6 February 2019. 50 John Liapis Konstantinos and others, ‘Commercial Property Whole-Life Costing and the Taxation Environment’ (2014) 32(1) Journal of Property Investment & Finance 57. 51 ibid. 52 Meng and Harshaw (n 46) 771. 53 ibid; in 2016 Higham and others concluded in their study that; ‘studies reveal contradictory views in the practice of LCC and LCC is actually only little used in practice. (…) as there is no available data to start developing/refining LCC, no LCC is really tested, hence maintaining a too low level of available data to extract any meaningful analysis from the very rare use of it.’ Anthony Higham, Chris Fortune and Howard James, ‘Life Cycle Costing: Evaluating Its Use in UK Practice’ (2015) Structural Survey 3374.

Life-cycle thinking and public-private partnerships  75 LCC methodology was more effective in PFI and PPP projects than in nonPFI/PPP projects. Yet, there remain problems with using LCC so much so that there is a need for a conscious effort to implement it. It is important that LCC is implemented as early as possible in order to generate greater benefits; and that attention would be given to specific issues such as contractual incentives. Their study also mentioned that more research was required especially in order to develop incentive mechanisms for good performance and disincentive mechanisms for poor performance in terms of LCC.54 Overall, it also seems that life-cycle exercises in PPPs at present are not used per se to pursue anything like the sustainable development of the projects, but mainly to manage their financial sides. In other words, LCC is used in order to make investment decisions and to design trade-offs between capital, maintenance and operational costs. If the private partner also bears energy costs, that element will also be included in the development process of the bid. It seems therefore that the use of LCC for PPPs in private practice faces similar problems to those described in the section on value for money. Having said that, the fact remains that the distinctive features of PPPs make them very suitable for LCC and as already mentioned governments have a pivotal role in stimulating LCC assessments, including LCA or social elements. The findings of Hueskes, Verhoest and Block are also relevant in this context: a government could take several procurement-related measures that stimulate sustainability: incorporate sustainability ambitions into the project definition; set ­sustainability norms in output specifications, for example, by referring to sustainability standards and instruments set by external organizations; include sustainability and social considerations in the award criteria and to evaluate them with a substantial weighting; provide rewards in the contract, for example, a ‘bonus for energy efficiency’, etc.55 The findings of Meng and Harshaw are largely complementary: ‘private companies need to make enough efforts’, ‘PFI/PPP provides a good platform for designers, construction contractors and FM service providers to collaborate with each other, which is a key’ and whole life costing ‘should be implemented as early as possible in order to generate greater benefits success’56

4.5 Conclusion Nowadays climate change and social justice concerns are high on the agenda. It is acknowledged that PPPs, because of their distinctive features, have the potential to support sustainability goals and can be used as effective public delivery means of both economic and socio-environmental gains. 54 ibid. 55 Hueskes and others (n 25). 56 Meng and Harshaw (n 46).

76  Steven Van Garsse This chapter recognizes the importance and potential of LCC. In public and private sector organizations LCC is important to reach a decision to proceed with a PPP and to obtain long-term benefits. The calculations and assessments on LCC are key in order to submit a solid bid, to mention a good price, to compare tenders, to check the realistic character of tenders, to assess the impact of changes in the course of the operations, to evaluate projects, etc. This research based on a broad literature review found that LCC in PPPs can be a huge challenge and that PPPs and the use of LCC does not per se lead to social and environmental benefits. To unlock its full potential this study recognizes the importance of proactive behaviour of governments and private partners. In fact, governments need to be aware of the limitations that come with LCC as part of PSCs, the rather limited focus of existing value for money assessments, but also the need to invest in further research on the topic, the necessity of data gathering etc. At project level, governments need to stimulate in an intelligent way private parties to fully integrate LCC and LCA assessments by inter alia carefully choosing award criteria and making clear the level of ambition in output specifications. Private partners need to focus on collaboration and balance economic, social and environmental elements.

References Marta Andrecka, ‘Institutionalised Public-Private Partnership (IPPP) as a Mixed Contract in the Regime of the New Directive 2014/24/EU’ 3/2014 EPPPL 174. Motoko Aizawa, ‘A Scoping Study of PPP Guidelines’ (2018) Desa Working Paper No. 164 ST/ESA/2018/DWP/154, 3. Asian Development Bank, ‘Value for Money Guidance Note on Procurement’ (2018) 20. BCG, ‘Bridging the Gap: Meeting the Infrastructure Challenge with Public-Private Partnerships’ (2013) 6. Akinrata Ebunoluwa Bimbola, ‘Life Cycle Costing (LCC) in Nigerian Construction ­I ndustry: Barrier and Drivers Facing Its Implementation’ (2016) 58 World Scientific News 141, 149. Anthony Boardman and Mark Hellowell, ‘A Comparative Analysis and Evaluation of ­Specialist PPP Units: Methodologies for Conducting Value for Money Appraisals’ (2017) 19(3) Journal of Comparative Policy Analysis: Research and Practice 191. François Brenet and Fabrice Melleray, Les Contrats de Partenariat de L’Ordonnance du 17 juin 2004 (Litec 2005). Philippe Burger and Ian Hawkesworth, ‘How to Attain Value for Money: Comparing PPP and Traditional Infrastructure Public Procurement’ (2011) 1 OECD Journal on Budgeting 1. Abu Naser Chowdhury and Po-Han Chen, ‘Special Purpose Vehicle (SPV) of Public Private Partnership Projects in Asia and Mediterranean Middle East: Trends and Techniques’ (2010) 2(1) Institutions and Economies (formerly known as International Journal of Institutions and Economies) 64. Commission, ‘Europe 2020 A Strategy for Smart, Sustainable and Inclusive Growth’ COM (2010) 2020 final. Commission, ‘Guidelines for Successful Public-Private Partnerships’ (2003) 23. Committee of Public Accounts, Private Finance Initiatives (HC 2017–19, 894) 5 and 9.

Life-cycle thinking and public-private partnerships  77 Cour des comptes, ‘Rapport Public Annuel 2015’ 158. Carlos Oliveira Cruz and Rui Cunha Marques, Infrastructure Public-Private Partnerships: Decision, Management and Development (Springer 2013). Patrick DeCorla-Souza, ‘Development of a Transparent Framework for Pre-Procurement Evaluation of Public–Private Partnership Project Delivery Options. Transportation ­R esearch Record’ (2018) 2672(4) Journal of the Transportation Research Board 1. Mohamed A. El-haram and others, ‘Development of a Generic Framework for Collecting Whole Life Cost Data for the Building Industry’ (2002) 8(2) Journal of Quality in Maintenance Engineering 144. EPEC, ‘Value for Money Assessment’ (EPEC/EIB 2015). European Court of Auditors, ‘Public Private Partnership in the EU: Widespread Shortcomings and Limited Benefits’ (2018) 15. European PPP Expertise Centre (EPEC), ‘Value for Money Assessment’ (EPEC/EIB 2015) 7. Fourth International PPP Forum, ‘The Last Mile: Promoting People-First PPPs for the UN 2030, Agenda for Sustainable Development’ (Palais des Nations, Room XVIII Geneva, Switzerland 7–9 May 2019). Jason Fox and Nicholas Tott, The PFI Handbook (Jordan Publishing Ltd 1999). Global Infrastructure Hub, ‘A Practical Guide for Governments, Informed by a Country-­ Lens Review of Leading Practices Project Preparation Report Chapter 5 Project Feasibility, Reviews and Approvals’ 71. Darrin Grimsey and Mervyn Lewis, ‘Public Private Partnerships and Public Procurement’ (2007) 14(2) Agenda: A Journal of Policy Analysis and Reform 171. Rory Hearne, ‘Origins, Development and Outcomes of Public Private Partnerships in Ireland. The Case of PPPs in Social Housing Regeneration’ (2009) Combat Poverty Agency. Working Paper Series 09/07, 23–24. Anthony Higham, Chris Fortune and Howard James, ‘Life Cycle Costing: Evaluating Its Use in UK Practice’ (2015) 33 Structural Survey 3374. HM Treasury, ‘Managing Public Money’ (2013) para 5.9.1. Graeme Hodge, ‘Risks in Public-Private Partnerships: Shifting, Sharing or Shirking?’ (2004) 26(2) Asia Pacific Journal of Public Administration 155. Takashi Hongo, ‘Circular Economy Potential and Public–Private Partnership Models in Japan’ in Chapters, Economic Research Institute for ASEAN and East Asia (ERIA 2014). Marlies Hueskes and others, ‘Governing Public–Private Partnerships for Sustainability: An Analysis of Procurement and Governance Practices of PPP Infrastructure Projects’ (2017) 35/6 International Journal of Project Management 1184. International Monetary Fund (IMF), ‘Public-Private Partnerships’ (2014) 4. John Liapis Konstantinos and others, ‘Commercial Property Whole-Life Costing and the Taxation Environment’ (2014) 32(1) Journal of Property Investment & Finance 57. Saša Marenjak, ‘Usaid Business Enabling Project Report: Guide to Implementation of Value-For-Money Methodology in Public-Private Partnerships and Concessions’ (2013) 7. Ronald W. McQuaid and Walter Scherrer, ‘Public Private Partnership – Comparative ­Issues in the UK, Germany and Austria’ (11th International Public Private Partnerships Conference, University of Iaşi, Iaşi, Romania, 25–27th May 2005) and also 2/2008 UDK: 35 EU, Uprava, letnik VI, 9. Xianhai Meng and Fiona Harshaw, The Application of Whole Life Costing in PFI/PPP Projects (School of Planning, Architecture and Civil Engineering, Queen’s University Belfast 2013).

78  Steven Van Garsse Stuart Moir and Graeme Bowles, ‘Abstract. The Application of the Life-Cycle Costing Technique on UK PPP/PFI Education Projects: Theory Versus Practice in Proceedings of the 18th CIB World Building Congress’ (2010). NAO, ‘PFI1 and PF2’ (2018) 10. NAO‚ ‘Review of the VFM Assessment Process for PFI’ (2015). Tahir M. Nisar, ‘Value for Money Drivers in Public Private Partnership Schemes’ (2007) 20 International Journal of Public Sector Management 147. OECD, ‘Getting Infrastructure Right a Framework for Better Governance’ (2017) 10. OECD, ‘Recommendation of the Council on Principles for Public Governance of Public-­ Private Partnerships May 2012. Principles for the Public Governance of Public-­Private Partnerships’ (2012). Eduardo Parisi, ‘The Evaluation of PPP Projects: Is It Only a Matter of Value for Money?’. PPP Knowledge Lab, ‘Assessing value for Money of the PPP’. Michael Regan and others, ‘Whole Life Costing of Infrastructure Investment: Economic and Social Infrastructure Projects in Australia’ (Proceedings of the International Conference on Smart Infrastructure and Construction, University of Cambridge, ­Cambridge Centre for Smart Infrastructure and Construction 2016) 701 Stéphane Saussier and Phuong Tra Tran, ‘L’Efficacité des Contrats de Partenariat en France: une Première Evaluation Quantitative’ (2012) 140 Revue d’Economie Industielle 81. The Commonwealth of Virginia, ‘Value for Money Guidelines’ (2016) 3. Thomas Ekstrom and Michael Dorn, ‘Public-Private Partnerships in Defence Acquisition’ in Michael Eßig and Andreas (eds), Performance Based Logistics (Glas, Springer 2014). United Nations, ‘Foundations and Generations: The Evolution of Public-Private Partnerships towards the United Nations Sustainable Development Goals. Note by the Bureau’ (2018) ECE/CECI/WP/PPP/2018/12. World Bank, ‘Benchmarking Public-Private Partnerships Procurement 2017’ (2016). World Bank Institute (WBI) and Public-Private Infrastructure Advisory Facility (PPIAF), ‘Value-for-Money Analysis – Practices and Challenges: How Governments Choose When to Use PPP to Deliver Public Infrastructure and Services Report’ (2013) 26. Edward R. Yescombe, Public-Private Partnerships: Principles of Policy and Finance (­Elsevier 2011).

Part II

Sector-specific studies Experiences, shortcomings and the lessons learnt

5 Moving to a quintuple helix approach in SPP Collaboration and LCC for lighting procurements Rodrigo Lozano, Sigrid Petterssén, Anette Jonsäll, Camilla Niss and Björn Bergström 5.1 Introduction Several countries have engaged with sustainable public procurement (SPP) into their public policies. For example, Japan is leading in SPP1 and the Philippines has eco-procurement legislation that obliges federal government departments and agencies to adopt SPP programmes, while Canada has committed to implementing SPP policies.2 As recalled in the second chapter of this book, the 2014 reform has recognized SPP as a strategic component of EU public procurement law and policy. The Commission has also been engaging with European contracting authorities to include sustainability criteria in their procurement processes, for instance, by using a guideline for including environmental criteria in the public procurement (PP) process, and a guide on Socially Responsible Public Procurement, which proposes how to integrate social considerations into the PP process.3 The 2017 UNEP – now UN Environment – Global Review of SPP recognized that: in order to transform production and consumption patterns, it will be necessary to foster collaboration among stakeholders throughout the entire value chain. Rather than focusing merely on the purchasing procedures of public organizations, driving the procurement sector to sustainability will require significant cooperation between the public and private sectors. The creation of multi-stakeholder collaboration and 1 Joyce Thomson and Tim Jackson, ‘Sustainable Procurement in Practice: Lessons from Local Government’ (2007) 50 Journal of Environmental Planning and Management 421. 2 Catherine Day, ‘Buying Green: The Crucial Role of Public Authorities’ (2005) 10 Local Environment 201. 3 Buying Green! A Handbook on Green Public Procurement (3rd ed, 2016) and Buying Social. A Guide to Taking Account of Social Considerations in Public Procurement (2011); the EU is not alone, see also UNEP, ‘Buying for a Better World; A Guide on Sustainable Procurement for the UN System’ (2014).

82  Rodrigo Lozano et al. knowledge-sharing platforms at local, national and international level will be essential to achieving this goal.4 A study conducted some years ago showed that within the EU Sweden has been topping the list of countries applying SPP, followed by Denmark, Germany, Austria, the United Kingdom, and the Netherlands.5 Some of the sectors addressed in the SPP literature include ICT,6 manufacture and transportation industries,7 energy,8 the construction industry,9 higher education institutions,10 chemicals,11 and food.12 Papers on SPP have focussed on: the procurement process13; the links product-­service systems14; eco-design15; environmental management systems16; supplier selection17; the effects of cultural and political framings of SPP18; the barriers to change and drivers of collaboration between procurement process 4 Available at accessed on 5 March 2019, v. 5 Frans Melissen and Harry Reinders, ‘A Reflection on the Dutch Sustainable Public Procurement Programme’ (2012) 9 Journal of Integrative Environmental Sciences 27; Stephen Brammer and Helen Walker, ‘Sustainable Procurement in the Public Sector : An International Comparative Study’ (2011) 31 International Journal of Operations & Production Management 452. 6 Mieko Igarashi and others, ‘Investigating the Anatomy of Supplier Selection in Green Public Procurement’ (2015) 108 Journal of Cleaner Production 442. 7 Cecilia Bratt and others, ‘Assessment of Criteria Development for Public Procurement from a Strategic Sustainability Perspective’ (2013) 52 Journal of Cleaner Production 309; Liyin Shen and others, ‘Key Factors Affecting Green Procurement in Real Estate Development: A China Study’ (2017) 153 Journal of Cleaner Production 372. 8 Matthew J Hannon and others, ‘“Demand Pull” Government Policies to Support Product-Service System Activity: The Case of Energy Service Companies (ESCos) in the UK’ (2015) 108 Journal of Cleaner Production 900; Annika Varnäs and others, ‘Environmental Consideration in Procurement of Construction Contracts: Current Practice, Problems and Opportunities in Green Procurement in the Swedish Construction Industry’ (2009) 17 Journal of Cleaner Production 1214. 9 See: Deidre Halloran, ‘LCC within the Construction Sector: a Tool for Social Housing?’ Chapter 8 of this book. Sergio Alvarez and Agustín Rubio, ‘Carbon Footprint in Green Public Procurement: A Case Study in the Services Sector’ (2015) 93 Journal of Cleaner Production 159; Xiaoyu Liu and Qingbin Cui, ‘Assessing the Impacts of Preferential Procurement on Low-­ Carbon Building’ (2016) 112 Journal of Cleaner Production 863; Shen and others (n 7). 10 Alba Bala and others, ‘Experiences with Greening Suppliers. The Universitat Autònoma de Barcelona’ (2008) 16 Journal of Cleaner Production 1610. 11 Mart Stoughton and Thomas J. Votta, ‘Implementing Service-Based Chemical Procurement: Lessons and Results’ (2003) 11 Journal of Cleaner Production 839. 12 Julie Smith and others, ‘Balancing Competing Policy Demands: The Case of Sustainable Public Sector Food Procurement’ (2016) 112 Journal of Cleaner Production 249. 13 Liu X and Cui Q, ‘Assessing the Impacts of Preferential Procurement on Low-Carbon Building’ (2016) 112 Journal of Cleaner Production 863. 14 Hannon and others (n 8). 15 Sophie Byggeth and Elisabeth Hochschorner, ‘Handling Trade-Offs in Ecodesign Tools for Sustainable Product Development and Procurement’ (2006) 14 Journal of Cleaner Production 1420. 16 Francesco Testa and others, ‘Drawbacks and Opportunities of Green Public Procurement: An Effective Tool for Sustainable Production’ (2016) 112 Journal of Cleaner Production 1893. 17 Igarashi and others (n 6) 2. 18 Smith and others (n 12).

Moving to a quintuple helix approach in SPP  83 actors,19 the need for research on social cultural issues20 and the link between SPP and businesses.21 Although some papers have focussed on collaboration, 22 the novelty in this approach means that there is still limited research on collaborative procurement systems considering more than the supplier and procurer. The aim of this chapter is to contribute to SPP, including to LCC, by proposing to move from engaging only suppliers and procurer to a wider and more encompassing collaborative approach of the quintuple helix. To this end, the chapter illustrates and discusses a Swedish function procurement project in the lightening sector, based on a holistic, collaborative working model of SPP from which a number of lessons might be learned to develop successful SPP and elements of LCC methodologies. The chapter is structured as follows: Section 5.2 reviews the literature on SPP, and it provides essential background information on the different stages of the procurement procedure as well as the procurement system in Sweden and the theoretical framework for collaborative procurement; Section 5.3 describes the concepts of triple helix to quintuple helix; Section 5.4 presents the empirical case of lightning procurement; Section 5.5 discusses the case from a holistic, collaborative perspective and Section 5.6 presents the conclusions.

5.2  Sustainable public procurement The procurement process may be divided into four stages, as depicted in Figure 5.1: 1 Preparatory stage: the problem is defined, and an inventory of stakeholder demands is made, which results in a first set of specifications; 2 Specification stage, where the first concepts are further analysed and developed, leading to the definite specifications of the product or service; 3 Sourcing stage, also known as the tender process, the product or service specifications are made public to potential suppliers, and the selection of the supplier and their signature on the contract finishes the tender; and 4 Utilization stage, where, after signing the contract, the product or service is supplied.23 19 Kedar Uttam and Caroline Le Lann Roos, ‘Competitive Dialogue Procedure for Sustainable Public Procurement’ (2015) 86 Journal of Cleaner Production 403; Helen Walker and Lutz Preuss, ‘Fostering Sustainability through Sourcing from Small Businesses: Public Sector Perspectives’ (2008) 16 Journal of Cleaner Production 1600. 20 Bratt and others (n 7); Mette Mosgaard and others ‘Greening Non-Product-Related ­Procurement – When Policy Meets Reality’ (2013) 39 Journal of Cleaner Production 137. 21 Alvarez and Rubio (n 9); Walker and Preuss (n 19). 22 Sjors Witjes and Rodrigo Lozano, ‘Towards a More Circular Economy: Proposing a Framework Linking Sustainable Public Procurement and Sustainable Business Models’ (2016) 112 Resources 37. 23 UNEP (n 3).

84  Rodrigo Lozano et al.

Figure 5.1  T  he changing contact between the procurer and supplier during the PP process showing the different stages from preparation to utilization (based on UNEP (2014)).

The tender process plays a central role since it links governmental specifications to potential suppliers.24 In EU public procurement law, contacts between suppliers and the procurer prior to the publication of a tender are seen with suspicion as they might affect fair competition.25 A public procurement process is conventionally a linear model, as illustrated in Figure 5.2.26 For instance, concerning supplies, once the procurer decides on the product’s technical specifications (e.g., size, weight and colour), the supplier defines the necessary raw materials for the production process, and the product is then delivered to the procurer as per specification. After the use period, the product partly becomes waste and the procurer decides whether to dispose of it. The optimization of used raw materials or generated waste is not explicitly addressed in the product´s technical specifications. As explained in Chapter 2, the Public Sector Directive of lowest price, best quality for given price, best price-quality ratio (the old most economically advantageous tender in Directive 2004/18/EC) may include life-cycle analysis (LCA), and costs-effectiveness (including LCC). 27 In the latter, the price-quality criteria may include non-pecuniary criteria, 28 2 4 Philip Kiiver and Jakub Kodym, The Practice of Public Procurement: Tendering, Selection and Award (Intersentia 2014). 25 See Steen Treumer, ‘Technical Dialogue and the Principle of Equal Treatment: Dealing with conflicts of Interests after Fabricom’ (2007/2) Public Procurement Law Review 99–115; see also now Articles 40 and 41 of Public Sector Directive and comments by Michael Steinicke, ‘Article 40. Preliminary Market Consultations’ and ‘Article 41. Prior Involvement of Candidates and Tenderers’ both in Michael Steinicke – Peter L. Vesterdorf. EU Public Procurement Law (Baden and others, Nomos and others, 2018) 515 and 519. 26 Elvira Uyarra and others, ‘Barriers to Innovation through Public Procurement: A Supplier ­Perspective’ (2014) 34 Technovation 631. 27 Article 67 Public Sector Directive, see: Marta Andhov and others, ‘The EU Law of LCC’ ­Chapter 2 of this book. 28 See also, with reference to the previous directive, Katriina Parikka-Alhola, ‘Promoting Environmentally Sound Furniture by Green Public Procurement’ (2008) 68 Ecological Economics 472.

Moving to a quintuple helix approach in SPP  85

Figure 5.2  A linear framework of the PP process showing the influence on business models.

which allows for the incorporation of sustainability criteria into the product specification. 29 In the traditional public procurement process, the definition of the technical specifications identifying the product unit to be purchased is the main task of procurers. In general, the tender is based on the lowest price or overall cost. In the SPP process, the goal of the tender is to achieve value for money, where environmental or social specifications is included.30 Two important elements of this service-oriented functional unit are closing loops31 and improving resource efficiencies through recovery.32

5.2.1  Procurement in Sweden In Sweden, all contracting authorities are required to procure all products and services used and this is done under the public procurement legislation.33 The organization of the procurement may vary across the country. Some authorities have their own departments and/or use a joint purchasing centre for the contracting authorities. In some counties/areas, the contracting authorities have been merged into purchasing centres together with a joint purchasing organization (a central purchasing body – CPB under Article 37 of Public Sector Directive) has been created for a whole county/region. In the latter case, the procurement process formally begins when the municipality requests from the CPB to procure a product or service. The request may be described as an administrative act. The actual procurement process starts well before when the contracting authority 29 Martijn G. Rietbergen and Kornelis Blok, ‘Assessing the Potential Impact of the CO2 Performance Ladder on the Reduction of Carbon Dioxide Emissions in the Netherlands’ (2013) 52 Journal of Cleaner Production 33; Kiiver and Kodym (n 24). 30 ibid. 31 Ren Yong, ‘The Circular Economy in China’ (2007) 9 Journal of Material Cycles and Waste Management 121 accessed; Zengwei Yuan and others, ‘The Circular Economy. A New Development Strategy in China’ (2006) 10 Journal of Industrial Ecology 4. 32 Alice Klettner and others, ‘The Governance of Corporate Sustainability: Empirical Insights into the Development, Leadership and Implementation of Responsible Business Strategy’ (2013) Journal of Business Ethics 1; Ken Webster, ‘What Might We Say about a Circular Economy? Some Temptations to Avoid If Possible’ (2013) 69 World Future: The Journal of New Paradigm Research 542. 33 Sveriges Riksdag, ‘Lag (2016:1145) Om Offentlig Upphandling’ (2016).

86  Rodrigo Lozano et al. identifies the product or service it intends to purchase. This is primarily based on the needs of the users, but also the needs of all concerned actors, including industry and the community, are taken into account. Contracting authorities and CPBs often hold pre-market engagement or dialogue with a number of companies to discuss the upcoming procurement, but rarely their knowledge about the market and the end users’ needs are being utilized. It may also be that an RFI (Request for Interest) is sent out to potential suppliers to get an overview of who would be able to respond to a bid. However, it is unusual to discuss the products/services content, requirements that should be included and consider the knowledge that the suppliers possess about the market, the products, the services and the intended target audience that are end users. Most commonly, contracting authorities are looking at the previous tender documents, making small adjustments and sending it out.

5.2.2  A collaborative framework between SPP and sustainable business models (SBM) to contribute to circular economy Academics and business practice have been advancing ‘sustainability business models’ (SBMs) where sustainability concepts shape the driving force of the firm and its decision-making for more than a decade.34 Witjes and Lozano proposed the ‘Procurement and business model collaboration for circular economy (ProBiz4CE)’ framework (see Figure 5.3), which is aimed at reducing waste, and consequently raw materials, by changing from a product focus to a product-­ service system, where loops are closed through recovery.35 In this process, the value generation switches from price per unit to price per service (of a functional unit). The successful outcome of the process depends on the procurer and suppliers collaborating to establish the technical and non-technical specification, and a shared ownership of the product/system services (PSS). Collaboration starts to take place in the preparation stage of the tender, rather than at the sourcing stage. ProBiz4CE highlights that collaboration between procurers and suppliers can lead to reductions in raw material utilization and waste generation, whilst promoting sustainability. In ProBiz4CE, collaboration is between the procurer and potential suppliers, and it takes place at the beginning of the tender (i.e., the preparation stage), as illustrated in Figure 5.4, instead than at sourcing stage (see Figure 5.2). Collaboration is a sine qua non condition for moving away from conventional linear public procurement.36 Collaboration harvests its benefits from differences in perspectives, knowledge and approaches, solving problems while at the same

3 4 Wendy Stubbs and Chris Cocklin, ‘Conceptualizing a “Sustainability Business Model”’ (2008) 21(2) Organization & Environment 103–127. 35 Witjes and Lozano (n 22). 36 ibid.

Moving to a quintuple helix approach in SPP  87

Figure 5.3  C  ollaboration between procurement and business models for CE (­ProBiz4CE) framework.

Figure 5.4  Procurer/supplier proximity and supplier selection during the SPP process (based on UNEP (2014)).

time offering benefits to all those involved in the process,37 but it has inherent difficulties and costs, such as coordination costs, vulnerability costs, information exchange, splitting the gains, and free-riding.38 Given the challenges in developing LCC methodologies discussed in other chapters, including those con 37 Rodrigo Lozano, ‘Collaboration as a Pathway for Sustainability’ (2007) 381 Sustainable Development 370. 38 ibid; Alberto Chilosi, ‘Coordination, Cooperation, and the Extended Coasean Approach to ­Economic Policy’ (Facolta di Scienze Politiche 2003); Jens Genefke, ‘Collaboration Costs!’ (University of Aarhus Department of Management 2000, Working Paper 2000–10) available

88  Rodrigo Lozano et al. cerning retrieving data and information, collaboration is specifically relevant for LCC. The collaboration between the contracting authority and potential suppliers must comply with the locally applicable rules designed to avoid preferential treatment and to ensure fair competition. In the EU Articles 40 (Preliminary market consultations) and 41 (Prior involvement of candidates and tenderers) of Public Sector Directive are specifically relevant.

5.3  From triple to quintuple helix Agenda 21 highlighted stakeholder engagement and participation in economic, environmental, and social change as one of its most important themes.39 This includes stakeholders such as local communities, employees, shareholders, business partners, suppliers, customers, public authorities, and NGOs.40 Participation can be of: (i) different degrees of participation from passive dissemination of information to active engagement; (ii) the nature of participation according to the direction of communication flows (communication, consultation or participation); (iii) theoretical basis (normative and/or pragmatic participation); and (iv) objectives for which participation is used (e.g., empowering stakeholders, building consensus).41 The image, or metaphor, of a triple helix has been used in the literature in helping to explain to the relations between university-industry-government. It is also useful to represent social innovation.42 The quadruple helix model is an extension of the triple helix, where the fourth helix of civil society is added.43 The quintuple helix model is based on the earlier helix models but also takes into consideration the natural environment.44 The latter addition is specifically significant with reference to LCC as understood, focusing on environmental externalities, under Article 68 of Public Sector Directive.

39 40

41 4 2 43

4 4

at; accessed on 25 April 2019. United Nations and UN, Agenda 21 (United Nations 1992) available at accessed on 04 May 2019. C.E.C. and Commission of the European Communities, Promoting a European Framework for Corporate Social Responsibility (Commission of the European Communities 2001); Richard Holme and Phil Watts, Corporate Social Responsibility: Making Good Business Sense (WBCSD 2000); Rodrigo Lozano, ‘Addressing Stakeholders and Better Contributing to Sustainability through Game Theory’ (2011) 43 The Journal of Corproate Citizenship 44. Mark S. Reed, ‘Stakeholder Participation for Environmental Management: A Literature Review’ (2008) 141 Biological Conservation 2417. Henry Etzkowitz and Loet Leydesdorff, ‘The Dynamics of Innovation: From National Systems and “Mode 2” to a Triple Helix of University–Industry–Government Relations’ 109. Elias G. Carayannis and David F. J. Campbell, ‘“Mode 3” and “Quadruple Helix”: Toward a 21st Century Fractal Innovation Ecosystem’ (2009) 46 International Journal of Technology Management 201; Raul Gouvea and others, ‘Using the Quadruple Helix to Design Strategies for the Green Economy’ (2013) 80 Technological Forecasting and Social Change 221. Elias G. Carayannis and others, ‘The Quintuple Helix Innovation Model: Global Warming as a Challenge and Driver for Innovation’ (2012) 1 Journal of Innovation and Entrepreneurship 2.

Moving to a quintuple helix approach in SPP  89

5.4  Procurement of lighting in Bollnäs, Sweden Region Gävleborg is a Swedish county council and regional development ­organization that consists of ten municipalities and 285,400 inhabitants. The ‘­Innovation for regional growth driven by Public Procurement’ (hereafter called the project), runs between February 2016 and October 2019. The project had a number of pilot projects, including the procurement of lighting in Bollnäs. The project is financed jointly by Region Gävleborg and the Swedish Agency for Economic and Regional Growth. The aim of the project is to create possibilities for small companies and innovators in the region to take part in the public procurement market, and at the same time generate development and innovation in the public sector. The overall goal for the project is future economic sustainability, emphasizing the importance of creating more value out of tax money by finding new innovative solutions. The companies participating in the project gain increased insight and knowledge of the public procurement market, which can generate business growth and economic sustainability in the region. The public sector is often structured along compartmentalized activities, which can create problems in terms of coordination and with regard to identification of whom owns responsibility for certain issues and who will take the cost. In contrast, the project is based on sustainable development through a holistic perspective (i.e., considering the economic, environmental, social, and time dimensions), including as many parameters as possible and in all processes carried out in the project. The project is based on Universal Design, a part of public health science based on a society in which everyone is involved, regardless of functional impairments or other difficulties in participating in a common community structure.45 The project is being facilitated by two facilitators (also co-authors of this chapter) by the use of their own specific working model, the ‘Frame Lake Model’.46 The Frame Lake Model is a holistic working model that ensure that the needs of the public procurement process become known to end users, procurers, and s­ uppliers. It was developed with sustainability a prerequisite and indicator of the project success. The model describes the need identification process (the pre-­process), the real needs of all the different stakeholders involved, with an explicit focus on end users. According to the Frame Lake Model, the actors involved in the process must be highly skilled. In relation to public procurement, the working model is in line with Sweden’s procurement strategies which considers procurement as a development tool for public activities and advocates collaboration.47 45 National Disability Authority, ‘The 7 Principles. What Is Universal Design’ (2014) available at accessed 03 May 2019. 4 6 Region Gävleborg, ‘The Frame Lake Model’ (2015) available at accessed 04 May 2019. 47 Regeringskansliet. Finansdepartementet, ‘Nationella Upphandlingsstrategin’ (2017) available at accessed 04 May 2019.

90  Rodrigo Lozano et al. Bollnäs Municipality is one of the ten municipalities in Region Gävleborg and has 27,000 inhabitants. In the beginning of 2017, Bollnäs municipality had a need for changing old ceilings and lighting in schools and preschools in order to make the facilities more flexible for different activities and individual needs. The municipality started looking for more cost-effective solutions and setting up luminaires from different suppliers to evaluate the light and gain a better understanding of what was available on the market. The municipality focused on LED lighting, since it was considered appropriate future lighting, reducing energy costs to at least 50%. It was clear to the municipality that they wanted to procure LED light, but they had also started to consider renting light instead of buying luminaires. At the same time, the project worked with one of the companies that Bollnäs municipality tested lighting and the project members became aware that Bollnäs municipality wanted to procure light in a new way. The project team contacted the municipality and public-public collaboration began where the project’s members worked as facilitators. The municipality, as many other municipalities, faces a variety of social challenges such as aging population, increase in new arrivals, and climate threats. Therefore, the municipality was interested in trying new approaches and solutions to solve such challenges, through using public procurement as a tool for development.

5.4.1  The procurement process The objective of the lighting procurement was to achieve: (1) Increased modularity and flexibility in the municipality’s locations; (2) Increased environmental considerations regarding recyclability and energy utilization; and (3) Knowledge-­ enhancing efforts for overall solutions in which occupational health and safety issues are concerned. The procurement process took approximately one year. In March 2017, a first meeting between the project team and the municipality was held. A core group was created to guide the management of the upcoming procurement and to plan and implement the procurement. The core group consisted of the facilitators from the project, a controller for the school and a project leader and a manager in the real estate group. The core group, which was then expanded to become the collaboration team, as described below.

5.4.2  The collaboration team The core group was part of an extended multidisciplinary collaboration team with high levels of competence and knowledge in different areas in order for the procurement to achieve the desired results. The collaboration team consisted of an environmental strategist and an innovation procurement expert lawyer from Region Gävleborg and the purchasing organization in Gävleborg. LED light technologies are developing rapidly, and it was difficult to know what technical functional requirements are relevant, hence an academic light expert (from the Royal Institute of Technology in Stockholm) was included in the collaboration team. The collaboration team met in different compositions depending on the

Moving to a quintuple helix approach in SPP  91 issues that were dealt with. Initially everyone met together to lay a good foundation, and thereafter team members contributed through smaller meetings, e-mail or conversations based on their own skills on individual issues.

5.4.3  Pre-knowledge in Bollnäs municipality Before getting involved in the project, Bollnäs municipality had, in the beginning of 2017 made some tests of new solutions (LED lighting) in one school and one preschool; however, there was no knowledge in how to procure new solutions, since the municipality was accustomed to linear public procurement. An assessment was carried out first to identify the real needs of end users, in this case the children and the staff, and to identify the technical solutions best addressing those needs. The municipality made it possible to systematically test different headlights and luminaires from several suppliers in equivalent classrooms. The pupils and teachers then evaluated their personal experience of the light in each room. This was in line with the Frame Lake Model, which states that a need identification process should be performed. The assessment provided useful insights, such as concerning the number of LED diodes and their strength, that could be adapted for different types of rooms used for different activities to and individual level, for example, for students with impaired vision. It was also found that there were suppliers who used recycled materials in their manufacture of fixtures and had closed environmental loops considerations in their production, which was desirable from the perspective of municipality’s own environmental objectives.

5.4.4  Supplier meetings Based on the new rules in Public Sector Directive allowing preliminary market consultations, large, small, and micro suppliers and innovators were invited to participate in the process of developing the specifications in March 2017. The process started with a preliminary market consultation. A first meeting with the suppliers was carried out before the tender documents were prepared. This meeting was held to find out suppliers’ thoughts about procuring light as a service in a different way and to obtain information from them about what is happening on the market and what is available. At the first suppliers’ meeting, nine different companies/suppliers and 14 people participated. In August 2017, the suppliers received a first draft of the tender documents for a review. There were several good comments received and the specifications were redefined. After the tender was advertised in the autumn 2017, a meeting with interested suppliers was held and the contracting authority’s lawyer and the procurement official went through the entire tender documents and the suppliers had the chance to ask questions and seek clarifications (see below, point 4.7).

5.4.5  Tender specifications The collaboration team wrote the tender documents together. Knowledge of the light, the environment, and the activity in the municipality was required,

92  Rodrigo Lozano et al. in terms of real estate and the school area. The tender documents were as short as possible and described the municipality’s needs and objectives. The specifications contained technical and non-technical issues, which were thought out and discussed in the collaboration team. In the tender documents, it was stated that the municipality wished to achieve a better and more flexible light at a lower cost and with a positive environmental impact. There was a need to adjust the lighting for different users (children, students, and staff) so the municipality could use the lighting to create the best conditions possible for learning. It was also stated that the lighting should be adapted to the needs of each user. The tender was for installing approximately 1,200 m² of light per year, corresponding to one school per year for the next five years. Bollnäs has a policy that goods and services must be purchased with as little environmental impact as possible. Thus, the tender was based on new solutions that have a positive impact on the environment, including percentage of recycled materials used for the lighting system, power consumption, and percentage of the lighting system that could be recycled after end-of-life. The tender documents included specifications about how the supplier will work with the users to educate them on the lighting solution and how it affects them. The price was not a primary concern in the tender, since switching to LED lights would already reduce the cost by approximately 50%. Therefore, price was not the main criterion, but the fourth one, the main ones being qualitative.

5.4.6  Development and Information The development of solutions answering to the operational needs of the schools were devised in dialogue with the suppliers and monitored and evaluated by Bollnäs municipality. The tender documents also stated that the service was a development service, which means that the chosen contractor shall inform the municipality if a new solutions in the lighting area became available during the contract duration and offer the municipality the possibility to buy those solutions in place of those foreseen and continue in developing innovative solutions corresponding to the contracting authority’s operational needs.48 It was also indicated that in connection

48 As is well known, under Article 72(1) (Modification of contracts during their term) of Public Sector Directive, ‘Contracts and framework agreements may be modified without a new procurement procedure in accordance with this Directive in any of the following cases: (a) where the modifications, irrespective of their monetary value, have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses, which may include price revision clauses, or options. Such clauses shall state the scope and nature of possible modifications or options as well as the conditions under which they may be used. They shall not provide for modifications or options that would alter the overall nature of the contract or the framework agreement’; see Piotr Bogdanowicz, ‘The Application of the Principle of Proportionality to Modifications of Public Contracts’ (2016) 11/3 European Procurement & Public Private Partnership Law Review 194.

Moving to a quintuple helix approach in SPP  93 with the installation, the supplier must provide knowledge-enhancing efforts to the users around the installation that has taken place.

5.4.7  Legal aspects of the procurement This procurement follows a functional approach to technical specifications reflected on the award criteria, it is interesting to assess how legal aspects differ when compared to a procurement based on descriptive specifications. So far, little have been highlighted in literature concerning this question. This might be because of the small changes between these different approaches, since there are very limited specific procurement rules governing a functional based procurement. Since functional procurements are rare in Sweden, it is however vital to have a dialogue with potential suppliers. As it is the case with any dialogue between contracting authorities and suppliers, the principles of equal treatment and transparency will therefore be important. In the lighting procurement, there was one activity which deviated from what is normal in an open procedure. As already recalled (Section 5.4.4), after advertising the procurement, all potential suppliers were invited to an information meeting in Bollnäs where they were informed of the approach in the procurement. They also had the opportunity to ask questions. No answers were given at the meeting, but they were instead provided afterwards in writing, using the advertising tool used for the procurement (Kommers). In order to make sure all potential suppliers could receive the same information even if they could not participate at the information meeting, the meeting was filmed, and published in Kommers. By doing this, the basic principles in the procurement law, were met. In the contract, signed as a result of the procurement, the big difference between the functional approach and a specification approach mainly laid in that Bollnäs could focus on the availability on the function, ‘light at all times according to the function during the term of the contract’, instead than having to worry about “nitty gritty” contractual details (e.g., guarantees for luminaires etc.). This way, the functional approach gives the supplier freedom to choose whether to install high-quality luminaires and other equipment or to install equipment that needs service more often. From a legal point of view, this does not change how the contract is drafted, only the focus in the contract.

5.4.8  The collaboration team After assessing the tenders and measuring the quality of the light, the smallest supplier was able to win the contract due to the focus on innovation. The supplier 2.1 had the solution that best fulfilled the requirements. The company manufactures luminaires with the highest proportion of recycled materials and low energy consumption; it had the best proposal for collaboration with the business and also the lowest price. The supplier 2.1 signed a contract with the Municipality based on the information contained in the tender documents. During the Easter and summer of

94  Rodrigo Lozano et al. 2018, the new type of lighting was installed in the first classrooms in the municipality. A trial period of one month took place to ensure that all users were satisfied. At the end of this period, the supplier carried out an evaluation with relevant staff and students and adjusted the light based on the evaluation.

5.4.9  Lessons learnt (so far) The lighting procurement process in Bollnäs shows that it is possible to do public procurement in a collaborative and innovative way, in which quintuple helix is a prerequisite for new and innovative solutions in the public sector. Especially, the process has, thus far, illustrated the need for the following: •





Commissioned facilitators: Facilitators were instrumental in achieving the goals of the procurement. The facilitators need to have mandate from management, drive the process forward, merge the collaborative team and stand outside the line organization. A lesson from the process is that success depends on the people who are in the process and how they interact with each other based on a common goal. Experienced facilitators are lacking (such a profession is missing in the system) and in many public organizations there is too much talk and too little real implementation of innovative/­ collaborative ways of public procurement. Time: The entire procurement process took about one year from start to a complete contract. It may seem a long time to complete procurement, but this was the first time that procurement was conducted in this manner, with a collaborative team that wrote the tender documents together based on the real need emerging from the need identification. Collaboration takes time and decision and anchorage in the municipality at all levels takes time. The municipality was not accustomed to work in this way, internally, across the different administrative competencies, and the collaboration with external experts in different areas. It was a service (light) that was to be procured and not a product (lamps) which was also brand new. If the project did not come as a facilitator and driver, then the procurement would probably not have been completed at all. The degree of maturity of the municipality organization and motivation to work innovatively and in collaboration with others was low in the municipality at the start of the process but has been substantially increased after this process. Working according to the Universal Design: The procurement showed that through collaboration between different professions and stakeholders, it was possible to carry out procurement processes that have better effect and outcomes for the municipality with many more added values. That is if products and services are considered in a broader perspective. For example, the supplier cooperates with the municipality’s activities today, enabling better quality for each individual in the school. A pupil with visual impairment need not be identified by different means, but the light is adjusted according to the student’s needs with the so-called Universal Design perspective. Children with special needs can increase their quality of life in

Moving to a quintuple helix approach in SPP  95







the school context, as they suddenly can see the food served in the school’s dining room and they do not need any assistance on their part. The process is longer because it is based on quintuple helix with cross-cutting groups working together to bring out the real needs and a request base that can generate better and more sustainable products and services that save on both energy and materials (through recycling) while fully answering the needs of final users. The latter is very relevant from a life-cycle approach, including potentially for a full-fledged LCC approach. Increased knowledge: By working in a collaboration team, everyone has increased their knowledge. Bollnäs municipality has increased the knowledge of the benefits of working in this way, gaining knowledge and skills from outside, from academia and companies, and realising the importance of interacting between different administrations internally. This has led to higher purchasing power in the municipality, which can be included in ­f uture procurement activities. Establishing a collaboration team: The meaning of this collaborative way of working is to let the process leads us forward. In other words – ‘you have to rely on the process’. The facilitator needs to be a leading part in the process, make the process progress. It is always about the people who are involved in the process whether it’s going to be successful or not. The creation a collaborative team that is going to support the process is complicated. Leading words are trust, responsibility, engagement, knowledge, being on place, have fun and be a part of the process. Around the collaboration team, there is another circle of important people in the network, who are not involved in the process but have great impact for the result. They can be called reference persons. They represent the academia, the commercial and industrial life, administrative authority, civil servants /leaders, politician, different kind of stakeholders and civilians. During the process, the facilitators have had discussions, workshops, meetings, interviews with this part of the network. There was also very important to keep informed from different kinds of media. Defining and assigning tasks and responsibilities: The process can be described as a holistic collaborative and iterative one were the different stakeholders participate in the whole process, although not necessarily at the same time. It is necessary to follow, lead, analyse, and evaluate the process continuously. Therefore, it is important to define from the start who are in charge of the process and assign tasks and responsibilities for those who are in charge of the process.

5.5  Discussion – quintuple helix in SPP The collaborative project analysed here can be seen as being in line with Agenda 21, which highlights stakeholder engagement in economic, environmental, and social change.49 This is of general relevance for SPP and also specifically relevant with reference to LCC. As an example, WR AP’s PSF (Product Sustainability 49 UN Agenda 21 (n 39).

96  Rodrigo Lozano et al.

Figure 5.5   Sustainable Public Procurement based on collaborative quintuple helix framework.

Forum) responds to a request from the UK governments and major retailers and manufacturing companies to establish a pre-competitive space for collaboration between governments, business, NGOs, academia and other key stakeholders to come together to build the evidence to help quantify, reduce and communicate the whole lifecycle environmental impacts associated with consumer products.50 Although collaboration between potential suppliers and tenders is not without legal issues,51 the case presented in this chapter illustrates the important benefits of involving other stakeholders into a collaborative public procurement process. The smallest supplier was able to win the contract because the process focused on new solutions/innovation. The collaborative quintuple helix based process provided a better effect and outcomes. The stakeholders who participate in the process increased their knowledge and changed their mind set to a more holistic point of view, sustainable thinking. This concurs with Lozano’s statement that collaboration benefits from variety in knowledge and perspectives and offers benefits to those involved.52 The project is based on quintuple helix, involving stakeholders from university-industry-government (as in triple helix), civil society (as in quadruple helix),53 and the natural environment,54 as shown in Figure 5.5. 50 Mark Barthel and others, ‘Hotspots Analysis: Providing the Focus for Action’ in Guido Sonnemann and Manuele Margni (eds), Life Cycle Management (Springer 2015) 160. 51 Witjes and Lozano (n 22). 52 Lozano (n 37). 53 Carayannis and Campbell (n 43); Gouvea and others (n 43). 54 Carayannis and others (n 44).

Moving to a quintuple helix approach in SPP  97

Figure 5.6  Supplier selection during a quintuple helix collaborative SPP process.

The higher the number of stakeholders, the more possibilities for innovative solutions arise; however, collaboration might be more difficult and time consuming to achieve. Facilitators play a key role in overcoming such collaboration challenges. Involving more stakeholders can help to move from a dyadic system focusing on circular economy, as in the case Witjes and Lozano, to having sustainability as an explicit prerequisite and indicator of the project success.55 As described in this case study, the tender is the outcome of the collaboration and need identification. As highlighted by Witjes and Lozano, collaboration is essential when moving away from traditional linear public procurement to more holistic ones, which needs to take place in the preparation stage, as shown in Figure 5.6.56

5.6 Conclusions Sustainability is aimed at addressing environmental and socio-economic issues of this generation and future ones. The public sector can set a trend for other organizations to become more sustainability oriented, due to its large purchasing capacity. Traditionally, public procurement has followed a linear approach based solely on the interaction of procurer and supplier. There have been several proposals to incorporate principles of LCC into SPP, such as through circular economy by closing loops through recovery and changing from a product to a service orientation, based on collaboration to share responsibilities in setting technical and non-technical specifications, award criteria and contract management clauses. This chapter presents the case of lighting procurement at Bollnäs Municipality, where collaboration involved actors from industry, government, university, and civil society, whilst taking into consideration the environment, that is, a quintuple helix holistic SPP. The case study shows that the more actors involved in the collaboration results in more innovative solutions; however, such collaboration faces more difficulties and costs, which can be overcome by project facilitators. The project involves many actors and industries at different levels and can serve as a good background 55 Witjes and Lozano (n 22). 56 ibid.

98  Rodrigo Lozano et al. example for how collaborative projects can be used to solve social challenges, including by developing LCC tools and methodologies. Further research should be undertaken with more case studies to validate the findings presented in this chapter and how they could be replicated in other countries and with reference to other market sectors. The role and characteristics of the facilitators and the potential costs to each stakeholder in the collaboration should also be further explored.

References Mark Barthel and others, ‘Hotspots Analysis: Providing the Focus for Action’ in Guido Sonnemann and Manuele Margni (eds), Life Cycle Management (Springer 2015) 149–167. Alba Bala and others, ‘Experiences with Greening Suppliers. The Universitat Autònoma de Barcelona’ (2008) 16 Journal of Cleaner Production 1610. Piotr Bogdanowicz, ‘The Application of the Principle of Proportionality to Modifications of Public Contracts’ (2016) 11/3 European Procurement & Public Private Partnership Law Review 194. Stephen Brammer and Helen Walker, ‘Sustainable Procurement in the Public Sector: An International Comparative Study’ (2011) 31 International Journal of Operations & Production Management 452. Sophie Byggeth and Elisabeth Hochschorner, ‘Handling Trade-Offs in Ecodesign Tools for Sustainable Product Development and Procurement’ (2006) 14 Journal of Cleaner Production 1420. Elias G. Carayannis and David F. J. Campbell, ‘“Mode 3” and “Quadruple Helix”: Toward a 21st Century Fractal Innovation Ecosystem’ (2009) 46 International Journal of Technology Management 201. Elias G. Carayannis and others, ‘The Quintuple Helix Innovation Model: Global Warming as a Challenge and Driver for Innovation’ (2012) 1 Journal of Innovation and Entrepreneurship 2. C.E.C. and Commission of the European Communities, Promoting a European Framework for Corporate Social Responsibility (Commission of the European Communities 2001). Alberto Chilosi, Coordination, Cooperation, and the Extended Coasean Approach to Economic Policy (Facolta di Scienze Politiche 2003). Commission, ‘A Renewed EU Strategy 2011–14 for Corporate Social Responsibility’ (2011). Commission, ‘Towards a Circular Economy: A Zero Waste Programme for Europe’ (2014). John Elkington, Cannibals with Forks. The Triple Bottom Line of the 21st Century Business (Capstone Publishing Co 2002). Henry Etzkowitz and Loet Leydesdorff, ‘The Dynamics of Innovation: From National Systems and “Mode 2” to a Triple Helix of University–Industry–Government Relations’ (2000) 29 Research Policy 109–123. Jens Genefke, ‘Collaboration Costs!’ (University of Aarhus Department of Management 2000). Raul Gouvea and others, ‘Using the Quadruple Helix to Design Strategies for the Green Economy’ (2013) 80 Technological Forecasting and Social Change 221. Richard Holme and Phil Watts, Corporate Social Responsibility: Making Good Business Sense (WBCSD 2000). Bill Hopwood and others, ‘Sustainable Development: Mapping Different Approaches’ (2005) 13 Sustainable Development 38.

Moving to a quintuple helix approach in SPP  99 Alice Klettner and others, ‘The Governance of Corporate Sustainability: Empirical Insights into the Development, Leadership and Implementation of Responsible Business Strategy’ (2013) 122 Journal of Business Ethics 145–165. Rodrigo Lozano, ‘Collaboration as a Pathway for Sustainability’ (2007) 381 Sustainable Development 370. Rodrigo Lozano, ‘Envisioning Sustainability Three-Dimensionally’ (2008) 16 Journal of Cleaner Production 1838, accessed 16 January 2014. Rodrigo Lozano, ‘Addressing Stakeholders and Better Contributing to Sustainability through Game Theory’ (2011) 43 The Journal of Corproate Citizenship 44. Frans Melissen and Harry Reinders, ‘A Reflection on the Dutch Sustainable Public Procurement Programme’ (2012) 9 Journal of Integrative Environmental Sciences 27. Mette Mosgaard and others, ‘Greening Non-Product-Related Procurement – When ­Policy Meets Reality’ (2013) 39 Journal of Cleaner Production 137. National Disability Authority, ‘The 7 Principles. What Is Universal Design’ (2014). Katriina Parikka-Alhola, ‘Promoting Environmentally Sound Furniture by Green Public Procurement’ (2008) 68 Ecological Economics 472. Mark S. Reed, ‘Stakeholder Participation for Environmental Management: A Literature Review’ (2008) 141 Biological Conservation 2417. Regeringskansliet. Finansdepartementet, ‘Nationella Upphandlingsstrategin’ (2017). Region Gävleborg, ‘The Frame Lake Model’ (2015). Sveriges Riksdag, ‘Lag (2016:1145) Om Offentlig Upphandling’ (2016) accessed 12 ­October 2018. Liyin Shen and others, ‘Key Factors Affecting Green Procurement in Real Estate Development: A China Study’ (2017) 153 Journal of Cleaner Production 372. Mart Stoughton and Thomas J. Votta, ‘Implementing Service-Based Chemical Procurement: Lessons and Results’ (2003) 11 Journal of Cleaner Production 839. Francesco Testa and others, ‘Drawbacks and Opportunities of Green Public Procurement: An Effective Tool for Sustainable Production’ (2016) 112 Journal of Cleaner Production 1893. Joyce Thomson and Tim Jackson, ‘Sustainable Procurement in Practice: Lessons from ­L ocal Government’ (2007) 50 Journal of Environmental Planning and Management 421. Kedar Uttam and Caroline Le Lann Roos, ‘Competitive Dialogue Procedure for Sustainable Public Procurement’ (2015) 86 Journal of Cleaner Production 403. Elvira Uyarra and others, ‘Barriers to Innovation through Public Procurement: A Supplier Perspective’ (2014) 34 Technovation 631. Annika Varnäs and others, ‘Environmental Consideration in Procurement of Construction Contracts: Current Practice, Problems and Opportunities in Green Procurement in the Swedish Construction Industry’ (2009) 17 Journal of Cleaner Production 1214. Helen Walker and Stephen Brammer, ‘The Relationship between Sustainable Procurement and E-Procurement in the Public Sector’ (2012) 140 International Journal of Production Economics 256. Helen Walker and Lutz Preuss, ‘Fostering Sustainability through Sourcing from Small Businesses: Public Sector Perspectives’ (2008) 16 Journal of Cleaner Production 1600. WCED, Our Common Future (First ed, Oxford University Press 1987). Sjors Witjes and Rodrigo Lozano, ‘Towards a More Circular Economy: Proposing a Framework Linking Sustainable Public Procurement and Sustainable Business Models’ (2016) 112 Resources 37. Zengwei Yuan and others, ‘The Circular Economy. A New Development Strategy in China’ (2006) 10 Journal of Industrial Ecology 4.

6 LCC criteria for procurement of ITC goods and services The need for a flexible approach Raluca Suciu and Dacian C. Dragoș

6.1 Introduction This chapter presents a comprehensive life-cycle costing (hereafter LCC) framework with the purpose of providing support for contracting authorities when procuring Information and Communication Technology (ICT) goods and services. The framework consists of the most important cost elements that could be included in the public procurement of ICT, identified and analysed based on review of the existing literature, best practice analysis and expert interviews. The chapter aims at determining the most relevant cost variables and their hypothesized relationships, in a qualitative manner, thus developing a conceptual model. The resulting LCC framework intends to facilitate the analytical processes leading to the procurement decision for goods and services from the ICT sector. LCC can be operationalized in a general or specific model. Given the wide range of ICT products and services for which LCC procurement could be applied, a general discussion on ICT goods and services results in a general model, with the disadvantage of limited applicability. However, the disadvantage of specific models would be, still, limited applicability given different needs and constraints of end-users of ICT public procurement. This chapter, therefore, applies a mixed approach, discussing general cost elements and drawing general conclusions, but also referring to specific examples. Some life-cycle costs will not be included in a LCC methodology and cannot be used for the award of an ICT contract but they can be part of the procurement strategy or the pre-procurement phase. Those costs are extremely relevant for the life-cycle thinking of public authorities, but they cannot be part of the tender, rather part of the decision on what and how to tender. Such costs include, but are not limited to, costs of training/personnel adaptation, mean time between replacement and optimal use by personnel/organization, costs of data gathering (although, once in place, this could be a useful self-audit tool to further inform LCC at no cost) and of the LCC model itself. The results presented in this chapter are based on an extensive literature review of legal, economic, technical/industry sources of information and data, in order to identify the cost drivers that could be addressed through LCC, and

LCC criteria for procurement of ITC goods and services  101 discussions with market operators and resellers of ICT goods, in order to see whether literature and reality meet. In particular, interviews were conducted with representatives of companies from the ICT sector and with procurement experts in Romania, in order to highlight the practical difficulties associated with LCC as applied to this specific field. A ‘legal’ filtering of those technical elements was conducted in order to confirm their relevance for the public procurement practice, mainly the possibility to be included in LCC methodologies to be used as award criterion. The chapter’s approach to LCC is process-oriented meaning that, based on understanding public sector needs, the research provides a LCC decision-­making support framework, which enables the contacting authority to conduct the analytical processes necessary for ICT procurement and provide relevant elements for the purchasing decision. The resulting framework considers the opportunities, as well as legal limitations, for using LCC in public procurement and may provide a source of additional documentation for public authorities interested in sustainability. The chapter is structured as follows: After a discussion of the interplay between LCC, life-cycle thinking and sustainability in ICT procurement and the stages where they occur (Section 6.2), the chapter presents the LCC framework comprising cost elements and their discussion for hardware (Sections 6.3 and 6.3.1). The following section presents the results of our interviews with market operators in order to assess, from their perspective, the potential to implement LCC in public procurement (Section 6.3.2). Finally, since social considerations are an outlier with regard to the potential to be implemented through LCC in ICT procurement, they are discussed in Section 6.3.3, followed by some concluding remarks (Section 6.4).

6.2  LCC, life-cycle thinking and sustainability in ICT procurement Since the adoption of the Public Sector Directive, which included the conditions for the use of LCC in art 68 and recital 96, there have been many debates, mostly optimistic, about the potential of LCC to significantly facilitate public authorities’ efforts to foster sustainability through their procurement processes. With regard to ICT goods and services, the most notable projects in terms of developing tools for the calculation of LCC were the tool for TCO of computers,1 developed by the Ministry of Environment and Food of Denmark, and the ­European Union (EU) financed LCC calculation tool 2 for goods whose substantial cost comes from electricity use, including office IT equipment. Moreover, detailed guidelines for developing own LCC methodology by choosing from 1 Ministry of Environment and Food of Denmark, ‘Guidelines for Tools for Total Cost of Ownership in Public Procurement. Computers’ (March 2017). 2 Studio Fieschi and Soci and Scuola Superiore Sant’Anna, Update on Life Cycle Costing (LCC) Project (Presentation at GPP Advisory Group Meeting 20 April 2016).

102  Raluca Suciu and Dacian C. Dragoș relevant documented criteria have been developed, for example, by the Federal Environmental Agency of Germany (guidelines for computer screens from 2015, including indications for LCC tools that can be used).3 Last but not least, the EU LCC tool for computers and monitors, promised since 2016, was made available in December 2018.4 This tool looks unambitious compared to previous literature debates, which anticipated great potential for including sustainability considerations in public procurement. This optimistic view was based on the definition and provisions from Public Sector Directive for ‘life-cycle costs’,5 which could provide the legal base for contracting authorities to increase their sustainability ambitions related to a specific contract by expanding their focus from the product/service towards a wider ‘cradle to grave’ approach. This also included the possibility to ask for relevant social safeguards related to the products and services bought by the public sector. These expectations were not met by the new tool. The tool is mainly TCO focused, it includes acquisition and installation costs, service costs, operation costs (electricity consumption), other (financial) costs, remnant value and the only externality included in the tool is climate change impact associated with CO2-eq emissions due to the energy consumption of products during their use. The explanation provided by the authors of the tool is in line with the conclusion we reached based on extensive review of industry LCAs and standards.6 For other cost elements (quality, performance, replaceability, durability, recyclability etc.) that could include sustainability considerations throughout the life cycle of ICT goods there are no agreed upon methodologies to transform these criteria into expected outcomes, even if standards are available at industry level (e.g., durability testing to be transformed into expected longer lifespan). Their use would result in arbitrary assumptions and data, resulting from different standards and methodologies, which would not be comparable and precise enough to allow for non-discriminatory calculations and decisions of the contracting authorities. Instead, for climate change as an externality of energy consumption there were available – and the EU LCC tool could incorporate them – data sets for CO2-eq 3 Federal Environmental Agency of Germany (Umwelt Bundesamt), ‘Guide to Green Public Procurement of Computer Screens’ (March 2015). 4 Commission, User Guide to the Life Cycle Costing Tool for Green Public Procurement of Computers and Monitors (DG Environment 2018) available at accessed 25 July 2019. 5 Public Sector Directive, art 2(20), 68(b) and recital 96. 6 ETSI, ‘Environmental Engineering (EE); Methodology for Environmental Life Cycle Assessment (LCA) of Information and Communication Technology (ICT) Goods, Networks and Services’ (ETSI ES 203 199 V1.3.1 February 2015); WEEE Forum Association, WEEELABEX Standards on WEEE Operations, ‘Standard V9.0 on Logistics – WEEELABEX Logistics’ (2011), ‘Standard V9.0 on Collection – WEEELABEX Collection’ (2011), ‘Standard V10.0 on Treatment – WEEELABEX Treatment’ (2013) available at accessed 28 March 2019; ITU-T (ITU Telecommunication Standardization Sector), ‘Methodology for Energy Consumption and Greenhouse Gas Emissions Impact Assessment of Information and Communication Technologies within Organisations’ (Recommendation ITU-T L.1420 February 2012).

LCC criteria for procurement of ITC goods and services  103 emissions of the national electricity mix (from the project Thinkstep AG Environmental Footprint data sets, 20187). Social considerations, as explained in more detail in Section 6.3.3, are not included in any of these tools and guidelines. Moreover, the LCA documents we reviewed did not include comprehensive assessments of social impacts, they are mainly focused on environmental impacts. Social LCA (S-LCA) represents a newer addition to ICT literature and these specific reports are focused on monitoring social impacts in the resource extraction and manufacturing phase, and in the end of life (EoL) or waste phase, identifying workers and local communities as the most affected stakeholders.8 These studies identify social impacts but are still in the early stages of development of comprehensive methodologies.9 This lack of data at industry level limits the opportunities for using social considerations in LCC. Since no credible and precise methodology exists in order to transform ICT goods and services’ characteristics in tangible, measurable, comparable outcomes for purchasers, social wellbeing is considered even more elusive with regard to precision and capacity to be turned into objective, verifiable data and then into monetary costs/units. However, all the tools and guidelines identified suggest a more flexible approach to LCC, namely life-cycle thinking, meaning that externalities which cannot be included into an objective LCC calculation can be included in other stages of the tendering process. The guidelines to the new EU LCC tool for computers and monitors state this very clearly from the very beginning: LCC can be used in public procurement especially during the preparatory stage, to evaluate different solutions to help guide pre-tendering market engagement activities or to narrow down different technological solutions, during tendering, for awarding the contract. They can also be used after tendering, to evaluate the performance of the awarded solution in comparison with the previous situation and help prepare future tenders.10 During the tender process, choices on procedure, selection/exclusion, technical specifications and contract performance provide opportunities to include life-cycle thinking into the procurement, and most importantly, sustainability, from both green and social perspectives. For example, concerns for emissions from toxic substances during disposal of waste can be addressed by a technical specification requiring mercury-free displays. Such an analysis is compatible with life-cycle thinking, but incompatible with formal LCC, since it would be difficult for the contracting authority to defend any attempt at monetizing such costs. 7 Commission, User Guide to the LCC Tool (n 4) 12; also, LIFE Clim’Foot Project, ‘Deliverable A2.2: Methodology for Constituting the National Databases’ (June 2016). 8 Siddharth Prakash and others, Socio-Economic Assessment and Feasibility Study on Sustainable E-waste Management in Ghana (Öko-Institut e.V., Freiburg August 2010); Andreas Manhart and others, Informal E-waste Management in Lagos, Nigeria – Socio-Economic Impacts and Feasibility of International Recycling Co-Operations (Öko-Institut e.V., Final Report of Component 3 of the UNEP SBC E-waste Africa Project, Lagos & Freiburg June 2011). 9 Yevgeniya Arushanyan and others, ‘Lessons Learned – Review of LCAs for ICT Products and Services’ (2014) 65 Computers in Industry 216. 10 Commission, User Guide to the LCC Tool (n 4) 1.

104  Raluca Suciu and Dacian C. Dragoș Our conclusion, after reviewing multiple guidelines for sustainable public procurement (SPP) of computers and monitors, is that contracting authorities need to resort to multiple procurement instruments for addressing LCC and the wider objectives of sustainability.11 Formally conducting LCC during award of a public contract has its limitations in public procurement: legal requirements for non-discrimination, transparency, reasonable effort from market operators,12 all translate in the tendering practice into limiting the contracting authority’s approach to sustainability (including the consideration of end-users/beneficiaries, the community as a whole) and viewing LCC from the perspective of the market operators. When LCC is used during the procurement process in a less formalized way, including costs borne by others throughout the entire life cycle of a product, it is not a method of financial or managerial accounting. Rather, it is a cost management13 method within the sustainability framework, with the goal of estimating costs associated with the existence of a product and comparing alternatives, in order to identify cost drivers and trade-offs for decisions within the life cycle.14 This is also in line with the reasoning for LCC from the guidelines of the EU LCC tool for computers and monitors. If a cost driver is too difficult to quantify and no reference standard exists than it can be excluded from LCC and used as technical specification, award criterion or contract clause, instead (which is the application to public procurement of ‘life-cycle thinking’).15 LCC is used, according to its core definition, as a method for directly calculating and comparing the real costs of different alternatives during procurement decision-making. In ICT procurement, LCC is used mainly in two stages: pre-procurement or planning of the tender; and tender evaluation. These two stages are considered below.

6.2.1  Pre-procurement or planning of the tender Pre-procurement refers to the stages that precede the formal process of tendering.16 That is when contracting authorities roughly evaluate the different solutions, conduct pre-tender market engagement activities and choose among different technological solutions, including justifying the need for the tender.

11 Federal Environmental Agency of Germany (n 3); Ministry of Environment and Food of ­Denmark (n 1); Commission, ‘Commission Staff Working Document – EU GPP Criteria for Computers and Monitors’ SWD (2016) 346 final. 12 Public Sector Directive, art 68(c). 13 Cost management (as opposed to financial accounting) is internally focused, not limited by mandatory rules, subjective information can be used, including expert opinion assessments, emphasis placed on the future, broad and multidisciplinary; see: David Hunkeler and others (eds), Environmental Lifecycle Costing (Society of Environmental Toxicology and Chemistry – SETAC 2008) 40. 14 ibid 40. 15 Commission, User Guide to the LCC Tool (n 4) 5. 16 Marta Andrecka, ‘Innovation Partnership in the New Public Procurement Regime – Shift of Focus from Procedural to Contractual Issues?’ (2015) 24(2) PPLR 18, 19–20.

LCC criteria for procurement of ITC goods and services  105 At this early stage, more general assumptions and calculations can be made by the contracting authority, without being subject to the restrictive conditions for use of LCC from art 68 and recital 96 of the Public Sector Directive (equal treatment, transparency, non-discrimination, accessibility to potential tenders). For ICT goods and services, this stage is even more relevant as foundation for decision-making, given the diversity of technological alternatives and modes of answering to the needs of the beneficiaries. In the pre-procurement phase, LCC is also used for long-term planning and budgeting, including forecasting future budget needs, comparing logistics concepts, assessing new technology implementation, making strategic decisions on available options, including on necessary trade-offs, etc.17 This approach provides answers to important initial procurement questions such as choice between service vs. supply (e.g., lease of computers, software), contract vs. framework agreement, duration – all important decisions with impact on the attractiveness of the tender, the competition for the contract, the price of purchase and, eventually, on the elements most relevant for the LCC borne by the contracting authority.

6.2.2  Tender evaluation In the procurement procedure, the use of LCC means incorporating it in the award criteria and, consequently, directly comparing the LCC of alternative offers. Regardless of the sources and extent of costs incurred by contracting authorities, LCC can only be included in the awarding criteria if a specific cost can be monetized and verified accordingly – resulting in an objective, non-­ discriminatory, accessible methodology.18 The provisions of Public Sector Directive were intended to ensure transparency and equal treatment in application of LCC. However, the relatively slow progression in the development of such methodologies and tools indicates that it is difficult to balance all of these safeguards for tenderers and to be, at the same time, true to costs incurred by public authorities. The more diverse the offer and the market, the more difficult (and more reluctant) the procurers are to resort to a complex exercise of economics, accounting, environmental science, technology and law in order to tender the contract based on this method. In the award stage, LCC is used to compare alternative offers based on objective data and calculation methodologies and evaluate tenders based on their relative contribution to limiting/balancing LCC and acquisition price. Various types of information are required to perform LCC studies: acquisition cost of the item, the useful operational life of the product in years, the annual maintenance cost, delivery and installation costs, taxes (including environmental taxes), residual value or disposal costs.19 17 Balbir S. Dhillon, Life Cycle Costing for Engineers (CRC Press 2010) 28–29. 18 In accordance with Public Sector Directive recital 96. 19 Dhillon (n 17) 28.

106  Raluca Suciu and Dacian C. Dragoș Literature identifies difficulties associated with applying LCC20 pointing out that it is time consuming, costly, access to data is limited, accuracy of acquired data is doubtful. The latter problem is compensated by the fact that the same bias applies to all tenders, thus making it neutral for the comparison of alternatives done today, but still relevant on the long term for the contracting authority in relying its future budgets on today’s subjective assumptions on cost variables. In the ICT sector, procurement stakeholders complain most often about availability of good data.21 Even extensive market studies become obsolete in a short period of time, so do descriptions of technologies and relative performances and testing methods for various requirements of the contracting authority. Others complain of information overflow and ‘data-fatigue’ leading to difficulty in deciding which type of data is actually relevant in the practical context of a specific procurement. For instance, there are various standards and labels claiming objectivity, validity, relevance, trust, etc. with no clear hierarchy among such sources of data. The available good practices of LCC application in the award of public contracts of ICT are mainly case studies of public entities experimenting with this approach, using just one or two cost drivers rather than comprehensive LCC methodologies to account for all costs.22 In the context of this chapter, we considered to be ‘good practice’ those descriptions of successful tendering procedures of contracting authorities throughout the EU trying to use LCC as award criterion. There are transferable elements in these case studies and limits to such ‘standardization’ of LCC, given the following: – The different needs of users from different types of alternative technologies available – The nature of the problem the public sector is addressing through the tender – Costs of implementing data collections systems (self-audits) – The infinite product and technology alternatives – Lack of effectiveness in incorporating external costs (in the absence of a standardized system on accounting and monetizing environmental externalities, similar to CO2 accounting and taxation) – High risk of incorrect estimations, etc. Crucially, LCC should be understood by contracting authorities as more than a ‘nice intention’ of the Directives. It must be understood and used as a process, a way of ‘thinking’ or rationalizing decisions in public procurement ‘from problem 20 Perera Oshani, Morton Barbara and Perfrement Tina, Life Cycle Costing in Sustainable Public Procurement: A Question of Value (International Institute for Sustainable Development December 2009) 4–7. 21 Interviews conducted by the authors in September 2018 with public procurement officers enrolled in a post-graduate public procurement program. 22 Helena Estevan and Bettina Schaefer, Life Cycle Costing, State of the Art Report (SPP Regions March 2017) 19–20; also, the ‘GPP good practice’ section of the DG Environment website dedicated to green public procurement available at accessed 10 January 2019.

LCC criteria for procurement of ITC goods and services  107 definition, to analysis, and presentation to the decision-maker’, 23 and then to the stage of award and implementation of the public procurement contract.

6.3  The LCC framework: cost elements to be considered in the procurement of ICT goods and services After conducting an extensive literature review, our general observation is that LCC in ICT procurement is extremely flexible, sensitive to changes in user needs, user behaviour and a rapidly evolving industry. Technical literature24 encourages users to think in terms of functional units, defined by quantitative and qualitative aspects (meaning performance characteristics delivered by ICT goods, networks and services), and product systems (ICT networks and services can be seen as logical structures, which are physically made up of ICT goods, including hardware and software25). The EU LCC tool 26 incorporates this logic in advising public procurers to define their needs in terms of functional units and not in relation to ICT goods (not computers, but capacity to process data, exchange information, serve a certain no. of users, etc.). Considerations such as these make generally applicable methodologies difficult to develop and use, since too many variables are needed to define functionality, quality, needs, environmental impact, etc. In the next sub-section, we discuss and analyse the most important cost elements that could be included in the public procurement of ICT. They comprise a LCC framework for the hardware component of ICT product systems.

6.3.1  Cost elements for hardware Based on the literature review, we chose to focus on and further research the dimensions provided by the EU GPP criteria for computers and monitors since these are, essentially, cost drivers from the perspective of LCC.27 In the process of revising the EU GPP criteria, the extensive research financed by the Commission addressed several issues that are relevant for the discussion on why and how contracting authorities should approach LCC/LCA/TCO.28 The report on the revision process of the EU GPP criteria provides arguments and proof that they are methodologically sound and can be used in confidence by contracting authorities genuinely concerned about including sustainability in their procurement decisions. The evidence base used in the revision process includes a wide range of data sources (public and industry). The range of ICT products covered was enlarged to account for market development and user needs and preferences (e.g., 23 2 4 25 26 27 28

Hunkeler and others (n 13) xxi. ETSI (n 6) 28. ibid 22–23. Commission, User Guide to the LCC Tool (n 4) 2. Commission, ‘EU GPP Criteria for Computers and Monitors’ (n 11). Nicholas Dodd and others, Revision of the EU Green Public Procurement (GPP) Criteria for Computers and Monitors (European Commission November 2016).

108  Raluca Suciu and Dacian C. Dragoș mobile devices), all eventually included in the general category of computers and monitors. Some of the conclusions of this study, which are relevant for GPP, are also relevant for LCC29 (and confirm our seemingly premature conclusion stated above that some externalities cannot be addressed through LCC in the award phase): – Products for which the use phase is most significant are stationary computers and their displays because of their energy consumption. – Products for which the manufacturing phase is most significant are notebook and tablet computers, due to impacts resulting from critical raw materials extraction and processing. – Analysis of all the studies and standards available has led the Commission research team to the conclusion that there are little to zero possibilities for GPP to influence those key environmental factors occurring in the manufacturing phase (because of limited information, access, and transparency due to product confidentiality, lack of jurisdiction to demand monitoring of such processes, reporting, or to regulate them). Due to this limitation, the practices considered for the EU GPP criteria were oriented towards products’ characteristics that could have sustainability benefits, so as to compensate for lack of potential (or capacity of the EU, thus even less for public procurers) to influence the manufacturing phase/early stages of the life-cycle of ICT products. – These alternative solutions were: focus on product design (for durability and upgrading), thus extending the life time of the product and facilitating re-use and easy recycling (lifetime extension and recycling) and critical raw materials recovery (EoL management). While reviewing the environmental impacts of computers and displays other relevant LCA studies were analysed30 providing valuable understanding for some of the cost drivers/elements, which we find relevant for the procuring practices of contracting authorities.

6.3.1.1  Acquisition cost This term refers to the cost of the initial investment for the acquisition of products based on all the requirements detailed in the tender documentation. This is the first component of LCC calculations and it should be assessed from the perspective of the item specifications’ compatibility with the needs of the user. This assessment can be based on design specifications (the product fulfils the requirements of the contracting authority), functional specifications (the product is performing the tasks that are needed), and performance specifications (the required level of performance for the product, including metrics and tolerances).31 29 ibid 16–17. 30 ETSI (n 6). 31 Lynn Drury, Understanding IT Procurement Contracts (Computer Economics, Metrics for IT Management November 2008) available at accessed 2 April 2018.

LCC criteria for procurement of ITC goods and services  109 According to the EU LCC tool for computers and monitors,32 acquisition costs can incorporate purchase, delivery and installation costs, including for accessories as set by the tender specifications). In a purchase contract, these are one-off costs assumed to occur at the beginning of the contract. In leasing/renting contracts, these costs can refer to the acquisition of products at the end of the contract (equivalent to the purchase price at the end of the contract expressed in net present value) and/or are included in the service fee.

6.3.1.2  Energy consumption and CO2 emissions related to energy consumption Energy consumption during the usage stage of ICT goods can be determined in different ways. According to the ETSI Standard (2015-02),33 a self-audit of the user is the most accurate source of data. This means that contracting authorities should conduct energy consumption audits of their own ICT networks, operating in real live operating environments, over a long period of time. This data can then be used to estimate the real live energy consumption of other ICT products, factoring for the specific physical and behavioural context of the end use. A less accurate method is to estimate energy consumption based only on available industry standardized measurements for each product. Also, the measured or estimated consumption can be combined with a certain type of user and/or user behaviour. With regard to data availability for energy consumption from producers, our interviews showed that this concern is exaggerated and resellers have access to energy consumption data, certifications or testing from distributers or producers. Furthermore, most private purchasing is based on the same data inputs, so there is experience in LCC calculation on the energy consumption/ efficiency criterion. With regard to this cost element, there are several EU regulations34 and ecolabels promoting the same objectives as the SPP and LCC approaches in public procurement. Under the Energy Efficiency Directive 2012/27/EU,35 central governments must purchase either products meeting the highest energy efficiency labelling classes or Energy Star requirements (currently version 6.1 for computers and 7.0 for monitors). As such, the EU regulatory framework on 32 Commission, LCC Tool for Procurement of Computers and Monitors (December 2018) available at accessed 25 July 2019. 33 ETSI (n 6) 46. 3 4 European Parliament and of the Council Regulation 106/2008 of 15 January 2008 on a Community Energy-Efficiency Labelling Programme for Office Equipment (recast version) [2008] OJ L 39/1; Commission Regulation 617/2013 of 26 June 2013 Implementing Directive 2009/125/EC of the European Parliament and of the Council with Regard to Ecodesign Requirements for Computers and Computer Servers [2013] OJ L 175/13; European Parliament and of the Council Regulation 2017/1369 of 4 July 2017 Setting a Framework for Energy Labelling and Repealing Directive 2010/30/EU [2017] OJ L 198/1. 35 European Parliament and of the Council Directive 2012/27/EU of 25 October 2012 on Energy Efficiency, Amending Directives 2009/125/EC and 2010/30/EU and Repealing Directives 2004/8/EC and 2006/32/EC [2012] OJ L 315/1.

110  Raluca Suciu and Dacian C. Dragoș energy efficiency of ICT goods leaves little room on the market for energy inefficient products, due to standardization, testing and labelling. However, the EU LCC tool for computers and monitors includes energy consumption into the operation costs’ category, considering it a main source of costs during usage. As for data requirements, as input into the LCC tool, tenderers must provide the ‘annual energy consumption of the equipment (ETEC value) or the power requirements in off, sleep, long idle and short idle modes as defined by the Energy Star standard’.36 For the energy consumption cost element, at least one uncertainty relevant for LCC remains and no generally accepted conclusion exists. There is an ongoing debate with regard to how energy efficiency can be better addressed in public procurement (award criteria, technical specification or LCC). The arguments related to verification methods are the strongest: private certifications/ecolabels, test reports, supplier self-declarations, minimal legal compliance/all equipment on the EU market fulfils Energy Star minimal requirements. The EU GPP criteria suggest, as a first option, using energy consumption as award criterion and, as benchmark, the minimum requirements laid down by Energy Star.37 Alternatively, they suggest LCC calculations with regard to energy consumption. However, since the expiry in 2018 of the EU-US Agreement on the Energy Star Programme, the legally safer and sounder way to address energy efficiency in public procurement is LCC.38 The EU LCC tool for computers and monitors includes energy consumption into the LCC calculation tool, as operation cost, and suggests not to duplicate it in another award criterion, but to consider the possibility for energy efficiency to be used as a technical specification.39 On the other hand, LCC calculations have shown that differences in energy consumption are currently very small and, as such, the energy criteria for computers and displays is decreasing in importance as an environmental criteria (and as relevance within LCC methodologies, which would result in complex calculation to account for small change).40 This conclusion suggests that a technical specification or an award criterion would be sufficient to ensure maximum energy efficiency. The literature shows that there are other market drivers, especially consumer demand, for the highest battery autonomy, which resulted in serious pressures 36 Commission, User Guide to the LCC Tool (n 4) 6. 37 Commission, ‘EU GPP Criteria for Computers and Monitors’ (n 11) 13. 38 The EU ENERGY STAR programme was based on an EU-US Agreement, which expired on 20 February 2018 and no official statement on whether the discontinuation of the EU ENERGY STAR programme is permanent or temporary was found. However, this recommendation with regard to public procurement was made by the Commission: ‘Although the reference to ENERGY STAR has not been removed from the Energy Efficiency Directive, as the ENERGY STAR Agreement has now elapsed, it is recommended to no longer refer to these criteria in procurement tenders.’ Available at accessed 30 March 2019. 39 Commission, User Guide to the LCC Tool (n 4) 7. 40 Dodd and others (n 28) 20.

LCC criteria for procurement of ITC goods and services  111 on producers to consider the impact of some high performance features of the products on battery autonomy, and as such, energy efficiency.41 If LCC includes the CO2-eq emissions related to energy use, the energy mixes should be considered for the calculation of emission-associated costs. The most accurate data would occur from resorting to the actual energy mix applicable to the contracting authority, location and contract specific energy supply data.42 Apart from direct electricity use for the functioning of the ICT goods, other types of energy inputs should also be considered, such as heating and cooling requirements of the equipment, based on where the equipment will be placed. The EU LCC tool for computers and monitors supports this approach. It allows for data to be included from the electricity supply contract of the contracting authority or it calculates CO2-eq emissions based on the national electricity mix (based on existing EU-wide data sets).43 For the purposes of LCC calculations, the new EU tool suggests a price of 90 EUR/ton, but also mentions that a more environmentally concerned contracting authority might consider using a separate award criterion on CO2-eq emissions with a higher weighting, which would make this externality more relevant for award.44

6.3.1.3  Hazardous substances With regard to hazardous substances, the literature review did not result in the identification of practical examples of LCC application in public procurement, nor opportunities to do so, in compliance with EU public procurement legal requirements. However, there is consensus – and a lot of data coming from LCA – regarding the environmental and social externalities incurred by the use of hazardous substances in production, use and disposal of ICT products.45 Instead, for this cost criterion, searching for a solution to account for externalities, industry literature points to the wider, more flexible life-cycle thinking approach rather than formal LCC methodologies. For example, ITU suggests the use of environmental standards for the recycling and disposal of ICT/e-waste and they present the reviews of three such relevant standards.46 For Europe, the standard considered most relevant is WEEELABEX, from WEEE Forum Association.47 It sets out a coherent and comprehensive set of technical requirements with respect to e-waste operations, compliance is voluntary but contracting authorities can ask for such conditions to be met through selection criteria (technical 41 4 2 43 4 4

ITU-T (n 6). ETSI (n 6) 46. Commission, User Guide to the LCC Tool (n 4) 12; also, LIFE Clim’Foot Project (n 7). The market price for one CO2 emissions certificate (1 ton) in the EU-ETS trading system was approx. 25 EUR at the end of 2018 available at accessed 2 February 2019. 45 ETSI (n 6). 4 6 International Telecommunication Union (ITU), Handbook for the Development of a Policy Framework on ICT/E-waste (ITU 2018) 16–22. 47 WEEE Forum available at accessed 2 February 2019.

112  Raluca Suciu and Dacian C. Dragoș environmental management capacity) by the supplier, based on their own contractual arrangements, or provided for by the producer. LCC calculations or suggestions on sources of costs and the means to determine them are not present in recent literature. Contrary to the omnipresent LCC thinking, requiring contracting authorities full awareness towards the external costs and finding the products and the technologies most likely to avoid or reduce these external costs is difficult and legally challenging. As long as specific costs (enforced by monitoring and penalties) are not imposed by national legislation for collection, recycling, treatment of electronic waste, the problem of emissions during the end-of-life phase cannot be monetized and included as such in a LCC methodology. The EU addresses these issues through the WEEE Directive,48 but most of the electronic waste generated in the EU is exported,49 thus outside EU jurisdiction. The EU GPP criteria for computers and monitors encourage the use of award criteria or technical specifications that are consistent with the EU Ecolabel requirements for end of life emissions (e.g., safety limits for halogen-free smoke from cables, the presence of Substances of Very High Concern).50 The EU also encourages contracting authorities to use as selection criteria the requirement that tenderers have in place a control system for chemical substances that reflects basic elements of the systems described in international or EU standards. Still, no suggestions were found of how all these environmental and social costs could be monetized with the purpose of LCC calculations.

6.3.1.4  Product lifetime extension The criterion most frequently considered as having potential for a cost-oriented approach in public and private procurement is the possibility to extend the lifetime of the products, including through re-use (selling or donation).51 Other industry sources consider re-use as ‘extension of life of the equipment’; as such, there is variation with regard to terminology, but there is consensus with regard to the relevance of this criterion from the perspective of asset management (including monetary valuation) for the user of ICT equipment.52 Upgradeability (including the availability and cost effectiveness of spare parts), replaceability (of batteries, for instance) and reparability are all features relevant for public authorities seeking to extend the lifespan of computer products. To avoid early replacement of the whole product, in case of poor performance under the fast changing context of software and user needs, these are important factors to consider but, most importantly, they are highly susceptible to a LCC approach. 48 European Parliament and of the Council Directive 2012/19/EU of 4 July 2012 on Waste Electrical and Electronic Equipment (WEEE) (Recast) [2012] OJ L 197/38. 49 Estimates are between 16% and 38% in 2008, in Dodd and others (n 28) 46. 50 Commission, ‘EU GPP Criteria for Computers and Monitors’ (n 11) 13. 51 ITU, Toolkit on Environmental Sustainability for the ICT Sector (2012) 199. 52 ITU, End-of-life Management for ICT Equipment (ITU 2012) 18–19.

LCC criteria for procurement of ITC goods and services  113 Detailed examples on how to operationalize battery quality and lifetime are available in the EU GPP criteria for computers and monitors,53 given the number of variables affecting this factor (technology used, hardware combinations, user behaviour, the specific end-use of the product). Yet, once the needs and requirements of the contracting authority are clearly determined, this cost element can be part of a LCC methodology.54 Upgradeability and guarantee periods as part of LCC are based on the assumption that it must be possible (and cost efficient) to update and adapt to new software; also, the memory should be upgradable. The cost of upgradeability should be weighed, in a genuine LCC thinking process, against the costs of other options (e.g., cloud options). Availability of parts for a period of time after the contract award and cost competitiveness of spare parts and repairing costs are also highly compatible with and relevant for LCC. Reparability is operationalized in the EU GPP criteria as follows: the existence of repair manuals and online diagnostic tools commercially or publicly available or contracts with service centres of producers/ suppliers; the availability of spare parts (which may be backwardly compatible, for three to five years since purchase, within certain price ranges). The EU GPP criteria signal the problem of pricing as relevant since producers may maintain prices at a level which is likely to discourage replacement or repair, relative to the residual value of the product.55 An overview over warranties existing on the market shows that it is possible to obtain longer warranties than the legal minimum. A three-year warranty requirement is a criterion under the EPEAT Ecolabel,56 the leading global ecolabel for the IT sector, whereas sometimes warranties of up to four years can be obtained. This cost driver should be detailed in a warrantee and service agreement and can be monetized and included in a LCC calculation. With regard to disk drive reliability and durability, in particular shock resistance methods and tests, there are IEC standards that can be referred to by procurers in the tender documentation.57 However, the same literature suggests that the criterion of durability of the product and/or specific components can be better addressed through technical specifications or award criteria than through LCC. This is given by the multiple variables (drop, vibration, shock, pressure, temperature stress, humidity) involved in the performance of the products on the durability scale. 53 Commission, ‘EU GPP Criteria for Computers and Monitors’ (n 11). 54 Market studies show that high performance batteries (800–1,000 cycle batteries) are up to 80% more expensive than 300–500 cycle performance ones, so the costing approach might be adequate if such a performance is actually needed, making this particular cost element very tender specific. Dodd and others (n 28) 78. 55 Commission, ‘EU GPP Criteria for Computers and Monitors’ (n 11) 13. 56 Green Electronics Council, ‘EPEAT Criteria’ available at accessed 10 January 2019. 57 International Electrotechnical Commission available at accessed 10 January 2019.

114  Raluca Suciu and Dacian C. Dragoș For most of the components of reparability and upgradeability, the general opinion is that it is difficult (not impossible) to address them by a LCC calculation in the award phase, since you cannot consider those costs as a given. The costs are a list of components that appear to have a high failure rate or tend to have a strong influence on the lifespan of the product. Such costs are thus not susceptible to an economic calculation that meets the conditions from the directive to be real costs incurred to the user or externalities. Rather, the EU GPP criteria propose this factor to be addressed via technical specifications detailing the major components that shall be easily upgradeable or repairable.58

6.3.1.5  End-of-life management End-of-life management of ICT equipment is a matter of high concern in the sustainability agenda. Not only because of the impact of waste in general, and the subsequent environmental and health problems, but also due to how low e-waste recycling rates result in significant impact on resource management and depletion. Terminologically, the contracting authorities should distinguish between end-of-life management and end-of-use of ICT equipment, since the latter means that equipment is no longer used as intended by the previous owner, but may be fully functional and used appropriately by other parties.59 Understanding EoL management ensures for users of ICT goods that optimal decisions are made on recovery of value, secure removal of data, and safe disposal of their equipment. EoL of computers is aimed at reducing the overall environmental impacts, since the secondary resources from recycling can complete or substitute the production of primary materials, reducing the impact from mining, externalities during processing, reducing pressure on raw materials, including valuable metals and Critical Raw Materials (CRMs) and Rare Earth Elements (REEs).60 According to the stages of LCA, EoL treatment starts with the transport of the de-installed ICT goods and/or support goods to storage/disassembly/dismantling/shredding facilities and ends with the waste treatment of ICT goods and support goods.61 The most environmentally effective destination is refurbishing and remanufacturing, as applications of re-use; subsequently, raw material recycling is the ‘next best thing’, it starts after EoL treatment. Designing for recycling is clearly relevant from the LCA perspective and it can also be a relevant factor from a LCC perspective. That is the case if there are objective costs associated with disposing of electronic waste. The potential environmental costs are likely to result in an objective, transparent and unitary cost methodology. If there are no such legal pricing mechanisms in place for recycling, then neither the contracting authority, nor the producers/retailers hold objective and verifiable data on where, how, by which methods and with 58 59 60 61

Dodd and others (n 28) 74. ITU, End-of-life Management for ICT Equipment (n 52) 4–5. ITU, Handbook for the Development of a Policy Framework on ICT/E-waste (n 46) 9. ETSI (n 6) 37.

LCC criteria for procurement of ITC goods and services  115 which impacts are those specific electronic waste to be treated. A good rule of thumb with regard to electronic waste management is that the market is driven by the value of components and materials, and industry is always searching for innovative ways of recovering parts that are valuable. The decision on which materials to recover is mostly commercial, based on the ratio of the costs of recycling, the market price and demand. Therefore, it is not possible for a contracting authority to influence such market behaviours; it is more the realm of effective regulation at UE level.62 Contracting authorities should focus on recyclability and marking (e.g., of plastics, in order to facilitate identification of the type of material used), as well as the design for dismantling of products, given the fact that such variables represent proxies for the cost effectiveness of extracting the valuable components at the end of the life cycle.63 It is evident from the argument above that formal LCC may or may not include this criterion, depending on the existence of local regulation and market for recycling in order to objectively determine costs. Interviews with market actors (resellers) revealed that, for the Romanian context in which they operate, due to low monitoring of EoL regulation implementation, the contracting authorities can ensure adequate management of environmental impacts only through costly services contracts. With regard to re-use, it is not necessary for the entire item to be considered in good operational condition, all parts and components may be tested for functionality and re-used. There are functionality tests that can be conducted by the contracting authority, without use of specialized services or facilities, which can help determine available options for life extension, re-use or EoL.64 In order to ensure re-usability and recyclability of ICT products, contracting authorities can focus on contractual arrangements for the end-of-life, starting with the very design of a new tender for ICT products. First and foremost, based on LCC thinking, a good overview of costs associated with ownership and use, including EoL management costs, should inform the fundamental decision whether to purchase and own or adopt a leasing arrangement instead. The latter may prove to be more cost-efficient for the contracting authority and better suited for closing the loop at the end of the life cycle of the product. The LCC approach can include tenderers’ competitive offers on taking-over old equipment (including the possibility of buy-back offers) and supplying the new equipment with an agreement with regard to EoL services (data sanitation, remanufacturing and certified treatment and recycling/disposal). Another cost driver related to EoL management is data sanitation or secure information management, referring to the obligation of contracting authorities to ensure confidential data deletion from computer drives. There are providers for such services, which tend to be costly and may affect the capacity for re-use 62 ITU, End-of-life Management for ICT Equipment (n 52) 21. 63 Commission, ‘EU GPP Criteria for Computers and Monitors’ (n 11) 20–21. 6 4 ITU, End-of-life Management for ICT Equipment (n 52) 5, 18. For the examples of functionality tests, see Annex 1, 54–55.

116  Raluca Suciu and Dacian C. Dragoș of the components.65 LCC thinking should guide the choice among options for EoL management for the contracting authority: • •



Contractual agreement, included in the tender, with the initial supplier to take back products at the end of life; Presuming that public administration will want to maximize the use of the equipment and, as such, no clear time limit for the use of equipment exists, a separate contractual arrangement, independent of the contract to supply the new equipment, with a third party for the services of collection, testing, upgrading (if possible within the national legal framework and preparation for re-use/donation/resale); Safe recycling and disposal of products at the end of their service life.66

Developing a LCC methodology can start only when such decisions are made, and options are reduced to what best suits the objectives of the contracting authority.

6.3.1.6 Ergonomics There are established criteria with regard to ergonomics, for instance in electronics labels TCO or Blue Angel, addressing factors such as visual ergonomics (image detail, luminance contrast, reflection and screen colour) and workload ergonomics (e.g., vertical tilt and vertical height).67 From a cost perspective, it would be difficult (but not impossible or irrelevant) to translate ergonomics criteria in productivity of public employees/users and reduction of sick days. We have not found an example of LCC methodology including this cost element.

6.3.2  A  ssessment of data availability facilitating LCC at market level (a case study of Romania) This section is the result of interviews conducted by the authors with industry representatives, thus a short methodological note should be made first. Interviews with representatives of resellers from Cluj County, Romania, were based on a semi-structured interview guide, having as a general objective to determine data availability or access to data of normally diligent suppliers of ICT and suppliers’ capacity to respond to calls for tenders from contracting authorities using 65 ibid 13. 66 Dodd and others (n 28) 125. 67 TCO, ‘Criteria Designed for Driving Sustainable Development’ available at accessed 10 January 2019; Blue Angel, ‘Computers and Keyboards. DE-UZ 78. Basic Award Criteria’ (Version 2, Edition January 2017) 19 available at accessed 10 January 2019.

LCC criteria for procurement of ITC goods and services  117 LCC as award and complex sustainability requirements as technical specifications, award criteria and/or contract clauses.68 In Romania, environmental values are not part of organizational and social behaviours. From our teaching and consultancy experience in working with public procurement practitioners, we have had very little success in ‘selling’ purely environmental considerations or criteria, without pointing towards the obvious economic benefit for the contracting authorities. Also, procurement for sustainability is considered by local practitioners to be complicated and risky with regard to availability of offers, higher costs, work load, potential for litigation, etc. Working with all these concerns of the contracting authorities is going to be a long process, which we hope will be facilitated by EU regulation. Sustainability rarely represents a genuine concern of contracting authorities in Romania, such criteria usually become of interest when contracting authorities are just looking for a strategy allowing them to avoid procurement based on the lowest price criterion and buy better quality products. Regardless of motivation, such strategies will have to include more refined award criteria, allowing for internalization of environmental values. During this research we have tried to address one of the objective complaints of contracting authorities from Romania, specifically data unavailability at market level with regard to the sustainability criteria in general, those discussed in Section 6.3.1, in particular. The main findings of the interviews, summarized here, were optimistic with regard to the potential to include sustainability in public procurement of ICT. The resellers were used to such criteria and requests for data from private companies’ acquisitions, they provided examples of requirements that exceed EU public sector best practice (e.g., printing equipment that recycles paper, casing volumes, limited no. of cables, etc.). They were inclined to favour such procurement since those superior product characteristics were conducting to more expensive purchases, usually professional equipment. In the supply chain, they rely on distributers for access to data, product testing results and certifications, but they can also obtain them from producers. Some of those certifications are publicly available, on the websites of the producers. Our general, exploratory research question was ‘Which do you think would be the opportunities (e.g., existing data, most relevant environmental impacts, most relevant health impacts/concerns) to include environmental costs (externalities) in the LCC approach for ICT procurement?’. Unfortunately, based on the respondents’ experience, we could only discuss TCO considerations. Their proposal of cost drivers for which they can provide reliable data were energy consumption and extended guarantee arrangements, the only ones to be considered objective and clear enough. For guarantee arrangements interviewees revealed that some private 68 Interviews were conducted in the first part of January 2019, at the headquarters of the companies and the respondents were participants in the ICT framework agreement/contract of the University. In this session, 4 interviews were conducted, and they are representative for the supply part of ICT contracts in Cluj.

118  Raluca Suciu and Dacian C. Dragoș companies ask for the specific number of hours until intervention and replacement of equipment and calculate the cost of missed working time per employee. The respondents, although experienced sellers with technical qualifications and good knowledge of the products, could not identify a way to quantify battery life or EoL costs (in the context of Romanian legislation and practice) to be part of LCC. Economic operators’ willingness to get involved in early, pre-procurement stages is directly proportional to the level of transparency of the contracting authority. Normally, economic operators avoid providing data and information on products and alternatives if the information on the future tender is incomplete and contracting authorities do not act in an open and transparent manner. With regard to data availability, all the standards and certifications mentioned during the discussion were available to economic operators (in this case, resellers) through distributers, and the response time of the distributers to their request for information was considered to be sufficient for tendering purposes. As a main conclusion, the resellers interviewed stated that procurement with advanced environmental criteria was generally favourable to them. It is accepted at market level because it conducts to more expensive purchasing and less guarantee interventions from the part of the supplier, and the effort to be part of such tenders, to supply the data required was considered acceptable as long as the contracting authority acted in good faith and transparently towards all market operators. The main barriers to sustainable procurement of ICT in the Romanian public sector were, in their opinion, risk aversion of civil servants, lack of technical competencies, lack of market consultation/superficial pre-procurement stages and numerous institutional and legal dysfunctionalities. However, the market was ready and experienced with these procurement practices from the interactions with multinational companies.

6.3.3  Social considerations as part of LCC for ICT Social considerations are becoming increasingly relevant for ICT procurement. Such considerations are linked to existing legislation and initiatives that are not just a source of consistent rights for special categories of users/beneficiaries, but also a source of responsibility, collateral obligations and costs of compliance for public and private entities. Life-cycle thinking, from a public interest perspective, should assess the costs for those categories of protected users in case of non-compliance and how such costs can be included in LCC.69 Potential cost elements could be linked to accessibility of websites and mobile applications of the public sector bodies to specific categories of users, in particular persons with disabilities, by making them perceivable, operable, understandable and robust.70 69 Dacian Dragos and Bogdana Neamtu, ‘Life-Cycle Costing for Sustainable Public Procurement in the European Union’, in Beate Sjafjell and Anja Wiesbrock (eds), Sustainable Public Procurement under EU Law. New Perspectives on the State as Stakeholder (Cambridge University Press 2015) 114, 120. 70 European Parliament and of the Council Directive 2016/2102 of 26 October 2016 on the ­Accessibility of the Websites and Mobile Applications of Public Sector Bodies [2016] OJ L327/1, art 4.

LCC criteria for procurement of ITC goods and services  119 Web design is instrumental within a wider LCC thinking framework. This consideration might affect acquisition of both hardware and software, with regard to capacity and needs, objectives, outcomes of software development. Another source of obligations as regards design for accessibility comes from the proposal for a Directive on the accessibility requirements for products and services.71 It extends the scope of these obligations to private entities and, in case of ICT products, to computer hardware and operating systems, self-service terminals, such as automatic teller machines, ticketing and check-in machines, all forms of passenger transport, etc. It also makes explicit reference to the public procurement Directives and how these will be adapted.72 In this context, a LCC approach could be applied to include all these social considerations by contracting authorities when procuring hardware, software, and public IT consoles with a specific function or just for information purposes, public payments points, and so on. Social impacts of different ICT life-cycle stages are identified and discussed in research conducted at industry level.73 Our observation is that the LCA documents we have reviewed only marginally address social considerations, rather as secondary considerations (health, workers’ protection, public goods quality) of environmental impacts. Other documents discuss social considerations within ‘clean supply chain and conflict minerals’ or ‘socio-economic issues of EoL’,74 such as effects over development of communities, sustainable jobs, recycling industry labour standards and wages, health risks from hazardous handling of e-waste.75 None of these sources provides a solution for including externalities into market prices, or any pricing ideas that would be relevant from a LCC perspective. As such, our conclusion is that the most terrible social externalities (such as child labour) cannot be included in a LCC methodology. As recital 96 of Public Sector Directive states, the solution lies in: (…) common methodology on social life cycle costing (…), taking into account existing methodologies such as the Guidelines for Social Life Cycle Assessment of Products adopted within the framework of the United ­Nations Environment Programme.76

71 Commission, ‘Proposal for a Directive of the European Parliament and of the Council on the Approximation of the Laws, Regulations and Administrative Provisions of the Member States as Regards the Accessibility Requirements for Products and Services’ COM (2015) final. 72 Commission Proposal for a Directive (n 70), art 1(3) and art 21 (The Accessibility requirements set out in Section IX of Annex I shall apply: (a) When establishing the technical specifications and award criteria related to all public contracts and concessions the object of which is intended for use by persons, whether general public or staff of the contracting authority or contracting entity, which are subject to EU Public Procurement law). 73 ITU, Handbook for the Development of a Policy Framework on ICT/E-waste (n 46); ITU, ‘End-oflife Management for ICT Equipment’ (n 52). 74Secretariat of the Basel Convention, E-waste Africa Programme (2012) available at accessed 28 March 2019. 75 ITU, ‘End-of-life Management for ICT Equipment’ (n 52) 35, 39–42. 76 Public Sector Directive, recital 96.

120  Raluca Suciu and Dacian C. Dragoș There are no such methodologies available and, as such, the market data is descriptive, qualitative, lacking potential for benchmarking and monetization.

6.4  Concluding remarks One of the overall questions guiding this analysis was whether LCC, including the different formulas of life-cycle thinking and TCO, can contribute to sustainability of ICT. LCC is clearly one of the multiple procurement tools that can be used to turn public procurement into an effective policy tool for sustainability. It is also true that the vast majority of literature analysed here views LCC as part of a multiple tools strategy employed in order to foster SPP. Other procurement tools need to be used to address other aspects of social and environmental sustainability, which are not easily responsive to objective cost calculations. We found it to be feasible (although requiring a high level of expertise) to include in LCC (or, more often, TCO) some cost elements that are inherently environmental (energy efficiency, upgradeability, recyclability etc.). However, as the EU LCC tool guide states, if a cost driver is too difficult to quantify and no reference standard exists, it should rather be used as a technical specification, award criterion or contract clause.77 Practical difficulties still rein the applicability of LCC in this specific sector. The Commission LCC tool for computers and monitors, made available at the end of 2018, seems minimalistic and unambitious as compared to the previous debates on the potential of LCC to change the practice of public procurement. This proves that some constraints signalled by the literature are still valid with regard to using LCC as a formal methodology during award of ICT goods and services. Still, our research demonstrates that there are many opportunities for LCC thinking in all the procurement stages. It also shows that the sooner LCC thinking is applied, the lower the real-life costs of the procuring authority are. However, the preference today, when it comes to sustainability of ITC procurement, lies with other venues than LCC as part of the award criteria, namely technical specifications, technical criteria, contract clauses, and the use of labels and other certifications as means of verification. This is due to the lack of expertise of both procurers and tenderers in engaging with meaningful LCC calculation, as well as the overall difficulty of monetizing environmental and social externalities.

References Marta Andrecka, ‘Innovation Partnership in the New Public Procurement Regime – Shift of Focus from Procedural to Contractual Issues?’ (2015) 24(2) PPLR 18–31. Yevgeniya Arushanyan and others, ‘Lessons Learned – Review of LCAs for ICT Products and Services’ (2014) 65 Computers in Industry 211. 77 Commission, User Guide to the LCC Tool (n 4) 5.

LCC criteria for procurement of ITC goods and services  121 Blue Angel, ‘Computers and Keyboards. DE-UZ 78. Basic Award Criteria’ (Version 2, Edition January 2017). Simon Clement and others, The Procura+ Manual. A Guide to Implementing Sustainable Public Procurement (3rd ed, ICLEI 2016). Commission, ‘EU GPP Criteria for Computers and Monitors’ (Commission Staff Working Document) SW D (2016) 346 final. Commission, LCC Tool for Procurement of Computers and Monitors (European Commission, Ecoinstitut SCCL and ICLEI – Local Governments for Sustainability, Supported by Public Procurement Analysis (PPA) and A. Geuder December 2018). Commission, User Guide to the Life Cycle Costing Tool for Green Public Procurement of Computers and Monitors (DG Environment December 2018). Commission Regulation (EU) 617/2013 Implementing Directive 2009/125/EC with Regard to Ecodesign Requirements for Computers and Computer Servers [2013] OJ L 175/13. Balbir S. Dhillon, Life Cycle Costing for Engineers (CRC Press 2010). Directive 2012/27/EU on Energy Efficiency, Amending Directives 2009/125/EC and 2010/30/EU and Repealing Directives 2004/8/EC and 2006/32/EC [2012] OJ L 315/1. Directive 2012/19/EU on Waste Electrical and Electronic Equipment (WEEE) (Recast) [2012] OJ L 197/38. Directive (EU) 2016/2102 on the Accessibility of the Websites and Mobile Applications of Public Sector Bodies [2016] OJ L327. Nicholas Dodd and others, Revision of the EU Green Public Procurement (GPP) Criteria for Computers and Monitors (Commission November 2016). Dacian Dragos and Bogdana Neamtu, ‘Life-Cycle Costing for Sustainable Public Procurement in the European Union’ in Beate Sjafjell and Anja Wiesbrock (eds), Sustainable Public Procurement under EU Law. New Perspectives on the State as Stakeholder (Cambridge University Press 2015) 114. Lynn Drury, Understanding IT Procurement Contracts (Computer Economics November 2008). Helena Estevan and Bettina Schaefer, Life Cycle Costing, State of the Art Report (SPP Regions March 2017). ETSI (European Telecommunications Standards Institute), ‘Environmental Engineering (EE); Methodology for Environmental Life Cycle Assessment (LCA) of Information and Communication Technology (ICT) Goods, Networks and Services’ ETSI ES 203 199 V1.3.1 (2015-02). Federal Environmental Agency of Germany (Umwelt Bundesamt), ‘Guide to Green Public Procurement of Computer Screens’ accessed 28 March 2019 (March 2015). Green Electronics Council, ‘EPEAT Criteria’ accessed 10 January 2019. David Hunkeler and others (eds), Environmental Lifecycle Costing (Society of Environmental Toxicology and Chemistry – SETAC 2008). ITU, Assessment Framework for Environmental Impact of ICT (ITU 2012). ITU, End-of-life Management for ICT Equipment (ITU 2012). ITU, Sustainable ICT in Corporate Organizations (ITU 2012). ITU, Toolkit on Environmental Sustainability for the ICT Sector (ITU 2012).

122  Raluca Suciu and Dacian C. Dragoș ITU, Guidance on Green ICT Procurement (ITU 2013). ITU-T (ITU’s Telecommunication Standardization Sector), ‘Methodology for Energy Consumption and Greenhouse Gas Emissions Impact Assessment of Information and Communication Technologies within Organisations’ (ITU-T L.1420 (02/2012)). LIFE Clim’Foot Project, ‘Deliverable A2.2: Methodology for Constituting the National Databases’ accessed 28 March 2019 (June 2016). Andreas Manhart and others, Informal E-waste Management in Lagos, Nigeria – ­Socio-Economic Impacts and Feasibility of International Recycling Co-Operations (Öko-Institut e.V., Final Report of Component 3 of the UNEP SBC E-waste Africa Project, Lagos & Freiburg June 2011). Ministry of Environment and Food of Denmark, ‘Guidelines for Tools for Total Cost of Ownership in Public Procurement. Computers’ (March 2017). Perera Oshani, Morton Barbara and Perfrement Tina, Life Cycle Costing in Sustainable Public Procurement: A Question of Value, A white paper from IISD (International ­I nstitute for Sustainable Development 2009). Siddharth Prakash and others, Socio-Economic Assessment and Feasibility Study on ­Sustainable E-waste Management in Ghana (Öko-Institut e.V., Freiburg August 2010). Proposal for a Directive on the Approximation of the Laws, Regulations and Administrative Provisions of the Member States as Regards the Accessibility Requirements for Products and Services [COM/2015/0615 final – 2015/0278 (COD)]. Regulation (EC) 106/2008 on a Community Energy-Efficiency Labelling Programme for Office Equipment (Recast Version) [2008] OJ L 39/1. Regulation 2017/1369 Setting a Framework for Energy Labelling and Repealing Directive 2010/30/EU [2017] OJ L 198/1. Secretariat of the Basel Convention, E-waste Africa Programme (2012). Studio Fieschi and Soci and Scuola Superiore Sant’Anna, Update on Life Cycle Costing (LCC) Project (2016). TCO, ‘Criteria Designed for Driving Sustainable Development’ accessed 10 January 2019. WEEE Forum Association, WEEELABEX Standards on WEEE Operations, ‘Standard V9.0 on Logistics – WEEELABEX Logistics’ (2011), ‘Standard V9.0 on Collection – WEEELABEX Collection’ (2011), ‘Standard V10.0 on Treatment – WEEELABEX Treatment’ (2013).

7 The role of ecolabels in creation of life-cycle criteria The case of textile and clothing products Małgorzata Koszewska 7.1 Introduction Public procurement can significantly influence production and consumption patterns, becoming a stimulus to more sustainable and circular economy models. The high purchasing power of public organizations and authorities is a market factor with enormous potential.1 Public authorities spend approximately €1.8 trillion annually, representing around 14% of the European Union’s (EU) gross domestic product, which makes them a significant consumer group in Europe.2 A wide range of organizations are and will be involved in buying textile and clothing (T&C) products, including the public sectors such as central governments, local administrations, educational institutions, hospitals, elderly care and welfare institutions, prisons, the police, waste collection, military forces, park keeping etc. At the same time, the (T&C) industry is strongly affected by ecological challenges. It becomes extremely important to introduce and develop tools and methodologies that can help public authorities to ensure that textiles products are procured in a way, which delivers environmental improvements. The latter will contribute to the EU policy objectives for energy, chemical management and resource efficiency, as well as reducing life-cycle costing (LCC).3 This chapter concentrates on one of such tools these are ecolabels. The aim of the chapter is to assess the present role of ecolabels for T&C products in the EU public procurement and to identify the main trends and challenges for the future. The structure of the chapter is organized in the following way. First, based on a literature review, T&C products in public procurement are defined, and the market size and structure is described. Next, in the context of GPP the ecological challenges in T&C industry are analysed. Further, the chapter focuses 1 Paula Cayolla Trindade and others, ‘SPP Toolbox: Supporting Sustainable Public Procurement in the Context of Socio-Technical Transitions’ (2018) 10 Sustainability 67, 2–26. 2 Commission, GPP Europe. European Union on Green Public Procurement (2016) available at accessed 04 October 2018. 3 See: Jason J. Czarnezki and Steven Van Garsse, ‘What Is Life Cycle Costing’ Chapter 1 of this book. Communication from the Commission to the European Parliament and the Council, ‘Energy Efficiency and Its Contribution to Energy Security and the 2030 Framework for Climate and Energy Policy’ COM (2014) 520 final.

124  Małgorzata Koszewska on, an assessment of the role of textile ecolabels in GPP, including the advantages and limitations of textile ecolabels for GPP. Finally, the current level of textile ecolabels’ application in public procurement is assessed followed by some concluding remarks.

7.2 Textile and clothing products in public procurement – definition, scope, market size The definition and scope for T&C are defined in the EU documents concerning GPP criteria for Textile Products and Services.4 They include finished products, as well as intermediate products and accessories: • •





Textile fibres, yarn, fabric and knitted panels – used further in clothing, accessories interior textiles, upholstery fabric, mattress etc. Non-fibre elements – incorporated into clothing and accessories, interior textiles like zips, buttons, membranes, coatings, laminates that form part of the structure of clothing or interior textiles. Clothing and accessories: uniforms, workwear, personal protective equipment (PPE), accessories (consisting of at least 80% by weight of textile fibres in a woven, non-woven or knitted form). Interior textiles consisting of at least 80% by weight of textile fibres in a woven, non-woven or knitted form (like bed linen, towels, table linen and curtains).

The place of T&C products within the supply chain as defined in the EU documents is presented in Figure 7.1. The GPP documents also define textile fibres for which GPP criteria are provided and divide them into three groups (see Figure 7.1): • • •

Natural fibres: natural cellulosic seed fibres – cotton and others and keratin fibres – wool and others Synthetic fibres: polyamide and polyester Man-made cellulose fibres: lyocell, modal and viscose

Another important area in the context of GPP criteria are textile services, as they can offer environmental LCC (E-LCC) benefits when compared with the simple purchase of textiles. Public procurers have to consider different options. To purchase and own the textiles and purchase laundry services or to procure full textile services including a leasing model. Leasing of T&C products can have a potential positive effect on environmental impacts. This is due to the fact that the ownership of the product is kept with the supplier who will have an economic

4 Nicholas Dodd and Oliver Wolf, ‘Revision of the EU Green Public Procurement Criteria for Textile Products. Background report (Draft) Working Document for the 1st AHWG Meeting’ (DG JRC (IPTS) 2012); Commission, ‘Commission Staff Working Document – EU Green Public Procurement Criteria for Textiles Products and Services’ SWD (2017) 231 final.

Figure 7.1  Textile products, accessories and services for which GPP criteria are provided in the textile supply chain.

126  Małgorzata Koszewska interest in ensuring a longevity of the product life. The longer the product is kept in use, the lower the environmental impact and use of scarce resources.5 Longterm rental agreements also create an easy channel for return of the materials. Consequently, it can be argued that the role of textile services, such as leasing or rental models will increase in the face of popularization of the circular economy models. Public procurement markets are particularly suitable for long-term rental or ‘clothing-as-a-service’ models as the requirements for products like workwear often align with the durability needs.6 According to current the EU GPP criteria for textile products and services, the latter are defined as follows7: • •





Laundry: the collection, cleaning (using a wet or dry process) and return of textiles to specified standards of cleanliness and hygiene. Maintenance: the maintenance and repair of textile products in order to extend their useful life span. This includes the replacement of accessories and parts, fabric panel replacement and the retreating/reproofing of functional coatings. Take-back: the collection and sorting of textile products in order to maximize their reuse and/or recycling. The procuring authority waives ownership of any textile products at the moment of their collection. Renting:8 in this type of contract, the procuring authority benefits from use of the textile products covered by the contract, but their ownership remains with the service provider. These contracts typically involve also cleaning services. An example would be the supply of clean bed sheets to a hospital. The service provider would collect used bed, clean and iron them (and, if considered necessary, repair or replace them) and then deliver the cleaned bed sheets to the hospital.

7.2.1  Textile and clothing products in public procurement: market size and structure The evaluation of the textile procurement market potential, in terms of production and consumption values, is a huge challenge. That is due to the fact that statistics relating to the EU public procurement for this product group are very limited. The difficulty is that most of the databases such as Eurostat or 5 David Watson and Rikke Fisher-Bogason, Greener Textiles in Hospitals. Guide to Green Procurement in the Healthcare Sector (Nordic Council of Ministers 2017). 6 Ellen MacArthur Foundation, A New Textiles Economy: Redesigning Fashion’s Future (2017) available at accessed 30 August 2018; Caroline Bartlett and others, A review of Corporatewear Arisings and Opportunities (WR AP 2012), available at accessed 30 August 2018. 7 Nicholas Dodd and Miguel Gama Caldas, Revision of the EU Green Public Procurement (GPP) Criteria for Textile Products and Services. Technical Report with Final Criteria (Publications Office of the European Union 2017). 8 Małgorzata Koszewska, ‘Outsourcing as a Modern Management Strategy, Prospects for Its ­Development in the Protective Closing Market’ (2004) 4 Autex Research Journal 4.

Role of ecolabels in creation of life-cycle criteria  127 PRODCOM, do not distinguish public sector purchases from private ones. Nevertheless, some data can be found in the existing reports9 and on the platforms dedicated to public procurement.10 One of the most recent estimates made by the EU within the Lead Market Initiative (LMI) states that public markets for the T&C industry may have a value of €10 billion per annum.11 The following part of the chapter presents existing market structure in terms of the main product groups and the main buyers as well as the production values for one of the main public procurement product group – the workwear.

7.2.1.1  Main product categories The TED platform does not provide exact data for consumption values of T&C categories. Though, it allows to determine the main product categories and their main buyers in the EU public procurement market by analysing the registered number of tenders in the T&C categories (Table 7.1). To estimate the most important T&C product groups for the EU public procurement, those products were first classified based on the data presented in Table 7.1 and the product categories defined in the Commission document on the EU GPP criteria for textiles, products and services (Figure 7.2). This was followed by an assessment of the share of the particular product categories in the total number of tenders that contained any of the T&C product. As shown in Figure 7.3, the most important product categories, representing more than a half of all T&C products, were clothing and accessories (occupational, corporate, workwear and accessories – 46%, and protective clothing – 9%). The second largest group were interior textiles accounting for 17%, followed by the medical textiles (dressings) 10%. The above analysis shows that one of the most important product groups purchased by almost every public sector are industrial and occupational wear. Depending on the intended use of the clothing, one can further divide this

9 François Libert and others, Public Procurement Awarding Guide for the Clothing-Textile Sector. The Most Cost-Effective Tender (2005); available at accessed 28 August 2018. European Textiles & Workwear Market, The Role of Public Procurement in Making Textiles Circular (ECAP 2017) available at accessed 30 August 2018. 10 Tenders Electronic Daily (TED) the online version of the ‘Supplement to the Official Journal’ of the EU, dedicated to European public procurement. The database contains information on public procurement contracts, according to the EU rules on public procurement, notices published in EU Member States, European Economic Area (EEA) and beyond. It also allows to browse, search and sort procurement notices by country, region, business sector according to CSV codes and COFOG (Classification of the Functions of Government). The CSV system is based on the Commission Regulation (EC) No. 213/2008 and establishes a single classification system for public procurement aimed at standardizing the references used by contracting authorities and entities to describe the subject of procurement contracts. 11 Dodd and Caladas (n 7).

Table 7.1.  The number of tenders in CPV product categories according to all TED notices as of December 29, 2018 (search scope all current notices)a CPV code

Category name

18000000 18140000

Clothing, footwear, luggage articles and accessories Workwear accessories (work gloves, safety visors, protective gear) Occupational clothing Clothing accessories (gloves, scarves, ties, belts) Weatherproof clothing Hats and headgear Sacks and bags T-shirts and shirts Special clothing Miscellaneous outerwear Special workwear Underwear Luggage Coats Fasteners (clothing)

18110000 18420000 18220000 18440000 18930000 18330000 18410000 18230000 18130000 18310000 18920000 18210000 18450000 Sum 35000000 35811200 35811300 35812000 35815000 35811100 35813000 35814000 Sum

Security, fire-fighting, police and defence equipment Police uniforms Military uniforms Combat uniforms Garments for anti-ballistic protection Fire-brigade uniforms Military helmets Gas masks

33000000

Medical equipment, pharmaceuticals and personal care products Medical clothing

33199000

Number of tenders with the CPV code

208 161 144 113 92 83 63 62 53 48 43 20 18 2 1110 48 24 30 24 19 8 7 160

56

33141100 33141114 33141112 33141113 33141116 33141111 33141115 33141119 33141117 33141118 Sum

Category: Dressings; clip, suture, ligature supplies Medical gauze Plasters Bandages Dressing packs Adhesive dressings Medical wadding Compresses Cotton wool Wipes

39000000

GENER AL CATEGORY Furniture (incl. office furniture), furnishings, domestic appliances (excl. lighting) and cleaning products

39500000 39515000 39518000 39512000

Category: Textile articles Curtains, drapes, valances and textile blinds Hospital linen Bed linen

42 33 33 33 29 22 21 19 15 247

83 56 48

Role of ecolabels in creation of life-cycle criteria  129 CPV code

Category name

39514000 39516000 39511000 39513000 39531000 39532000 39533000 39534000 39522000

Toilet and kitchen linen Furnishing articles Blankets and travelling rugs Table linen Carpets Mats Rugs Industrial carpeting Tarpaulins, sails for boats, sailboards or land craft, awnings, sunblinds, tents and camping goods Parachutes Miscellaneous manufactured textile articles Tulle, lace, narrow-woven fabrics, trimmings and embroidery Felt Textile wadding, yarns, fabrics and articles for technical uses

39523000 39525000 39561000 39562000 39563000 Sum 19000000 19500000 19600000 19200000 19400000 19700000 19100000 Sum

Leather and textile fabrics, plastic and rubber materials Rubber and plastic materials Leather, textile, rubber and plastic waste Textile fabrics and related items Textile yarn and thread Synthetic rubber and fibres Leather

Number of tenders with the CPV code 40 23 13 4 30 14 2 4 60 2 46 27 4 12 468 416 152 129 73 12 10 5 381

a TED platform available at accessed 30 September 2018.

category into different sub-categories. Those are in line with CPV codes and are presented in Table 7.1. Each of occupational clothing category has different requirements as to fibre composition, protective coatings and treatments and types of corporate identity. Those aspects play an important role in the environmental performance of particular clothing and its future re-use and/or recycling possibilities and consequently, shall be considered in the context of GPP.12 The market share for the particular types of industrial and occupational wear is presented in Figure 7.4 and is consistent with the findings based on the TED platform presented in Table 7.1.

12 The precise definitions of occupational clothing categories, their typical fiber composition as well as types of corporate identity – logos, badges are thoroughly discussed in Bartlett and others (n 6).

Figure 7.2  M  ain textile and clothing product groups in public procurement product groups.

Figure 7.3  Main textile and clothing product groups according to all TED notices as of December 29, 2018.

Figure 7.4  E  stimated market share of industrial and occupational wear by type [%]. ­Author’s analysis based on data from Bartlett and others (n 6).

132  Małgorzata Koszewska Table 7.2.  Number of tenders with any of the clothing or textile product (CPV code) by the main activity – public sectora Main activity – public sector H – Health S – General public services D – Defence Other U – Public order and safety L – Education E – Environment N – Electricity A – Housing and community amenities R – Railway services T – Urban railway/light rail, metro, tramway, trolleybus or bus services C – Recreation, culture and religion B – Social protection F – Economic and financial affairs P – Postal services M – Exploration and extraction of coal and other solid fuels G – Production, transport and distribution of gas and heat W – Water I – Airport-related activities J – Extraction of gas and oil K – Port-related activities/Maritime or inland waterways Sum

Number of tenders 11852 10747 5042 4064 3986 1700 1029 516 435 372 358 321 294 249 235 230 154 149 132 33 24 41922

a Based on the TED archive accessed 30 ­D ecember 2018.

7.2.1.2  The main public buyers of textile and clothing products To estimate the main public buyers of T&C products, the TED archives for all T&C categories were consulted. The results are presented in Table 7.2 and Figure 7.5. The results show that the main public buyers of T&C represent following sectors: the health sector (28%) followed by the general public services (26%), defence (12%), public order and safety (10%) and education (4%).

7.3 Environmental challenges in textile and clothing procurement The manufacture of T&C is a major component of the EU manufacturing industry. In 2016, 177,700 T&C companies across the EU employed over 1.7 million people and cumulatively had a turnover of € 171 billion. The industry accounts for a 3% share of the added value and a 6% share of employment in total manufacturing in EU. With nominal sales of over € 400 billion globally,

Role of ecolabels in creation of life-cycle criteria  133

Figure 7.5  The main public buyers of textile and clothing products. Based on the TED archive available at accessed 30 December 2018.

it is also one of the biggest industries in the world.13 At the same time, the T&C industry is strongly affected by environmental problems that occur with varying intensity in different stages of the T&C product life cycle. The main resource inputs to the life cycle are connected with water, energy and chemicals consumption. The main outputs refer to air, water and land emissions (GHGs, air pollutants, release of toxins, solid waste), worker and end user exposure to chemicals) (Table 7.3). The environmental issues, although well documented in the literature, often are hard to measure and assess effectively in practice. This creates a challenge for GPP, as procurers are not the experts in the field and do not have knowledge 13 Barbara Resta and others, ‘Enhancing Environmental Management in the Textile Sector: An Organisational-Life Cycle Assessment Approach’ (2016) 135 Journal of Cleaner Production 620; Małgorzata Koszewska, ‘Circular Economy – Challenges for the Textile and Clothing Industry’ (2018) 18(4) Autex Research Journal 337–347.

Table 7.3.  K  ey environmental problems in the textile supply chain with possible improvementsa Life-cycle stage Raw materials

Production

Key environmental impacts

• Ecotoxicity associated with the Cultivation of use of agrochemicals (hazardous natural fibres fertilizers and pesticides) mainly Cotton • Resource impact of water use for irrigation • Use of non-renewable resources Synthetic fibres (acrylic, nylon, • Energy – climate change greenhouse gas emissions, polyamide, acidification and smog polypropylene) • Ecotoxicity impacts associated with the manufacturing of fibres Cellulose fibres • Climate change and ecotoxicity (viscose): impacts associated with the manufacturing of fibres Wool scouring • The climate change, and ecotoxicity impact associated with scouring and processing • Process energy – climate change Energy and greenhouse gas emissions, chemical acidification and smog substances • Ecotoxicity used during • Hazardous effects on the aquatic fabric environment of hazardous formation, substances and chemicals in the finishing, production processes printing and dyeing stages of production

Use

Washing, drying and ironing

Dispose

Landfill Incineration Recycling Reuse

Possible improvements Substitution of: • Conventional cotton by organic, BCI, CmiA • Cotton by hemp Substitution of: • Virgin polyester by recycled polyester

Substitution of: • Viscose by lyocell

• Conventional wool by RWS wool (Responsible Wool Standard) • Reducing consumption of sizing chemicals • Replacement of chemicals with enzymes • Use of fully fashioned knitting • Use of low liquor ratio dyeing machines and dye machine controllers • Recycling of effluent water by ion exchange technology • New dyeing techniques using reduced heat/reduced processes to reduce energy use such as Cold Pad Batch and dope dyeing • Reducing consumption of • Use of energy and detergents chemicals to maintain clean clothes • Introduction of clothing during the products lifetime – rental, repair services climate change, greenhouse gas emissions, acidification and smog, • Reduction of the washing temperature ecotoxicity- user exposure to • Increase of the load capacity chemicals of washing and drying appliances • Reduction of the use of tumble drying • Improvement of washing machines and dryers efficiencies • Unsustainable systems of resource • Design for long life, durability use • Increase of the collection of • GHGs, emissions to air, soil and used clothing water • Closed loop recycling, re-use of products

a Based on: Adrien Beton and others, Environmental Improvement Potential of textiles (IMPRO Textiles) (Publications Office of the European Union 2014); Dodd and Wolf (n 4); Commission (n 4); SOMO, Fact Sheet Socially Responsible Public Procurement of Garments and Textiles. Focus on the Role of European Governments and Organisations in the Public and Semi-public Sectors’ (Centre for Research on Multinational Corporations 2014).

Role of ecolabels in creation of life-cycle criteria  135 and skills to assess the level of textile product environmental performance.14 The situation is particularly complicated due to the lack of clarity on how to define an measure the ‘good’ and ‘bad’ textile impacts on environment. The industry has the longest and most complicated supply chains, involving actors from agriculture, chemical, fibre, finishing, textile and apparel industries, accessories manufacturers as well as retailers and service operators.15 Every stage in the life of a textile product can have some environmental impacts, and what seems positive at some point of the supply chain may have negative consequences at later stages. Therefore, an investigation into the ‘cradle-to-grave’ LCC of a product is crucial when assessing textile product environmental impact. In this respect, the research encounters further difficulties. The widely known and used methodologies like product carbon footprints (PCF) and life-cycle assessments (LCA) are still in their infancy, as far as textile products are concerned, although they are well-established in other industrial sectors.16 The LCA methodology has been used to assess the environmental impacts of the T&C sector for some time now, but there is still only a limited number of studies in a small number of textile product categories available. As Muthu argues even within the available studies, there is a visible lack of consistency, making it very difficult to compare results and establish trends.17 The main barriers refer to the lack of consistency in terms of selection of indicators, assumptions, defining the functional units and reporting the results. Most of the studies published to date do not explain their underlying methodology, without which it is difficult to make proper use of the data or to replicate them. Despite those shortcomings, the existing textile and clothing LCA analyses allow us to identify the main environmental risks referring to the T&C industry as well as the LCC phases with the biggest negative impact on the environment. According to the latest report ‘The Environmental Improvement Potentials of Textiles – IMPRO Textiles’ the most significant environmental impacts are linked to the production and the usage phases.18 Product distribution and recycling/disposal activities at the end-of-life phase are of minor importance. Although the production and use phases are most important, their respective

14 Ebru Genç, ‘An Analytical Approach to Greenwashing: Certification Versus Noncertification’ (2013) 20(2) Journal of Management & Economics 151–175. 15 Biointelligence (2009, unpublished) EC-Funded IMPRO Project on Environmental Improvement Potential of Textiles, cited from: Faye Gracey and David Moon, Valuing Our Clothes: The Evidence Base (WR AP 2012), available at: accessed 15 December 2018. 16 Subramanian Senthilkannan Muthu, ‘7 – Life Cycle Assessment (LCA) and Product Carbon Footprint (PCF) Modelling of Textile Products’ in Subramanian Senthilkannan Muthu (ed), Assessing the Environmental Impact of Textiles and the Clothing Supply Chain (Woodhead Publishing 2014). 17 Subramanian Senthilkannan Muthu, ‘10 – Assessing the Environmental Impact of Textiles: Summary and Conclusions’ in Muthu (ed) (n 16). 18 Beton and others (see Table 7.3 note).

136  Małgorzata Koszewska Production

Transport

Use

End of life

Agricultural land occupation Terrestrial ecotoxicity Freshwater eutrophication Marine eutrophication Natural land transformation Ozone depletion Fossil depletion Climate change Terrestrial acidification Particulate matter formation Photochemical oxidant Urban land occupation Ionising radiation Water depletion Metal depletion Freshwater ecotoxicity Marine ecotoxicity Human toxicity -20%

0%

20%

40%

60%

80%

100%

Figure 7.6  E  nvironmental impact of the EU textile consumption for each life-cycle stage and midpoint indicator. Author’s compilation based on data form. Based on: Adrien Beton and others, Environmental Improvement Potential of textiles (IMPRO Textiles) (Publications Office of the European Union 2014); Dodd and Wolf (n 4); Commission (n 4); SOMO, Fact Sheet Socially Responsible Public Procurement of Garments and Textiles. Focus on the Role of European Governments and Organisations in the Public and Semi-public Sectors (Centre for Research on Multinational Corporations 2014).

contributions to the different types of impacts vary greatly.19 As Figure 7.6 shows, the production and processing phase is predominant for indicators such as eutrophication, agricultural land occupation and natural land transformation, which are mostly associated with the use of natural fibres – mainly cotton, which requires land and fertilizers during the cultivation. It also has a huge impact on terrestrial ecotoxicity due to substances used during the processing of intermediate and final textile products. The use phase on the other hand, is responsible in substantial majority for human toxicity, freshwater and marine eco-toxicity 19 Almut. Reichel and others, Environmental Indicator Report 2014. Environmental Impacts of ­Production-Consumption Systems in Europe (European Environment Agency 2014).

Role of ecolabels in creation of life-cycle criteria  137 due to washing, tumble-drying and ironing. The detergent used for the washing process and the energy used during the washing process itself, have been found to be significantly responsible for a high share of the impacts.20 In other cases such as: water depletion and energy consumption (e.g., fossil fuel depletion, climate change, ozone depletion, photochemical oxidant formation, particulate matter formation), contribution of production and use to environmental impacts is evenly balanced, as those resources are demanded all along the value chain of each textile product. Analysing the main environmental challenges connected to T&C products, two aspects seem to be especially important in the context of the public procurement: chemical risks and fibre composition. The textile industry makes intensive use of chemicals. In the case of public procurement a large number of industrial chemicals are used to meet the high performance requirements for different kind of protection. This poses especially a challenge in the context of the protective clothing.21 Consequently, there is a need to find a balance between protecting the environment but at the same time giving the user an adequate level of protection. A similar challenge applies to blending, which is used to create fabrics that have the combined properties of their component fibres.22 Using material blends can improve the appearance, performance, comfort and ease of care of a garment. Blending more expensive fibres with cheaper ones also reduces cost. One of the most common examples is ‘polycotton’, a blend of polyester and cotton commonly used in occupational and workwear. Compared to pure cotton, it has higher durability, crease resistance and lowers cost, but still maintains a cotton ‘feel’. At the same time, some of the blends have negative environmental impacts connected with their recycling, as material blends make it more difficult to capture material value through recycling.23 In view of the complexity of the environmental issues created by the textiles sector presented above, there has been a pressing need to introduce concrete instruments that would help public authorities to purchase in a way that reduces the environmental impacts arising from textile products and services along all the phases of their life-cycle. Public Sector Directive allows application of voluntary instrument of ecolabels which will be analysed below.

7.4  The role of textile ecolabels in GPP GPP is a voluntary instrument, though if used more widely it could boost demand for sustainably produced T&C within and outside the EU. For this to happen, robust traceability systems for the textile supply chains are needed to ensure

20 Beton and others (see Table 7.3 note). 21 Magnus Boström and Mikael Karlsson, ‘Responsible Procurement, Complex Product Chains and the Integration of Vertical and Horizontal Governance’ (2013) 23 Environmental Policy and Governance 381. 22 Blended yarns are made by combining different fibres. 23 Subramanian Senthilkannan Muthu, ‘9 – Measuring the Environmental Impact of Textiles in Practice: Calculating the Product Carbon Footprint (PCF) and Life Cycle Assessment (LCA) of Particular Textile Products’ in Muthu (n 16).

138  Małgorzata Koszewska that required environmental criteria are being met.24 Ecolabels can play a crucial role in this field by enabling public procurers to differentiate T&C products on the basis of their environmental impacts. They can be used in two different ways in the GPP process: • •

To translate the environmental criteria of labels into technical specifications To check compliance with these requirements by accepting the label as one means of proving compliance with the technical specifications25

A huge number of textile related standards and schemes have been introduced all over the world, which generally is a positive trend but at the same time, it pose a challenge for GPP. The criteria for ecolabels vary greatly, covering different LCC stages and different criteria.26 In the following section, the textile ecolabels identified as the most helpful for the public procurers, from the perspective of both establishing the procurement requirements as well as evaluating them, will be discussed.

7.4.1  Ecolabels definitions and classifications in the context of GPP There are many definitions and classifications of ecolabels depending on the adopted criteria.27 From the GPP requirements perspective, the most adequate approach to defining ecolabels is the one that implies a narrow understanding of this communication instrument. According to this definition, ecolabels are voluntary, show the environmental impacts of a product to the consumer, preferably based on LCC considerations and verified by a third party. To the most relevant ecolabels schemes can be accounted: the ISO classification, the Commission classification and the classification based on LCA. The International Organization for Standardization (ISO) has identified three broad categories of voluntary labels based on the ISO 14020 standard 28: •



Category 1: type I ecological label is a voluntary, multiple-criteria-based, third-party programme, indicating overall environmental preferability of a product within a product category based on LCC (ISO 14024). Category 2: type II – self-declared environmental claims – a single-attribute label developed by the producer. It is made without independent third-party certification (ISO 14021).

2 4 Reichel and others (n 19). 25 Commission, Buying Green! A Handbook on Green Public Procurement (3rd ed, 2016). 26 Małgorzata Koszewska, ‘Social and Eco-Labelling of Textile and Clothing Goods as Means of Communication and Product Differentiation’ (2011) 19 Fibres & Textiles in Eastern Europe 20; Małgorzata Koszewska, ‘Life Cycle Assessment and the Environmental and Social Labels in the Textile and Clothing Industry’ in Muthu (n 16). 27 Koszewska (n 26); Dacian C. Dragos and Bogdana Neamtu, ‘Sustainable Public Procurement: Life Cycle Costing (LCC) in the New EU Directive Proposal’ (2013) 1 EPPPL 19. 28 Koszewska (n 26).

Role of ecolabels in creation of life-cycle criteria  139 •

Category 3: type III – quantified environmental data of a product under present categories or parameters. It is awarded based on a full LCA and verified by a qualified third party (ISO 14025).

The Commission uses a slightly different classification, however, in same points, referring to the ISO typology29: •

• •

Category 1: public, multi-criteria ecolabels (Type I, ISO 14024). They are based on a number of pass/fail criteria that set the standard for the label in question. Different sets of criteria are established for each product or service group covered by the scheme. Category 2: public, single-issue labels. They relate to one particular environmental issue like energy use or emission levels. Category 3: private labels. They are run by NGOs, industry groups, or combinations of stakeholders.

The third classification is based on LCA, and in this case, ecolabels can be divided into three major groups30: • •



Category 1: single-attribute labels that cover mainly one stage of a product’s life cycle. Category 2: multi-attribute labels that address almost every stage of the product life cycle. This category offers a more fragmented vision of the product life cycle. Rather than providing a holistic evaluation, it acts on different stages separately. It is close to the ISO Type I labels. Category 3: life cycle-oriented labels that are different from the multi-­ attribute labels in that they aim to provide an assessment of the entire life cycle. They also recommend that criteria applying to life-cycle stages be considered as early as the design phase. The LCA methodology is based on the ISO 14040 series of standards or at least on a formal life-cycle approach.

Table 7.4 presents the role of the particular ecolabel categories under different classifications with examples of textile labels most commonly used or recommended for public purchases. The most valuable ecolabels from a GPP perspective are those based on objective and transparent criteria, addressing almost every stage of the product life cycle, and which are awarded by an independent third party. These characteristics enable the ecolabels to play a role in developing technical specifications, the award criteria and compliance verification.

29 Commission, ‘Green Public Procurement. Textiles Technical Background Report’ (DG ­Environment-C1 2011) available at: accessed 30 September 2018. 30 Aline Cobut and others, ‘Using Life Cycle Thinking to Analyze Environmental Labeling: The Case of Appearance Wood Products’ (2013) 18 International Journal of Life Cycle Assessment 722.

140  Małgorzata Koszewska Table 7.4.  Textile ecolabel types under different classifications and their potential for the GPP Classification Group within the classification

ISO

EC

LCA

Category 1

Category 2

+++ EU Ecolabel, Nordic Swan, Blue Sign, GOTs -

+++ EU Ecolabel, Nordic Swan, Blue Sign, GOTs ++

Category 3

+

-

++ OEKO-TEX Standard 100 Better Cotton Initiative +++ EU Ecolabel, Nordic Swan, Blue Sign, GOTs + Cradle2Cradle or SMaRT

+++ great potential; ++ moderate potential; + weak potential; - non.

7.4.2  Ecolabels under Public Sector Directive The rules on the use of ecolabels in public procurement are now laid down in ­A rticle 43 of the Public Sector Directive.31 Firstly, the new EU Public Procurement law allows direct references to an ecolabel in a call for tender. More precisely, it provides an enhanced ability to refer to and require ecolabels in technical specifications, award criteria and contract performance clauses without specifying the underlying criteria.32 Although equivalent labels must still be accepted, tenderers will no longer be able to rely on self-declarations or other forms of non-third-party evidence unless they can establish that they were unable to obtain a label for reasons not attributable to them.33 Critics have argued that this additional possibility to accept a manufacturer’s own technical dossier or self-­ declaration completely removes the ability of the contracting authority to insist upon third-party certification. Furthermore, it lacks any progression from the previous position and stirs confusion with its seemingly contradictory wording.34 Secondly, the new Public Sector Directive provides a definition of a label, which was not there previously. A label is defined as any document, certification, or attestation confirming that the works, products, services, processes or 31 Birna Guðrún Magnadóttir and others, Nordic Guidelines –Green Public Procurement. How to Use Environmental Management Systems and Ecolabels in EU Tenders (Nordic Council of Ministers 2017). 32 ibid. 33 Environmental Protection Agency, Green Procurement Guidance for the Public Sector (2014). 3 4 Dragos and Neamtu (n 27).

Role of ecolabels in creation of life-cycle criteria  141 procedures in question meet certain requirements. The Directive also specifies the conditions under which the contracting authorities can require a specific label as means of proof that the supplies or services correspond to the required characteristics. The label must be linked to the subject matter, objectively verifiable and non-discriminatory, adopted in an open and transparent procedure, set by a third party (independent from the bidder) and accessible to all interested parties. Most ISO Type I ecolabels meet these conditions. It is not surprising that these labels have been generally favoured over others in public procurement practice (see Table 7.4).35 If it is evident that a label meets the above conditions, it can be included as part of technical specifications, award criteria or contract conditions.36 Despite some critical opinions on the new EU Public Procurement law referred to above, it can be concluded that the legal aspects of labelling are now clearer than they were under the previous procurement directives, and hopefully, they will encourage procurers to refer to them more frequently.

7.4.3  Textile ecolabels – advantages and limitations for the GPP The analysis of the existing literature allowed to identify the main advantages as well as shortcomings of textile ecolabels in the context of GPP. As presented in Table 7.5, the main advantages stem from the simplification and facilitation of the following processes: communication process, process of criteria development and contractual follow-up, decision-making process, monitoring of the GPP process, and finally, a proactive strategy to deal with chemical risks. The main challenges on the other hand are connected to a limited market supply of ecolabelled textile products, insufficient environmental knowledge in the field of textiles, primary importance of purchase price in tenders, legal uncertainties and, finally, some concerns about the possible exclusion of SMEs because of ecolabelling costs.

7.4.4  Ecolabels and the EU GGP criteria One of the common challenges of the GPP implementation is to know which environmental criteria to use. GPP criteria are, next to ecolabels, a key voluntary instrument to assist contracting authorities in identifying and procuring greener products and services. The Commission has developed common EU GPP criteria for a range of different products and services. 37 These criteria

35 Louise Evans and Phil Dolley, Assessment and Comparison of National Green and Sustainable Public Procurement Criteria and Underlying Schemes Final Report (AEA Technology for the Commission 2010) available at accessed 30 September 2018; Dodd and Caladas (n 7); Dragos and Neamtu (n 27). 36 Magnadóttir and others (n 31). 37 Commission (n 29).

Table 7.5.  Strengths and weaknesses of textile ecolabels in the context of their implementation in the GPP processa Advantages

Shortcomings

Communication advantages:

Limited market supply

• clearer communication by referring directly to ecolabels instead of multiple individual environmental requirements • easier communication of GPP policies to employees, suppliers and other stakeholders • GPP policy is more visible when products carry ecolabels • contractual requirements simplified and clearer to suppliers Time saving thanks to a facilitated process of criteria development and contractual follow-up • no need to develop their own environmental requirements – many of the certification organizations offer a list of key product criteria on their websites • ecolabels as reliable documented proof that the relevant requirements are fulfilled – time saving for the procurer and the supplier Simpler decision-making process • easier process of verifying the level of requirement fulfilment • easier process of supplier selection • a way to deal with the huge number of possible choices that must be made all the time, especially in the face of assessing environmental impacts in the textile supply chain Easier monitoring of the GPP process • easier to set political targets for the use of ecolabels • a comparatively high level of guarantee that suppliers control their own suppliers Proactive strategy to deal with chemical risks • ecolabelling may interact with legislation – REACH • a kind of a guarantee that a number of chemicals have not been used

• limited availability of ecolabelled products within the clothing and textile industry - small number of ecolabelled textiles on the market Lack of time and knowledge • low environmental knowledge and awareness of ecological problems caused by the textile and clothing industry • a lack of environmental knowledge among contracting authorities in terms of understanding the complex textile supply chains in practice • uncertainty caused by the fact that procurers often lack information on different textile ecolabels and their criteria Legal uncertainties • perception of GPP criteria as a safer way to succeed than requiring a certain label • resistance to defining requirements referring to textiles without good knowledge of the consequences of such requirements • a lack of knowledge about the effects of ecolabels on price and environmental benefits • uncertainty about the requirements underlying the labels that can legally be used in a tender • legislation may be difficult to interpret with regard to different practices, impacts and prolonged processes Concerns about the possible exclusion of SMEs • ecolabels considered too expensive by many SMEs Purchase price seen as a crucial factor in tenders for textiles • environmental considerations including ecolabels do not have sufficient weighting in public tenders • a greater focus on purchase prices than on the total life-cycle costs associated with purchasing

a Based on: Boström and Karlsson (n 21); Magnadóttir and others (n 31); Pammi Sinha and Clare Hussey, Product Labelling for Improved End of Life Management (Technical Report, Centre for Remanufacturing & Reuse 2009); Reichel and others (n 19); Dragos and Neamtu (n 27); Kate Harris and Shaila Divakarla, ‘Supply Chain Risk to Reward: Responsible Procurement and the Role of Ecolabels’ (2017) 180 Procedia Engineering 1603.

Role of ecolabels in creation of life-cycle criteria  143 are regularly reviewed and updated to take into account the latest scientific product data, new technologies, market developments and changes in legislation. 38 The GPP criteria for textiles have been republished by the Commission in 2017, whereas the previous GPP criteria were launched in early 2012. The revised criteria have a modified and expanded scope to include cleaning products and non-fibre items such as zips, buttons and accessories and lower level of weight threshold by means of which products are classified under the GPP requirements (lowered from 90% to 80%). The above-mentioned revision aimed to ensure compliance with the EU Ecolabel and the Textiles Names Directive (EU) 1007/2011).39 This kind of synergy between different EU product policies helps contracting authorities to procure textile products and services in a way that leads to environmental improvements, thus contributing to the EU policy objectives for energy, chemical management and resource efficiency and at once, reduces LCC.40 The final set of the revised criteria was published in two complementary documents: ‘Revision of the EU Green Public Procurement (GPP) Criteria for Textile Products and Services: Technical report with final criteria’ and ‘Green Public Procurement. Textile Technical Background Report’. Both aimed to provide contracting authorities with guidance on how to effectively integrate the GPP criteria into their procurement processes. The criteria address two broad areas. The first addresses textile products directly procured by a contracting authority. The second addresses textile services, which may be procured including the rental of textiles, asset management, laundry and end-of-life take back (see Figure 7.7). Additionally, the EU GPP criteria include the following two ‘levels’: •



The core criteria – focused on the key area(s) of environmental performance of a product or service and aimed to keep administrative costs for companies to a minimum. The comprehensive criteria taking into account more aspects or higher levels of environmental performance and for use by authorities who want to go further in supporting environmental and innovation goals.

As can be seen in Figure 7.7, the GPP criteria for textile products are largely based on standard Type I ecolabels like the EU Ecolabel, Nordic Swan or GOTS. Those labels cover a wide range of criteria: •

Raw materials (organic, Integrated Pest Management (IPM) or recycled content)

38 Buying Green! (n 25). 39 Regulation (EU) No. 1007/2011 of the European Parliament and of the Council of 27 September 2011 on Textile Fibre Names and Related Labelling and Marking of the Fibre Composition of Textile Products and Repealing Council Directive 73/44/EEC and Directives 96/73/EC and 2008/121/EC of the European Parliament and of the Council (2011) OJ L272/1. 40 Commission (n 4).

Figure 7.7  Classification of EU GPP criteria for textiles and their relationship to ecolabels.

Role of ecolabels in creation of life-cycle criteria  145 • •

Chemical substances (tested both on the final product and verified at production sites) Durability referring to performance benchmarks (like dimensional change, colour fastness, tensile and seam strength, water, dirt and stain repellence, flame retardancy and others)

There are also a wide range of labels that may be useful for public procurer, but are dedicated only to selected life-cycle phases, for example, the raw material sourcing or human ecology. In the case of cotton, there are two major improvement options for reducing the environmental impacts of cotton production: integrated farming IPM (Integrated Pest Management) and organic farming – a system that avoids the use of industrial fertilizers and pesticides. These two systems have been included in the EU Ecolabel since 2014. There are also wide ranges of other standards that refer to these aspects. Most popular are Better Cotton Initiative, Cotton Made in Africa, Fair Trade Cotton and Textile Exchange Organic Standard. There are also labels that refer mainly to the chemical treatments and are meant as an assurance for the users (see Figure 7.7). One of the most popular is Oeko Tex Standard 100 that covers multiple human-ecological attributes including harmful substances, which are prohibited or regulated by law, as well as chemicals, which are known to be harmful to health but are not officially forbidden, and parameters, which are included as a precautionary measure to safeguard health.

7.5 Application of eco-labels and GPP criteria for textile and clothing products in procurement contracts There are not many analyses that would allow to assess the exact scope of GPP criteria application to T&C products in public procurement contracts. However, there is some data available that facilitates a coarse-grained view of the situation. A valuable source of information is a study conducted by the Centre for European Policy Studies (CEPS) and the College of Europe (CoE) that aimed to measure the level of the EU core GPP criteria uptake by procuring authorities in the EU for the selected product groups.41 The results were obtained with a targeted survey of contracting authorities in the 27 MS of the EU. The surveyed public authorities were asked whether and to what extent they made use of ‘any form of green’ criteria when procuring the selected products and services. The questionnaire asked respondents to give specific information on the last contract signed for each of the ten product groups, plus information on all contracts 41 Commission identified 10 product and service groups, and proposed a first set of criteria for GPP uptake in 2008. These first ten product groups were cleaning products and services, construction, electricity, catering and food, gardening, office IT equipment, copying and graphic paper, textiles, transport, furniture. As the Commission set the objective to achieve a 50% uptake of ‘core’ GPP criteria by 2010, it also announced the intention to monitor this uptake.

146  Małgorzata Koszewska signed in the period between 2009 and 2010.42 The survey classified the different potential levels of GPP into three main categories: • • •

Contracts including all EU Core Green Criteria Contracts including at least one EU Core Green Criterion Contracts including some form of green criteria (the definition of ‘green’ was left to the respondent).

Based on the results, the place of textile products compared to other product groups in the context of fulfilling the EU core GPP criteria target can be assessed. As Figure 7.8 shows, only 14% of the contracting authorities included all core green criteria in case of textile products, placing this product group far behind the leaders: transport 55% and office equipment 48%. Only one product group (transport) meets the 50% target set at the EU level and textiles were in the group of products that significantly lag behind with a level of uptake. A good prognosis is that almost 50% of the contracts included at least one EU core GPP criterion in the case of textile products, which, nevertheless, still classifies textiles at the very end of the ranking, together with food products and catering services (Figure 7.8). The analysis of the reported level of uptake for the individual EU core GPP criteria showed that only 3 out of the 24 EU core GPP criteria included in the survey were reportedly used by more than 50% of the respondents and they were: double printing and energy performance for office IT equipment and the criterion on CO2 emissions for transport.43 The level of uptake for the textile core criteria is presented in Figure 7.9. Figure 7.9 shows which EU GPP criteria for textiles were most frequently included in public procurement by the respondents across the EU. The most common criterion was the maximum level of harmful substances (34%) followed by the content of organic or/recycled fibres (23%). Another survey, aimed at evaluating to what extend green criteria had been implemented in the public procurement, was completed in 2009.44 The report includes results for the seven best performing MS, the so-called Green-7 (Austria, Denmark, Finland, Germany, Netherlands, Sweden and the United Kingdom). To measure the level of GPP, a selection of ten product groups frequently procured by contracting authorities – including textiles – was made. For each product group a representative product type was identified, in the case of T&C products, it was clothing. A questionnaire was sent out to 514 organizations,

4 2 Andrea Renda and others, The Uptake of Green Public Procurement in the EU27 (European Union 2012). 43 See more on LCC in ICT and IT sectors in Raluca Suciu and Dacian Dragos, ‘LCC Criteria for Procurement of ICT Products and Services: The Need for Taking a Flexible Approach’ Chapter 6 of this book. 4 4 PricewaterhouseCoopers, Collection of statistical information on Green Public Procurement in the EU. Report on Data Collection Results (PricewaterhouseCoopers, Significant and Ecofys 2009).

Figure 7.8  The current levels of EU GPP uptake by product group. Author’s analysis based on data from Renda and others (n 42).

Figure 7.9  L  evel of uptake for individual EU core GPP criteria for textiles [%]. Based on data from Renda and others (n 42).

148  Małgorzata Koszewska of which 137 responded according to procurement contracts in 2006–2007. The survey classified three different potential levels of GPP: • • •

Core Green: addressing the most significant environmental impacts (for textiles: Ökotex Standard 100) Comprehensive green: best environmental products (for textiles: EU Ecolabel) Non-green: no green procurement conditions applied

As shown in Figure 7.10, although the analysis included only the seven best performing MS, still in the case of over 50% of the analysed procurement contracts, no green criteria for clothing had been applied (both in terms of value and the number of contracts). At the same time, the core criteria (based on the Ökotex Standard 100) dominated (40% in terms of value and 29% in terms of the number of contracts), the comprehensive green criteria (based on the EU Ecolabel) accounted only for 7% in terms of value and 10% in the case of the number of contracts. The results show that, in the case of textiles, country differences are relatively high. In Denmark, the majority of the purchased clothing meets ecological criteria of certain ecological standards or ecolabels. In Finland and the UK, only a small number of the products meet such criteria. The more precise data relating to the all analysed indicators: (Indicator 1: % GPP of total public procurement in terms of monetary value, Indicator 2: % GPP of total public procurement in terms of the number of contracts) as well as the share of organizations complying with a green criterion for the product group of textiles are presented in Figures 7.11 and 7.12. The authors of the ‘Revision of the European Ecolabel and Green Public Procurement Criteria for Textile Products’ point to a connection between the PWC data on green criteria implementation in public procurement and the number of the EU ecolabel licenses.45 The comprehensive green criteria were included especially in Austria, Denmark and Sweden, which also have the highest number of the EU ecolabel licenses (figure 7.13). Although the results come from surveys carried out in different years (2008 and 2012) and they are based on different methodologies, they show that compared to other product categories, textiles are not a leader in implementing the green criteria in public procurement contracts. Consequently, there is still a lot of work to be done and many challenges to overcome, and ecolabels appear to be an instrument with a big, untapped potential to improve the situation. Another report providing some insight into how MS have been implementing the GPP textile criteria is the one prepared by AEA Technology for the Commission in 2010.46 The analysis was split into two phases: first, a review of national green and sustainable public procurement schemes in ten countries was conducted and then, identification of the range of product groups covered within 45 Nicholas Dodd and others, Revision of the European Ecolabel and Green Public Procurement Criteria for Textile Products. Preliminary Report (Draft) Working Document for the 1st AHWG Meeting (DG JRC (IPTS) 2012). 4 6 Evans and Dolley (n 35); Dodd and Caldas (n 7).

Role of ecolabels in creation of life-cycle criteria  149

Figure 7.10  Green criteria included in public procurement contracts for selected product groups in terms of value and the number of contracts. Author’s analysis based on data from: PricewaterhouseCoopers (n 44).

each of the national schemes was carried out. Textile products were captured by product groups within eight of the countries reviewed in this study (Austria, Belgium, Denmark, France, Netherlands, Sweden, UK, Norway). Their results showed that the EU GPP criteria for textiles found in the national product sheets covered the three main criteria: chemical content, organic fibres and recycled

Core level Öko-Tex Standard 100 Total

29

Denmark

Comprehensive level EU Ecolabel

10

61

40

Austria

33

43

Sweden

34

Netherlands

34

Germany United Kingdom

42

9

57

5

61

0

70

11 0

Finland

89

8 0 0%

27

15

30

Non-green

92

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 7.11  %  GPP of total public procurement in terms of monetary value for clothing. Author’s analysis based on data from: PricewaterhouseCoopers (n 44).

Core level Öko-Tex Standard 100

Total

Comprehensive level EU Ecolabel

40

7

Denmark

4

56

Netherlands

0

53

Germany

31

Austria

6

Sweden United Kingdom

53

73

Finland

1

45

0

69 71

1

80

40 0%

23 44

23 19

Non-green

96 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 7.12  %  GPP of total public procurement in terms of the number of contracts for clothing. Author’s analysis based on data from: PricewaterhouseCoopers (n 44).

Figure 7.13  P  ercentage of organizations complying with a green criterion for the product group of textiles. Author’s analysis based on data from: PricewaterhouseCoopers (n 44).

Figure 7.14  G  PP criteria for textiles used most frequently in national GPP schemes by selected MS (Austria, Belgium, Denmark, France, Netherlands, Sweden, UK, Norway). Author’s analysis based on data form: Evans and Dolley (n 35); Dodd and Caldas (n 7).

Role of ecolabels in creation of life-cycle criteria  153

Figure 7.15  E  colabel schemes most frequently referred to in national GPP schemes by the selected eight MS. Author’s analysis based on data form: Evans and Dolley (n  35); Dodd and Caldas (n 7). MS include Austria, Belgium, Denmark, France, Netherlands, Sweden, United Kingdom and Norway.

fibres. As shown in Figure 7.14, all countries had included criteria restricting the chemical content of textiles. The most common chemical groups listed are pesticides, heavy metals, dyes and flame retardants. Organic fibres are the next most common topic, followed by the inclusion of recycled fibres, and disposal and recycling aspects. Those findings are consistent with the CEPS monitoring study mentioned earlier (see Figure 7.9). The AEA Technology review also allowed to identify the most referred to ecolabels in the national GPP schemes of the eight analysed MS. The results presented in Figure 7.15 show that the most common were the references to the standard Type I ecolabels: the EU Ecolabel and the Nordic Swan (prevalence of the Nordic countries in the survey), followed by Oeko-Tex 100, and the EU organic farming standard.

7.6  Concluding remarks and future trends As the presented data showed, textiles compared to other product categories are not a leader in implementing green criteria in public procurement contracts. Purchase price and fulfilling concrete parameters according to technical specifications seem to be fundamental choice criteria in this sector. At the same time,

154  Małgorzata Koszewska as the LCA data showed, the use phase can have a significant impact on the environment but also on costs. The latter are mainly connected with energy and water consumption. The disposal phase too can incur significant costs connected with maintenance, disposal of hazardous materials and missed business opportunities for the value capture in the case of landfilled or incinerated clothing. According to WR AP, in many of the EU MS a majority of workwear (main textile product group in public procurement) is sent to landfill or incineration. In the United Kingdom, for example, 90% of workwear was disposed of in this way in 2012 (estimated 16,000 tonnes). Although, clothing collection systems capture around 50% of other types of clothing for reuse and recycling. This highlights a significant business opportunity for value capture. Since users of corporate wear in particular are far easier to reach for clothes recapture than the individual consumer.47 The cost savings can be achieved, if the whole textile LCC is considered. This would result in reduced waste management costs, owner textile replacement rates and reduced use of energy associated with textile cleaning. Thus, taking LCC into account in the procurement of textile and clothing products makes clear economic sense and can be a useful tool for the textile industry. The applicability of LCC in T&C industry is still in its infancy and implementing it within the textile public procurement continues to be a challenge.48 The available data shows the current use of LCC techniques in public procurement for textiles is very limited. However, there is some evidence that life-cycle thinking is used in textile services.49 The main challenge for the future is effective implementation of the GPP for textile products and services. The criteria of special importance in the context of LCC would be those referring to: product durability, life plan extension, energy conservation during use as well as maintenance and take back systems. Those criteria are significantly present in the recently revised version of the GPP criteria for textile products and services and are important drivers of circular economy. Yet, they are rather neglected in the existing labelling schemes (see Figure 7.9). Establishing LCC within procurement procedures will require collaborative cooperation as purchase price, energy and maintenance costs may be paid by different departments within a single authority.50 There are trends that allow to forecast the successful development of LCC techniques in the future. They are reflected in the current EU initiatives referring to the introduction of a circular economy models, followed by circular procurement practices, as well as the development of a harmonized methodology for the calculation of the environmental footprint of products (PEF) and organizations (OEF).51 The PEF/OEF pilot phase is considered by many to be a good opportunity for the LCA harmonization at the EU level and beyond.52 47 48 49 50 51

European Textiles & Workwear (n 9); Bartlett and others (n 6). Muthu, ‘Evaluation of Sustainability in Textile Industry’ in Muthu (n 16). Dodd and Wolf (n 4); Commission (n 4). Buying Green! (n 25). Ernst & Young, ‘Product and Organisation Environmental Footprint Verification of Embedded Impacts and Traceability as part of the Environmental Footprint Methods Implementation’ (2017). 52 European Environment Bureau ‘The EU Product Environmental Footprint (PEF) Methodology’ (EEB 2018); ‘Review Report of the Environmental Footprint Pilot Phase’ (EU 2017) available at: accessed 30 August 2018.

Role of ecolabels in creation of life-cycle criteria  155 For textiles, the use of this methodology is currently limited to one product ­category – T-shirts. However, there are high hopes that a harmonized environmental footprint methodology could help inform full LCC analyses and complement existing schemes in future public procurement processes.

References Adrien Beton and others, Environmental Improvement Potential of textiles (IMPRO Textiles) (Publications Office of the European Union 2014). Biointelligence (2009, unpublished) EC-Funded IMPRO Project on Environmental Improvement Potential of Textiles, cited from: Faye Gracey and David Moon, Valuing Our Clothes: The Evidence Base (WR AP 2012). Caroline Bartlett and others, A Review of Corporatewear Arisings and Opportunities (WR AP 2012). Magnus Boström and Mikeal Karlsson, ‘Responsible Procurement, Complex Product Chains and the Integration of Vertical and Horizontal Governance’ (2013) 23 Environmental Policy and Governance 381. Aline Cobut and others, ‘Using Life Cycle Thinking to Analyze Environmental Labeling: The Case of Appearance Wood Products’ (2013) 18 International Journal of Life Cycle Assessment 722. Commission, ‘Commission Staff Working Document – EU Green Public Procurement Criteria for Textiles Products and Services’ (2017) 231 final. Commisson, ‘Green Public Procurement. Textiles Technical Background Report’ (DG Environment-C1 2011). Commission, Buying Green! A Handbook on Green Public Procurement (3rd ed, European Union 2016). Commission, GPP Europe. European Union on Green Public Procurement (European Commission 2016). Communication from the Commission to the European Parliament and the Council, ‘Energy Efficiency and Its Contribution to Energy Security and the 2030 Framework for Climate and Energy Policy’ COM (2014) 520 final. Nicholas Dodd and Miguel Gama Caldas, Revision of the EU Green Public Procurement (GPP) Criteria for Textile Products and Services. Technical Report with Final Criteria (Publications Office of the European Union 2017). Nicholas Dodd and Oliver Wolf, ‘Revision of the EU Green Public Procurement Criteria for Textile Products. Background Report (Draft) Working Document for the 1st AHWG Meeting’ (DG JRC (IPTS) 2012). Dacian C. Dragos and Bogdana Neamtu, ‘Sustainable Public Procurement: Life Cycle Costing (LCC) in the New EU Directive Proposal’ (2013) 1 European Procurement & Public Private Partnership Law Review 19. ECAP, European Textiles & Workwear Market, The Role of Public Procurement in Making Textiles Circular (2017). Ellen MacArthur Foundation, A New Textiles Economy: Redesigning Fashion’s Future (2017). Environmental Protection Agency, Green Procurement Guidance for the Public Sector, environmental protection agency an Ghníomhaireacht um Chaomhnú Comhshaoil (2014). Ernst & Young, ‘Product and Organisation Environmental Footprint Verification of Embedded Impacts and Traceability as part of the Environmental Footprint Methods Implementation’ (Ernst & Young et Associés 2017). European Environment Bureau, The EU Product Environmental Footprint (PEF) Methodology (EEB 2018).

156  Małgorzata Koszewska Louise Evans and Phil Dolley, Assessment and Comparison of National Green and Sustainable Public Procurement Criteria and Underlying Schemes Final Report (AEA Technology for the European Commission 2010). Ebru Genç, ‘An Analytical Approach to Greenwashing: Certification Versus Noncertification’ (2013) 20(2) Journal of Management & Economics 151–175. Małgorzata Koszewska, ‘Outsourcing as a Modern Management Strategy, Prospects for Its Development in the Protective Closing Market’ (2004) 4 Autex Research Journal 4. Małgorzata Koszewska, ‘Social and Eco-Labelling of Textile and Clothing Goods as Means of Communication and Product Differentiation’ (2011) 19 Fibres & Textiles in Eastern Europe 20. Małgorzata Koszewska, ‘Life Cycle Assessment and the Environmental and Social Labels in the Textile and Clothing Industry’ in Subramanian Senthilkannan Muthu (ed), Handbook of Life Cycle Assessment (LCA) of Textiles and Clothing (Woodhead Publishing Series in Textiles, 1 ed, Woodhead Publishing 2015) 325–344. Małgorzata Koszewska, ‘Circular Economy – Challenges for the Textile and Clothing Industry’ (2018) 18(4) Autex Research Journal 337–347. Francois Libert and others, Public Procurement Awarding Guide for the Clothing-Textile Sector. The Most Cost-Effective Tender (2005) developed in 2005. Birna Guðrún Magnadóttir and others Nordic Guidelines –Green Public Procurement. How to Use Environmental Management Systems and Ecolabels in EU Tenders (Nordic Council of Ministers 2017). Silke Moschitz and others, ‘RESPIRO Guide on Socially Responsible Procurement of Textiles and Clothing’ (ICLEI European Secretariat GmbH, Freiburg, Germany and EUROCITIES asbl, Bruxelles, Belgium 2007). Subramanian Senthilkannan Muthu, ‘7-Life Cycle Assessment (LCA) and Product Carbon Footprint (PCF) Modelling of Textile Products’ in Subramanian Senthilkannan Muthu Muthu (ed), Assessing the Environmental Impact of Textiles and the Clothing Supply Chain (Woodhead Publishing 2014). Subramanian Senthilkannan Muthu, ‘9-Measuring the Environmental Impact of Textiles in Practice: Calculating the Product Carbon Footprint (PCF) and Life Cycle Assessment (LCA) of Particular Textile Products’ in Subramanian Senthilkannan Muthu Muthu (ed), Assessing the Environmental Impact of Textiles and the Clothing Supply Chain (Woodhead Publishing 2014). Subramanian Senthilkannan Muthu, ‘10-Assessing the Environmental Impact of Textiles: Summary and Conclusions’ in Subramanian Senthilkannan Muthu (ed), Assessing the Environmental Impact of Textiles and the Clothing Supply Chain (Woodhead Publishing 2014). Subramanian Senthilkannan Muthu, ‘Evaluation of Sustainability in Textile Industry’ in Subramanian Senthilkannan Muthu Muthu (ed), Sustainability in the Textile Industry (Springer 2017). PricewaterhouseCoopers, ‘Collection of Statistical Information on Green Public Procurement in the EU. Report on Data Collection Results’ (PricewaterhouseCoopers, Significant and Ecofys 2009). Regulation (EU) No. 1007/2011 of the European Parliament and of the Council of 27 September 2011 on Textile Fibre Names and Related Labelling and Marking of the Fibre Composition of Textile Products and Repealing Council Directive 73/44/EEC and Directives 96/73/EC and 2008/121/EC of the European Parliament and of the Council [2011] OJ L272/1.

Role of ecolabels in creation of life-cycle criteria  157 Almut Reichel and others, Environmental Indicator Report 2014. Environmental Impacts of Production-Consumption Systems in Europe (European Environment Agency 2014). Andrea Renda and others, The Uptake of Green Public Procurement in the EU27 (European Union 2012). Review Report of the Environmental Footprint Pilot Phase’ (EU 2017). Barbara Resta and others, ‘Enhancing Environmental Management in the Textile Sector: An Organisational-Life Cycle Assessment approach’ (2016) 135 Journal of Cleaner Production 620. Kate Harris Shaila and Divakarla, ‘Supply Chain Risk to Reward: Responsible Procurement and the Role of Ecolabels’ (2017) 180 Procedia Engineering 1603. Pammi Sinha and Clare Hussey, Product Labelling for Improved End of Life Management (Technical Report, Centre for Remanufacturing & Reuse 2009). SOMO, Fact Sheet Socially Responsible Public Procurement of Garments and Textiles. Focus on the Role of European Governments and Organisations in the Public and Semi-public Sectors (Centre for Research on Multinational Corporations 2014). Paula Cayolla Trindade and others, ‘SPP Toolbox: Supporting Sustainable Public Procurement in the Context of Socio-Technical Transitions’ (2018) 10 Sustainability 67, 2–26. David Watson and Rikke Fisher-Bogason, Greener Textiles in Hospitals. Guide to Green Procurement in the Healthcare Sector (Nordic Council of Ministers 2017).

8 Life-cycle costing within the construction sector A tool for social housing? Deirdre Halloran

8.1 Introduction This chapter provides a preliminary exploration into the use of life-cycle costing (LCC) in the procurement of Social Housing by Member States as a means to deliver cost efficiency and sustainability. Traditionally, procurement in the construction sector has been undertaken without further consideration as to the external costs, which would be incurred from acquisition to disposal. However, more recently, a shift has occurred towards considering alternative procurement methods that provide opportunities to embrace the use of sustainability, as promoted by the EU public procurement law. LCC can be used as an effective method of analysing long-term operating costs, provides an economic metric for evaluating sustainability and energy efficiency, and to inform design decisions on maintaining and managing the asset during its operation.1 Although the overall value of LCC has been recognized in the construction sector, with substantial amounts of research being conducted in the field, the practical application of this approach has been limited.2 While its use has increased in recent years, LCC still has some significant barriers to overcome.3 There have been a number of standards and guidance notes published on LCC to increase its use. However, these methodologies are theoretical, lacking practical examples and process implementations to guide through the process.4 1 Femi Olubodun and others, ‘An Appraisal of the Level of Application of Life Cycle Costing within the Construction Industry in the UK’ (2010) 28 Structural Survey 254; Oduyemi Olufolahan, Michael Okoroh and Angela Dean, ‘Barriers to Life Cycle Costing Usage’ (30th Annual ARCOM Conference, Portsmouth, UK 2014); Raymond J. Cole and Eva Sterner, ‘Reconciling Theory and Practice of Life-Cycle Costing’ (2000) 28 Building Research & Information 368–375; Allan Ashworth, ‘Estimating the Life Expectancies of Building Components in Life-Cycle Costing Calculations’ (1996) 14 Structural Survey 4. 2 Mike Clift and Kathryn Bourke, Study on Whole Life Costing (British Research Establishment 1999); Cole and Sterner (n 1) 368–375; Ashworth (n 1). 3 Olufolahan, Okoroh and Dean (n 1); Tinashe Chiurugwi and others, ‘Exploration of Drivers and Barriers to Life Cycle Costing (LCC) in Construction Projects: Professional Quantity Surveyors’ Assessment’ (Proceedings of the International Conference, Nottingham, UK 2010). 4 British Standard Institution, Building and Constructed Assets. Service Life Planning. Life Cycle Costing (Part 5, BS ISO 15686-5:2008 BSI 2008) (since replaced by BS ISO 15686-5:2017);

Life-cycle costing within the construction sector  159 This research aims at informing the development of an LCC framework for contracting authorities when procuring Social Housing in the EU. After considering previous work related to this topic, this chapter identifies a number of problems related to LCC and its implementation in the construction sector. In Section 8.2, qualitative modes of enquiry are employed, to map and comprehensively analyse the development of LCC in the construction sector and the evolution in methodologies and standard measurements. Section 8.3 investigates how LCC is currently utilized in the construction sector. Ireland, the United Kingdom (UK), Scotland and Austria are being used, as pertinent examples of government guidance for the use of LCC in construction procurement. Section 8.4 provides an overview of Social Housing in the EU and establishes the links to procurement and LCC, with a focus on the direction that Ireland has taken. The benefits, barriers and drivers of LLC in the construction sector are examined in Section 8.5, highlighting the gaps between theory and practice. Section 8.6 concludes the chapter by providing recommendations on how to improve use of LCC in the construction sector. The chapter identifies inherent aspects of the procurement system, as well as a lack of a standard universal methodology as core barriers to the use of LCC in the construction sector. Moreover, it is argued that the incorporation of environmental consequences in the LCC approach is not sufficiently developed. The achievement of greater success implementing the requirements outlined in the Public Sector Directive depends on developing a universal methodology that would allow for easier calculation, preparation and analysis in a uniform method. The process must also become more adaptable to apply to different standard LCC methodologies and to apply to different projects and address social, economic and environmental aspects of sustainability.

8.2  LCC in the construction sector In the introductory chapter of this book, LCC is described as a tool that evaluates the costs and benefits of goods throughout its life cycle. 5 The definition that provides the international code of practice for LCC concerning the built environment6 is the definition in the BS-ISO 15685-5, which describes it as a ‘methodology for the systematic economic evaluation of the life cycle costs over the period of analysis, as defined in the agreed scope’.7 LCC is broken into a number of categories: initial construction costs, operation costs, occupancy costs, maintenance costs and end of life costs, with a breakdown of the types of costs included in each category are provided in BS-ISO 15686-5. 8

Mohammed Kishk, Assem Al-Hajj and Robert Pollock, ‘Whole Life Costing in Construction: A State of the Art Review’ (2003) 4(18) The RICS Foundation Research Paper Series 1–39. 5 See: Czarnezki and Van Garsse, ‘What Is Life Cycle Costing’ Chapter 1 of this book. 6 David Churcher and Peter Tse, Life Cycle Costing (Bsria, 2016). 7 British Standard Institution (n 4). 8 ibid 11–18.

160  Deirdre Halloran The ISO 15686-5 makes a distinction between LCC and whole life costing (WLC).9 LCC covers the initial construction and activities associated with a built asset during a set period, whereas WLC includes a broader economic matrix, encompassing not only construction costs and LCC but also ‘non-­construction costs’, such as site purchase, letting or selling agent fees, procurement costs and the cost of finance. WLC also includes ‘income’ from the built asset and any defined ‘external’ costs. The ISO describes external costs as ‘externalities’, which are costs not necessarily reflected in the transaction between provider (private supplier) and consumer (contracting authority), giving examples such as business staffing, productivity and user costs.10 Hence, while LCC deals with present and future costs and attempts to relate the two as a basis for decision-making, WLC has a broader scope in estimating both the direct and indirect financial costs resulting from the design, construction, operational management and disposal of a building throughout its entire service life.11 As pointed out in the introductory chapter, in the literature the two terms are still used interchangeably.12

8.2.1  The core principles of LCC LCC is fundamentally about providing an economic appraisal of different solutions to a given problem. This can include costs associated with construction, operation and maintenance and disposal/demolition and typically features the use of discounted cash flows to enable meaningful financial comparisons to be made.13 This economic analysis can be used in two distinct ways in building design. First, when a range of possible designs is being considered, LCC can be used as a comparison tool to aid selection. Second, it can be used to predict all actual costs and benefits arising from the selected design by estimating actual costs that will be incurred over the lifetime of the design. LCC analyses can also be used to promote efficient use of construction materials and reductions in waste and operational energy consumption14 while the inherent uncertainty associated with forecasting requires LCC to interface with the discipline of risk management.15 There are a number of principles that are enumerated in the core textbooks on the use of LCC in the construction sector.16 The first is the opportunity cost of 9 Illustrated in Figure 8.1 in Czarnezki and Van Garsse (n 5). 10 British Standard Institution (n 4). 11 Mohamed A. El-Haram and others, ‘Development of a Generic Framework for Collecting Whole Life Cost Data for the Building Industry’ (2002) 8 Journal of Quality in Maintenance Engineering 144. 12 National Audit Office, Improving Public Services through Better Construction (NAO 2005). 13 Stuart Moir and Graeme Bowles, ‘The Application of the Life-Cycle Costing Technique on UK PPP/PFI Education Projects: Theory Versus Practice’ (TG72-Special Track 18th CIB World Building Congress May 2010, Salford, United Kingdom 2010). 14 Clift and Bourke (n 2); Ulrich Bogenstätter, ‘Prediction and Optimization of Life-Cycle Costs in Early Design’ (2000) 28 Building Research & Information 376. 15 Cole and Sterner (n 1) 368–375. 16 Allan Ashworth and others, Willis’s Practice and Procedure of the Quantity Surveyor (13th ed, John Wiley & Sons 2013); British Standard Institution (n 4); Roger Flanagan and Carol Jewell, Whole Life Appraisal for Construction (John Wiley & Sons 2008).

Life-cycle costing within the construction sector  161 money: capital available today has a higher value than the same amount in the future. LCC uses the principle of discounting to convert capital in the future into the present by applying a discount factor to future payments and receipts. The ‘don’t look back’ principle states that any costs or benefits that occurred in the past are ignored. Similarly, any costs and benefits that occur after the chosen period are also ignored. The knowledge that LCC is a quantitative process is emphasized: the value of the numerical results obtained from the modelling and calculation procedures is directly related to the precision and accuracy of the data that is fed into the models. The textbooks make clear that LCC is about being approximately right in making a broadly accurate economic judgement. In order to make this judgement, significant resources are required to build the models, assemble the date and run and fine-tune the calculations. Incorrect or poor-quality input will produce faulty and unreliable output.

8.2.2  The development of life-cycle costing The traditional approach to costing building projects has been to focus primarily on initial capital costs. Since the capital costs of construction were separated from the running costs, it was standard practice in the building industry to accept the lowest initial cost and then hand-over the building to be maintained by others.17 However, initial capital savings can result in lifetime expenses caused by extra maintenance work or earlier obsolescence.18 Furthermore, with occupancy costs representing up to 70% of the total cost of a building over its entire life cycle,19 it is now universally recognized that the running costs of buildings have a significant impact on the occupiers’ budget.20 The origins of LCC in the construction industry dates back to the 1950s when the Building Research Establishment (BRE) supported research on ‘costsin-use’.21 This progressed in the 1960s when the Institution of Civil Engineers (ICE) in the United Kingdom noted the need for ‘real’ cost analysis on construction projects.22 The underlying thinking behind the ‘whole life’ movement as an appraisal methodology enjoyed a renaissance in the late 1970s in the construction sector.23 In the 1980s, attempts were made to adapt the methodology for application within the construction industry: the Royal Institute of Chartered Surveyors (RICS) commissioned a number of studies24 and the Society of Chief

17 Kishk, Al-Hajj and Pollock (2003) (n 4). 18 S. B. Tietz, ‘Lifecycle Costing and Whole-Life Design’ (1987) 65(1) The Structural Engineer 10. 19 Roger Flanagan and George Norman, Life Cycle Costing: Theory and Practice (RICS, Surveyors Publications 1987). 20 Steiner J. Dale, ‘Introduction to Life Cycle Costing’ in John W. Bull (ed), Life Cycle Costing for Construction (Blackie Academic & Professional 2003). 21 Patrick A. Stone, Economy of Building Design (Building Research Establishment 1960). 22 Ivor H. Seeley, Building Economics (4th ed, Palgrave McMillan 1996). 23 Richard Kirkham, Ferry and Brandon’s Cost Planning of Buildings (Wiley 2009). 24 Flanagan and others (n 19); RICS, A Guide to Life Cycle Costing for Construction (Surveyors Publications 1986); RICS, Life Cycle Costing: A Worked Example (Surveyors Publications 1987).

162  Deirdre Halloran Quantity Surveyors in Local Government published a practice manual.25 In the 1990s, despite the publication of government reports supporting its implementation 26 and the introduction of an element of standardization with the publication of BS 3843, 27 the widespread adoption of LCC did not occur.28 In response to the Commission’s Communication ‘The Competitiveness of the Construction Industry’29 and the subsequent Sustainable Construction Working Group, a Task Group (TG4) was established comprising of representatives from the construction industry, national administrations and research institutions with the scope of elaborating recommendations and guidelines on LCC.30 The Task Group’s paper31 found that except for the Norwegian standard, and the draft ISO 15686, Part 5, no formal standards for LCC were in existence. The following barriers to wider adoption of LCC were identified: – – – –



Lack of knowledge among clients Absence of government support Deficiency of historical data Separate budgets for building and maintenance among government departments – No linkages with environmental assessments or official policies The Task Group pointed out the lack of specific guidance and legislation in the European Union and made a number of recommendations, including (1) adopting a common European Methodology for assessing LCC in construction, (2) encouraging data collection for benchmarking, to support best practice and maintenance manuals, (3) incorporating LCC in public procurement and contract award procedures, (4) displaying LCC indicators on buildings open to the public, (5) using LCC at the early design stage of a project, (6) using fiscal measures to encourage the use of LCC and (7) developing guidance and fact sheets.32 In 2006, the Commission appointed Davis Langdon to undertake the Task Group’s recommendations, which resulted in the report ‘A common ­European

25 Gary Smith and others. Life Cycle Cost Planning (Society of Chief Quantity Surveyors in Local Government 1984). 26 Michael Latham, Constructing the Team, Final Report of the Government/Industry Review of Procurement and Construction Arrangements in the UK Construction Industry (HMSO 1994); John Egan, Rethinking Construction – Report of the Construction Taskforce (HMSO 1998). 27 Kirkham (n 23). 28 Nils Larsson and Jim Clark, ’Incremental Costs within the Design Process for Energy Efficient Buildings’ (2000) 28 Building Research & Information 413. 29 Commission, ‘The Competitiveness of the Construction Industry’ COM (97) 539. 30 Commission, ‘Communication Towards a Thematic Strategy on the Urban Environment’ COM (2004) 60 final. 31 Commission, ‘Task Group 4: Life Cycle Costs in Construction’ (Endorsed During 3rd Tripartite Meeting Group (Member States/Industry/Commission) on the Competitiveness of the Construction Industry Enterprise Publications 2003). 32 ibid.

Life-cycle costing within the construction sector  163 methodology for life-cycle costing; as a contribution to sustainable construction’.33 The Langdon’s report was intended to develop a common European methodology. It was, however, not deemed a success, as it did not articulate a standard LCC structure or adequately present the tools to carry out LCC.34 In retrospect, the report’s objective was probably too ambitious. The report did present a comprehensive commentary on LCC, reported on the level of LCC implementation in EU Member States and called for greater implementation by integrating LCC into public procurement practices.35 The report also recommended ‘the soon to be published’, ISO EN 15686-5 methodology to be the European standard. The ISO EN 15686 was duly published in 2008 and was adopted almost immediately by the British Standards Institute (BSI) as ‘BS-ISO 15686-5’ (2008).36 Part 5 provides guidelines, definitions, principles and informative text on the application of LCC techniques in the context of service-life planning. Additionally, it explains how the principles of LCC can be applied to the built environment at different levels of detail: a whole building, a piece of infrastructure, a system type within a building or a range of alternative materials. It does not appear that the BS-ISO standard was a result of the recommendation by the TG 4 or the Davis Langdon reports. The fact that an international standard exists is in itself an achievement, as it provides clarification of terminology, a generic cost structure that enables analysis as well as benchmarking and confidence in the correct use of techniques to address risk and uncertainty. However, the absence of a common European Methodology for assessing LCC in construction remains. A lack of clarity on how to carry out LCC calculations and how to present them in an LCC estimate is still evident in the BSI standard, with no practical examples and process implementations provided to guide through the process.37

8.3  LCC in the EU Construction Procurement regime The European construction sector output of €1.3 trillion is approximately 9% of the region’s GDP,38 €100 billion of which is public construction contracts.39 Every year, European governments invest about €200 billion in building, upgrading and maintaining roads and railways, schools, hospitals, stadiums, power plants and Social Housing.40 While in-house infrastructure agencies do some of 33 Davis Langdon, Life Cycle Costing as a Contribution to Sustainable Design: A Common ­Methodology – Final Report (Davis Langdon 2007). 34 Dermot Kehily, Leveraging Building Information Modelling to Address the Barriers that Prevent the Widespread Adoption of Life Cycle Costing by Quantity Surveyors (PhD Dissertation, University of Salford 2016) 23. 35 ibid. 36 British Standard Institution (n 4). 37 Kehily (n 34). 38 FIEC, Annual Report, 2017 (European Construction Industry Federation 2017). 39 McKinsey & Co. ‘Building across Borders: The State of Internationalisation in European Public Construction Tenders’ (October 2018). 40 Estimate based on Eurostat Investment Statistics, ‘Cross-Classification of Gross Fixed Capital Formation by Industry and by Asset (Flows) Total Construction and Industry,

164  Deirdre Halloran the work, the main instrument for government construction activities are competitive public tenders for private contractors. In the past five years, more than 200,000 public construction works contracts were awarded in Western Europe, more than for any other product, service or sector.41 In the EU, there is no legal obligation to use of LCC on construction works contracts and so it is up to individual contracting authorities and contractors whether they use it. While LCC is recommended in policy documents in many EU Member States, this recommendation seems to be largely ignored, evidenced in the low application of the method.42 On 26th February 2014, the EU introduced a new Public Sector Directive, which, defines and foresees the use of LCC within the public procurement process and encourages its use during the awarding phase, as a tool to achieve the most economically advantageous tender (MEAT).43 The Public Sector Directive devotes a whole Article to LCC to determine which are the relevant costs, how the data should be provided and which methods shall be used. This is discussed at length in Chapter 2 of this book. It is anticipated that the Public Sector Directive will help bring the EU legal framework into closer alignment with both cost efficiency and sustainability requirements by emphasizing that MS may address costs other than initial purchase price.44 However, the introduction of more detailed rules regarding LCC in the EU Public Procurement law has been described as a double-edged sword.45 The legitimizing of LCC may encourage its use, but the rules and limits increase the legal complexity associated with applying LCC. It may therefore introduce another barrier, while offering no official method to standardize its use or incentive to do so. The Irish Government introduced the Capital Works Management Framework (CWMF) in August 2009 to achieve greater cost certainty and better value for money on publicly funded projects including Social Housing.46 In 2014, the Government created the Government Construction Contracts Committee (GCCC) to undertake a performance review of the CWMF suite of Public Works Contracts (PWC) resulting in a report subsequently published by the Office of

Public Administration, Defence, Education, Human Health and Social Work Activities’ (2014) accessed 24 February 2019. 41 Estimates-based contract award notices in EU TED (Tenders Electronic Daily, ted.europa.eu) for works contracts with CPV (Common Procurement Vocabulary) codes 450–454. The period covered is January 2012 to August 2017. The analyses in this Article are based on TED data unless stated otherwise. In total, 154,859 contracts in 83,998 separate tenders were analysed. 42 Kehily (n 34). 43 Public Sector Directive arts 67, 68. 44 Abby Semple, A Practical Guide to Public Procurement (OUP 2015) 143. 45 ibid 191. 46 Dermot Kehily and Alan Hore, ‘Life Cycle Cost Analysis under Ireland’s Capital Works Management Framework’ (Joint CIB W070, W092 & TG72 International Conference on Facilities Management, Procurement Systems and Public Private Partnership, Cape Town, South Africa 2012).

Life-cycle costing within the construction sector  165 Government Procurement.47 The report suggested a range of interim measures including recommending that LCC should be an integral part of the risk evaluation of the project and should inform the quality award criteria. Furthermore, Building Information Modelling (BIM) was recognized as a useful risk management tool. The recommendations outlined in this report were then the subject of a series of stakeholder engagement sessions throughout 2015, after which four interim amendments to the Conditions of Contract forms PW-CF1 – PW-CF5 (inclusive) were proposed as part of a medium-term strategy towards reform. These amendments have now been incorporated into the PWC documents and were implemented on 4 April 2014. In the UK, the Office of Government Commerce (OGC) developed an established suite of guidance notes and tools encompassing project management and sustainability through the ‘Achieving Excellence in Construction Procurement’.48 A guide for ‘Whole-life and cost management’ (WLCC) forms part of the OGC suite which outlined the principles of WLCC and describes a process made up of a framework for cost management and WLCC.49 The Government Construction Strategy (GCS) 2016–20 currently sets a national agenda to improve the performance and culture of the construction industry including whole-life approaches to cost and carbon reduction across the construction, operation and maintenance of public sector buildings and infrastructure. To support these targets the government mandated the industry to adopt BIM for all public contracts by 2016.50 While both Ireland and the UK now consider whole life costs to be an important consideration throughout the design process, and recommend that it should be integrated at each stage of procurement in the cost plan development.51 There is little additional information or clarity, however, on what is expected regarding format and presentation. This means that there is most likely no uniformity in what is produced to conform to these guidance notes. The OGC and the CWMF documents are guides rather than methodologies. They do not deliver adequate clarity on the scope of LCC or provide sufficient information to carry out a WLCC estimate other than a fairly limited summary page in respect to the CWMF. Kehily and Hore state that in order to carry out a detailed LCC, a Quantity Surveyor52 would still have to consult one of the relevant international standards

47 Office of Government Procurement, Report on the Review of the Public Works Contracts (Office of Government Procurement, Department of Public Expenditure and Reform 2014). 48 Richard Kirkham, Ferry and Brandon’s Cost Planning of Buildings (8th ed, Blackwell Publishing 2012). 49 OGC, Whole-Life Costing and Cost Management – Achieving Excellence in Construction ­Procurement Guide (OGC 2007). 50 Cabinet Office, Government Construction Strategy (Cabinet Office 2016). 51 Department of Public Expenditure and Reform, Construction Procurement – Revision of Arrangements for the Procurement of Public Works Projects (Released Circular 01/16 Government Construction Strategy Cabinet Office 2016). 52 A Quantity Surveyor is a UK/Irish job title also known as a construction cost estimator. They are construction professionals who advise on all aspects of construction costs, financial and

166  Deirdre Halloran such as BSISO 15686-5 (2008).53 However, these methodologies, while informative, are theoretical, with little in the way of practical examples, templates and process implementations to guide a cost professional through the process of calculating and presenting LCC. In Scotland, a different approach was taken. The Scottish Futures Trust has produced a Whole Life Appraisal Tool for the Built Environment54 that contracting authorities are advised to refer to when considering LCC in construction projects. This consists of guidance and a support tool for the development and reporting of whole life outcomes within projects. The key output for the tool is a new whole life dashboard that provides a consistent method of reporting and will support the decision-making process. The tool promotes a whole life outcome approach through the assessment of costs, environmental and service delivery performance. It is too early yet to review feedback and examine uptake, but the tool itself looks promising and seems easy to use and access. Austria has also provided more specific guidelines on the use of LCC in the public procurement of construction contracts. The most recent one describes the details regarding the integration of LCC in the buildings procurement decisions, in the planning, awarding, construction and operating phases.55 The guide provides a basic approach for considering LCC in the planning and awarding of construction contracts and alerts users to the many challenges in using LCC including the availability of usable data.56 Again, no feedback is available at this early stage of implementation, but the guide itself is functional.

8.4  Social Housing, procurement and LCC There is no fixed, universal definition of Social Housing. In a European context, Social Housing describes residential properties owned by local authorities, or agents acting on their behalf, which are either let to tenants at regulated affordable rents or sold for an affordable amount.57 While the EU has no direct competence in the field of housing policy, housing issues have become increasingly important across the EU.58 Housing both played a role in the banking crisis59 contractual administration. See Duncan Cartlidge, New Aspects of Quantity Surveying Practice (4th ed, Routledge 2018). 53 Kehily and Hore (n 46). 54 Scottish Futures Trust, Whole Life Appraisal Tool for the Built Environment (Scottish Futures Trust 2016). 55 Lebenszykluskostenrechnung in der Vergabe, Allgemeine Erl u erun en u Artikel 68 der EU-richtlinie 2014/24/EU o 2. Februar 201 ber die en liche Auftragsvergabe (IG Lebenszyklus Bau 2014). 56 Lebenszykluskostenrechnun in der Vergabe, Leitfaden für die Paketvergabe von Planungsleistungen (IG Lebenszyklus Bau 2016). 57 Joanne Meehan and David J. Bryde, ‘Procuring Sustainably in Social Housing: The Role of Social Capital’ (2014) 20 Journal of Purchasing and Supply Management 74. 58 Kathleen Scanlon, Melissa Fernández Arrigoitia and Christine Whitehead, ‘Social Housing in Europe’ (2015) 17 European Policy Analysis. 59 Jens Lund and Christine Whitehead, Milestone in European Housing Finance Mortgage Info ENHR Special Edition (EMF 2014).

Life-cycle costing within the construction sector  167 and consequently was most affected by the subsequent recession.60As a result, EU policy has increased its impact on the operation of both private and Social Housing systems.61 The EU recognizes Social Housing as a critical instrument in ensuring the right to housing, as stated by international law, to meet the requirements of the Treaty and achieve the Europe 2020 targets and help the EU out of the economic, social and environmental crisis.62 It is understood that environmental responsibility requires taking a long-term view as the initial design decisions have profound impacts over a building’s life. Green designs typically have significant operating benefits – low energy and water operation costs, lower maintenance costs because of more robust design. As such, LCC is widely acknowledged as one of several methods that can be used to account and provide for a more effective method of analysing long-term operating costs for Social Housing, to provide an economic metric for evaluating sustainability and energy efficiency in the construction of Social Housing and to inform design decisions on maintaining and managing Social Housing during its lifetime.63

8.4.1  The extent of Social Housing in Europe The Netherlands has the largest percentage of Social Housing with nearly onethird of dwellings falling into this category, with Austria and Scotland following with 24%. There are four countries with just under 20% – Denmark, Sweden England and France. Finally, five countries have less than 10% of housing in this tenure: Ireland, the Czech Republic, Germany, Spain and Hungary.64 After the crisis, Belgium, Austria, France and the United Kingdom increased the yearly production of new homes from 2005 to 2015.65 However, new supply of Social Housing was affected in many countries by budget cuts: in Italy, the production of public housing between 2005 and 2014 almost halved, from about 9,000 units per year to 4,600. In Spain, it went from over 15,000 in 2005 to 25,000 in 2014. Housing associations in Ireland built about 13,000 homes in 2005 but only 350 in 2014. In the case of the Netherlands, the level of new housing production by housing associations dropped from over 40,000 in the year 2009 to about 20,000 in 2014. Conversely, over the past two years, an increased

60 Hugo Priemus and Christine Whitehead, ‘Interactions between the Financial Crisis and ­National Housing Markets’ (2014) 29(2) Journal of Housing and the Built Environment 193. 61 Darinka Czischke, ‘Social Housing and the European Community Competition Law’ in Kathleen Scanlon and others (eds), Social Housing in Europe (Wiley Blackwell 2014). 62 European Parliament, Social Housing in the EU (Directorate General for Internal Policies PE 492.469 2013). 63 Olubodun and others (n 1) 254–265; Alex Opoku, ‘The Application of Whole Life Costing in the UK Construction Industry: Benefits and Barriers’ (2013) 2 International Journal of Architecture, Engineering and Construction 35; Cole and Sterner (n 1) 368–375; Ashworth (n 1). 64 Scanlon, Fernández Arrigoitia and Whitehead (n 58) 1–12. 65 Teresio Poggio and Christine Whitehead, ‘Social Housing after the Global Financial Crisis: New Trends and the Crisis’ (2017) 4(1) Critical Housing Analysis. doi:10.13060/23362839.2 017.3.1.319 (accessed 9 April 2019).

168  Deirdre Halloran output of social rental housing was reported in Germany and Luxemburg and the Belgian region of Flanders. Housing associations in England also managed to increase housing construction but since 2012, public funding has been only available for affordable housing instead of social rentals.66 Overall, it was reported that some positive signals have appeared at the level of national policy over the past two years; Ireland has been singled out for praise for adopting an ambitious ‘Rebuilding Ireland’ strategy with a strong emphasis on the (social) rental sector and tackling homelessness.67

8.4.2  Procurement route: traditional versus design and build In the traditional procurement approach, the contracting authority is in charge of the detailed design and so the design is already created before the competitive bidding for private contractors begins. The specifications and requirements in the tender documents typically comprise the location of the site, the scope of the works, details of how each part of the works is required to be constructed (including construction drawings and specifications of materials) and possibly, a programme of work, for example, if the contractor will be required to phase refurbishment work in order to allow the continuing operation of an existing facility. The actual procurement process, therefore, will not affect the performance of the building in use because the private contractors have no input into the design. Both Ireland’s68 and the United Kingdom’s69 predominant procurement route in construction and Social Housing construction is ‘traditional’, which means that the design must be completed before the tendering process. Indeed, separation of build and design remains the most typical approach within the public sector through the EU.70 This is a significant issue with embedding LCC in the procurement process. A MEAT evaluation based on LCC would not yield any merits, as all the contractors are pricing the same design and the building’s LCC will therefore be identical, regardless of what the contractor constructs.71 To avoid this, LCC would have to be considered at the planning stage by the contracting authority. While there would be no contractors feedback, the contracting authority could consult the market in advance.

66 Housing Europe, The State of Housing in the EU (Housing Europe 2015). 67 Alice Pittini and others, ‘The State of Housing in the EU 2017’ Housing Europe is the European Federation of Public (Cooperative and Social Housing 2017). 68 Tony Cunningham, Choosing an Appropriate Main Contract for Building Work in the Republic of Ireland – An Overview (Dublin Institute of Technology 2013). 69 The Royal Institution of Chartered Surveyors/Davis Langdon, Contracts in Use: a Survey of Building Contracts in Use During 2007 (2007). 70 Sci-Networks, Procuring Innovative and Sustainable Construction a Guide for European Public Authorities (The SCI-Network Consortium 2012). 71 Dermot Kehily, SCSI Guide to Life Cycle Costing (Royal Institute of Chartered Surveyors 2011) 6. accessed 9 April 2019.

Life-cycle costing within the construction sector  169 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.72 Design and build procurement is defined as an arrangement where one contracting organization takes sole responsibility, generally on a lump sum fixed price basis, for the bespoke design and construction of a client’s project. One of the Recommendations of the Commission working group on LCCs in construction that was discussed earlier is to carry out LCC at early design stage, where the opportunities for modifying the costs of a project are most significant. In order for this recommendation to be enacted, the procurement route for construction must be switched to design and build.

8.4.3  Rebuilding Ireland proposals: new Social Housing provision In Ireland, ‘Rebuilding Ireland, Action Plan for Housing and Homelessness’ Ireland’s official housing strategy up to 2021, commits to provide an additional 47,000 units of Social Housing during the period up to 2021 with 26,000 to be ‘new build’.73 This target of 26,000 for ‘new build’ is also significantly reliant on private sector construction, since 4,690 units are to be acquired by local authorities and voluntary housing bodies under Part V of the Planning and Development Act.74 To accelerate this Social Housing delivery, the Office of Government Procurement (OGP), in January 2017, established a Framework Agreement with 12 design and build contractors for the provision of rapid delivery housing.75 In January 2017, Minister for Public Expenditure and reform announced that the recently published framework for rapid housing would include a provision for whole life costs in the design solutions and proposed a range of sustainability measures including renewable technologies.76 While no publicly available documents are available on the rapid housing framework and the whole life costing provisions used, this advance by the Irish Government to utilize LCC highlighted the need to gather data on this sector, to provide insights into area, the methodologies available and the instruments used. The choice of using design and build is welcomed.

8.5  LCC in construction: benefits, barriers and drivers – the gaps between theory and practice Over the past two decades, research in the disciplines of Engineering, the Built Environment, Construction Management, Architecture, Environmental 72 Jack W. E. Masterman, An Introduction to Building Procurement Systems (2nd ed, Spon Press 2002). 73 Rebuilding Ireland: Action Plan for Housing and Homelessness (2016) 43–48 accessed 25 March 2019. 74 Social and Affordable Housing Data, Dáil Written Answers, Minister Owen Murphy (16 January 2018) accessed 15 April 2019. 75 Dáil Written Answers Minister Eoghan Murphy (7 December 2017) accessed 15 April 2018. 76 ibid.

170  Deirdre Halloran Planning and Industrial Ecology has been conducted to document the benefits, barriers and drivers for LCC implementation across different countries and stakeholders in the construction sector. The key impetus found for implementing LCC was reducing costs during the operation and maintenance phases of the building.77 The earlier LCC was introduced during the procurement process, the greater the possibility of achieving cost reductions.78 While the primary purpose of LCC is to compare design options from a number of competing proposals,79 it is also used to determine the maintenance and replacement costs of a component or system over a study period and inform design decisions on issues such as cleaning, maintenance, energy efficiency, durability and disposal.80 It is becoming increasingly important, in providing an economic metric for evaluating sustainability and energy efficiency allowing for comprehensive decision-­ making based on sustainable evaluation rather than initial costs alone.81 Despite these benefits, LCC’s application in the building sector remains limited with the substantial investment of resources required acting as a primary deterrent.82 Cole and Sterner’s review of LCC in practice, contributed the limited use of LCC to both human and technical factors, which they classified into: motivational hindrances; contextual hindrances; methodological problems and data problems.83 Using these headings, findings from research conducted by users of LCC-oriented tools in practice in the construction sector have been grouped and classified to identify the critical issues for the practical usability of LCC (see Table 8.1). 1 Motivational hindrances. Evidence suggests that clients are not prepared to fund LLC due to: a lack of awareness of LCC methodologies84; limited understanding of LCC85; inexperience with using LCC calculations86; a lack of appreciation of LCC benefits87; no procurement or contract award incentives.88 77 Olubodun and others (n 1) 254–265; Opoku (n 63) 35; Cole and Sterner (n 1) 368–375; ­A shworth (n 1). 78 Michael Clift, Life-Cycle Costing in the Construction Sector UNEP Industry and Environment April–September 2003) 37; Kirkham (2009) (n 23). 79 Ashworth (n 1); David Churcher, ‘A BSRIA Guide: Whole-Life Cycle Costing Analysis’ (BSRIA 2008); Richard Kirkham, ‘Re-Engineering the Whole Life Cycle Costing Process’(2005) 23(1) Construction Management and Economics 9. 80 Kehily (n 34). 81 ibid. 82 Clift and Bourke (n 2); Mohammed Kishk, ‘Combining Various Facets of Uncertainty in Whole Life Cost Modelling’ (2004) 22(4) Construction Management and Economics 429. 83 Cole and Sterner (n 1) 368. 84 Chiurugwi and others (n 3); Anthony Higham, Chris Fortune and Howard James, ‘Life Cycle Costing: Evaluating Its Use in UK Practice’ (2015) 33(1) Structural Survey 73. 85 ibid. 86 Eva Sterner, ‘Life-cycle Costing and its Use in the Swedish Building Sector’ (2000) 28 (5-6) Building Research & Information 387; Olufolahan, Okoroh and Dean (n 1) 254; Olufolahan, Okoroh and Dean (n 1). 87 Chiurugwi, and others (n 3). 88 Olufolahan, Okoroh and Dean (n 1); Chiurugwi and others (n 3).

Table 8.1  A pplication of LCC Studies on LCC in practice

Research method used

Sadi A. Assaf and others, ‘Assessment of the Problems of Application of Life Cycle Costing in Construction Projects’ (2002) 44(2) Cost Engineering 17–22

Survey of construction professionals located in the UK and the results from a series of follow up semi-structured interviews designed to further explore the factors found to affect the use of LCC in practice Survey on 30 professional quantity surveyors in the UK

Tinashe Chiurugwi and others, ‘Exploration of Drivers and Barriers to Life Cycle Costing (LCC) in Construction Projects: Professional Quantity Surveyors’ Assessment’ (Proceedings of the International Conference, Nottingham, UK 2010) Mike Clift and Kathryn Bourke, Study on Whole Life Costing, British Research Establishment (Watford 1999) Maria D’Incognito, Nicola Costantino and Giovanni C. Migliaccio, ‘Actors and Barriers to the Adoption of LCC and LCA Techniques in the Built Environment’ (2015) 5(2) Built Environment Project and Asset Management 202

Chris Fortune and Owen Cox, ‘Current Practices in Building Project Contract Price Forecasting in the UK’ (2005) 12(5) Engineering Construction and Architectural Management 446–457 Anthony Higham, Chris Fortune and Howard James, ‘Life Cycle Costing: Evaluating Its Use in UK Practice’ (2015) 33(1) Structural Survey 73 Oduyemi Olufolahan, Michael Okoroh and Angela Dean, ‘Barriers to Life Cycle Costing Usage’ (30th Annual ARCOM Conference, Portsmouth, UK 2014) Femi Olubodun and others, ’An Appraisal of the Level of Application of Life Cycle Costing within the Construction Industry in the UK’ (2010) 28 Structural Survey 254 Eva Sterner, ‘Life-Cycle Costing and Its Use in the Swedish Building Sector’ (2000) 28(5–6) Building Research & Information 387 Source: Author’s analysis based on collected data.

Questionnaire sent to over 900 representatives from a broad cross-section of industry stakeholders Existing literature studied through a multiplestep content analysis (CA) approach, which combined unsupervised concept mapping with computer-aided CA. Using a relational CA approach, statistical-based analysis tools were initially used to identify the relationships between actors and barriers. Later, a Delphi study was administered to a panel of experts, to triangulate, validate, and refine the initial results A quantitative research design was used to capture data from a sample of by practitioners based in large-sized quantity surveying, project management and multi-disciplinary practices based in the UK in 2004 A random sample of survey participants including consultants, architects, multidisciplinary and contractors’ organizations operating across the United Kingdom, with 20 responses A questionnaire was distributed to two group samples of 80 practitioners; the quantity surveyors and builders with a total of 70 practitioners (35 aside) completing the survey. Empirical research was undertaken to collect data from construction professionals regarding their views, opinions and experiences of LCC. In total, 100 questionnaires were sent to construction and professionals in the North West of England The results from a survey examining the extent that Swedish clients in the building sector use life-cycle cost (LCC) estimations are reported

172  Deirdre Halloran 2 Contextual hindrances. The separation between capital and running budgets has been reported as a deterrent. This is mainly an issue with public authorities who may be restricted in their ability to transfer funds between capital and revenue budgets and overlapping departmental responsibility.89 Other reported issues are existing rigid organizational culture,90 the isolation of the tool from other decisive factors influencing the final choice such as tax structures91 and the need for clients to budget on short-term horizons and achieve maximum return on investment.92 3 Data problems and limitations and the suitability for application of this data.93 Lack of relevant data inputs94; problems with the pertinence, reliability and consistency of data95 and confidentiality issues surrounding input data96 were all reported as deterrents from using LCC. 4 Methodological problems and limitations. Users reported that the complexity of the analysis and the lack of a standard approach97 were major deterrents together with inconsistency of the results, depending on choice of calculation.98 In examining these findings, the integral problem with the method itself seems to be at the core of the low uptake of LCC in the construction sector. This fundamental problem is the root of all the other difficulties. The limitations of the technique in its current form restricts its application. An example is the use of net present value to facilitate the financial comparison of competing options, which cannot be used to compare different life spans.99 Flanagan et al. refer to the difficulty in selecting reasonable values for parameters utilized by the technique, such as the discount rate and inflationary considerations.100 Even if standardization is achieved, Cole & Sterner caution that substantial customization of the technique is often required to suit the needs of individual organizations.101 89 ibid. The SCI-Network (2011) categories this issue as a ‘political barrier’ and comment, that due to the limited life of public agencies and legislative programmes there is a short term emphasis on costs associated with the term of the public administration. 90 Maria D’Incognito, Nicola Costantino and Giovanni C. Migliaccio ‘Actors and Barriers to the Adoption of LCC and LCA Techniques in the Built Environment’ (2015) 5(2) Built Environment Project and Asset Management 202. 91 Clift and Bourke (n 2). 92 Sadi A. Assaf and others ‘Assessment of the Problems of Application of Life Cycle Costing in Construction Projects’ (2002) 44(2) Cost Engineering 17. 93 Cole and Sterner (n 1) 368. 94 Sterner (n 86) 387; Olubodun and others (n 1) 254; Olufolahan, Okoroh and Dean (n 1). 95 Higham and others (n 84) 73. 96 Clift and Bourke (n 2). 97 Olubodun and others (n 1) 254. 98 Andrea Pelzeter, ‘Building Optimisation with Life Cycle Costs – The Influence of Calculation Methods’ (2007) 5(2) Journal of Facilities Management 115. 99 Flanagan and Norman (n 19). 100 ibid. 101 Cole and Sterner (n 1) 368.

Life-cycle costing within the construction sector  173 A broader concern with LCC is what Gluch & Baumann call ‘conceptual confusion’. This is demonstrated in Chapter 1, which shows the similar concepts of LCA methodologies and terminologies. Kirkham notes that the variable terms used over the years and the changes in their meaning have caused confusion and limited its use.102 This is illustrated in this chapter in the use of LLC meaning ‘conventional’ LCC not environmental LCC (E-LCC) as defined in Chapter 1.103 This must be clarified, as in the literature LLC is occasionally used for both.104 Another conceptual confusion concerns which ‘life cycle’ is used in LCC, as different kinds of life cycles are possible. The term ‘life cycle’ represents a lifetime and is an estimated variable, not a constant. There are four different lifetimes types in LCC: economic, technical, physical and utility life, with a different time value for each. Therefore, depending on the choice of life cycle, the results from the LCC calculation differs when discounted to a net present value.105 Another challenge is the gap between theory and practice. This is in particular an issue when dealing with E-LCC and societal LCC.106 As noted in Chapter 1, E-LCC is information intensive, requiring data on costs of the complex interaction between a product and the environment from cradle to grave.107 However, this data may not be readily available and the ability to accurately value environmental costs in economic terms is still developing.108 The lack of data together with poor quality of data and unreliable environmental economic evaluations means that producing LCC calculations supporting ‘good’ environmental decisions exists more in theory than in practice. It is important to state that the economic focus of LCC requires artificial compromises to be made to fit the theoretical requirements of its neoclassical economic background, thus limiting the validity of the sustainability evaluation produced.109 These limitation, also applies to Societal LCC [S-LCC].110 Dragos notes that the feasibility of societal

102 Kirkham (n 48). 103 Henrikke Baumann and Sarah J. Cowell, ‘An Evaluative Framework for Conceptual and Analytical Approaches Used in Environmental Management’ (1999) 26 Greener Management International 109; Ian Wycherley, ‘Environmental Managers and Accounting’ (1999) 6(2) Journal of Applied Management Studies 169. 104 Kirkham (n 48). 105 Stephen J. Kirk and Alphonse J. Dell’Isola, Life Cycle Costing for Design Professionals (McGrawHill 1995). 106 David Hunkeler, Gerald Rebitzer and Kerstin Lichtenvort, Environmental Life Cycle Costing (CRC Press 2008). 107 Dacian Dragos and Bogdana Neamtu, ‘Sustainable Public Procurement in the EU: Experiences and Prospects’ in François Lichere, Roberto Caranta and Steen Treumer (eds), Modernising Public Procurement: The New Directive (DJOEF Publishing 2014) 301. 108 Marc J. Epstein, Measuring Corporate Environmental Performance (Irwin Professional Publishing 1996); Stefan Schaltegger, Corporate Environmental Accounting (Wiley 1996). 109 Pernilla Gluch and Henrikke Baumann, ‘The Life Cycle Costing (LCC) Approach: A Conceptual Discussion of its Usefulness for Environmental Decision Making’ (2004) 39 Building and Environment 571. 110 Henrikke Baumann, Life Cycle Assessment and Decision Making: Theories and Practices (Chalmers University of Technology 1998).

174  Deirdre Halloran LCC is still debated in the literature on organizations111 with many factors still under discussion with regard to its implementation include indicator selection and analysis,112 functional unit definition113 and impact assessment.114 Hence, there is neither a standardized nor a straightforward procedure for conducting an S-LCC. In order to provide motivation to use LCC techniques, confidence in the methodology and the results must be present. The diversity of terminology and methodologies, the problems with input data, the difficulty in calculating environmental costs and the inconsistency in estimating the life-cycle cause if not confusion, then at least ambiguous results. This not only makes the LCC-­ oriented tools difficult for the decision-maker to use, it also undermines their confidence in the result from LCC.115 The consequence from this distrust may be that they hesitate in using these tools.116

8.5.1 Solutions LCC-oriented tools may still be useful in practice if the decision-maker is aware of the tool’s inherent limitations. LCC successfully compares design options and can determine the maintenance and replacement cost of a component or system and inform design decisions on issues such as cleaning, maintenance, energy efficiency, durability and disposal. It can also be used to successfully evaluate design decisions related to the building’s energy efficiency cost-effectiveness over a given study period.117 LCC can be used to assess the increased value of energy conservation on projects, hence adding to the sustainability of the asset. This is evaluated by payback analysis carried out through LCC calculations and allows for different energy solutions to be selected based on their LCC.118 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

111 Dacian Dragos and Bogdana Neamtu, ‘Sustainable Public Procurement: Life-Cycle Costing in the New EU Directive Proposal’ (2013) 8 EPPPL 19. 112 Annekatrin Lehmann and others, ‘Integration of Social Aspects in Decision Support, Based on Life Cycle Thinking’ (2011) 3(12) Sustainability 562; Syndhia Mathe ‘Integrating Participatory Approaches into Social Life Cycle Assessment: The SLCA Participatory Approach’ (2014) 19(8) The International Journal of Life Cycle Assessment 1506. 113 Walter Klöpffer, ‘Life Cycle Sustainability Assessment of Products’ (2008) 13(2) The International Journal of Life Cycle Assessment 89; Catherine Macombe (ed), Social LCAs: Socio-­ Economic Effects in Value Chains (FruiTrop 2013). 114 Claudia Reitinger and others, ‘A Conceptual Framework for Impact Assessment within SLCA’ (2011) 16(4) The International Journal of Life Cycle Assessment 380; Pauline Feschet, Michel Garrabé, ‘Social LCA and Sustainable Development’ in Catherine Macombe (ed), Social LCAs: Socio-Economic Effects in Value Chains (FruiTrop 2013). 115 Cole and Sterner (n 1) 368. 116 El-Haram and others (n 11) 144. 117 Cole and Sterner (n 1) 368–375; Gluch and Baumann (n 109) 571. 118 Ashworth and others (n 16).

Life-cycle costing within the construction sector  175 (LEED). These systems provide a scaled rating based on a building’s sustainability in UK and United States respectively. Both LEED and BREEAM provide rating points for the application of LCC.119 Still, LCC is beset with practical problems as have been addressed above, including a lack of a standard methodology and poor availability and reliability of input data. This is especially relevant regarding environmental LCC, rendering the reliability of LCC as an information provider for environmentally responsible decisions questionable. The proposal that LCC be used in tandem with LCA has been suggested by several researchers.120 LCC complements LCA because many of the calculation metrics such as maintenance and replacement profiles, for the calculation of LCC, are also necessary in LCA.121 As discussed in the Chapter 1 LCA is ‘structurally open’ to growing into the full sustainability assessment that is LCC, where cost is integrated. Acknowledging the true value of LCC, Cole and Sterner described the concept as one of the few methods that accounts and provides for a more comprehensive view of costs.122 Going forward, in the direction of supporting better green building research, LCC must evolve to become a holistic concept to account for ‘full-cost’, taking into consideration environmental and social costs as well.

8.6 Conclusion It is generally agreed that LCC can be a useful and positive mechanism to assess costs and benefits of assets throughout its life cycle. The 2014 Public Procurement Directives were generally welcomed in their inclusion of specific rules on LCC including the provisions on award criteria. The research shows that while the value of LCC has been recognized in the construction sector, the application has not been extensively implemented in practice.123 While its use has increased in recent years, LCC still has some significant barriers to overcome to full implementation.124 There have been a number of standards and guidance notes published on LCC to increase its use. However, the methodologies relied on are theoretical with no practical examples and process implementations to guide through the process. There has been a failure to develop a common European Methodology for assessing LCC in construction despite attempts made by the European Commission. LCC is beset with serious practical problems, which are particularly relevant regarding environmental LCC, rendering the reliability 119 RICS, LCC: RICS Guidance Note (RICS 2015). 120 Eva Sterner, Green Procurement of Buildings: Estimation of Life-Cycle Cost and Environmental Impact (Ph.D. Dissertation Thesis, Department of Mining Engineering, LuleXa University of Technology 2002); Lu Aye, and others ‘Environmentally Sustainable Development: A Life-­ Cycle Costing Approach for a Commercial Office Building in Melbourne, Australia’ (2000) 18 Construction Management and Economics 927; Gluch and Baumann (n 109) 571. 121 Langdon (n 33). 122 ibid. 123 Clift and Bourke (n 2); Cole and Sterner (n 1) 368–375; Ashworth (n 1). 124 Olufolahan, Okoroh and Dean (n 1); Chiurugwi and others (n 3).

176  Deirdre Halloran of LCC as an information provider for environmentally responsible decisions questionable. Expenditure on building new affordable and social homes is an important investment into the infrastructure of a society and economy and the use of LCC in the provision by the state of Social Housing is to be recommended. Despite the difficulties, LCC has value to assess costs and benefits of assets throughout its life cycle and encouraging the choice of resource-efficient goods, services and works and assist in the early stage evaluation of potential Social Housing projects. It is recommended that a standard European methodology on the use of LCC in the construction sector must be developed and training offered in its use: this will aid in overcoming the challenges in calculating LCC and support practitioners. In addition, LCC could be improved by being used in tandem with LCA. Going forward LCC must evolve to become a holistic concept to account for ‘full-cost’, taking into consideration environmental and social costs as well. LCC’s static cost-benefit analysis is inadequate for decisions, which will inevitably have many indirect consequences and long-term impacts. A much more dynamic analysis is required. Indeed, the research has uncovered the need to take a new direction and create a framework that addresses social, economic and environmental aspects of sustainability that is multi-layered and multi-functional.

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178  Deirdre Halloran Pernilla Gluch and Henrikke Baumann, ‘The Life Cycle Costing (LCC) Approach: A Conceptual Discussion of Its Usefulness for Environmental Decision Making’ (2004) 39 Building and Environment 571. Anthony Higham, Chris Fortune and Howard James, ‘Life Cycle Costing: Evaluating Its Use in UK Practice’ (2015) 33(1) Structural Survey 73. Housing Europe, The State of Housing in the EU (Housing Europe 2015). David Hunkeler, Gerald Rebitzer and Kerstin Lichtenvort, Environmental Life Cycle Costing (CRC Press 2008). Dermot Kehily, SCSI Guide to Life Cycle Costing (Royal Institute of Chartered Surveyors 2011). Dermot Kehily, Leveraging Building Information Modelling to Address the Barriers that Prevent the Widespread Adoption of Life Cycle Costing by Quantity Surveyors (PhD ­Dissertation, University of Salford 2016). Dermot Kehily and Alan Hore, ‘Life Cycle Cost Analysis under Ireland’s Capital Works Management Framework’ (Joint CIB W070, W092 & TG72 International Conference on Facilities Management, Procurement Systems and Public Private Partnership, Capetown, South Africa 2012). Stephen J. Kirk and Alphonse J. Dell’Isola, Life Cycle Costing for Design Professionals (McGraw-Hill 1995) Richard Kirkham, ‘Re-Engineering the Whole Life Cycle Costing Process’ (2005) 23(1) Construction Management and Economics 9. Richard Kirkham, Ferry and Brandon’s Cost Planning of Buildings (8th ed, Blackwell Publishing 2012). Mohammed Kishk, ‘Combining Various Facets of Uncertainty in Whole Life Cost Modelling’ (2004) 22(4) Construction Management and Economics 429. Mohammed Kishk, Assem Al-Hajj and Robert Pollock, ‘Whole Life Costing in Construction: A State of the Art Review’ (2003) 4(18) The RICS Foundation Research Paper Series, 1–39. Walter Klöpffer, ‘Life Cycle Sustainability Assessment of Products’ (2008) 13(2) The International Journal of Life Cycle Assessment 89. Davis Langdon, Life Cycle Costing as a Contribution to Sustainable Design: a Common Methodology – Final Report (Davis Langdon 2007). Nils Larsson and Jim Clark, ’Incremental Costs within the Design Process for Energy Efficient Buildings’ (2000) 28 Building Research & Information 413. Michael Latham, Constructing the Team, Final Report of the Government/Industry Review of Procurement and Construction Arrangements in the UK Construction Industry (HMSO 1994). Lebenszykluskostenrechnung in der Vergabe. Allgemeine Erl u erun en u Artikel 68 der EU-richtlinie 2014/24/EU o 2. Februar 201 ber die en liche Auftragsvergabe (IG Lebenszyklus Bau 2014). Lebenszykluskostenrechnun in der Vergabe. Leitfaden für die Paketvergabe von Planungsleistungen (IG Lebenszyklus Bau 2016). Annekatrin Lehmann and others, ‘Integration of Social Aspects in Decision Support, Based on Life Cycle Thinking’ (2011) 3(12) Sustainability 562. Jens Lund and Christine Whitehead, Milestone in European Housing Finance Mortgage Info ENHR Special Edition (EMF 2014). Catherine Macombe (ed), Social LCAs: Socio-Economic Effects in Value Chains (FruiTrop 2013).

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Index

Note: Bold page numbers refer to tables; italic page numbers refer to figures and page numbers followed by “n” denote footnotes. acquisition cost 7, 105, 108–9 Addis Ababa Action Plan 65 AEA Technology 149, 153 Article 68 of Public Sector Directive 9, 26, 30, 32–3 asset management 112 authoritative approach 9 award criteria 26, 33, 58, 105 British Standards Institute (BSI) 163 Building Information Modelling (BIM) 165 Building Research Establishment Environmental Assessment Methodology (BREEAM) 174 Capital Works Management Framework (CWMF) 164 Centre for European Policy Studies (CEPS) 145 civil society organisations 23 Clean Fleets project LCC tool 30 Clean Vehicle Directive 10, 30, 37–41, 47, 48n64, 50, 51 clean mobility solutions 40 Commission Report, Directive 2009/33/ EU 38 climate change 75, 102 ‘clothing-as-a-service’ models 126 CO2 emissions 30, 111 collaborative procurement systems 83 construction sector: application 170,171; BIM 165; contextual hindrances 171; contracting authorities 159; CWMF 164; data problems and limitations 172; development 161–3;

economic evaluation 159; E-LCC 173; expenditure 176; external costs 158,160; GCCC 164; GCS 165; ISO 15686-5159–60; LCC-oriented tools 170,174; MEAT 164; methodological problems and limitations 172; motivational hindrances 170; nonconstruction costs 160; operation and maintenance phases 170; principles 160–1; process implementations 158; public construction works 163–4; Public Sector Directive 164; PWC 164; S-LCC 173; Social Housing 158–9, 163; Whole Life Appraisal Tool 166; WLC 160; WLCC 165 contracting authorities 9, 20, 21, 23–33, 36, 38, 39, 41, 45–7, 49, 51, 53–5, 58, 69, 85, 86, 88, 91–3, 100, 107–9, 111–114, 118–119, 140, 141, 143, 145, 146, 164, 166,168; construction sector 159; economic benefits 117; EoL management 116; guidelines 56; ICT goods and services 102–3; legal constraints 45–7; operational needs 92; pre-procurement/planning, tender 104–5; recyclability and marking 115; requirements 106; SPP 81; sustainability 117 cost-effectiveness approach 9 Court of Justice of the European Union (CJEU) 21n4, 24n24, 26, 26n37, 27n41 Danish EPA Total Cost Ownership tool 56 Danish Ministry of Environment and Food LCC tool 30

182 Index data availability and accuracy 38 decision-making process 3, 7, 8, 51; value for money 70, 72 design-build-finance-maintain and operate format (DBFMO) 68 domestic procurement law 20Dutch Guidance 70 ecolabels 21, 24, 28, 29, 32, 33, 55, 106, 109, 116, 120, 123, 137–45, 148; criteria for, 138; definitions and classifications, 138–9; and GGP criteria, 141–5; under Public Sector Directive, 140–41; textile, 124–32, 142 Eco-Management and Audit Scheme (EMAS) 24 eco-procurement legislation 81 ecosystem services 13 Electro-mobility Observatory (EEO) 38 end-of-life (EoL) 43, 92; costs 47; management 103, 114–16 energy costs 60, 154 Energy Efficiency Directive 2012/27/ EU 109 Enhanced Environment friendly Vehicles (EEV) 45 environmental certification schemes 24 environmental complexity 50–1, 58 environmental costs 11, 12, 59, 114, 117 environmental externalities 9, 10, 28, 30, 50, 52, 88 environmental LCC (E-LCC) 14–15, 124, 173 environmental management systems 82 environmental sustainability 69 ergonomics 116 ETSI Standard 109 EU documents 37 EU ENERGY STAR programme 110n38 EU financed LCC calculation tool 31 European Committee for Construction Economics (CEEC) Code 55 European Union (EU) public procurement law 3, 9; award criteria 26, 33; civil society organisations 23; CJEU 26; Clean Fleets project LCC tool 30; Clean Vehicles Directive 30; CO2 emissions tool 30; complementary objectives 22, 23; consultation process 23; contracting authority 26, 27n40, 28, 29, 31–3; corporate policy 27; Danish Ministry of Environment and Food LCC tool 30; discriminatory contract

design 28; domestic procurement law 20; ‘enabling approach’ 23; environmental certification schemes 24; environmental cost 32; environmental externalities 28, 30; environmental protection requirements 25n33; EU financed LCC calculation tool 31; EU LCC tool 31; factors 25; governance rules 29; GPA 29; Green Paper 21–2; horizontal policies 21; internal market 21; LCA 24–5; MEAT 25, 30n56; National Agency for Public Procurement 30; participatory approach 29; pricequality ratio 25; Public Sector Directive 22, 24, 26, 27, 30, 32; recital sets 27; SDGs 22; SMART SPP LCC tool 30; SMEs 21, 22; social-LCC 32–3; social policy 21; societal goals 23; SPP 22–4, 30, 33; sustainability 22; tailormade methodologies 31; TCO tools 31; Umwelt Bundesamt 30; Utility Directive 22 external costs 14, 158, 160 Federal Environmental Agency 102 Frame Lake Model 89, 91 functional approach 93 funding organizations 74 German Environment Agency 57 Government Construction Contracts Committee (GCCC) 164 Government Construction Strategy (GCS) 165 green criteria 55–6, 145, 148, 149 Green Paper on the modernisation of EU public procurement policy 21–2 Green Public Procurement (GPP) 41–3, 50, 107–8, 112–14; advantages and limitations 140, 141; AEA Technology 148, 153; classifications 138–9, 140; comprehensive criteria 143; core criteria 143; criteria classification 143, 144; definitions 138; ecolabels criteria 138; environmental criteria 138, 141; green criteria 145, 148, 149; labels 143, 144; levels 143, 146, 147; national schemes 149, 152; process 138; Public Sector Directive 140–1; total public procurement 148, 150 harmonised community 39 health cost 15

Index  183 index emissions costs 40 Information and Communication Technology (ICT) goods and services: acquisition cost 108–9; climate change 102; CO2 emissions 111; contracting authorities 102–3; cost elements, hardware 107–8; cost variables 100; data availability assessment 116–18; decisionmaking support framework 101; disadvantage 100; energy consumption 102, 109–10; Energy Efficiency Directive 109; environmental impacts 103; EoL management 103, 114–16; ergonomics 116; ETSI Standard 109; EU ENERGY STAR programme 110n38; EU LCC tool 102, 107, 110–1; Federal Environmental Agency 102; financial/managerial accounting 104; hazardous substances 111–2; ‘legal’ filtering 101; life-cycle thinking 118; limitations 104; market operators and resellers 101; operation costs 110; pre-procurement phase 100; preprocurement/planning 104–5; product lifetime extension 112–14; Public Sector Directive 101, 119; real-life costs 120; S-LCA 103; social impacts 119; SPP 104, 109; stages 104; sustainability 103; TCO 101–2, 120; technical literature 107; tender evaluation 105–7; tender process 103; tools and guidelines 103; web design 119 Institution of Civil Engineers (ICE) 161 insurance organizations 74 internal costs 13, 14 International Organization for Standardization (ISO) 5, 138 International Reference Life Cycle Data System (ILCD) 6 ‘Jyväskylän Optimi’ project 44 Kehily, Dermot 165 knowledge-sharing platforms 82 LCA see life-cycle assessment (LCA) LCC see life-cycle costing (LCC) Leadership Energy Efficient Design (LEED) 174–5 Lead Market Initiative (LMI) 127 Lexicon of Sustainability 15 life-cycle assessment (LCA) 9, 24–5, 135; environmental impact 5, 6; ILCD 6;

ISO 5; phases 6; principles 6; qualitative and quantitative data 4–5; raw materials and energy resources 5; SETAC 5; UNEP 5 life-cycle costing (LCC): acquisition price 7; authoritative approach 9; calculation methods 11; concepts 16, 17; construction sector (see construction sector); cost-effectiveness approach 9; cost estimation 7; decision-making process 3, 7, 8; definition 27; ecolabels (see ecolabels); E-LCC 14–15; environmental externalities 9, 10; European Union law (see European Union (EU) public procurement law); EU tool 31, 102, 107, 110–1; GPA 10; ITC goods and services (see Information and Communication Technology (ICT) goods and services); LCA 4–6; longterm implications 7; MEAT 9; MS (see Member States (MS)); natural capital 13–14; procurement cycle 17; production and distribution 3; product quantification 8; public expenditure 3; purchase price 3, 10; risk analysis 14; selection process 3; S-LCC 15, 16; social capital 13–14; SPP 3; supply chain costs 3; sustainability 8, 16; TCO 12–13; WLC 11, 12 Life Cycle Costing Tool Picker 57 life-cycle thinking 118; ITC goods and services (see Information and Communication Technology (ICT) goods and services); private sector decision-making 73–5; value for money (see value for money) lighting procurement, Bollnäs Municipality 97; collaboration team 90–1, 93–4, 95; commissioned facilitators 94; contracts and framework agreements 92n48; cost-effective solutions 90; development service 92; economic sustainability 89; Frame Lake Model 89; functional approach 93; knowledge 95; legal aspects 93; pre-knowledge 91; process time 94; procurement process 90; specification approach 93; supplier meetings 91; tasks and responsibilities 95; tender specifications 91–2; Universal Design 89, 94–5 linked costs 13 maintenance costs 47, 154 market prices 39, 115

184 Index MEAT see most economically advantageous tender (MEAT) Member States (MS): accounting systems 49; award criteria 58; CEEC Code 55; Clean Vehicles Directive (see Clean Vehicles Directive); contracting authorities 45–7, 49, 53, 55–6; cost calculation 52; cost-effectiveness 61; cost reduction 59; cross-board procurement 52; Danish EPA Total Cost Ownership tool 56; data collection 47, 48; data types 47; data vulnerability 54; economic development 45; energy consumption 48; energy costs 48; environmental complexity 50–1, 58; environmental cost 59; environmental externalities 52; environmental impacts 48, 53, 56, 59; environmental sustainability 60; financial evaluation 50; German Environment Agency 57; green criteria 55–6; green policies 54; LCC implementation 41; Life Cycle Costing Tool Picker 57; life cycle range 43–5; national law 37; organizational and budgetary problems 52; piloting phase 58; price ceiling 53; price-quality ratio 61; Pricewaterhouse Coopers Study 59; Procura+ Manual 53, 55; products/ goods/services range determination 41–2; public budget methodology 49; Public Sector Directive 37; quality of life cycle cost accounting 58; raw material costs 49; regional and national entities 55; risk identification 48; Smart-SPP project 57; social cost 59; sustainabilityfriendly approach 36; Sustainable Asset Valuation 62; users’ knowledge 51–2 monetisation methodology 40 most economically advantageous tender (MEAT) 9, 25, 30n56, 41, 164, 168 multi-stakeholder collaboration 81 National Agency for Public Procurement 30 NATO 12 natural capital 13–14 non-linked costs 13 participatory approach 29 pre-tender market engagement 104 price-quality ratio 25, 61, 84 Private Finance Initiative (PFI) contracts 68

private sector decision-making 73–5 Procura+ Manual 49n71, 51, 53, 54n94, 55 procurement and business models for CE (ProBiz4CE) 86, 87 product carbon footprints (PCF) 135 product-service systems 82, 86, 97 public budget methodology 49 public expenditure 3 public private comparator (PPC) 69–71 public-private partnerships (PPPs): Addis Ababa Action Plan 65; cost element 66; long-term benefits 76; private sector decision-making 73–5; SDGs 65–6; socio-environmental benefits 65; vs. traditional public contracting 67–9; value for money 66 (see also value for money) public sector comparator (PSC) 69–71 Public Sector Directive 22, 24, 26, 27, 30, 32, 137; construction sector 164; GPP 138–9; ICT goods and services 101, 119; MS 37; supplier meetings 91; tender evaluation 105 Public Works Contracts (PWC) 164 purchase price 3, 10, 153 quality of life cycle cost accounting 58 quintuple helix approach 83, 88–9, 96; lifecycle environmental impacts 96; stakeholder engagement 95; supplier selection 97, 97 risk allocation and sharing 68 risk management 52n85 Royal Institute of Chartered Surveyors (RICS) 161 service-oriented functional unit 85 Small and Medium Enterprises (SMEs) 21, 22, 141 SMART SPP LCC tool 30 Smart-SPP project 57 social capital 13–14 social costs 11, 12, 15, 59 Social Housing 176; definition 166; environmental responsibility 167; in Europe 167–8; housing policy 166; Rebuilding Ireland proposals 169; traditional vs. design and build 168–9 social innovation 88 societal LCC (S-LCC) 15, 16, 32–3, 103, 173

Index  185 Society of Environmental Toxicology and Chemistry (SETAC) 5 specification approach 93 SPP see sustainable public procurement (SPP) stakeholder engagement 95 supply chain costs 3 Sustainable Asset Valuation 62 sustainable business models (SBM) 86–8, 87 sustainable development goals (SDGs) 65–6; Target 12.7 16, 22 sustainable public procurement (SPP) 3, 22–4, 30, 33, 104, 109; Clean Vehicles Directive 38; collaborative procurement systems 83; contracting authorities 81; cultural and political framings 82; ecodesign 82; eco-procurement legislation 81; environmental management systems 82; facilitators, role and characteristics 98; knowledge-sharing platforms 82; lighting procurement (see lighting procurement, Bollnäs); linear model 84, 85; multi-stakeholder collaboration 81; price-quality ratio 84; procurement process 82; product-service systems 82, 97; quintuple helix approach (see quintuple helix approach); SBM 86–8, 87; service-oriented functional unit 85; stages 83, 83; supplier selection 82; sustainability criteria 81, 85; in Sweden 85–6; tender process 84; UN Environment – Global Review 81; value for money 85 tailor-made solution 40 TCO see total cost of ownership (TCO) textile and clothing (T&C) products: accessories 124; barriers 135; CEPS 145; chemical risks 137; ‘clothing-as-aservice’ models 126; clothing collection systems 154; CoE 145; definition 124; E-LCC 124; environmental footprint of products 154; environmental issues 133, 134; GPP documents 124, 125, 148 (see also textile ecolabels); LCA 135; LMI 127; long-term rental agreements 126; man-made cellulose fibres 124; market share 129, 131; material blends

137; natural fibres 124; PCF 135; procurement market 126; production and processing phase 135, 136; public buyers 132, 132, 133; public procurement product groups 127, 130; Public Sector Directive 137; resource inputs 133; services 126–7; synthetic fibres 124; TED platform 127, 128–9, 131; washing process 137 textile ecolabels: advantages and limitations 141, 142; AEA Technology 148, 153; classifications 138–9, 140; comprehensive criteria 143; core criteria 143; criteria classification 143, 144; definitions 138; ecolabels criteria 137; environmental criteria 138, 141; green criteria 145, 148, 149; labels 143, 144; levels 143, 147, 148; national schemes 149, 149–50; process 138; Public Sector Directive 140–1; total public procurement 148, 150 total cost of ownership (TCO) 12–13, 31, 101–2, 116, 120 true cost accounting 15 UK Wakefield Council 53 UNECE Working Party 73 United Nations Environment Programme (UNEP) 5 Universal Design 89, 94–5 Utility Directive 22 value for money 24n22, 25n33, 53, 59, 66, 74–6, 164; assessments 71–2; cashflow 70; decision-making process 70, 72; discount rate 71; Dutch Guidance 70; ex ante assessment 69; international organizations 72; PPC 69–71; PSC 69–71; SPP 85; sustainability and innovation 69; sustainable development 72; transformative projects 73; UNECE Working Party 73 variable costs 13 ‘Whole-life and cost management’ (WLCC) 165 Whole Life Appraisal Tool for the Built Environment 166 whole life costing (WLC) 11, 12, 160

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