Life Cycle Cost (LCC)

Life Cycle Cost (LCC) is the sum of the costs of an initiative, asset or activity over its life cycle. The Treasury Board of Canada Secretariat describes it as running from initial conception, through operational periods such as operations and maintenance, to the end of the activity or the disposal of assets. It is a measure of total cost, not purchase price alone.

Buyers use LCC in cost estimating, options analysis, acquisition planning, procurement evaluation, programme management and asset management. For a supplier, the practical point is that a buyer may judge an offer by what it costs to own and run over time, not only by what it costs on the day of delivery.

How the Government of Canada and NATO define life cycle cost

The Treasury Board Guide to Costing defines life-cycle costs as the costs of an initiative or activity from conception through operations and maintenance to the end of the activity or disposal of assets. The guide identifies contracting and procurement decisions as a common use of costing information. Decision-makers can use it when assessing which option offers best value, when negotiating contracts and when setting contracting requirements. See the Treasury Board costing guidance.

NATO uses the term Life Cycle Costing in defence. The NATO Logistics Handbook describes it as the total of direct, indirect, recurring, non-recurring and other related costs incurred, or estimated, in designing, developing, producing, operating, maintaining and supporting a major system over its anticipated life span.

NATO also describes LCC as a process that establishes the total cost of a programme from implementation until the capability is removed from inventory or taken out of service. That includes investment and running costs, and NATO notes that the estimates carry uncertainty. Its life-cycle-management framework refers to ISO 15288, adopted through the NATO publications AAP-48 and AAP-20, and it points to ALCCP-1 for guidance, as set out in a NATO report on ground support equipment.

Cost elements counted in an LCC

NATO's Joint Air Power Strategy lists purchase, installation, operating, maintenance and upgrade costs. It also counts residual or salvage value at the end of ownership or useful life.

The federal Policy on Green Procurement identifies elements that can be assessed in a life-cycle cost analysis:

• operating costs, such as energy and water consumption
• indirect costs, such as extra electricity and cooling needed because of less-efficient information technology equipment
• administrative and compliance costs
• higher upfront investments intended to reduce future costs
• disposal costs

CanadaBuys also describes Total Life Cycle Costing as aggregating Product, Resource, Operating and Contingent (PROC) costs in its guidance on defining requirements. Canada's Policy on Social Procurement defines life-cycle cost as the total cost of ownership over the life of an investment.

Where LCC applies in federal procurement

CanadaBuys states that life-cycle costing applies across the four stages of procurement: planning, acquisition, utilization and disposal. Its green procurement guidance adds that the Policy on Green Procurement applies to federal procurement activities. It requires environmental performance to be considered in procurement decisions alongside price, performance, quality and availability.

The Department of National Defence addresses LCC in DAOD 3015-1, Management of Green Procurement. The directive says green procurement means considering costs throughout the life cycle of a good or service, not only the current-year budget. It defines life-cycle costing as taking a broad, longer-term view and recognizing, as practicable, all costs associated with meeting a requirement. For standard goods, services and DND/CAF-specific equipment, it treats life-cycle costs as a key part of achieving value for money and as a chance to weigh a broad range of environmental factors.

DND reporting also applies the concept to major capital projects. A DND procurement page reports total life-cycle costs across development, acquisition, operation and sustainment, and disposal. Infrastructure projects use the same approach. The Indigenous Services Canada infrastructure protocol describes a life-cycle cost analysis as a comparison of technical solutions over a common time horizon. It includes projected capital, operations and maintenance costs, generally over the expected lifetime of the asset.

What LCC means for a supplier bidding on Canadian public contracts

A solicitation can ask for more than an upfront price. A buyer may want information that lets it compare operating, maintenance, environmental, administrative or disposal costs across competing offers. The information required depends on the solicitation, so read the evaluation criteria and pricing instructions closely.

• Price the whole life of your offer, including energy use, maintenance, support, upgrades and end-of-life handling.
• Show where a higher purchase price lowers later costs, since federal policy recognizes upfront investments made to reduce future costs.
• Keep your cost assumptions documented and consistent, because NATO acknowledges that LCC estimates carry uncertainty.
• Use the buyer's own terms, such as total cost of ownership or PROC costs, when the solicitation does.