Life Cycle Costing in Sustainable Public Procurement

The report examines the barriers and opportunities for implementing life cycle costing (LCC) in sustainable public procurement (SPP). It finds that while LCC is used in some industrialized nations, its application is often non-systematic and hindered by conflicting capital and revenue budgets, a lack of procurer expertise, and data gaps. The authors argue that LCC should be integrated into high-level public expenditure policy to shift the procurement mindset from 'best value for money' at purchase to 'best value across the asset life cycle.'

• The adoption of LCC in sustainable public procurement varies significantly by country. The USA, Japan, Switzerland, and Norway are identified as the only nations routinely applying LCC methodologies in their green procurement policies, while others like Sweden, the UK, and Germany use it for specific categories such as energy-efficient buildings or office equipment over certain budget thresholds.
• A primary barrier to LCC adoption is the conflict between capital and revenue budgets. Because the benefits of sustainable assets accrue during the operation and end-of-life phases, the agency paying the initial capital cost often does not realize the long-term savings, which encourages decisions based on the lowest upfront price.
• Procurers face a 'skills gap' regarding the financial evaluation methods required for LCC. Many are unfamiliar with net present value (NPV) and internal rate of return (IRR), and there are significant discrepancies between the low discount rates used by the public sector (typically 2-7%) and the higher rates used by the private sector (2-18%).
• LCC-efficient choices do not always align with the most environmentally or socially sustainable options. Evidence from Finland, Canada, Sweden, and the USA shows instances where the most advantageous bid based on LCC did not receive the best life cycle assessment (LCA) rating.
• The report suggests that the burden of LCC analysis should be moved higher up the government hierarchy. By embedding LCC-efficient benchmarks into mandatory specifications and Executive Orders—as seen in the USA—governments can signal market demand and simplify the task for individual procurers.
• Green public procurement in several industrialized countries is estimated to be reducing carbon emissions across various product groups, including electricity, construction, transport, and office IT equipment. For example, reducing the weight of city buses by 9% can lead to 83 kilo tonnes of CO2 reductions over the vehicle's lifetime.

APA

Perera, O., Morton, B., & Perfrement, T. (2009). Life Cycle Costing in Sustainable Public Procurement. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/life_cycle_costing.pdf

Chicago

Perera, Oshani, Barbara Morton, and Tina Perfrement. Life Cycle Costing in Sustainable Public Procurement. International Institute for Sustainable Development, 2009. https://www.iisd.org/system/files/publications/life_cycle_costing.pdf.

Wikipedia

{{cite report |last1=Perera |first1=Oshani |last2=Morton |first2=Barbara |last3=Perfrement |first3=Tina |title=Life Cycle Costing in Sustainable Public Procurement |publisher=International Institute for Sustainable Development |date=December 2009 |url=https://www.iisd.org/system/files/publications/life_cycle_costing.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{perera2009life, author = {Perera, Oshani and Morton, Barbara and Perfrement, Tina}, title = {{Life Cycle Costing in Sustainable Public Procurement}}, institution = {International Institute for Sustainable Development}, year = {2009}, month = dec, url = {https://www.iisd.org/system/files/publications/life_cycle_costing.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }