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| Sustainable Sourcing Life Cycle Cost Guidelines |
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Life-cycle cost: Life-cycle cost is the total cost to the state of acquiring, operating, supporting, and (if applicable) disposing of the items being acquired:
- Acquisition costs are all costs associated with acquiring an item for state use. For complex items, several contracts may be required and costs may involve research and development as well as production, delivery, and installation of the item.
- Operating and support costs are all costs, including contract costs, associated with equipment, supplies, and services needed to operate and maintain an operational system.
- Disposal costs are all costs, including contract costs, associated with removing equipment from service and disposing of it. Evaluations that consider life-cycle cost should also consider any significant salvage or resale value at the time of disposal. Oregon Property Service may help with estimating values.
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| When to Consider as a Price-Related Factor |
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Consider life cycle cost in sustainable acquisition planning whenever the costs of system operation, support, and disposal, and other quantifiable costs are significant in comparison with the cost of acquisition. Consideration is particularly important when you expect that offers will include items that have substantially different operation, support, and disposal costs.
Source selection consideration can be appropriate for an item as simple as an automobile tire or as complex as a major computer system. For more complex purchases, planning should also address:
- Factors with a significant effect on life-cycle cost results, and implement tradeoff studies to evaluate alternative actions which could reduce costs related to those factors.
- Life-cycle costs in product design.
- Follow-on efforts subsequent to purchase to further reduce life-cycle cost.
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| Solicitation Requirements |
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Life-cycle cost methodology is permitted under OAR 125-030-0100 for use by the Department of Administrations Central Purchasing in either an Invitation to Bid or a Request for Proposal. If you intend to consider life-cycle costs in offer evaluation, the solicitation must:
- Advise prospective offerors how life-cycle costs will be considered in making the contract award decision. Award may be made based on lowest evaluated cost, including life-cycle costs, such as an Invitation to Bid or life-cycle costs may be considered as a factor in an award decision that also considers other characteristics of the item or system typically through a Request for Proposal.
- When life-cycle costs continue over a period of years, solicitations may provide for adjustments to consider one or more of the following:
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Time value of money
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Cost uncertainty
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Inflation
- The solicitation must clearly identify the factors and methodologies to be used in the life cycle evaluation.
- Require offerors to estimate key elements of life-cycle cost. To estimate preparation, the solicitation must provide relevant information (e.g., projected item usage, operating environment, and the operating period that will considered in offer evaluation). The solicitation must clearly identify the factors or key elements that will have a life cycle cost applied. Cost evaluation factors identified in the solicitation must be used in the evaluation and award process without modification, unless amendments are issued prior to closing date.
- Require offerors to provide relevant cost estimates along with appropriate information to support life-cycle cost estimates. Estimate requirements typically may include:
- Average unit price, including (when appropriate) recurring and nonrecurring production costs
- Unit operating and support costs (e.g., manpower, energy, parts requirements, scheduled maintenance, training)
- Unit disposal costs (e.g., the cost of removing equipment from the state facility); Unit salvage or residual value.
- Related information should provide estimate support (e.g., test or operational data).
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| Steps in Life-Cycle Purchase |
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- Determine Solicitation Provisions: When life-cycle costs will be considered as a price-related factor or adjustment in offer evaluation, the solicitation must identify life-cycle cost estimate requirements, the information needed to support those estimates, and how those estimates will be considered in making the contract award decision.
- Determine Offered Price(s): Determine the price(s) for each offer. Also identify and evaluate life-cycle cost estimates required for offer analysis. Ask questions such as the following: Is the estimating methodology reasonable and supported by the information provided?
Can the estimating methodology and assumptions made be verified by creditable independent third parts such as energy star, EPA, Department of Energy, etc.
Are the costs realistic when compared with other known information, including past cost performance?
Is the estimate complete in its consideration of all identified cost elements?
- Evaluate Possible Award Combinations: Evaluate offers using the specific criteria set forth in the solicitation, including any adjustments for: time value of money; cost uncertainty; or inflation.
- Make Award Decision: Award to the life-cycle cost bid to the responsible firm whose responsive offer provides the lowest overall cost of ownership (lowest bid) in accordance with the life-cycle cost evaluation factors published in the solicitation.
In the case of a life-cycle request for proposal, award to the responsible firm whose responsive offer, after consideration of life-cycle cost factors as a part of price evaluation, and other factors published in the solicitation document is determined to be the most advantageous or best proposal for the state.
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