Life-Cycle Costing in Public Procurement 2026

Definition: Life-cycle costing is the systematic, methodologically traceable identification and evaluation of all costs incurred by a public contracting authority in connection with a procurement item over its entire life cycle, and provides the computational basis for the award decision based on life-cycle costs.

Last updated: January 2026 · Legal basis: Art. 68 Directive 2014/24/EU, § 59 VgV, § 79 BVergG 2018

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What is life-cycle costing?

Life-cycle costing (LCC) is the methodological tool with which public contracting authorities can make the overall costs of competing bids comparable over a defined period under consideration. It goes far beyond a mere comparison of bid prices and incorporates all relevant costs from acquisition through operation to disposal. In public procurement law, it is the central instrument for implementing the possibility – anchored in Art. 68 of Directive 2014/24/EU – of determining the most economically advantageous tender on the basis of life-cycle costs.

Basic methodological principles

A life-cycle costing exercise compliant with procurement law must be transparent, traceable, non-discriminatory and based on substantively sound data.

Key methodological requirements:

• Prior announcement: The methodology must be fully described in the procurement documents before bids are received
• Equal treatment: All bidders are evaluated using the same formula
• Objectivity: Uniform quantity and price assumptions for all bids
• Traceability: Calculations must be verifiable by review bodies

Steps of life-cycle costing

Life-cycle costing follows a structured process which must be set out as early as the preparation of the tender.

Step 1: System boundaries and period under consideration

The contracting authority determines which life-cycle phases are included and over what period the calculation is extended (e.g. 10 years for IT, 30 years for buildings).

Step 2: Define cost categories

Typical categories:

• Acquisition and installation costs
• Energy costs (kWh × tariff × operating hours)
• Maintenance and repair costs
• Personnel costs for operation
• Disposal costs

Step 3: Data collection and estimation

For objectively measurable parameters (e.g. energy consumption), contracting authorities require evidence from bidders. For non-bidder-specific parameters (e.g. energy tariffs), uniform assumptions are set by the contracting authority.

Step 4: Discounting

Future cash flows are discounted back to present value (net present value, NPV) as of the time of bid evaluation using a discount rate. The European Commission recommends, for public investments, discount rates oriented to the government bonds of the Member States.

Step 5: Total cost calculation and bid comparison

The discounted costs of all categories are summed. The resulting total cost figure (total cost of ownership, TCO) forms the basis for bid evaluation.

External costs and monetisation

The inclusion of external costs – in particular of greenhouse gas emissions – is permitted under Art. 68 (1) lit. b of Directive 2014/24/EU, provided a recognised monetisation method is used.

For CO₂ emissions, contracting authorities can:

• Apply the EU ETS certificate price
• Use shadow prices for carbon according to scientific recommendations (e.g. Federal Environment Agency Germany: EUR 201/t CO₂ for the year 2030)
• Apply sector-specific standards (e.g. EN ISO 14040 for life-cycle assessments)

Application examples

Life-cycle costing is applied in practice primarily for capital- and operating-cost-intensive procurement.

Procurement object	Typical LCC duration	Key cost drivers
Service vehicles (electric vs. combustion)	4–8 years	Energy costs, maintenance, emissions
Lighting systems	10–15 years	Energy consumption, lamp replacement
Building HVAC	15–25 years	Energy efficiency, refrigerants
IT servers	3–7 years	Energy consumption, cooling, disposal
Rail vehicles	20–30 years	Maintenance, operation, overhaul

FAQ

Are there standardised LCC methods that contracting authorities can use? Yes. For road vehicles, the Clean Vehicles Directive provides for a mandatory methodology. For other areas, standards such as ISO 15663 (life-cycle costs for oil and gas installations) or EN 60300-3-3 (dependability management) are available.

What happens if a bidder fails to provide the consumption data requested? The contracting authority may exclude the bid for incomplete documents or – if provided for in the procurement documents – apply default values which may be unfavourable for the bidder.

Can the LCC calculation be challenged? Yes. Bidders can have the lawfulness of the calculation methodology reviewed in procurement review proceedings where they take the view that the method is discriminatory or was not announced in advance.

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Last updated: January 2026 All information provided without guarantee. For legally binding advice, please consult a law firm specialising in public procurement law.