The application of the Life-Cycle Costing technique on UK PPP/PFI education projects: theory versus practice

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. However, despite considerable academic and governmental advocacy and the publication of a new international standard for LCC (ISO 15686-5), the technique is still criticised for being inter alia complicated and expensive to implement, overly reliant on diffuse data and inherently imprecise. Consequently, there is considerable interest in understanding to what extent, per the recommendations of both theory and the new standard, LCC is actually being practiced on UK PPP/PFI projects. A review of pertinent literature was undertaken
together with an investigation concerning the contractual arrangements of a facilities management (FM) partner on a number of PPP/PFI education projects in order to understand the appropriatenessand effectiveness of any conducted LCC analyses relative to defined theory and the standard.Further, risk and sustainability, concepts traditionally associated with the approach, were examined
within an LCC context. The investigation revealed that due to tender requirements only major maintenance and replacement costs associated with a small number of cost significant items were analysed and that this activity, which eschewed discounted cash flows in favour of index-linked present costs, was conducted in isolation by a single PPP/PFI consortium member (the FM provider).
In effect, this was not an LCC study. Consideration of theoretical LCC requirements during the operational phase was similarly sparse, in part hindered by the lack of LCC analysis during the preceding stages. Further, risk and uncertainty were not given formal treatment, sustainability issues
were not addressed and ISO 15686-5 did not feature in any of the analyses conducted. Current LCC practice would appear to have some way to go in order to realise its full potential. To supplement the standard, LCC implementation should be enforced contractually or by regulation, issues relating to
data must be addressed, implementation must move beyond a single project partner and take on a project life-cycle perspective, and risk and sustainability should be more comprehensively featured in the application of the technique.