Life Cycle Costing in Sustainable Public Procurement: A Question of Value

This white paper examines the integration of Life Cycle Costing (LCC) within sustainable public procurement (SPP), arguing that current models often fail to deliver the best value for taxpayers by overemphasizing upfront purchase prices over long-term operational and environmental costs. The authors identify systemic barriers—including conflicting capital and revenue budgets, a lack of professional expertise, and data gaps—and recommend that LCC be integrated into high-level public expenditure and resource allocation policies rather than remaining a routine procurement task.

• Life cycle costing (LCC) is not systematically integrated into sustainable public procurement (SPP) across most countries. While the USA, Japan, Switzerland, and Norway routinely apply LCC, many other nations only use it for specific categories like energy-efficient buildings or high-budget office equipment, and some are only in the early stages of SPP policy development.
• A primary barrier to LCC adoption is the conflict between capital and revenue budgets. Public sector accounting often lacks the temporal flexibility to carry over funds or borrow against future savings, and the split responsibility between the agency that contracts the purchase and the agency that manages the asset's operation encourages decisions based on the lowest upfront cost.
• Sustainable assets often carry a price premium at the time of purchase, which can be 10 to 50 per cent higher in lower-income economies. While these costs are often offset by efficiency gains and lower risks over the asset's life, procurers without an express mandate often default to the cheapest initial bid to avoid perceptions of wastefulness.
• There is a significant 'skills gap' among public procurers regarding the technical application of LCC. Many are unfamiliar with financial evaluation methods such as net present value (NPV) and internal rate of return (IRR), and there is often a discrepancy between the low discount rates used by the public sector (2 to 7 per cent) and the higher rates used by the private sector (2 to 18 per cent).
• LCC-efficient choices are not always the most environmentally or socially sustainable. Evidence from Finland, Canada, Sweden, and the USA indicates that the option with the most advantageous LCC result does not always align with the best rating from a Life Cycle Assessment (LCA), which focuses on environmental impacts rather than financial value.
• The USA provides a model for reducing the technical burden on individual procurers by embedding LCC-efficient benchmarks into high-level policy. Through Executive Orders and Federal Acquisition Regulations, the government signals to the market that specific green alternatives are cost-effective, simplifying the task for federal procurers.
• Green economic stimulus spending presents a major opportunity to implement LCC. South Korea's Green New Deal is highlighted for allocating 80 per cent of its stimulus to green growth. The authors argue that the scale of these investments makes LCC urgent to ensure value for money and the creation of green jobs.

APA

International Institute for Sustainable Development (n.d.). Life Cycle Costing in Sustainable Public Procurement: A Question of Value. https://www.iisd.org/system/files/publications/life_cycle_costing.pdf

Chicago

International Institute for Sustainable Development. Life Cycle Costing in Sustainable Public Procurement: A Question of Value. n.d. https://www.iisd.org/system/files/publications/life_cycle_costing.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Life Cycle Costing in Sustainable Public Procurement: A Question of Value |url=https://www.iisd.org/system/files/publications/life_cycle_costing.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopmentndlife, author = {{International Institute for Sustainable Development}}, title = {{Life Cycle Costing in Sustainable Public Procurement: A Question of Value}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/system/files/publications/life_cycle_costing.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }