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Agile Construction Initiative

Author: Francis Ofori-DarkoDate: 11 July 1997Maintenance responsibility: Prof. G.P. Hammond, Prof. A.G. GravesDocument Number: ACI/WP/97/021File reference: f:\agile documents\agile reports\97.021.100 life cycle

costing - methods and some north americanexperiences.doc

Life Cycle Costing of Civil Engineering ProjectsMethods and Some North America Experiences

AGILE CONSTRUCTION INITIATIVE AGILE REPORT

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Life Cycle Costing of Civil Engineering Projectsmethods and some North America experiences

Author

Francis Ofori-Darko, Agile Construction Initiative

Document control information:

Date of issue 11/07/97Document number ACI/WP/ 97/021Circulation PublicVersion 1.00

To obtain a copy of this document contact ACI at:

School of ManagementUniversity of BathBath, BA2 7AYUnited KingdomTel: + 44 (0) 1225 826641Fax: + 44 (0) 1225 826135E-Mail: [email protected]: http://www.bath.ac.uk/Departments/Management/research/agile/

Copyright � University of Bath, 1997

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any formor by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of thecopyright holder.


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0. Table of Contents

0. TABLE OF CONTENTS .............................................................................................................................3

1. INTRODUCTION.........................................................................................................................................4

1.1 LIFE CYCLE COSTING (LCC)...................................................................................................................41.2 LIFE CYCLES: “FROM CRADLE TO GRAVE”............................................................................................5

1.2.1 Discounting the Future: the time value of money.........................................................................61.2.2 Simulation Analysis ........................................................................................................................6

2. CIVIL ENGINEERING PROJECTS ........................................................................................................7

2.1 THE NATURE OF CIVIL ENGINEERING CONSTRUCTION.............................................................................72.2 THE PRESENT CONTRIBUTION OF THE CIVIL ENGINEERING INDUSTRY .................................................82.3 APPLICATION AND GENERIC PROBLEMS OF USING LCC IN CIVIL ENGINEERING PROJECTS..............10

2.3.1 Conception/Developmental and Design stage............................................................................102.3.2 Construction stage........................................................................................................................102.3.3 Maintenance and Terminal Stage ..............................................................................................102.3.4 Generic problems. ........................................................................................................................11

3. THE NORTH AMERICAN EXPERIENCE..........................................................................................12

3.1 BRIDGES.................................................................................................................................................123.2 HIGHWAYS AND PAVEMENTS................................................................................................................153.3 ACHIEVEMENTS AND DEFICIENCIES......................................................................................................17

4. CONCLUDING REMARKS.....................................................................................................................18

5. ACKNOWLEDGEMENT.........................................................................................................................19

6. REFERENCES ............................................................................................................................................20

7. NORTH AMERICA LCC CASE STUDIES PROTOCOL.................................................................23


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1. INTRODUCTION

The cost of ownership of civil engineering infrastructure is becoming an increasingly worryingproblem with which clients (both private and public) are struggling to get to grips. This is oftenattributed to the appalling state of infrastructure works and the associated cost of maintenance. Tosome, this is the price the industry is paying for awarding contracts based on the lowest costprinciple [1]. Calls have been made for the industry to adopt strategies that will address theproblem. One such strategy is the use of financial analysis of infrastructures that will include lifecycle estimates, using the life cycle costing analysis technique.

Life cycle costing provides a way of evaluating competing design alternatives that have differingseries of expenditures over the project’s life cycle. It is based on the concept of discounted cash-flow analysis, where all the costs expected to occur throughout the life of the structure areestimated and converted to an equivalent uniform cost for purposes of comparison. Although thetechnique is very simple and straight forward, reservations have been expressed with regards to it’spracticality.

This paper contributes to the growing interest in the place of life cycle costing in the civilengineering industry, by discussing the practical problems involve in the use of life cycle costing,how some of these problems have been overcome in real-life examples and the associated“benefits”. This will be done within the background of the continual contribution of the civilengineering industry to both national and international economies.

1.1 Life Cycle Costing (LCC)

Life Cycle Costing (LCC) can be defined “ as an economic assessment of design alternatives,considering all the significant costs of ownership over its economic life expressed in equivalentdollars” [2]. The LCC according to Ward [3], gained favour as an investment analytical toolduring the 1980’s energy crisis because firms and agencies were comparing investmentalternatives (a new car, for example) based on features and obvious up-front cost with the cost ofoperation or maintenance. In the building industry, for example, the United States federalgovernment in the 1970’s insisted that federal investment in buildings would only be madefollowing the submission of a life cycle costing exercise. This was because, although thegovernment had total control of the capital input into the projects, it had little control over highoperating and maintenance costs [4].

In recent years, the use of the life cycle technique has gradually gained momentum. This may beattributed to the gradual shaking-up of the procurement process within the civil engineeringindustry [5]. This involves undertakings that will enable the suppliers to better understand theirclients’ requirements in order to provide long-term durable infrastructures. This will ultimatelylead to a better appreciation for the life cycle costing technique.


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1.2 Life Cycles: “From Cradle to Grave”

The life-cycle of an average civil engineering project typically includes the following stages: initialconcept development, design, construction/commission, operate/maintain and finally the removalstage (Figure 1). Figure 1 not only shows the stages of the life cycle of the project but also depictsthe inter-relationships between them. Thus, the decisions taken at the concept and design stageswill not only affect the construction of the infrastructure but also the subsequent maintenance andthe removal stages.

Figure 2: Project Life Cycle

One of the most important variables for an accurate estimation of life cycle costing is the estimateof the asset service life. Whether the choice is replacement or new construction, the service life ofa construction product is difficult to forecast and sometimes loosely defined. According to Kirkand Dell’Isola [6], the following precise definitions can be used:

• technological life - the estimated number of years until the technology causes thestructure to become obsolete.

• useful life - the estimated number of years during which the structure will perform its function according to some established

performance standard.• economic life - the estimated number of years until the structure no longer

represents the least expensive method of performing its function.

Furthermore with respect to life cycle analysis, economic life is the most important of the threealthough they are normally inter-related.

During the economic life of the structure, it is subject to use, repairs, maintenance, perhaps someform of modifications and finally disposal. These processes comprise the life cycle of thestructure, and the costs associated with each process make up the life cycle cost.

Concept/Development

Design

Construct/Commission

Operate/Maintain

RemovalStages

1st

2nd

3rd

4th

5th

Service life


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1.2.1 Discounting the Future: the time value of money

In life cycle costing, whilst the design and construction costs are present values, that ofmaintenance and removal are in the future. Thus, life cycle costing technique uses the discountingof cash flow approach to convert future cost to net present values (NPV). In general the NPV ofany £x amount of money to be received in time t years in future with a cost of capital of r% isexpressed in equation 2-1, where i is the rate of inflation.

NPV of £ x = x (1+r)t …..…………………..…………………....2-1

where both x and r are expressed in nominal terms. If x has been predicted allowing for propectiveinflation in those specific types of cash flows, no further adjustment for inflation is required. Analternative often suggested is for the cash flow to be expressed in constant money terms anddiscounted using the real cost of capital (net of inflation) where the real of capital, say k, is shownby equation 2-2:

k = 1+r 1+i …………………………………..2-2

Thus, it can be seen that, in principle, inflation can be taken into consideration in either of twoways during life cycle costing analysis. There are merits and demerits of the two alternatives [7]but we need not get into that details here.

1.2.2 Simulation Analysis

In life-cycle cost analysis, the time span for a project may cover many years involving future costelements and their corresponding uncertainties. Thus within life cycle costing analysis, thereshould be provision for assessing the effects of these uncertainties on the results of the life-cyclecost. The two leading approaches to uncertainty assessment are the probabilistic approach and thesensitivity analysis approach [8].

Sensitivity analysis is a deterministic technique that asks a series of “what-if” questions. Theoutput of a sensitivity analysis (SA) generally indicates the extent to which the LCC estimates aresensitive to changes in the parameters used in the analysis, e.g. interest rate. Since the major use oflife cycle costing is to rank design alternatives, SA is of considerable use in determining whetherthe initial ranking is sensitive to changes in any of the parameters [4]. But often there aresituations where a small change in a parameter (e.g. interest rate, service life, etc.) will indicate asignificant change in the ranking, which in this case a further detailed analysis can be done usingprobability analysis.

For probability analysis, there are many ways in which the analysis can be conducted but the mosteasily used yet extremely powerful system, is Monte Carlo Simulation. Monte Carlo Simulation isa means of examining certain types of problems for which unique solutions cannot be obtained. InMonte Carlo Simulation, all the variables are modelled as probability rather than as single values.This typically takes the form of a probability distribution of the total costs of the alternative, whichshows the most likely cost of the alternative and the range within which it can be expected to lie[4]. Allowance can also be made for cross influences between variables in the model on theprobability distributions themselves.

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2. CIVIL ENGINEERING PROJECTS

2.1 The nature of civil engineering construction

All construction projects begin with an idea, resulting from a perception of need, and, in theprocess of its provision, aim to make profit. The activities within civil engineering constructionare concerned with planning, regulation, design, manufacture, construction and maintenance,replacement, demolition of structures. The construction work includes a variety of differentactivities in respect of the size and type of projects, which are undertaken and the professionaltrade skills that are required. The industry is also plagued by high unemployment in addition to thediscontinuity of work, the need to move from site to site to find jobs, bad weather and periodicrecessions [9].

Civil engineering construction projects can vary from work worth a few hundred poundsundertaken by builders, to major schemes costing several million pounds. Figure 2, shows thedifferent types of civil engineering construction projects. Whilst the principles of execution aresimilar the scale, complexity and intricacy vary enormously. This is because the construction ofany design calls for its adaptation to the site, climate, seasons, time factors, etc.. The constructionindustry has a number of characteristics which separate it from all other industries; the uniquenessof the product - evidenced by the individuality of the building or structure; the medium ofproduction - that is, the contract; the importance of time to the contract; and the indeterminatephysical factors that govern and control the construction process (10). However, within theseunique socio-economic environments, the industry continues to play its part in the economicsuccess of many countries.

Figure 2: Classification of Civil Engineering Infrastructure

TYPES OF CONSTRUCTION PROJECTS

Residential Construction Building Construction Heavy Engineering Construction Industrial Construction

Residential Construction

1. Single family homes2. Multiunit town

houses3. Garden apartments4. High rise apartments

Building Construction

1. Small retail stores2. Urban redevelopment

complexes3. Schools, Colleges ,

Universities4. Hospitals5. Churches6. Commercial Office Towers7. Theatres8. Government buildings9. Recreation centres10. Light manufacturing plants11. Warehouses

Heavy Engineering Construction

1. Dams2. Tunnels3. Bridges (footbridges, long-span4. Transportation structures

-Interstate railways-Airports-Highways-Underground rail system

5. Ports and Harbour6. Deep open sea structures7. Pipelines8. Water treatment9. Sewage and storm water

collection10. Treatment and disposal system11. Power lines12. Communication networks

Industrial Construction

1. Petroleum refineries2. Petrochemical plants3. Synthetic fuel plants4. Fossil-fuel and nuclear power

plants5. Mine developments6. Smelters7. Steel mills and aluminium

plants8. Large manufacturing plants

e.g. cars

CLASSIFICATION


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2.2 The Present Contribution of the Civil Engineering Industry

Civil engineering infrastructure is linked to economic development globally through itscontribution to flow of commerce, poverty alleviation (job provision) and environmentalsustainability [11].

Although the construction industry is yet to recover since the last recession it accounts for 7% ofthe gross domestic product (GNP) in UK [12]. According to Manser [9] in the 1990’s, theindustry provided approximately 1million jobs. Of this figure 20% are self-employed who areengaged in some sort of construction activity. This shows that the construction industry continuesto play a significant role in the economy. It provides a large part of the nations infrastructure, itsroads, power stations, public buildings etc. It also creates jobs and income for a great many peopleand operates in all parts of the country.

In the United States, construction, is the country’s second largest economic activity and a criticalasset for enhancing the international competitiveness of the U.S. Industry [13] In 1994, newconstruction works amounted to $508 billion, 8% of the gross domestic product (GDP) andprovided employment for 6 million people (14). Furthermore, when renovation is included,construction amounts to about $850 billion annually, 13% of the GDP, and 10 million jobs.

Although the industry continues to contribute to economic development, recent assertion hasquestioned whether the industry can meet the challenges of the 21st century [15]. In the UK, theanalysis of the industry culminated in a report by Sir Michael Latham titled “Constructing theteam ” [16] with its overall recommendation being the adoption of a target of real cost reduction of30% in the UK construction industry by the year 2000. To help implement Latham’srecommendations, twelve teams (Working Groups 1 to 12) were established, each assigned aspecific goal within the overall framework of Latham’s report. Working Group Eleven’s (WG11)[17] work is about how the concept of total quality management will assist the goal of achievingthe 30% in cost by the year 2000. In it’s findings, the WG11, suggested that designers can help inthis overall cost reduction programme, by considering the effect of their designs on cost,productivity, quality, maintenance, running cost, in effect the designers are to consider the life-cycle costing implications on their designs. The life cycle costing, the WG11 further suggested,should be considered at the time of financial approval of the project. In this case, the clients andthe financiers can be made aware of the fact that the normal practice of initial capital reductions tomeet capital constraints may rather increase the maintenance cost, thereby increasing the overalllife cycle cost of the project.

Furthermore, in response to a requirement for greater accountability of tax payers money, theHighways Agency (UK) is introducing major changes with regards to the procurement of HighwayInfrastructures. The major item is the extension of defects correction periods on new highwayinfrastructures, which is of major concern to roads and highways contractors, and, in addition theAgency will require that all tenders in future be assessed on quality and life cycle cost as well astender price [5].


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Researchers in North America (particularly US and Canada) have come to similar conclusions tothe UK. In Canada, to improve the workings of the construction industry, a study was conductedto look into best practices in the areas of owner-contractor relationships [18]. The purpose of thestudy was to identify the possible problem areas and determinants of success in the execution ofcivil engineering projects. It was hoped that this would increase the quality of the work and savemoney through the use of non-adversarial forms of owner-contractor relationship. The study,which involved thirty major international organisations, found that there is a preoccupation withawarding contracts based on lowest bid which often leads to higher end price for the project,through higher maintenance and operating costs. Furthermore, the current practice prevents anyparticipation of the contractor during the design stage of the project. This often leads to missedopportunities for effective scheduling, planning and consideration of alternative designs whichgoes on to affect the overall buildability of the project. In order to address this the problem, andreduce the overall cost of the infrastructure, the study recommended that the life-cycle costinganalysis should be introduced to owners and purchasers of construction products. In this case theparties involved the project, the owners, designers and the contractors, can exchange useful ideasand expertise that would help in delivering the lowest life cycle cost.

In the United States several authors have also added their voice to the importance of life cycleanalysis for civil engineering projects. In an analysis of the state of the U.S. Construction industrymoving into the 21st century, Grant [13] assessed that the successful civil engineer would be one,who would be able to see, understand, and work within the “big picture.” By the “big picture”, hemeant that the civil engineer must be able to plan, design and build civil engineering infrastructuresystems and at the same time understand and appreciate its effect on the following: political, legal,environmental, economic, cultural, education and communication. This broad knowledgerequirement of the civil engineer will require a fundamental shift of the relationship between allthe parties involved in the execution of construction projects. To achieve this, Grant hasrecommended for the promotion, development and use of life-cycle cost analysis for public worksinvestments, including standard methodologies and application. For this recommendation towork, the government, the civil engineering industry and the academia, must work together on thefollowing agenda suggested by Grant:

• The Government should establish policies that include life-cycle costing as an element ofinfrastructure investment analysis. On this point Grant has acknowledged that the FederalHighway Administration has already issued a temporary policy on the “Principles ofInfrastructure Investment”, which calls for the use of life-cycle analysis in infrastructureprocurement.

• The Civil Engineering Industry should include life-cycle analysis in evaluating public-worksproject design alternatives, and educate clients on its benefits.

• The educational establishment should integrate life-cycle analysis into engineering curriculum.

Wright [14] reiterated the concern about over-emphasising first cost, which he has noted is abarrier to some civil engineering designs which will normally need an increased first cost in orderto achieve improved buildability long term durability, resulting in a reduced life-cycle cost. This isbecause construction, he said “includes the whole life of the project: initial planning andprogramming, design, manufacturing and site construction, occupancy and maintenance, conditionassessment, retrofit and renovation or removal.” This view of the construction product isnecessary in order to give a realistic cost trade off of the different design alternatives. Thus, as partof the drive to meet the challenges of the 21st century for the civil engineering industry, thefollowing in relation to life cycle costing has been recommended:


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• The development of high performance materials, components, and systems: Mechanisms,models, and data for life-cycle performance.

• The development of performance standard systems: test methods and data for life-cycleperformance.

Seaden [19] recognised that there is a growing shift from constructing new structures to repairingand rehabilitating existing infrastructure. This, in his view, is causing the industry to review themerits of life-cycle costing principles. Furthermore, it is anticipated that the thorough applicationof life cycle costing can contribute to the assertions by studies in the US, UK and Australia that thecost of construction product can be further reduced through a radical reengineering by 30-50%[19].

2.3 Application and generic problems of using LCC in Civil EngineeringProjects

The following are some of the main applications of life-cycle costing that can be associated withcivil engineering projects. They can be applied at each stage during the life-cycle of the structure.The following discussions show how this can be implemented.

2.3.1 Conception/Developmental and Design stage

The whole life-cycle costing technique can be used as a component part of an investmentappraisal, which often takes place at this stage of the project’s life cycle. The developer at thisstage has got the chance to investigate the possible trade-offs between various options. Theimportant point which must be emphasised here is that the LCC is not about asking the developerto put away some money now to fund future operational and maintenance cost. The techniqueoffers all the players involved in the project the chance to contribute their knowledge in adoptingappropriate compliance methods and/or standard procedure to meet the client/developer’s corerequirements. The main use of whole life-cycle costing is potentially very useful at the designstage where a lot of alternatives are normally encountered. Additionally, the cost and resistance tomaking changes to the design is much less at this stage [20].

2.3.2 Construction stage

While the major input of whole life-cycle costing is at the design stage, since its correct applicationhere is likely to achieve the best in overall long-term economic savings, it should not be assumedthat this is where the use of the technique ceases. In situations where the decision to use thetechnique was not part of the design process, the contractor may use a method of constructionwhich would comply with the specifications but can affect the over all life cycle cost [21].

2.3.3 Maintenance and Terminal Stage

During the maintenance of present infrastructure life cycle costing can be used to evaluate differentmaintenance options available. This will include not only the type of maintenance but also the typeof material to be used, since different materials have different service lives. At present this is onearea where the technique is widely used [22]. When a structure has undergone cycles ofmaintenance, there comes a time that a decision has to be made regarding further repair,


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rehabilitation, reconstruction or replacement (4R’s). This is because it is generally acknowledgethat the cost of maintenance on infrastructure increases as the years go by.

2.3.4 Generic problems.

Irrespective of the stage at which the technique is applied, the following are the general problemsoften associated with the use of the technique.

1. Lack of reliable and credible historical database.2. Difficulties in forecasting or estimating cost associated with the future e.g. operation,

maintenance and the salvage cost.3. The reliability of the assumptions used for the analysis.

Although a credible life cycle cost will need a reliable database, it has been suggested in theabsence of such a database, it was possible to use the opinion of experts, who will have a fairamount of knowledge and experience to give opinion regarding the service life of bothcomponents and materials. In addition, suppliers of materials and components can also be reliedupon to give such data. Moreover, others believe that such a database is not even needed beforemaking credible choices between alternative designs [23]. The difficulties in forecasting the futurecost can also be overcome by applying the same sensitivity analysis. Thus in a situation wherethere are small differences between the ranking of some or all the alternatives considered then themajor parameters (e.g. the service life, discount rate) can be examined by using sensitivity analysis(24). In addition it must be understood that the results of life cycle costing are not absolute butrelative giving trends or order of various parameters. The usual assumptions used during life cycleanalysis are service life, discount rate and the likely residual value of the alternatives. Theirreliability can be again be enhanced by using the sensitivity analysis.

The next section presents examples from North American concerning situations where thetechnique was used and in addition attention would be drawn as to how some the practicalproblems highlighted earlier on were overcome.


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3. THE NORTH AMERICAN EXPERIENCE

The life cycle costing has found greater application in North America where it is widely used, assuggested by Ahuja and Walsh (25). Furthermore, the enactment of the ISTEA Act in 1991 by theUS Congress to develop a national intermodal surface transportation system, has added extra needfor the technique. This is because, the act makes it obligatory for any organisation depending onFederal funds for providing highway infrastructures and transportation facilities to perform lifecycle costing to justify funding (26). In a recent paper, Arditi and Messiha (20) reported on astudy regarding the investigation into the use of LCC in the largest municipalities in the US. Thestudy found that 40% of the municipalities use LCC and 80% assessed their LCC analysisutilisation process as successful or somewhat successful. Furthermore, the 60% who do not usethe technique cited lack of standard or formal guidelines of the technique and the difficulty ofestimating future cost and incomes as their reason for not applying it.

This section of the paper therefore will try to cite examples in North America where the use ofLCC technique had been deemed to been encouraging. Attention would be paid to the how thepractical problems outlined earlier were addressed and what lessons can be learned from suchexperiences. Although there are examples in the building industry, the energy industry, for thepurpose of this paper examples will only be cited from bridges, highways and pavement structures.

3.1 Bridges

In Canada, in the Province of British Columbia, life-cycle costing was used to help the selection ofthe appropriate maintenance strategy for steel bridges. This involved a comparison of threemaintenance strategies: spot repair, overcoat and re-coat. The spot repair strategy involved theremoval of rusted areas and a new coating applied. Areas having minor defects are not removeduntil they deteriorate to a specific condition. This system is only applicable for existing coatingsthat have limited corrosion and adequate adhesion. For over-coating, all defective areas areremoved and the entire steel work structure finished with a new coating that is compatible with theexiting system. The complete re-coating strategy allows the old coating system to deteriorate untilstructural damage due to corrosion is imminent. In this case the surface is cleaned and the newcoating applied.

The life-cycle technique was developed based on the equivalent annual cost. Thus the strategy thatprovided the minimum equivalent annual cost was considered to be optimal. The analysisprocedure was divided into two parts. First, the deterioration of the coating system was simulated.This involved identifying the various components of the entire steel structure and to provide veryrealistic estimates which depended on the accurate description of the coating condition and theaccuracy of the corrosions curves. Due to the lack of an adequate database at the time of theanalysis, the deterioration functions used in the database depended mainly on estimates providedby experts in the field. For the second part of the analysis, the life cycle cost analysis is applied inorder to determine the optimal result from the three maintenance strategies. Although there weresome limitations regarding the model used, based on the investigation carried out, spot repair wasfound to be the most cost effective method for rehabilitating the corrosion resistance of the bridge[27].


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In the United States, Markow et al. [28] have used technique to determine the best treatment toreinforced concrete bridge in the following conditions: suffering, suffered or would suffer fromcorrosion. This involved estimating the least LCC of each maintenance treatment available andbest time for applying them. The four treatments considered are:

1. Rehabilitation patching (i.e. patching with Portland cement concrete (PCC) after removal ofdistressed concrete).

2. Application of sealer after patching of distressed concrete.3. Application of PCC overlay over the entire deck after patching of distressed concrete.4. Installation of a cathodic protection system after patching of distressed concrete.

Furthermore, to carry out the analysis the following items were considered constant for all thetreatments.• Bridge deck area (sq. fit)• An average annual delay time (AADT) of 25,000 valued as $10.00 per hour.• A free-flow crossing time of 0.01894 minutes (based upon the bridge length of 83 ft and a

speed of 50 mph)• A normal two-way capacity of 96,000vpd (vehicles per day) and a capacity during treatment of

57,000vpd (assuming one lane of the bridge is closed at a time.)• No annual maintenance (before the treatment, or treatment after installation)• A discount rate of 5%.

The cost data used for the analysis included the following: initial construction cost, replacementcost, future maintenance cost, salvage cost and the user cost. The procedure for estimating theLCC used a numerical solution based on derived functions showing relationships between the costitems. The variables associated with each treatment are reproduced in Table 1.

Parameter Patching Sealer PCC Overlay CP

Service life, years 6 10 20 30

Cost of patching, $/sq.ftdistressed area

35 35 35 35

Project cost (to treat entiredeck area) $

0 1230 24000 36000

Productivity, sq.ft./day forpatching

135 135 135 135

Time, days, for project to treatentire deck

0 4 10 20

Improvement factor, I (fractionof distress corrected)

0.765 0.765 0.765 1.0

• Table 1: Input Data for Example Treatments (28)


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Figure 3 (below) describes a result from the analysis involving the four maintenance treatmentsavailable. From the graph the optimum time for the application of the treatment is given as theminimum point on the curve. The graph also show that for this particular study, the time fortreatment for either patching or the use of sealer is not a minimum point but a range of time, givingthe decision maker the opportunity to select the optimum time for the treatment. However, forboth the overlay and the cathodic protection treatments, there is a minimum point on theircorresponding curves indicating the best time for the cost effective application of the maintenancetreatments.

To account for the reliability of the data used, Markow et al. (28) explained that the total costcurves in the case study all tended to have a true minimum point that determines the optimumsolution, in addition to indicating a region where the total cost does vary significantly. This regiondefines a span of 5 to 10 years (Figure 3) in which the solution is reasonably close to the optimum.Thus, even if some of the input data cannot be specified exactly, the solution is considered robustenough to provide a good range of results. Furthermore, in this case study the problem ofinadequate cost database was addressed by using derived functions, which showed therelationships between the cost variables.

0

10

20

30

40

50

60

70

80

90

100

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36

Time at which Treatment Performed, Yeras

Dis

coun

ted

Cos

ts ($

K)

Patching

Sealer

Overlay

Cathodic protection

Figure 3: Comparisons of Treatments (28)


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3.2 Highways and Pavements

In Alaska life cycle costing was used as the basis for developing a pavement design evaluationsystem (PDES), which provides an effective procedure in evaluating alternative initial design. ThePDES system consisted of four sub-systems: pavement performance subsystem, cost subsystem,life-cycle cost procedure, and optimisation subsystem. The items in the pavement cost subsysteminclude: the initial construction, salvage value, routine maintenance, excess road user costs andconsiderations of interest rate and inflation. The input required for the initial cost were pavementwidth, roadway width, fillings on slopes, thickness of pavement layers-asphalt concrete, aggregatebase, aggregate sub-base), thickness of borrow, thickness of insulation and thickness ofunclassified fill. The designer was required by the model to input the unit cost in dollars for theitems listed above. If a salvage value is associated with certain materials for a specified designalternative at the end of a selected analysis period, the unit costs for initial construction wasreduced by the present worth of the salvage value. The routine maintenance costs were based onmaintenance roads records from 1977 through 1980. These were used to establish relationshipsbetween the pavement performance and the routine maintenance costs. The excess road user costscaused by road roughness were estimated by using a relationship that was based on riding comfortand speed (volume/capacity ratio). The data for the relationship were derived from excess costexperienced by commercial vehicles. The model was built on the assumption that the analysiswould be run for a maximum period of 25 years.

To account for uncertainties inherent in the difficulty in estimating, the routine maintenance andthe user costs, probability distribution principles were used in this model. It was assumed that if apavement performs worse or better than average at one time, it would continue to perform thesame way at any other time. This was considered to be a reasonable assumption, since for a givenproject traffic and environmental conditions are fixed, and future pavement performance woulddepend on factors such as initial design and quality of construction that are determined at the timeof construction.

As already stated that the two main criticisms of the life cycle technique are lack of reliabledatabase and the long life span of civil engineering infrastructure. With regards to lack of adatabase the Alaskan model used crude raw data and then established a relationship which helpedthem to predict the future maintenance and user cost fairly accurately. In addition to this asensitivity analysis was built into the model to deal with the uncertainties in predicting future cost.Concerning the problem of life span the model stipulated a maximum analysis period of 25 years.The PDES has thus provided the Alaskan authorities with a means of documenting and justifyingspecific design selections within the construction environment pertaining to Alaska [29].

Sharaf et al. [30] presented a methodology for determining the least cost maintenance and repairfor different categories of Pavement Condition Indexes (PCI) using the life cycle costingtechnique. This involves the following procedures:

• Determining the fixed initial construction cost of each alternative based on local prices.• Determining the cost of pavement preparation before repair as a function of pavement type,

condition, local prices, and installation policy of pavement preparation.• Determining the annual cost of routine maintenance of each alternative as a function of

pavement condition, local prices, and installation maintenance policy.• Determining pavement performance characteristics for various pavement categories.


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• Conducting a life-cycle cost analysis of each alternative for all pavement categories at variousPCI ranges using equivalent uniform annual cost approach.

The main source of data in this case study was a database system (PAVER) used by the U.S. ArmyCorps of Engineers. The database included detailed information from five military installationsconsisting of over 2000 records. Each record included the following main categories of items:pavement ranking, pavement surface type, pavement thickness, the date of construction, amountand severity of each distress and the overall PCI. The life-cycle cost was estimated by making useof the service life and the units cost of each alternative. The unit cost associated with eachalternative included the initial cost and the maintenance costs during the service life of thealternative. In this case study user costs were not considered, because the role of user costs on lowvolume military roads was not well established. The initial cost of any of the alternative are madeup of both a fixed-cost component and a variable-cost component. The variable-cost componentdepends on the amount of pavement preparation required.

The fixed initial cost is a function of both the local prices and the physical layout of the highwaysystem. The unit costs were obtained through field visits to different installations whereinformation such as the project specifications, quantity estimates, and actual bid abstracts werereviewed. The pavement preparation unit costs were obtained by interviewing facility engineers.

In conducting the life cycle analysis the following service lives (the number of years to reach a PCIof 70) were determined for the following alternative options: surface treatment, 8 years; thinoverlay, 13 years; thick overlay, 15 years, and reconstruction 17 years. The inflation-adjusteddiscount rate was 6%. Thus the life-cycle cost analysis of the case study carried out for the thinoverlay pavement showed that surface treatment has the least equivalent annual cost. The result ofthe analysis repeated for different PCI ranges is reproduced in Figure 4.

0

1

2

3

4

90 70 50 30 10

PCI

$/sq

.yd.

of E

UA

C

Surface treatment

Thin Overlay

Thick Overlay

Reconstruction

Figure 4: Equivalent uniform annual costs of different M&R alternatives for thin overlaypavement by PCI range [30]


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From the figure, it can be seen that although surface treatment is the most cost-effectivemaintenance alternative at the PCI range of 61 to 90, however structural overlay is the best optionat PCI of 41 to 60 whilst total reconstruction is the best alternative at PCI range of 0 to 20.

From the case study presented by Sharaf et al. the problem of database was fairly overcome byusing local price data and interviewing experts. This database used (PAVER) had the followingcapabilities (a) data storage and retrieval, (b) pavement network identification, (c) pavementcondition rating, (d) project priority setting, (e) inspection scheduling (f) maintenance and repairneeds determination, (g) resource planning, and (h) economic analysis and budget planning.Although the database wasn’t the perfect solution, at least it had the parameters capable ofestimating the maintenance cost.

In order to lower the uncertainties with regards to the period of analysis the model used in this casestudy used a fairly shorter periods ranging from 8 to 17 years depending on the type ofmaintenance alternatives.

Johnson [31] reported on the use of life cycle costing in the selection of road materials in Denver,United States. In that particular instance, the city needed to make a decision on whether to useconcrete or asphalt pavement. The selection of pavement types includes such variables as localassess needed during construction, traffic detour availability, lane widths, and volume of buses andtrucks. Life cycle cost analysis involved the initial cost of construction and future annualmaintenance costs. The analysis showed that although concrete pavements had a higher initial coston municipal projects, the annual maintenance cost for a concrete pavement is low. The studyfound that asphalt pavement required periodic overlays to restore their structural load carryingcapacity. Normally, concrete pavement will not require any overlays over the design life of theproject. In the light of the study the Denver City selected concrete pavement based on itscompetitive first cost, ability to withstand heavy loads and drainage from irrigation systems andmore importantly the lower life cycle cost taking into consideration other non-monetary factorslike weather. Thus the concrete pavement in the city’s estimation provided a wise investment oftax payers’ money which will reduce Denver’s street maintenance requirement in the future.

3.3 Achievements and Deficiencies

Life cycle costing as a technique has helped in the choice of alternative designs, materials andprocurement in some civil engineering projects. Of these some notable examples are bridges,pavements and highways. In addition life cycle costing is also helping designers/engineers to bemore proactive in terms of the structures they design and build. An average designer/engineerknows that the structure they design and build will not collapse however the same engineer maynot be in the position to fully establish the effect of the design on the maintenance bill of thatstructure. With full use of LCC more can be achieved by the designers and the engineers.

The above case studies cited have revealed that where there is a lack of credible historical databasethe use of local price databases and experts opinions can provide a very good source ofinformation. These can then be used to generate relationships between the cost variables for theanalysis. In order to address the uncertainties regarding the data used some of the analysis hadsensitivity testing incorporated into the models to help in attaching some credibility to the resultsof the analysis.


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4. CONCLUDING REMARKS

Historically civil engineering infrastructure has been procured based on the lowest initial capitalcost philosophy. This has resulted in infrastructures having a very high maintenance bill thusmaking the cost of its ownership somewhat difficult.

This paper has tried to show that with a thorough and systematic implementation of life-cyclecosting analysis in the procurement of infrastructure the problem can be reduced. This issupported by evidence from analysis carried out on the industry from UK, Australia, Canada andUS, which suggest that the application of life-cycle costing has the potential to reduce the cost ofinfrastructure procurement. In the US for example the implementation of federal policies has beenone of the major drivers in the use of life-cycle costing. Furthermore, the practical reservationsexpressed with regard to the use of the technique can be address by using local databases, expertopinions, establishing of relationships between the cost variables and incorporating sensitivityanalysis in the life cycle costing models.

In the UK, the authors believe that with the on-going implementation of the new funding schemeswith regards to infrastructure procurement, the use of life-cycle costing analysis will be a veryvaluable tool. We end with a quotation by Alfred R. Pagan [32] an American Bridge Engineer

“The times, they are changing. Whether it is popular or not, sooner or later, life-cycle costanalysis will be fact of life in public works boardrooms where decisions will be made duringthe 21st century. There is no other proper way”.


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5. ACKNOWLEDGEMENT


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6. REFERENCES

1. BETTIGOLE, NH. Replacing bridge decks. Civil Engineering, ASCE, September 1990, 76-77.2. DELL’ISOLA, A.J., KIRK, S.J. Life cycle costing for design professionals. McGraw-Hill

Book Company, 1981,.9-10.3. WARD, C. Environmental Resources - Life Cycle Costing. Discussion on the CEDAR bulletin

board, compiled by S. Clark, Brunel University, 1995, 1-3.4. HOAR, D., NORMAN, G. Life cycle cost management. Quantity Surveying Techniques: New

Directions. Ed. P.S. Brandon. BSP Professional Books., 1990, 139-168.5. HAYNES, L. Highways agency shakes up procurement. New Civil Engineer, News, 26 June

1997, 4.6. KIRK, S.J., DELL’ISOLA, A.J., Life cycle costing for design professionals. McGraw-Hill

Book Company, 1995.7. TOMKINS, C. Corporate resource allocation: Financial, strategic and organisational

perspective. Blackwell, 1991, 22-24.8. FLANAGAN, R, STEVENS, S. Risk analysis. Quantity Surveying Techniques: New

Directions. Ed. PS Brandon. BSP Professional Books, 1990, 121-138.9. MANSER, J.E. Economics: a foundation course for built environment. E&FN SPON, 1994,

105-11410. MAHER, RP Introduction to construction operations. Published by John Wiley & Sons.

1982.11. WORLD DEVELOPMENT REPORT Infrastructure for development. Oxford University

Press for the World Bank, Washington DC 1994.12. LYNN, M. Building’s decline and fall. Management Today, February 1996 , 28-3213. GRANT, A. (1995) Viewpoint: Civil engineering systems: The big picture. Journal of

Infrastructure Systems, ASCE, June 1995, Vol. 1. No.2.14. WRIGHT. RN Viewpoint: national goals for construction technology. Journal of Infrastructure

Systems, ASCE, December 1995, Vol. 1. No4.15. BERNSTEIN, H.M Viewpoint: Is the design and construction industry up to the challenge?.

Journal of Infrastructure Systems, ASCE, September 1995, Vol. 1. No3.16. LATHAM, M. Constructing the team. Report of the Government/Industry Review of

procurement and contractual arrangements in the UK construction industry. HMSO, 1994.17. WORKING GROUP 11 Towards a 30% productivity improvement in construction. A report

by Working Group 11 of the Construction Industry Board, Thomas Telford, London.18. DOZZI, P., HARTMAN, F., TIDSBURY, N, ASHRAFI, R. More-stable owner-contractor

relationships. Journal of Construction Engineering and Management, ASCE, March 1996, Vol.122. No1, 30-35.

19. SEADAN, G. Viewpoint: Economics of innovation in the construction industry. Journal ofInfrastructure Systems, ASCE, September 1996, Vol. 1. No4. Pp. 103-107.

20. ARDITI, DA, MESSIHA, HM (1996) Life cycle costing in municipal construction projects.Journal of Infrastructure Systems, ASCE, March 1996, Vol. 2. No1.

21. ASHWORTH, A (1993) How life cycle costing can improve exiting costing. Life cycle forconstruction. Ed. J.W. Bull. Blackie Academic & Professional,, pp. 119-133.

22. LEADBEATER, A. Management of concrete bridges: A local Authority’s Viewpoint. One day

Seminar on Whole Life costing: Concrete Bridges organised by the Concrete BridgeDevelopment Group, UK, 1995, 99-111.


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23. BETTIGOLE, NH. Bridge management and life cycle cost. Proceedings of the 13th StructuresCongress on America and Beyond Structures Congress, ASCE, . Part 1(of 2), Boston, MA,1995, 668-669.

24. LEEMING, MB The sensitivity of detail design to initial and whole life costing. One daySeminar on Whole Life costing: Concrete Bridges organised by the Concrete BridgeDevelopment Group, UK, 1995, 99-111.

25. AHUJA, WALSH Successful methods in cost engineering. Wiley-Interscience, New York, NY.1983.

26. ISTEA Intermodal surface transportation efficiency act of 1991. U.S Congress, Senate andHouse, U.S. GPO, Washington, DC 105 (3), 1992, 1914-2207.

27. TAM, C.K., STIEMER, SF. Development of bridge corrosion cost model for coatingmaintenance. Journal of Performance of Constructed Facilities, Vol. 10, No. 2, May 1996, 47-56.

28. MARKOW,M.J, MANDANAT, S.M., GURENICH, DI Optimal rehabilitation times forconcrete decks. The Annual Meeting of Transportation Research Board. 1993.

29. KULKARNI, RB (1984) Life-cycle costing of paved Alaskan highways. Transport ResearchRecord 997. Pp. 19-27.

30. SHARAF, E.A, REICHELT, E, SHAHIN, M.Y, SINHA, K.C. Development of a methodologyto estimate pavement maintenance and repair cost for different ranges of pavement conditionindex. Transportation Research Record 1123, 1987, 30-39.

31. JOHNSON, R. (1989) Denver considers life cycle cost in selecting road materials. ColoradoMunicipalities. September-October 1989. Pp. 28-29.

32. PAGAN, A.R. How to figure the real cost of bridges. Cost Engineering, Vol. 38/No. 1, January1996, 11-12.


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7. North America LCC Case studies protocol

Critical format

Summary of case study information

Title Life-cycle cost analysis of pavementsType of work Rehabilitation of a roadType of road 20 km section of a two-lane trunk road

Basic structure Road follows shoreline of an old lake, running a long with aslight ridge consisting of sandy soils with low to negligible claycontent

Structural material 125 mm asphalt stabilised sand base and a double surfacetreatment on natural sub-grade with an average CBR of 20%.

Age of road 20 years

Type of alternative Maintenance strategiesPavement ManagementStrategies

A review of road rehabilitation possibilities resulted in threealternatives for more detailed consideration

Alternative 1. Single-surface treatment in Year 1, followed by a 50mm ACoverlay in year 5; this will serve as the base case.

Alternative 2. 50 mm AC overlay in year 1 after scarifying and levelling theexisting surfaces.

Alternative 3. Reconstruction in Year 1 using the following design:Sand-asphalt sub-base 125 mm

Sand-asphalt base 150 mmAsphalt/concrete surface 50 mm

Methodology The discounting of cash flow using the cost of capital and theyears specified below

Life cycle 20 yearsCost of capital 0%, 5%, 10%

Allowance for risk anduncertainties

This was done by using three discount rate factors

Conclusion

Application 1. The minimum requirement for LCCA are:An objective and quantifiable measure of pavement condition(PC) (e.g. Roughness)A predictive model that relates PC to time (or axle-loadapplications)A model that relates changes in PC to user cost.


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A model that converts changes in PC to discrete pavementmaintenance and costs.

2. Maintenance strategiesSingle-surface treatment in Year 1, followed by a 50mm ACoverlay in year 5; this will serve as the base case.50 mm AC overlay in year 1 after scarifying and levelling theexisting surfaceReconstruction in Year 1 using the following design:

Sand-asphalt sub-base 125 mmSand-asphalt base 150 mm

Asphalt/concrete surface 50 mm

Critical analysis 1. The minimum requirement for LCCA are:Issues coming out of thecase study

An objective and quantifiable measure of pavement condition(PC) (e.g. Roughness)A predictive model that relates PC to time (or axle-loadapplications)A model that relates changes in PC to user cost.A model that converts changes in PC to discrete pavementmaintenance and costs.

2 AlternativesSingle-surface treatment in Year 1, followed by a 50mm ACoverlay in year 5; this will serve as the base case.50 mm AC overlay in year 1 after scarifying and levelling theexisting surfaceReconstruction in Year 1 using the following design:

Sand-asphalt sub-base 125 mmSand-asphalt base 150 mm

Asphalt/concrete surface 50 mm

3 Conclusion form the workRoad user costs are dominant in the life-cycle cost ofpavement and their exclusion from the analysis of roadimprovements is likely to result in sub-optimal solutionLower discount rates tend to favour improvement with longerservice lives and, as expected, alternatives with a higher levelof initial capitalisation. Conversely, higher discount rate arelikely to result in the selection of stage constructionalternatives.


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North America LCC Case studies protocol

Critical format:This comprises of three major areas with respect to the case study and they are,:The case information, detailing out what the case study was about, why it was carried out in thefirst place, specific information materials and conditions of the subject under investigation.Case methodology. This talks about what was done the method use, whether it is a standard or aspecific to the case in question and the conclusions from the study itself.Case application: This brings out the critical issues form the study, in other to understand whycertain things were done, lessons coming out it.

Case Information What is the study about?This study concerns the life cycle costanalysis of a 20 km two-lane trunk roadpavement which needs a rehabilitationafter 20 years in use.

Case Methodology What was done and how? Technical analysis1. Defining rehabilitation options

i. Single-surface treatment in Year ,followed by a 50mm AC overlay inyear 5; this will serve as the basecase.

ii. 50 mm AC overlay in year 1 afterscarifying and levelling the existingsurface

iii. Reconstruction in Year 1 using thefollowing design: sand-asphalt sub-base 125mm, sand-asphalt base150mm and asphalt/concrete surface50mm.

2. Developing LCCA model, with thefollowing characteristicsi. An objective and quantifiable

measure of pavement condition (PC)(e.g. Roughness)

ii. A predictive model with the abilityto relate PC to time (or axle-loadapplications)

iii. A model that relates changes in PCto user cost.

iv. A model that converts changes inPC to discrete pavementmaintenance and costs.

The discounting of cashflow was used with threediscount rates (0, 5 and10%) and life cycle of20years.

Allowance for risk wasundertaken by using thethree discount rates.


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Case Application

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