Life cycle cost analysis : a decision tool for public procurement award

Abstract

Sustainable development has been tackled for the last four decades in various fields from education, management, climate change to politics all over the world. One of the major challenges faced by humanity nowadays is achieving the economic sustainability of our infrastructure facilities. To fulfill it, an economic tool called Life Cycle Cost Analysis (LCCA), which takes into account all costs of an asset during its lifetime, is being used. In some countries, this technique is being incorporated in the procurement. It is used as a decisive factor in the procurement of their infrastructure facilities to employ resources in the most efficient way, which is favored both economically and environmentally. This master thesis aims at examining the theoretical background and framework of LCCA models to assess the feasibility of incorporating it in public procurement in Lebanon. This is done through academic research, review of case studies for different types of infrastructures, and by inspecting the current state of practice of the LCCA in Lebanon using published guidelines and policies, in addition to conducting one-on-one interviews with key public sector personnel. Based on the assessment of incorporating the life cycle cost (LCC) viability within the current practices of procurement in the public sector in Lebanon, it is concluded that the new Public Private Partnership (PPP) law is the most appropriate channel for considering LCCA results in the procurement decisions. Additionally, a case study of incorporating LCCA in infrastructure procurement was conducted. This was applied on the main component of the commercial sea port of Tripoli: Ship to shore gantry crane (STS) and Rubber tyred gantry crane (RTG) purchase. The LCCA outcome indicated that for a 20 years lifetime, a cost of $21/Local Twenty-foot equivalent unit(TEU), $10/Transhipment TEU for the STS, $6/local TEU and $3/Transhipment TEU for the RTG will yield to an Internal Rate of Return(IRR)of 25%. This forms a Modified Internal Rate of Return (MIRR) of 16%and accordingly the concession period must be of 11 years minimum.