Part 2 Section 2

PART 2, SECTION 2
PART TWO: CONSTRUCTION DESIGN & ECONOMICS

I
SECTION 2: LIFE CYCLE COSTING

Introduction
It is becoming increasingly important that investment appraisal uses a whole
life approach in a more systematic way than at present. Major construction
clients are now insisting upon an analysis of life cycle costs and not just
capital costs.
The life cycle cost (LCC) of an asset is defined as the present value of the total
cost of that asset over its operating life (including initial capital cost,
occupation costs, operating costs and the cost or benefit of the eventual
disposal of the asset at the end of its life).
Life cycle cost techniques can be used, for example, to:
evaluate design options at the elemental or component level;

evaluate total building options, for example refurbishment versus new
build;
determine optimum maintenance strategies;
analyse relocation strategies; and
determine sinking fund requirements to finance planned maintenance
programmes.
Worked examples for the above are included in 2.2.5.
The objective of this Section is to inform chartered surveyors of the increasing
need to adopt life cycle costing (2.2.1) and to introduce them to the techniques
and their application.
2.2.1 The Client Context

2.2.1.1
Following the recession of the early 1990s construction clients are generally
more streamlined and competitive and some recognise that their ongoing
property costs may provide them with the business edge they need. There is
therefore increased attention to life cycle costing. The following Sub-sections
expand on this trend by covering recent changes in the industry and their
effect on LCC.
2.2.1.2
VALUE ENGINEERING
Value engineering involves preparing structured option appraisals during the
design process so demonstrating value for money for clients. Its use is
The Surveyors Construction Handbook
Part 2, Section 2 (4/99)
Effective from 1/6/99
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PART 2, SECTION 2
increasing and with it comes the opportunity and need for LCC to be part of
the options appraisal criteria.
2.2.1.3
THE LATHAM REPORT

Sir Michael Lathams report Constructing the Team1, calls for a 30% real
reduction in construction costs. This statement includes life cycle costs. The
report also strongly advocates the need to build right first time in which
environment life cycle cost calculations (involving assumptions about future
maintenance) have more credibility.
2.2.1.4
CONSTRUCTION (DESIGN AND MANAGEMENT) REGULATIONS 1994

The Construction (Design and Management) Regulations 1994 place a
specific duty upon clients and their designers to consider the potential hazards
associated with the construction process during design, and furthermore to
consider the health and safety implications of maintaining the structure when
complete. Such increased focus on maintenance may therefore encourage
greater consideration of maintenance costs. This principle is enshrined in
Regulation 13(2)(a)(i) and (ii) which states:
(2)
Every designer shall:

(a)
ensure that any design he prepares and which he is aware will be

used for the purposes of construction work includes among the
design considerations adequate regard to the need:
(i)
to avoid foreseeable risks to the health and safety of any

person at work carrying out construction work or
cleaning work in or on the structure at any time, or of
any person who may be affected by the work of such a
person at work,
(ii)
to combat at source risks to the health and safety of any

person at work carrying out construction work or
cleaning work in or on the structure at any time, or of
any person who may be affected by the work of such a
person at work.
It follows that the selection of materials for certain elements of a structure that
may involve maintenance, (particularly where access to those elements
involves working at height), complies with the spirit of Regulation 13. For
example, the selection of PVCu window frames with easy clean hinges
involves limited maintenance and allows cleaning from the inside. Similarly
marble flooring is cheaper than cork tiles over a 60-year period and while the
decision to use marble is economically sound it also removes health hazards
Latham, M., Sir, (1994), Constructing the Team: Joint Review of Procurement and Contractual
Arrangements in the United Kingdom Construction Industry: Final Report, HMSO London
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PART 2, SECTION 2
associated with fumes and vapour when cork has to be resealed. In purely
capital cost terms, the selection of the materials referred to above may be more
expensive than their traditional counterparts.
The use of life cycle costing places initial capital cost in the context of future
maintenance expenditure, and helps justify decisions which have beneficial
health and safety implications.
2.2.1.5
THE PRIVATE FINANCE INITIATIVE (PFI)

The PFI is driven by a cash flow which is achieved by the private sector
provider delivering a service to the client. This service will include the
management of a building which should be heated, cooled, lighted, cleaned,
maintained, secured, insured and renovated. This cash flow should
sufficiently cover all costs and outgoings, leaving the provider with a surplus
or profit which should be commensurate with his risk exposure.
It is therefore critical that the provider accurately predicts the cost in use of the
service or the facility over its operational life so that he can calculate the cash
flows generated by the assets over the term of the contract. Such data is vital
so as to negotiate the complexities of the contract to both parties satisfaction.
To assist this process some suppliers give guaranteed long-term costs, e.g. for
lifts and kitchen equipment. By reducing costs over this term it should be
financially viable for the private sector to provide a service to the public sector
and to achieve an acceptable return.
Life cycle costs and their accurate prediction, control and reduction are critical
to the successful performance of a PFI deal.
2.2.1.
ENERGY EFFICIENCY ISSUES IN RELATION TO BUILDING PROJECTS

Studies by the Building Research Establishment through the BRECSU
(Building Research Energy Conservation Support Unit) Best Practice
Programme have found that energy consumed to heat, light and service
buildings accounts for almost half of the UKs energy bill, and there is
considerable scope to reduce it. Office buildings were found to have the
highest energy costs, especially prestigious, air conditioned property
(typically 20/m2 per year in 1991 compared to 15/m2 for the same best
practice office).
There is common feeling that property overheads are too large, with energy
bills contributing significantly to the operating costs. Energy costs are
potentially one of the most controllable items of overheads and life cycle
costing can be used as a tool for predicting the benefits of investment in
energy efficiency. Typical investments for analysis would be economic
thickness of insulation, energy efficient services, building energy
management system installations, intelligent buildings, energy conscious
refurbishment of buildings and passive cooling techniques versus air
conditioned design. For example, a manufacturer can supply a light bulb some
ten times more expensive than a normal one, however, it lasts longer, uses less
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PART 2, SECTION 2
electricity and performs better. Similarly, condensing gas boilers can save
1020% of fossil fuel bills with pay back in five years.
It is also worth noting that oil is becoming increasingly harder to extract and
environmental concerns generally will increase in the very near future.
Sainsbury has been the first grocery retailer to produce an environmental
report and recognises that energy probably accounts for its single biggest
direct environmental impact. Significantly it is also the third largest
controllable cost in running a typical supermarket.
2.2.1.7
MECHANICAL AND ELECTRICAL BUILDING SERVICES

The increasing capital cost significance and complexity of M & E services has
resulted in greater cost emphasis during the early design stages. Such costing
is increasingly carried out by a specialist Quantity Surveyor so bringing
greater opportunity to focus on M & E life cycle costs which are a significant
proportion of a buildings cost in use, accounted for by the operation, energy
use and replacement costs associated with the M & E installations.
2.2.1.8
BUILDING SUSTAINABILITY
If there is to be a conscious shift of opinion towards sustainable buildings i.e.
those which have a viable life expectancy beyond their initial designed use,
then there has to be a simultaneous re-examination of a buildings costs in use
or perhaps more correctly costs in uses.
Buildings have not been traditionally designed for anything beyond their
immediate requirement. However, as more are being converted to alternative
uses it is probably only a matter of time before investors in property call for
properties to be constructed with a view to extending the buildings usable
life, e.g. conversion to house a growing less mobile and aged population. Such
consideration is more valid the shorter the predicted current building life, e.g.
some light industrial units for English Partnerships have been designed for a
ten-year life. Similarly, Hertfordshire County Council have housing and
nursing homes with a 20-year life expectancy.
Such a concept will require building layouts and structures to be more flexible
with maintenance, re-servicing and conversion to alternative uses being
simplified and made more economical. A cost in use study at design stage may
justify larger bay sizes, raised flooring or greater storey heights to demonstrate
continual viability for future generations.
A cost in use study would explore the economics involved of using a building
for its notional design life and for its intended use in the usual way. However,
supplementary investigations would explore potential alternative uses for the
building and the conversion cost (and possibly the cost in use for a further
notional period). If sufficient consideration were to be given at the initial
design stage for potential future uses of a building, it could be used to
demonstrate the continued asset value of the property and go a considerable
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PART 2, SECTION 2
way to minimising the obsolescent properties which currently dominate

certain market sectors.
2.2.2 The Life Cycle Costing Calculation

INTRODUCTION
The calculation generally involves the appraisal of options, each option
having different capital and future costs. To determine and analyse the future
costs it is necessary to establish:
the building life;

the discount rate (which, expressed simply, is the difference between the
interest and inflation rate and is used to convert future payments to
present values);
the cost and frequency of future payments (at the component, elemental
or total building level as appropriate);
any tax implications (see 2.2.3).
2.2.2.1
THE BUILDING LIFE

An essential element of life cycle costing is defining the life cycle period to be
adopted. An assessment must therefore be made of the life of the investment
building life.
Typically the relevant building life will be the period over which the
organisation, for whom the study is being conducted, will be expected to hold
an interest in the building, and would take into account the residual value.
At the end of the life of a building, the building (or component) and the land
will have a residual value. In the case of relatively short life cycles or high
value land, residual values can be very significant factors in determining the
optimum life cycle cost options. Residual values are briefly discussed in
Appendix A (and worked example 2.2.5.3 includes a residual value in the
calculation).
When the building life is assessed to be over 40 years, the precise life is not
critical for the purposes of life cycle costing (as discounting, explained below,
minimises the effect of such future payments). In cases where calculations are
based on a relatively short building life, say 20 years or less, the assessment of
the time horizons must be considered with special care.
Building life is influenced by obsolescence, the causes of which are
summarised in Appendix B.
2.2.2.2
THE DISCOUNT RATE

The life cycle cost technique is concerned with the assessment of the time
stream of costs and revenues that will flow throughout the life of a
construction project option.
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PART 2, SECTION 2
As money today has a different value from money tomorrow or money in

ten years time, a technique has to be adopted that will express future costs or
revenues in present values. The process of converting future money to
present money is called discounting.
Discounting involves establishing the discount rate to be used. In making the
decision on a discount rate for a particular project, some judgement will need
to be made about the degree of risk return (interest) and the likely levels of
future inflation rates.
Interest rates are particular to the client and the degree of risk. It is therefore
essential to involve the client (and his accountant if appropriate) in the process
and reach agreement on the discount rate to be used.
Economists, accountants and clients will all have different views about future
levels of inflation and interest rates. Some forecasters may take the view that
as different categories of cost inflate at different rates, these differences
should be taken into account in setting discount rates. These diversities of
view before the fact make it difficult to recommend any firm guidelines for
surveyors to adopt for selecting discount rates.
There are two main approaches to discounting:
(a) use a rate which implies inflation of future costs and values (in this case
future costs and values will be priced at todays prices);
(b) use a rate which requires an explicit treatment of inflation in relation to
future costs and values, (in this case future costs and values will be priced at
todays prices and adjusted by a factor to reflect future inflation).
It is suggested that it is easier to deal with the former situation where future
costs and values are assessed at current prices. Three approaches on the
selection of discount rates are given for guidance purposes and in each the
future costs are priced at current prices.
2.2.2.3
DISCOUNT RATE METHODS

(a) Test Discount Rate
In the absence of better information it is recommended that a test discount rate
should be used.
This recommendation is based on the assumption that when inflation rates are
reasonably low, i.e. less than 15%, there is quite a stable relationship between
inflation and the bank base interest rate, implying a real discount rate of
between 4% and 5% (i.e. the interest rate is 4 to 5% greater than inflation). It
is recommended that in the circumstances, where no better information is
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PART 2, SECTION 2
available, a test discount rate of 4% is used. This method is often adopted in

the public sector where minimal risk associated with the investment is
assumed.
(b) No risk return discount rate
Investment in long-term Treasury Bonds can be assumed as having no risk,
and are a good reflection of the return to be expected on other investments
where there is no risk. Therefore the discount rate can be taken as the Treasury
Bond rate less an allowance for the expected rate of inflation. On this basis the
discount rate would be assessed as:
Treasury Bond rate of return
Less
Inflation
No risk return discount rate
8%
5%
3%
(c) Average risk premium discount rate

The average return on equities reflects the interest required on an average risk.
The excess of this rate of return over that expected from the above Treasury
Bonds can then be taken as the premium expected for the average risk. On this
basis the average risk premium could therefore be calculated as:
Average equity rate return
Less
Treasury Bond rate
Average risk premium discount rate
16%
8%
8%
Therefore if construction is deemed to be half as risky as equities, the discount

rate for construction investment could be assessed as:
No risk return
Construction premium risk (8% )
Average construction risk return discount rate
3%
4%
7%
(d) A further approach to establishing a discount rate is to analyse transactions

involving the sale of comparable properties, and to utilise the all risks yield
as the discount rate.
In the examples of the calculation of discount rates, concurrent interest and
inflation rates have been added and subtracted in order to clarify the
methodology. This is mathematically imprecise. The actual calculation will
need to be compounded.
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PART 2, SECTION 2
In the no risk return discount rate method, for example, the calculation
should be as follows:
Treasury Bond rate of return
Inflation rate
8%
5%
Discount rate (i.e. Treasury Bond rate net of inflation

(1 = Treasury Bond rate)
= 1
(1 + Inflation rate)
1.08
= 1
1.05
= 0.02857
= 2.857%
The same methodology should be adopted for actual calculations using other
methods. As an approximation however this may be ignored.
(e) In summary, the effect of future payments on an LCC calculation is in
inverse proportion to the level of discount rates i.e. the higher the discount rate
the less effect future payments have on the LCC calculation. For example, a
risk taking client is less likely to spend money on the building to reduce future
costs since he can use this money to get a higher return elsewhere.
Selection of a suitable discount rate is crucial as it can overwhelm all other
decisions.
Once the discount rate is established valuation tables can be used to convert
future payments to present value. For example, the present value of 100 to be
paid in five years time at a discount rate of 4% =
100 0.82192 (from valuation tables at 2.2.5.7 present value of 1) =
82.19
Such conversion of future payments to present value provides a basis for
comparing alternative expenditures.
2.2.2.4
THE COST AND FREQUENCY OF FUTURE PAYMENTS

The costs are generally dealt with using current prices (using the discount rate
to allow for inflation), with assumptions made regarding when payments will
occur in the future. 2.2.4 includes possible sources for such data.
Depending upon requirements, some calculations will be relatively
straightforward (see the option appraisal exercise for internal doors as shown
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PART 2, SECTION 2
in the worked examples). However, all expenditure throughout the life of the
building could be included if the total building analysis were required.
The major categories of costs are:
capital costs
financing costs
operation costs
annual maintenance costs
intermittent maintenance, replacement and alterations costs
occupancy costs
residual values and disposal costs.
An expanded check list of costs is given in Appendix C.

Estimates for these costs will be based upon assumptions about future events
and should be clearly stated. Indeed an additional advantage of life cycle
costing is that it requires design assumptions to be stated explicitly rather than
implied.
Although current costs are generally used, it is important that future cost
assessment should reflect any expected divergence of a specific cost from the
level of inflation allowed in the discount rate. For example, it would be unwise
to assume that market conditions would remain unchanged for any extended
period when tender levels for building work are very depressed. Some
allowance should therefore be made to adjust current building prices to more
normal market conditions when pricing future building work.
The level of detail used will be dictated by the availability of information and
the requirements of the client.
The following costs for each category should be considered and where
necessary established with the client.
(a) Capital costs include land, building, professional fees, furniture and
equipment, or permanent improvements thereto, which form assets for the
business to use in its operation, with an intended useful life of more than one
year. The significance of any tax benefits and grants should be established
with the client.
(b) Financing costs the method of funding the project should include, inter
alia, the cost effect of alternative sources of funds, the future flexibility of
funds in terms of amounts and sources, and gearing. Consideration should also
be given to
the accounting effect of capital employed;

construction period finance charges and long-term finance costs; and
the taxation implications of the various options.
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PART 2, SECTION 2
(c) Operation costs include estimates of rent, rates, energy costs, cleaning
costs, building related staffing costs and other staffing costs.
(d) Annual maintenance costs average maintenance costs are available but
once details of design are completed, a more relevant estimate can be
produced based on information obtained from manufacturers or maintenance
managers.
(e) Intermittent maintenance, replacement and alteration costs replacement
costs can be produced using normal cost estimating techniques.
In seeking a realistic assessment of the life of materials and components,
reference should be made to manufacturers, maintenance managers and other
sources of such data (as discussed in 2.2.4).
(f) Occupancy costs the cost of performing the function for which the
building is intended (e.g. producing motor vehicles). Occupancy costs are
distinguished from operation costs, as they relate to costs attributable to a
specific process undertaken by the client, which may change within the life of
the building. As an example, a car manufacturer may change to the production
of heavy goods vehicles. This would impact on his occupancy costs, whereas
his building related operation costs could be relatively unchanged. Some
clients might not require the surveyor to take these costs into account, as not
relating directly to the building.
(g) Residual values and disposal costs estimate of the resale value and the
cost of disposing of the building, plant, land and other assets after the expiry
of the life cycle. Many buildings, particularly those with an open market
value will have a significant residual value. Care should be taken in assessing
this value as it can have a major effect on the life cycle costing calculations
(see Appendix A).
2.2.3 Tax Allowances, Incentives and Business Rates

INTRODUCTION
This Sub-section deals with the effect of taxation allowances and incentives
available for expenditure upon property and construction applicable in the
United Kingdom to date, during the life of the asset. A glossary of terms is
included in Appendix D.
Currently, legislation offers tax relief by allowing expenditure upon certain
assets to be depreciated, and to be offset against a private commercial
organisations taxable profits.
Tax relief is available on both capital and revenue expenditure. Capital costs
receive this relief by way of capital allowances which are deductible items
from the taxpayers taxation liability account. Maintenance costs are a charge
on the profit and loss account, which again reduces the tax payable.
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The significance of tax relief depends upon the amount of allowable

expenditure. This varies considerably, being dependent upon the type and
function of the asset, its design and sophistication (particularly in respect of
services) and whether or not the project is a new building or a refurbishment.
The impact of tax relief on the life cycle evaluation lessens proportionately
with the ratio of allowable expenditure to the total expenditure and the timing
of relief, which is dependent on the annual rate of taxation allowances. For
example, a new oil refinery will have a greater proportion of allowance than a
shop unit shell. It is also worth noting that capital allowances tend to be
greater on plant than on buildings, so making the use of efficient plant more
attractive than increasing the thermal efficiency of the building.
The impact of tax relief should be sensitively tested at the earliest possible
stage. A detailed estimate of the allowable expenditure should only be
prepared if tax relief is found to be significant.
2.2.3.1
The following example shows the net discounted cost, after tax relief, of
1,000 spent on differing types of expenditure.
Expenditure
No relief
Where capital
allowances are
allowed on 50% of
capital expenditure
Where capital
allowances are
allowed on 100%
of capital
expenditure
Relief given
on
maintenance
100%
1,000
1,000
1111
222
350
889
778
650
1,000
Tax relief assuming 35%

Corporation Tax
Net discounted cost after
tax relief
1
1,000
1,000
i.e. 50% of 1,000 25% reducing balance 35% Corporation Tax with future allowances discounted at
10% per annum (a discounting calculation is required in order to establish the above figures).
2.2.3.2
TYPES OF ALLOWANCES
The types of allowances and rates of depreciation often change.
Following the Finance Act 1985, capital allowances available that relate to
Real Property were as follows:
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PART 2, SECTION 2
Allowable expenditure
Plant and machinery
Industrial buildings
Agricultural buildings
Dredging
Scientific research
Cemeteries and crematoria
Dwelling houses let on assured tenancies
only expenditure expended prior to
1 April 1987
Hotels
Enterprise zone building expenditure
Mining and certain related construction works
Timing or percentage per annum

25% (reducing balancing)
4% (straight line)
4% (straight line)
4% (straight line)
100%
Ratio based upon grave spaces used
4% (straight line)
4% (straight line)
100%
40% plus a ratio based upon usable life
Subsequent to the Finance Act 1997 first year allowances were changed and at
the time of writing were still being finalised.
In certain circumstances allowances may be at a higher rate i.e. they relate to
specific incentives, certain assisted projects or expenditure relates to a
transitional period e.g. terms of the Finance Act 1984 (applicable until 31
March 1987).
Different types of allowances, initial, first year and writing down are
explained in the Glossary of Terms (Appendix D).
Straight line allowances are calculated as a percentage of original cost and at
4% the allowance is spread evenly over 25 years. A reducing balance
computation is achieved each year by first deducting all previous allowance
amounts from original cost and then applying the allowable percentage to the
balance, i.e. 25% in the first year, 25% of 75% in the second, and so on. While
the building itself may be subject to a 4% straight line allowance the plant and
machinery in the building will receive a 25% reducing balance.
It should be noted that the significant part of capital allowance relief on a 25%
reducing balance basis comes in the first five to seven years. This is included
in the above example where the tax relief amount is a product of the
incremental annual writing down allowance, discounted.
Regional development grants (or their Northern Ireland equivalent) may also
be available. These are not treated as taxable and may be disregarded when
assessing the capital cost upon which tax relief is calculated.
Currently the running and maintenance costs of an asset are deductible in full
(i.e. 100% allowance) against taxable profits in the year of expenditure.
2.2.3.3
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VALUE ADDED TAX (VAT)

Capital allowances are given against the net capital cost to the taxpayer.
Therefore, as VAT is part of that capital cost, clients will incur differing
overall capital expenditure for the same item depending upon whether they
can or cannot recover, or recover only a proportion of, the VAT.
PART 2, SECTION 2
2.2.3.4
CALCULATION OF THE EFFECT OF CAPITAL AND REVENUE ALLOWANCES

Before calculating the effect of taxation allowances, certain parameters need
to be ascertained:
(a) the Corporation Tax and allowances rate that will be current at the date of
construction of first use;
(b) the future Corporation Tax and allowance rate at the date of replacement;
(c) the Corporation Tax rate current at dates between date of construction of
first use and the date of replacement, against which revenue running costs can
be charged;
(d) whether the owner will be liable to tax during the period between the date
of construction or first use and the date of replacement, and if the owner will
have sufficient taxable profits to use the allowances generated in any one year.
(e) whether the items economic life will be shorter than the tax write down
period. This will either generate an added write down amount when it is
demolished, or if the item or building is to be sold at the end of its economic
life, its profit or loss on cost. These circumstances will generate a taxable
profit or loss on proceeds above or below the tax write down value and will
attract a balancing adjustment;
(f) the value of the balancing allowances, charges or taxable profits needs to
be considered against the relevant Corporation Tax rate;
(g) the impact of these adjustments therefore needs to be taken into account in
the life cycle costing assessment.
Caution is further necessary as there are specific restrictions. The recipient has
to prove to the Inland Revenue that he qualifies for allowances (i.e. the
entitlements are aimed at providing incentives for commercial organisations
and therefore expenditure upon residential property is largely excluded.
Entitlements are also restricted between connected persons).
2.2.3.5
DYNAMICS
The surveyor should therefore appreciate the variables and frequent changes
that occur in respect to the application of taxation allowances.
These arise because:
(a) the Government uses taxation to impose fiscal policy and influence the
economy and therefore statutes are introduced amending previous rates of
depreciation, regulations and entitlements;
(b) the interpretation of entitlement is affected by case law precedents.
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PART 2, SECTION 2
(c) the Inland Revenue practices and extra statutory concessions develop to
address specific issues or vagaries.
2.2.3.6
APPLICATIONS
Taxation allowances provide the opportunity for innovative funding
arrangements whereby the tax relief can be exported to a party who can
enjoy more benefit from the entitlement.
They also need to be advised during property transfers so the relevant
balancing adjustments can be calculated and the purchasers advised of their
proper entitlements.
2.2.3.7
WORKED EXAMPLES
Worked example 2.2.5.3 summarises the effect of capital and revenue
allowances. Worked example 2.2.5.6 includes a detailed calculation of the
capital and revenue allowances.
Business Rates
Large plant and machinery regarded as an integral part of the building can
attract additional rates which can be influenced by design niceties (such as how
the plant is covered over). Expert advice should be sought in such a situation.
Further reading for taxation
Tolleys Capital Allowances, Tolley Publishing Co. Ltd generally published
annually.
Butterworths Yellow Tax Handbook, Butterworth & Co. (Publishers) Ltd
abstract of Statutes
Tax Statutes and Statutory Instruments, CCH Editions Ltd incorporating
extra statutory concessions
2.2.4 Data Sources

Lack of data in a suitable format for maintenance, replacement and energy
costs is said to be a significant reason for LCC rarely being carried out at
present. Notwithstanding this, Building Surveyors and Facility Managers will
often have valuable in-house data. Furthermore, professional judgement
should not be disregarded.
LCC calculations require information regarding the durability of
materials/components, and/or energy costs. Lack of such accurate data in a
suitable format may affect the credibility of the LCC calculation. However,
while historic data is useful, reality is dependent upon individual design,
installation and usage as well as technical development.
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PART 2, SECTION 2
Whilst the selection of data sources given in Appendix F is not

comprehensive, it gives an indication of the level of information available.
Trade literature which is a prime source of detailed information is not
included.
2.2.5 Worked Examples

INTRODUCTION
Life cycle costing can be used in numerous situations. The intention of this
Sub-section is to give the reader an appreciation of its application, as used by
surveyors in practice, and the relative complexities of associated calculations,
ranging from a simple elemental option appraisal to complex total building
analyses.
The examples follow in order of complexity, worked examples 2.2.5.1 and
2.2.5.2 will readily convey the principles of life cycle costing including
discounting. The remainder consider more detailed scenarios.
2.2.5.1
DESIGN OPTION: INTERNAL DOORS

This example is kindly provided by Messrs Gardiner & Theobald, Chartered
Quantity Surveyors. The objective is to evaluate four comparative
specifications over a building life of 60 years using a discount rate of 4% (7%
interest rate less 3% inflation rate). The information is summarised in the table
below with an explanation of the calculation for option 1 detailed at (a) to (d)
below. Any tax implications are excluded.
(a) The present value for purchasing the doors is obviously the same as the
capital cost: 35,000
(b) For the annual running costs:
10.89/m2 20 m2 = 218
218 incurred every year for 60 years at 4% discount
= 218 22.6* = 4,927 present value
(c) For maintenance the present cost of 6,040 for new ironmongery and
repainting taking place in, say Year 12 at 4% discount
= 6,040 0.62459** = 3,773
(d) The replacement cost after 40 years
= 35,000 (present cost) 0.20828** = 7,290
The total present value of the capital cost, annual running cost,
maintenance and replacement costs
= 57,037 showing option 1 is the most expensive life cycle cost
* from valuation tables at 2.2.5.7 (years purchase or present value of 1
per period)
**from valuation tables at 2.2.5.7 (present value of 1)
Page 15
PART 2, SECTION 2
PROJECT: Life Cycle Model
PROJECT LIFE
Discount Rate
Discount Rate
SHEET NUMBER:
ELEMENT:
60 Years
4.00% per annum
4.00% per annum
(Interest Rate (7%), Inflation (3%))
COSTS
Capital Costs
Aluminium Glazed
Hardwood Glazed
Vision Panels
Softwood
Metal
Contingency
1750.00 m2
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
OPTION 2 Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
Page 16
OPTION 3
Softwood
OPTION 4
Metal
Finish Life
40 Years
Finish Life
30 Years
Finish Life
20 Years
Finish Life
30 Years
Maintenance
Period
4 Years
Maintenance
Period
4 Years
Maintenance
Period
4 Years
Maintenance
Period
4 Years
Estimated
Cost
Present
Value
35,000
35,000
Estimated
Cost
Present
Value
20,000
20,000
10.89 m2
9.99 m2
5.90 m2
17.99 m2
Year Present
Cost
4
340
8
340
Estimated
Cost
Present
Value
14,000
14,000
Estimated
Cost
17,000
Capital Costs
Total Annual Running Costs
OPTION 1
OPTION 2
Hardwood Glazed
Vision Panels
Annual Running Costs

Aluminium Glazed
Hardwood Glazed
Vision Panels
Softwood
Metal
Maintenance
OPTION 1
Aluminium Glazed
1000.00 m2
700.00 m2
850.00 m2
Total Year 1
LCCM5
Internal Doors
Unit: 20 m2
35,000
218
17,000
20,000
14,000
17,000
4,927
200
4,520
118
13,068
4,927
340
340
291
248
11,988
4,520
300
300
256
219
12
16
20
6,040
340
340
6,040
340
340
3,773
182
155
24
28
32
6,040
340
340
6,040
340
340
2,356
113
97
36
40
44
6,040
340
340
6,040
340
340
1,472
71
61
48
52
56
4
8
6,040
340
340
300
300
6,040
340
340
919
44
38
12
16
20
6,000
300
300
6,000
300
300
3,748
160
137
24
28
32
6,000
300
300
6,000
300
300
2,341
100
86
36
40
44
6,000
300
300
6,000
300
300
1,462
62
53
Present
Value
2,670
7,080
2,670
360
8,140
21,588
8,140
PART 2, SECTION 2
PROJECT: Life Cycle Model (continued
PROJECT LIFE
Discount Rate
60 Years
4.00% per annum
Discount Rate
4.00% per annum
(Interest Rate (7%), Inflation (3%))
Maintenance
OPTION 2
Hardwood Glazed
Vision Panels
OPTION 3
Softwood
OPTION 4
Metal
Finish Life
40 Years
Finish Life
30 Years
Finish Life
20 Years
Finish Life
30 Years
Maintenance
Period
4 Years
Maintenance
Period
4 Years
Maintenance
Period
4 Years
Maintenance
Period
4 Years
Present
Value
Estimated
Cost
Present
Value
Estimated
Cost
Present
Value
Estimated
Cost
Present
Value
300
300
6,100
300
300
6,100
300
300
6,100
300
300
6,100
300
300
6,100
256
219
3,810
160
137
2,380
100
86
1,486
62
53
928
39
33
3,810
17,000
5,241
Year Present
Cost
New ironmongery
Repaint
Repaint
Repaint
OPTION 3 Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
New ironmongery
Repaint
Repaint
Repaint
OPTION 4 Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Repaint
Replacement
OPTION 4
LCCM5
Internal Doors
Unit: 20 m2
OPTION 1
Aluminium Glazed
Estimated
Cost
COSTS
OPTION 1
OPTION 2
OPTION 3
SHEET NUMBER:
ELEMENT:
48
52
56
4
8
6,000
300
300
320
320
12
16
20
6,000
300
300
913
39
33
320
320
274
234
3,820
320
320
3,820
320
320
2,386
171
146
24
28
32
3,820
320
320
3,820
320
320
1,490
107
91
36
40
44
3,820
320
320
3,820
320
320
931
67
57
48
3,820
52
320
56
320
4
300
8
300
12
6,100
16
300
20
300
24
6,100
28
300
32
300
36
6,100
40
300
44
300
48
6,100
52
300
56
300
Year Present
Cost
40
35,000
30
20,000
20
14,000
40
14,000
30
17,000
3,820
320
320
581
42
36
35,000
7,290
20,000
6,166
14,000
14,000
6,389
2,916
Total Maintenance/Replacement Costs
62,560
17,109
47,000
15,776
46,480
15,917
44,400
14,993
Total Running Costs
75,628
22,037
58,988
20,297
53,560
18,586
65,988
23,132
Total Net Present Value of Life Cycle Costs
57,037
40,297
32,586
40,132
Page 17
PART 2, SECTION 2
2.2.5.2
BUILDING SERVICES DESIGN OPTION: AIR CONDITIONING AND UNDER FLOOR

TRUNKING VERSUS HOT WATER HEATING AND RING MAIN ELECTRICS
This example is again provided by Messrs Gardiner & Theobald. The
objective is to evaluate the above options for a building of 3,000 m2 floor area,
a life of 60 years and a discount rate of 4% (7% interest less 3% inflation). The
information is summarised overleaf with the methodology for the calculation
being exactly as that for the previous example. Any taxation implications are
excluded.
Page 18
PART 2, SECTION 2
Element: Services
PROJECT LIFE
Discount Rate
Unit: 3,000 m2
60 Years
4% per annum
Discount Rate
4.00% per annum
(Interest Rate (7%), Inflation (3%)
COSTS
OPTION 1
Air Conditioning
U/Floor Trunking
OPTION 2
HW Heating &
Ring Main Electrics
OPTION 3
OPTION 4
Finish Life
15 Years
Finish Life
25 Years
Finish Life
Finish Life
Maintenance
Period
5 Years
Maintenance
Period
7 Years
Maintenance
Period
Years
Maintenance
Period
Years
Estimated
Cost
Present
Value
750,000
750,000
Estimated
Cost
Present
Value
450,000
450,000
Estimated
Cost
Present
Value
Estimated
Cost
Present
Value
Capital Cost
Air Conditioning U/Floor Trunking
HW Heating & Ring Main Electric
250 m2
150 m2
Contingency
5%
Total Year 1
Capital Costs
37,500
22,500
787,500
472,500
Annual Running Costs

Air Conditioning U/Floor Trunking
25.00 m2
HW Heating & Ring Main Electric
Total Annual Costs

Maintenance
Year
75,000
1,696,762
5.00 m2
4,500,000
1,696,762
15,000
339,352
900,000
339,352
Present
Cost
OPTION 1
Overhall
5
Equipment 10
5,000
5,000
5,000
5,000
4,110
3,378
Overhall
Overhall
Equipment 15
Equipment 20
5,000
5,000
5,000
5,000
2,776
2,282
Overhall
Overhall
Equipment 25
Equipment 30
5,000
5,000
5,000
5,000
1,876
1,542
Overhall
Overhall
Equipment 35
Equipment 40
5,000
5,000
5,000
5,000
1,267
1,041
Overhall
Equipment 45
5,000
5,000
856
Overhall
Overhall
Equipment 50
Equipment 55
5,000
5,000
5,000
5,000
704
578
OPTION 2
Genearl repaint/repair
7
14
2,000
2,000
2,000
2,000
1,520
1,155
21
28
2,000
2,000
2,000
2,000
878
667
35
42
2,000
2,000
2,000
2,000
507
385
49
56
2,000
2,000
2,000
2,000
293
222
300,000
300,000
112,535
42,214
OPTION 3
OPTION 4
Replacement
Year
OPTION 1
OPTION 2
15
Present
Cost
600,000
600,000
333,159
30
45
600,000
600,000
600,000
600,000
184,991
102,719
25
50
300,000
300,000
OPTION 3
OPTION 4
Total Maintenance/Replacement Costs
1,855,000
641,278
616,000
160,375
Total Running Costs
6,355,000
2,338,040
1,516,000
499,728
Total Net Present Value of Life

Cycle Cost
3,125,540
972,228
Page 19
PART 2, SECTION 2
2.2.5.3
MAINTENANCE OPTION: WITH/WITHOUT CLEANING GANTRY

This example is kindly provided by Gerald Hall.
The following figure compares two options, firstly to provide the cleaning
gantry and secondly to omit the gantry. The capital cost and costs associated
with anticipated maintenance were calculated by using normal cost estimating
techniques.
Assumed criteria:
Building Life
VAT assumed to remain at current levels with the client
being an end user under VAT rules
Gantry capital cost
The gantry will have a residual value
Capital cost for opening lights in lieu of gantry
Discount rate (assuming the interest rate will average 11%
over 25 years and the inflation rate 6%)
Corporation Tax
25 years
17.5%
30,000
2,000
5,000
5%
33%
Taxation Calculation
The capital cost for plant and machinery receives a 25% reducing balance.
Maintenance and running costs receive 100% allowance.
Year 1 with gantry calculation:
Capital
Maintenance
35,250 25% 33%

881 33%
=
=
2,908
291
3,199
Year 2 with gantry calculation:

Capital
Maintenance
35,250 less 25% 25% 33%

881 33%
=
=
2,181
291
2,472
The methodology applies for the rest of the 25 years as summarised overleaf.
The client initially considered that the gantry would pay for itself due to
savings in maintenance and cleaning cost.
However:
with gantry investment
without gantry investment
Page 20
36,510 present value

26,447 present value
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Financing
Operation
TOTAL PRESENT VALUE AT END OF INVESTMENT LIFE
30,000
Capital
Year
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
750
Annual
1,750
250
1,750
250
1,750
250
1,750
250
Intermittent
Maintenance
Costs
COMPARATIVE COMPONENT LIFE CYCLE COSTING
Occupacy
(2,000)
Disposal/
residual value
(1,250)
2,500
750
750
1,000
750
750
2,500
750
750
1,000
750
750
2,500
750
750
1,000
750
750
2,500
750
750
1,000
750
750
30,000
TOTAL
131
438
131
131
175
131
131
438
131
131
175
131
131
438
131
131
175
131
131
438
131
131
175
131
131
5,250
VAT 17.5%
(1,119)
2,938
881
881
1,175
881
881
2,938
881
881
1,175
881
881
2,938
881
881
1,175
881
881
2,938
881
881
1,175
881
881
35,250
TOTAL
inc VAT
311
973
296
298
397
303
307
991
320
330
440
360
383
1,092
454
509
679
679
808
1,660
1,211
1,518
2,024
2,472
3,199
Less tax
allowance
(1,430)
1,965
585
583
778
578
574
1,947
561
551
735
521
498
1,846
427
372
496
202
73
1,278
(330)
(637)
(849)
(1,591)
(2,318)
35,250
NET TOTAL
0.295
0.310
0.326
0.342
0.359
0.377
0.396
0.416
0.436
0.458
0.481
0.505
0.530
0.557
0.585
0.614
0.645
0.677
0.711
0.746
0.784
0.823
0.864
0.907
0.952
1.000
Present value
of
1
@ 5%
CLIENT:
PROJECT TITLE: Retail Development/Shopping Mall
JOB NO:
OPTION: Cleaning with gantry curtain walling to new facace
36,541
(422)
609
191
199
279
218
227
809
245
253
354
263
264
1,028
250
229
320
137
52
953
(258)
(524)
(733)
(1,443)
(2,207)
35,250
PRESENT
VALUE
36,541
36,963
36,354
36,163
35,964
35,685
35,467
35,239
34,431
34,186
33,933
33,580
33,316
33,052
32,024
31,775
31,546
31,226
31,089
31,037
30,084
30,343
30,866
31,600
33,043
35,250
CUMULATIVE
PRESENT
VALUE
PART 2, SECTION 2
Page 21
Page 22
The life cycle costing is based on an agreed investment life of 25 years.
It is assumed that VAT will remain at around 17.5% and the client is the end
user under VAT rules.
There are disposal cost advantages with this option.
Details of the maintenance requirements and cost estimates can be provided

upon request.
The capital cost includes allowances for preliminaries and associated builders
work.
FORECASTERS ASSUMPTIONS
Discount rate:
(1 + 11%)
(1 + 7%) 1 100% = 5% discount rate.
(ii) Inflation rate 7% average over 25 years;
(i) Interest rate 11% average over 25 years;
Taxation allowances are subject to negotiation and agreement.
total
Maintenance and running costs with 100% allowance ie 1st year
Capital cost as plant and machinery with 100% tax allowance

i.e. 1st year
(continuation of table on page 21)
291
3,199
2,908
PART 2, SECTION 2
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Financing
Operation
TOTAL PRESENT VALUE AT END OF INVESTMENT LIFE
5,000
Capital
Year
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
1,500
Annual
1,500
1,500
1,500
Intermittent
Maintenance
Costs
Occupacy
Disposal/
residual value
1,500
3,000
1,500
1,500
1,500
1,500
1,500
3,000
1,500
1,500
1,500
1,500
1,500
6,500
1,500
1,500
1,500
1,500
1,500
3,000
1,500
1,500
1,500
1,500
1,500
5,000
TOTAL
263
263
263
263
263
263
263
525
263
263
263
263
263
1,138
263
263
263
263
263
263
263
263
263
263
263
875
VAT 17.5%
1,763
3,525
1,763
1,763
1,763
1,763
1,763
3,525
1,763
1,763
1,763
1,763
1,763
7,638
1,763
1,763
1,763
1,763
1,763
3,525
1,763
1,763
1,763
1,763
1,763
5,875
TOTAL
inc VAT
582
1,163
582
582
582
582
582
1,163
582
582
582
582
582
2,521
582
582
582
582
582
1,163
582
582
582
582
582
Less tax
allowance
1,181
2,362
1,181
1,181
1,181
1,181
1,181
2,362
1,181
1,181
1,181
1,181
1,181
5,117
1,181
1,181
1,181
1,181
1,181
2,362
1,181
1,181
1,181
1,181
1,181
5,875
NET TOTAL
0.295
0.310
0.326
0.342
0.359
0.377
0.396
0.416
0.436
0.458
0.481
0.505
0.530
0.557
0.585
0.614
0.645
0.677
0.711
0.746
0.784
0.823
0.864
0.907
0.952
1.000
Present value
of
1
@ 5%
CLIENT:
PROJECT TITLE: Retail Development/Shopping Mall
JOB NO:
OPTION: Cleaning with gantry curtain walling to new facace
26,444
349
732
384
404
424
445
467
981
515
541
568
596
626
2,849
690
725
761
799
839
1,763
925
971
1,020
1,071
1,124
5.875
PRESENT
VALUE
26,444
26,095
25,363
24,978
24,575
24,151
23,706
23,239
22,257
21,742
21,202
20,634
20,037
19,411
16,562
15,872
15,147
14,386
13,587
12,749
10,986
10,061
9,090
8,070
6,999
5,875
CUMULATIVE
PRESENT
VALUE
Page 24
The life cycle costing is based on an agreed investment life of 25 years.
It is assumed that VAT will remain at around 17.5% and the client is the end
user under VAT rules.
There are disposal cost advantages with this option.
Details of the maintenance requirements and cost estimates can be provided

upon request.
The capital cost includes allowances for opening lights now required, without
capital allowances.
FORECASTERS ASSUMPTIONS
Discount rate:
(1 + 11%)
(1 + 7%) 1 100% = 5% discount rate.
(ii) Inflation rate 7% average over 25 years;
(i) Interest rate 11% average over 25 years;
Taxation allowances are subject to negotiation and agreement.
Maintenance and running costs with 100% allowance.
Capital cost as plant and machinery with 100% tax allowance NIL
(continuation of table on page 23)
PART 2, SECTION 2
PART 2, SECTION 2
2.2.5.4
HOUSING SINKING FUND (BASED UPON COSTED PLANNED MAINTENANCE)

(a) Background
This example is kindly provided by Ian Sloan of Armour Construction
Consultants.
Housing Associations and Co-operatives in Scotland generally request that
their investment/sinking fund requirements are prepared in accordance with
the Scottish Federation of Housing Associations (SFHA) Planned
Maintenance and Repairs (Revised), Guidance Booklet No 3 published in
January 1997.
There are various ways of presenting the data. One method widely accepted is
shown below, on two spreadsheets, a Planned Maintenance Programme, and a
costed Planned Maintenance Programme which establishes in this case the
present value of future costs.
The spreadsheets can be fine tuned to meet specific client requirements. In
due course they can be adapted to allow historical information to be fed into
the programme, which then allows actual costs and maintenance periods
incurred to form the basis of the life cycle costs, thereby providing a more
accurate projection.
(b) Brief
The client needed to establish the capital to be invested for a new build
housing project to cover all maintenance and repairs for the next 60 years. The
discount rate is 6%.
An example of the calculation shown overleaf is:
Year 15, total maintenance and repair expenditure at current prices
9,013 0.41726*
= 9,013
= 3,761
i.e. 3,761 would have to be invested now for 15 years at 6% compound

interest in order to meet the costs in Year 15 of 9,013. In summary 24,942
would have to be invested now at 6% to cover all maintenance and repairs for
the next 60 years.
The data could also be presented as an annual sinking fund e.g. the amount to
be invested for each of 15 years at 6% compound interest in order to meet the
costs in Year 15 of 9,013 is:
9,013 0.04296**
= 387
* from valuation tables at 2.2.5.7 (present value of 1)

** from valuation tables at 2.2.5.7 (annual sinking fund)
Page 25
Page 26
SERVICES
FITTS
FURN
INT
FABRIC
EXT
FABRIC
STRUCTURE
DISPOSAL INST
HEAT SOURCE
HEAT SYSTEM
VENTILATION
5.5
5.6
5.7
WATER SUPPLY
5.3
5.4.2.
SERVICES EQUIPMENT
5.2
INTERNAL DRAINAGE
SANITARY APPLIANCES
5.1
5.4.1.
FITTINGS & FURNISH
DOORS
3.4
4.1
FLOORS
CEILINGS
3.2
3.3
INTERNAL WALLS
WINDOWS
2.3
3.1
EXTERNAL WALLS
2.2
EXTERNAL DOORS
ROOF
2.1
2.4
STAIRS
STRUCTURE
1.1
1.2
ELEMENT
CODE
5.7.1. Fans etc
5.6.1. Boilers/equipment
5.5.1. Radiators/fires
5.4.1.1.
Pipes & Fittns
Insulation
5.3.3.
5.4.2.1. Pipes & Fittns
Water pipes etc
Stainless steel
Wcs, baths, whbs
Units/Worktops
5.3.2.
5.3.1. Water storage
5.2.1. Kitchen sinks
5.1.1. Sanitary ware
4.1.2. Grab rails etc
4.1.1. Kitchen Units
3.4.2. Ironmongery
Timber
Timber
3.3.2. Skirtings
3.4.1. Door Operation
Timber/Vinyl
3.3.1. Flooring
Plasterboard
Ceramic
3.1.2. Wall Tiling
3.2.1. Ceilings
Brick/pboard
Timber/Metal
3.1.1. Walls & Opens
2.4.4. Ironmongery
2.4.3. Painting
2.4.2. Pointing
2.3.4. Ironmongery
2.3.3. Painting
2.3.2. Pointing
2.3.1. Window Op
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<
<
/
<
<
<
<
<
<
<
<
<
<
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<
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<
<
/
<
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/
<
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<
1
<
1
<
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1
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1
1
1
1
1
<
T
<
<
<
<
<
T
<
<
<
<
<
T
<
<
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<
<
<
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T
<
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<
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<
<
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<
<
<
Timber/Glass
2.2.3. Ventilation
<
<
<
<
<
2.2.2. Rendering
<
<
<
<
<
<
<
UPVC
2.1.3. Gutters etc
<
<
<
<
<
replacement
T = Test until
/ = Decorate
/ = Inspect &
<
<
<
<
<
<
<
<
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T
<
T
<
1
1
1
<
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1
<
1
/
1
<
1
/
<
1
<
<
1
<
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1
<
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1
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<
1
<
<
<
<
<
T
<
T
1
<
<
<
<
1
1
<
1
<
<
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/
<
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/
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1
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/
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<
T
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<
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<
1
1
<
T
<
T
1
1
1
1
1
1
1
<
<
<
1
<
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/
1
<
<
/
<
1
1
<
<
<
<
<
<
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
<
<
<
<
<
<
<
<
<
<
Facing Brick
Lead
2.1.2. Flashings
<
<
2.2.1. Walls
Concrete Tiles
Timber
1.2.2. Handrails etc
2.1.1. Roof Tiles etc
Timber
Concrete/Brick
1.2.1. Stairs
1.1.3. Openings
Timber
1.1.2. Floors
COMPONENT
< = until Replacement
1 = Renewal/Replacement
1
< = Inspect and Remedy
1 = Inspect/Consider
02/12/98
Timber
KEY
1.1.1. Roofs
SUB-ELEMENT
Date Printed
PLANNED MAINTENANCE PROGRAMME

EXAMPLE
Cost
Cumulative
PART 2, SECTION 2
EXT
WORKS
SERVICES
PROTECTIVE INST
COMMUNICATION
LANDSCAPING
BOUNDARIES &
ENCLOSURES
DRAINAGE
EXTERNAL SERVICES
OUTBUILDINGS
5.11
5.1.2
6.1.1
6.1.2
6.2
6.3
6.4
GAS INSTALLATION
5.9
LIFT INSTALLATION
ELECTRICAL INST
5.8
5.10
ELEMENT
CODE
<
<
<
<
<
<
<
<
<
<
<
T
<
<
<
<
<
1
1
COST IN ,000s of
6.4.1. Binstores/platts
6.3.1. Ducts & cables
/ = Decorate
/ = Inspect &
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<
<
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<
<
<
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<
<
<
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<
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<
1
<
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1
<
1
<
1
<
<
T
1
1
<
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<
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1
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0
1
1
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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<
<
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<
<
<
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<
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<
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T
<
6.2.2. Manholes etc
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
Close Light
replacement
T = Test until
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
6.2.1. Pipes & fittings
6.1.2.3. Clothes poles
6.1.2.2. Walls etc
6.1.2.1. Fences and gates
6.1.1.2. Grass/planting
6.1.1.1. Roads, footpaths
5.12.2 Telephones
5.12.1. Door entry
5.11.2. Smoke detectors
5.11.1. TV system etc
5.9.1. Equipment & supply
5.8.3. External Lighting
<
<
1
<
<
5.8.2. Switchgear
<
COMPONENT
< = until Replacement
1 = Renewal/Replacement
02/12/98
< = Inspect and Remedy
1 = Inspect/Consider
<
KEY
5.8.1. Power and lighting
SUB-ELEMENT
Date Printed
PLANNED MAINTENANCE PROGRAMME

EXAMPLE (Continued)
Cost
Cumulative
PART 2, SECTION 2
Page 27
Page 28
SERVICES
FITTS
FURN
INT
FABRIC
EXT
FABRIC
STRUCTURE
Disposal inst
Heat source
Heat system
Ventilation
Electrical inst
5.4.2
5.5
5.6
5.7
5.8
Water Supply
5.3
Internal drainage
Services Equipment
5.4.1
Sanitary Appliances
Fittings & Furnish
4.1
5.2
Doors
3.4
5.1
Floors
Ceilings
3.2
3.3
Internal walls
Windows
2.3
3.1
External walls
2.2
External doors
Roof
2.1
2.4
Stairs
Structure
1.1
1.2
ELEMENT
CODE
2.1.3. Gutters etc
25
100
50
20
5
60
5
5
5
5
5.6.1. Boilers/equipment
5.8.1. Power and lighting
25
100
50
20
inc
inc
inc
20
20
100
100
100
100
100
60
5
5
5
5
5
60
5
5
5
5
5
60
5
5
5
5
5
60
5
5
5
5
5
60
5
5
inc
50
20
inc
10
inc
290
20
275
10
inc
83
inc
50
20
inc
10
inc
inc
400
inc
inc
20
inc
60
650
inc
60
inc
inc
125
20
inc
60
inc
inc
125
inc inc inc inc 160
100
100
5 200 5
1500
100
200
40 40 40 40 40 40 40 40 40 750 40 40 40 40 40 40 40 40 40 750
20
inc
60
inc
inc
125
5 450 5
inc inc inc inc inc inc inc inc inc 160 inc inc inc inc
10 10 10 10 10 10 10 10 10 200 10 10 10 10 10 10 10 10 10 200
60 60 60 60 60 60 60 60 60 800 60 60 60 60 60 60 60 60 60 800
inc
5.7.1. Fans etc
inc
20
inc
inc inc inc inc inc inc inc inc inc inc inc inc inc inc 480 inc inc inc inc
inc
5.1.1. Radiators/fires
20
inc
83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83 83
inc
50
20
inc
10
5.3.3. Insulation
25
100
50
inc inc inc inc inc inc inc inc inc 60 inc inc inc inc inc inc inc inc inc
5.3.2. Water pipes etc
25
100
50
10 11 12 13 14 15 16 17 18 19
inc inc inc inc inc inc inc inc inc 210 inc inc inc inc inc inc inc inc inc
100
125
Stainless steel
Wcs, baths, whbs
Units/Worktops
10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10
5.3.1. Water storage
5.2.1. Kitchen sinks
5.1.1. Sanitary ware
4.1.2. Grab rails etc
4.1.1. Kitchen Units
3.4.2. Ironmongery
Timber
Timber
3.3.2. Skirtings
Timber/Vinyl
3.3.1. Flooring
Plasterboard
Ceramic
3.1.2. Wall Tiling
3.2.1. Ceilings
Brick/pboard
Timber/Metal
3.1.1. Walls & Opens
2.4.4. Ironmongery
2.4.3. Painting
2.4.2. Pointing
2.4.1 Door Operation
2.3.4. Ironmongery
2.3.3. Painting
10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 2100
inc
2.3.1. Window Op
20 20 20 20 20 20 20 20 20 150 20 20 20 20 20 20 20 20 20 150
2.2.3. Ventilation
2.3.2. Pointing
20 20 20 20 20 20 20 20 20 20 20 20 20 20 220 20 20 20 20
inc
Timber/Glass
75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 2380
Years
1
2.2.2. Rendering
Facing Brick
Lead
UPVC
2.1.2. Flashings
2.2.1. Walls
Concrete Tiles
Timber
1.2.2. Handrails etc
2.1.1. Roof Tiles etc
Timber
1.2.1. Stairs
Concrete/Brick )
Timber )
1.1.2. Floors )
1.1.3. Openings )
Timber
COMPONENT
02/12/98
1.1.1. Roofs
SUB-ELEMENT
PLANNED MAINTENANCE PROGRAMME (COSTED)

Date Printed
EXAMPLE
40
inc
10
60
inc
83
inc
inc
inc
100
10
10
20
20
75
21
140 140
25
100
50
20
inc
inc
100
100
60
60
60
5 450
650
inc
60
inc
125
250
100
960
735
3,400
1500
3,330
1,380
360
125
875
485
1,040
870
4,020
5 200
40 40 40 40 40 40 40 40 750
20
inc
60
inc
inc
125
inc inc inc inc inc inc inc inc 160
10 10 10 10 10 10 10 10 200
60 60 60 60 60 60 60 60 800
0
3,607
780
120
550
60
120
83 83 83 83 83 83 83 83 1200
290
20
275
10
540
145
545
420
1,000
290
2,390
120
1,000
990
4,555
150
600
300
Cost
Cumulative
inc
inc
50
20
inc
10
100
10 10 10 10 10 10 10 10 10
10 10 10 10 10 10 10 10 10
inc
inc
20
20 20 20 20 20 20 20 20 220
20 20 20 20 20 20 20 20 150
75 75 75 75 75 75 75 75 75
25
100
50
22 23 24 25 26 27 28 29 30
PART 2, SECTION 2
EXT
WORKS
SERVICES
Communication
Landscaping
Boundaries & Enclosures 6.1.2.1. Fences and gates
5.1.2
6.1.1
6.1.2
External services
Outbuildings
6.3
6.4
Drainage
Protective inst
150
25
100
inc
25
25
inc
inc
150
25
100
inc
25
25
inc
inc
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
100
10
10
100 240
TOTAL COST PER YEAR
6.4.1. Binstores/platts
6.3.1. Ducts & cables
6.2.2. Manholes etc
6.2.1. Pipes & fittings
6.1.2.3. Clothes poles
6.1.2.2. Walls etc
PRESENT VALUE
40
50
50
25
inc
100
200
40
50
25
inc
100
50
40
40
50
25
inc
100
50
40
50
500
400
inc
500
750
300
750
525
1,000
1,270
85 80 177 71 188 148 60 57 124 395 48 105 42 40 655 36 33 74 30 471 54 25 24 52 59 20 44 18 17 469
Present Value
3701 24942
(Present Value)
31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59
60 (Yrs 3160)
518 518 1208 518 1448 1208 518 518 1208 4068 518 1208 518 518 9013 518 518 1208 518 8673 1048 518 518 1208 1448 518 1208 518 518 15460 57902 115804
(Current cost)
21241 Yrs 130)
50
25
inc
100
50
489 461 1014 410 1082 852 344 325 715 2272 273 600 243 229 3761 204 192 423 171 2704 308 144 136 298 337 114 251 101 96 2692
40
Current Cost per yr
Repeat Years
(at discount rate of 6%)
40
57,902 (Yrs 130)
50
25
inc
100
50
10,200
3,650
2,400
690
525
150
200
Cost
Cumulative
518 518 1208 518 1448 1208 518 518 1208 4068 518 1208 518 518 9013 518 518 1208 518 8673 1048 518 518 1208 1448 518 1208 518 518 15460
40
10 10 500 10 10 500 10 10 500 10 10 500 10 10 3000 10 10 500 10 10 500 10 10 500 10 10 500 10 10 3000
100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 750
10
6.1.1.2. Grass/planting
10
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
75
150
25
inc
inc
30
50 50 50 50 50 50 50 50 50 50 50 50 50 50 500 50 50 50 50 50 50 50 50 50 50 50 50 50 50 500
10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10 75 10 10 10 10
25
25
6.1.1.1. Roads, footpaths
5.12.2. Telephones
5.12.1. Door entry
5.11.2. Smoke detectors
5.11.1. TV system etc
5.11
5.9.1. Equipment & supply
Gas installation
Lift installation
5.10
6.2
4
inc
Close Light
5.8.3. External Lighting
Years
1
inc
COMPONENT
5.8.2. Switchgear
SUB-ELEMENT
5.9
ELEMENT
CODE
PLANNED MAINTENANCE PROGRAMME (COSTED) (Continued)

Date Printed
02/12/98
EXAMPLE
PART 2, SECTION 2
Page 29
PART 2, SECTION 2
2.2.5.5
CENTRALISATION OF OFFICES STUDY

(a) Brief
This example is kindly provided by Gerald Hall.
The client wished to investigate a centralisation (of offices) strategy as a
means to improve business efficiency in an increasingly competitive market.
The offices were originally spread out over three main sites.
Three options were identified:
do nothing, although this would require repair and refurbishment of the

existing offices;
centralise at location A and construct additional new offices;
centralise at location B and construct additional new offices;
(b) Capital Costs
These were calculated using traditional cost estimating and included cyclical
capital costs. The distinction between cyclical capital costs and cyclical
maintenance costs is often vague, those costs in excess of 10,000 are
included in the capital cost element under the assumption they would be part
of the capital cost programme.
Relocation costs (labour and plant required to transport office equipment,
stores, machinery, compound materials and stationery items) are included
under Year 0 on the assumption they would be complete within 12 months and
a contingency for new furniture included.
(c) Revenue Costs
fuel: the energy manager provided existing costs which were used as the
basis for the new proposal;
water costs were excluded (the client was a water company);
maintenance costs under 10,000;
rates were not provided by the client by the deadline and are therefore
excluded;
cleaning costs are based on existing cleaning costs and judgement;
security costs are based on existing security costs and judgement;
operation costs for this client included waste removal, water coolers,
sanitary hire, mail collections, fire prevention, telephones, hygiene,
insurances. Again this was based on existing client data plus judgement.
Even with constant staff numbers these costs reduce with centralisation;
staffing costs were excluded as they would remain constant.
(d) Capital Income
Options 2 and 3 will free up existing space for sale and rent which are included
as a deduction against expenditure.
(e) Discount Rates
In accordance with the client guidelines the investment horizon is 40 years and
the discount rate 8%.
Page 30
PART 2, SECTION 2
(f) Tax Implications

Tax allowances have been excluded on the basis that this study is a minor part
of the overall company business and assumptions are not appropriate.
However it is worth noting that:
Value Added Tax on all capital costs would affect the financial benefits
of options 2 and 3 which require considerable capital expenditure;
Capital Allowances would help support options 2 and 3.
(g) Renewal and Refurbishment Costs
General building refurbishment has been allowed in ten-year cycles; electrical
and mechanical plant replaced after 20 years with a refurbishment after ten
years or mid-life; felt roofs replaced after 20 years; profiled metal decking,
windows and doors after 30 years. All costs are calculated using traditional
cost estimating and included as present costs.
(h) Cost Comparison
The detailed calculation is summarised over for option 2 which is the most
cost effective over 40 years.
Year 0 Expenditure
203,000
1,164,900
1,262,100
Option 1
Option 2
Option 3
Year 40 Net Present Value
1,960,950
1,607,896
1,843,068
(i) Sensitivity Analysis

An analysis of different discount rates and time frame confirm option 2 as the
most favourable.
Discount
Rates
Life Cycle
Option 1
Option 2
Option 3
6%
6%
6%
0
20
40
287,900
1,859,000
2,444,420
1,164,900
1,593,000
1,762,522
1,262,100
1,826,100
2,047,091
8%
8%
8%
0
20
40
287,900
1,614,000
1,960,950
1,164,900
1,515,000
1,607,896
1,262,100
1,721,100
1,843,068
10%
10%
10%
0
20
40
287,900
1,423,000
1,632,562
1,164,900
1,451,000
1,506,721
1,262,100
1,638,100
1,709,146
Page 31
Page 32
Value 1200
EXPENDITURE
NET PRESENT VALUE
Present Value of 1 @ 8%
Net Cash Flow
5.2
5.2
7.1
5.2
7.1
1.7
12
1.4
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
18
NVP=1,607,896
1165
17
16
15
14
13
12
11
1 0.93 0.86 0.79 0.74 0.68 0.63 0.58 0.54
5.2
7.1
1.7
12
1.4
-8
14
15
16
17
18
19
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
10
97
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
21
22
23
24
25
26
27
28
29
5.2
7.1
1.7
12
1.4
-8
69
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
0.2 0.18 0.17 0.16 0.15 0.14 0.13 0.12 0.11
5.2
7.1
1.7
12
1.4
-8
-7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5
300
300
20
0.4 0.37 0.34 0.32 0.29 0.27 0.25 0.23 0.21
5.2
7.1
1.7
12
1.4
-8
-7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5
0.5 0.46 0.43
5.2
7.1
1.7
12
1.4
-8
13
31
32
33
34
35
36
37
38
39
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
5.2
7.1
1.7
12
1.4
-8
-7.5
310
310
40
41
15
0.1 0.09 0.09 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05
5.2
7.1
1.7
12
1.4
-8
-7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5
393
393
30
213
291
70
492
57
-363
-55
-308
2,393
16
2,369
000
Total Value
1608
5.2
5.2
7.1
1.7
12
1.4
-8
12
1164.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 209.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 319.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 412.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 19.9 329.9
7.1
7.1
1.7
12
1.4
-8
11
1.7
12
12
1.7
1.4
1.4
-8
190
190
10
1,123
Staff Costs
27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4
5.2
Operation Costs
Value
7.1
Security
1.7
12
Maintenance
Rates
Cleaning
1.4
Fuel
Value -62.5
Water
-8
-7.5
-55
Land Sale
Revenue Costs
-7.5
Annual Rental
Capital Income
-7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5 -7.5
8.5
Furniture
15.5
Building Works 1176
WATER COMPANY LIMITED

CENTRALISATION OF AREA OFFICE STUDY
3985
29th MARCH 1996
Relocation Costs
Capital Costs
000
YEAR (SEPT 1996)
CLIENT
JOB TITLE
JOB NO
DATE
PART 2, SECTION 2
PART 2, SECTION 2
2.2.5.6
TOTAL BUILDING OPTION: DEMOLISH AND REBUILD VERSUS REFURBISHMENT

(a) Brief
The life cycle cost appraisal is to evaluate the life cycle cost effects of the
following options:
demolish existing building and rebuild to the clients specific

requirements incorporating all-air air conditioning systems;
refurbish the existing building to meet, as far as practicable, the clients
requirements, re-using existing systems wherever possible.
The appraisal is to include all taxation implications for comparative purposes.
VAT is to be included as the client is VAT-exempt.
The following costs are to be excluded:
costs associated with the purchase of land;
financing charges associated with the redevelopment;
costs associated with the removal and temporary re-housing of staff
during the construction period;
occupancy costs;
residual values of land or buildings.
(b) Discount Rate
The building is in owner-occupation and the clients accountants have advised
the use of a long-term government stock interest rate of 7%.
The client has been advised that an inflation rate of 3% is a reasonable
assessment.
The discount rate calculation is as follows
[(1.07) 1]
100 = 3.88%
[(1.03) 1]
The client has agreed that the discount rate can be rounded to 4%.
(c) Building Life
It has been agreed with the client to use a 20-year life cycle.
(d) Description of Existing Building
Late 1950s office block of multi-storey framed construction with curtain wall
cladding to front and rear. Solid party walls to both sides. Single-storey
concrete basement.
(e) Description of Existing Engineering Services
Gas-fired low pressure hot water boiler situated in basement serving perimeter
convector system with warm air ventilation to central parts of the building.
Fluorescent luminaires to all office areas and tungsten fittings to circulation.
Page 33
PART 2, SECTION 2
(f) Condition of the Existing Building

The building is structurally sound with few defects; however, it is in a poor
state of decorative repair.
(g) Basic Requirements of the Redevelopment
Gross internal area
Ratio of net to gross internal area
Number of occupants
Ratio of occupants to net internal floor area
External wall area (excluding party walls)
1500 m2
70%
110
9.7 m2
700 m2
The adjacent buildings will continue to remain in use as offices during and
after the development.
The structural engineers have advised that no work is required to party walls,
other than temporary shoring.
(h) Summary
Net Present Value
k
OPTION A
demolish existing building and rebuild to the
clients specific requirements, incorporating
all air air conditioning systems;
OPTION B
refurbish the existing building to meet as far as
practicable, the clients requirements, re-using
systems wherever possible.
% difference (A extra on B)
3889
2177
79%
The net present value is a key factor in the option appraisal. However other
less tangible benefits and disadvantages of each option should be carefully
considered in relation to the business objectives. It is also recommended that
a sensitivity analysis be carried out, for instance to look at different discount
rates and time frames.
The calculation of the above is detailed below.
Page 34
Present value
Present value of 1 at 4%
NET TOTAL
Less Tax allowance
Total (inc VAT)
VAT 17%
Total
Disposal/residual value
Occupancy
intermittent
annual
Maintenance:
Operation
Financing
Capital
Costs
OPTION A
Year
LIFE CYCLE COST SUMMARY
131
23
154
102
52
.9615
50
2154
377
2531
2531
2531
61
.9246
66
88
154
23
131
27
104
68
.8890
76
78
154
23
131
27
104
TOTAL NET PRESENT VALUE 3889k
104
2154
27
72
.8548
84
70
154
23
131
27
104
77
.8219
94
67
161
24
137
27
104
76
.7903
96
61
157
23
134
27
104
74
.7599
97
57
154
23
131
27
104
72
.7307
99
55
154
23
131
27
104
71
.7026
101
53
154
23
131
27
104
103
.6756
153
74
227
34
193
62
27
104
10
68
.6496
105
52
152
23
134
27
104
11
77
.6246
124
55
179
27
152
21
27
104
12
64
.6006
106
48
154
23
131
27
104
13
61
.5775
106
48
154
23
131
27
104
14
69
.5553
124
56
180
27
153
22
27
104
15
58
.5339
108
49
157
23
134
27
104
16
54
.5134
106
48
154
23
131
27
104
17
52
.4936
106
48
154
23
131
27
104
18
50
.4746
106
48
154
23
131
27
104
19
81
.4564
177
80
257
40
217
86
27
104
20
PART 2, SECTION 2
Page 35
Page 36
89
Financing
Operation
104
18
122
75
47
.9615
45
904
158
1062
1062
1062
Total
VAT 17.5%
Total (inc VAT)
Present value
Present value of 1 at 4%
NET TOTAL
52
.9246
56
66
122
18
104
15
89
56
.8890
63
59
122
18
104
15
89
TOTAL NET PRESENT VALUE 2177k
Disposal/residual value
Less Tax allowance
intermittent
Occupancy
15
annual
Maintenance:
904
Costs
Capital
OPTION B
Year
LIFE CYCLE COST SUMMARY
58
.8548
68
54
122
18
104
15
89
71
.8219
86
56
142
21
121
17
15
89
62
.7903
78
48
126
19
107
15
89
59
.7599
78
44
122
18
104
15
89
58
.7307
79
43
122
18
104
15
89
56
.7026
80
42
122
18
104
15
89
80
.6756
118
57
175
26
149
45
15
89
10
55
.6496
85
41
126
19
107
15
89
11
63
.6246
101
46
147
22
125
21
15
89
12
50
.6006
84
38
122
18
104
15
89
13
49
.5775
84
38
122
18
104
15
89
14
61
.5553
110
50
160
24
136
32
15
89
15
46
.5339
87
39
126
19
107
15
89
16
43
.5134
84
38
122
18
104
15
89
17
41
.4936
84
38
122
18
104
15
89
18
40
.4746
84
38
122
18
104
69
15
89
19
64
.4564
140
63
203
30
173
15
89
20
PART 2, SECTION 2
PART 2, SECTION 2
CAPITAL
OPTION A
GFA: 1500 m2
Elemental Cost Plan
OPTION B
Total cost
k
/m2GFA
Total cost
k
/m2GFA
Demolition
70.0
47.0
14.0
9.0
Substructure
42.0
28.0
Superstructure
315.0
210.0
17.5
12.0
External walls
490.0
327.0
101.0
67.0
Internal walls
14.5
10.0
54.0
36.0
Internal finishings
84.0
56.0
105.0
70.0
Fittings/fixtures
2.0
1.0
Sanitary appliances
9.5
6.0
9.5
6.0
21.0
14.0
21.0
14.0
Mechanical services
252.0
168.0
94.5
63.0
Electrical services
147.0
98.0
126.0
84.0
Lift installation
77.0
51.0
91.0
60.0
External work
21.0
14.0
7.0
5.0
Drainage
8.5
6.0
3.0
2.0
Sub-total
1553.5
1036.0
643.5
429.0
Preliminaries
(% of sub-total)
232.0
15%
96.5
15%
Contingencies
(% of sub-total)
46.5
3%
19.5
3%
1833.0
1222.0
759.5
506.0
321.0
17.5%
144.5
19%
Public Health services
Total construction cost

Professional fees(
% of construction cost)
Total capital costs to
life cycle cost summary
2154.0
904.0
Page 37
PART 2, SECTION 2
OPERATION
Energy see next page
OPTION A
OPTION B
per annum
per annum
13617
9964
Cleaning
OPTION A
Budget allowance 7.00 per m2
10500
OPTION B
NB: existing building materials more
labour intensive for cleaning
13500
Rates (including water rates)

OPTION A
75000
OPTION B
63000
NB: air conditioned building attracts

higher rates
Insurance
Building fabric replacement
OPTION A
Budget allowance 0.2% of building cost
(2154)
4308
OPTION B
OPTION B
Budget allowance 0.2% of building cost
(904)
Total operation costs
Total k to life cycle cost summary
Page 38
1808
103425
88272
104
89

2200
2200
Small Power
Power for mechanical services
60
100
80
5.50
5.50
5.50
1.076**
1500
1500
1500
1500
114,840
33,000
52,800
240,000
(f)
kwh*
13617
6316
1815
2904
2582
per
annum
(g)
f c/100
1500
1500
1500
1500
(d)
m2
Area
20
10
20
190
(e)
w/m2
Energy
rate
3 9,600
33,000
52,800
285,000
(f)
kwh*
OPTION B
*** Assume cooling load 120 watts/m2

Conversion rate electricity to cooling 2.5:1
Therefore w/m2 for cooling 120/2.5 = 48 + 10 (other mechanical plant) = 58
** Gas Board rate per therm 30p

1 therm = 27.8 kwh
rate per kwh = 35.2/27.8 = 1.076
1000
9964
2178
1815
2904
3067
per
annum
(g)
f c/100
*NB: formula for kwh = area (d) energy rate (e) unit energy cost (c) building usage (a) diversity (b)
58***
10
20
160
(e)
w/m2
m2
(d)
Energy
rate
OPTION A
Area
Total energy costs to operation costs summary
2200
50
(c)
(b)
2000
(p/kwh)
(%)
(hrs per
annum) (a)
Unit
energy
cost
Diversity
Building
usage
Lighting
Electricity
Heating Option A
Gas
SYSTEM
ENERGY
PART 2, SECTION 2
Page 39
PART 2, SECTION 2
ANNUAL MAINTENANCE
OPTION A
/m2
General building maintenance
Engineering services maintenance
Lifts service agreement
OPTION B
per annum
/m2
per annum
4.00
6000
4.00
6000
12.00*
18000
4.00
6000
1.50
2250
1.50
2250
Total annual maintenance costs
26,250
14,250
27k
15k
* NB: full air conditioning maintenance for

Option A
Page 40
External decoration (fire escapes only)
paintwork, etc.
electrical (luminaires)
lifts (major overhaul)
Totals
mechanical (equipment)
Engineering services:
paintwork, etc.
carpets
External decoration (facades, etc.)
Internal finishings:
Costs
Roof renewal
Year
OPTION B
electrical (luminaires)
lifts (major overhaul)
Totals
mechanical (equipment)
Engineering services:
carpets
Internal finishings:
Costs
Roof renewal
Year
OPTION A
INTERMITTENT MAINTENANCE
17
16.5
5.5
11
5.5
0.5
3.0
3.0
3.0
3.0
45
44.5
14
14
5.5
11
10
62
62
14
42
5.5
0.5
10
3.0
3.0
11
3.0
3.0
11
21
21
21
12
21
21
21
12
13
13
14
14
32
32
15.5
5.5
11
15
22
21.5
15.5
5.5
0.5
15
3.0
3.0
16
3.0
3.0
16
17
17
18
18
19
19
69
68.5
14
14
5.5
14
11
10
20
86
86
14
42
5.5
14
0.5
10
20
PART 2, SECTION 2
Page 41
PART 2, SECTION 2
TAX
VAT
CHARGEABLE
VALUE
VAT RATE
OPTION A
OPTION B
320.8
56.2
OPTION A
Capital costs
Fees
1833
321
17
17
OPTION B
Capital costs
Fees
759.5
144.5
17
17
132.9
25.3
Total VAT to
capital costs
377
158.2
Total k to
life cycle
cost
summary
377
158
VAT is chargeable directly on all running costs items and appears on the summary.
Corporation Tax
The client currently pays corporation tax at the rate of 31%.
This percentage has been assumed for all calculations.
Tax allowance - running costs
100% tax deductible based upon total inclusive of VAT*, e.g. running cost
VAT
Total
Tax allowance @ 31%
100
17.50
117.50
36.43
Tax allowance - capital costs

Certain capital items are classified as plant and machinery (see appendix E) and are tax deductible at a rate of 25% per annum
on reducing balance, e.g. capital item 10,000
First year tax allowance 10,000 25% 31%
Second year tax allowance 7,500 25% 31%
Tax allowances can only be allowed one year in arrears.
*NB. This is only applicable when the client is an end user and exempt from VAT. If, in the course of his business, the client can
claim back VAT he cannot claim tax relief on this portion of his costs.
Page 42
122
243
75
Total
Apply current tax rate 31%
Total k to LCC summary
121
From LCC summary (inc VAT)
Running cost allowances
reducing balance
482.1k (inc VAT) @ 25% p.a.
Total allowances see next page
Capital allowances
OPTION B
Total k to LCC summary
102
328
Total
Apply current tax rate 31%
154
174
From LCC summary (inc VAT)
Running cost allowances
reducing balance
696k (inc VAT) @ 25% p.a.
Total allowances see next page
Capital allowances
OPTION A
TAX ALLOWANCE
66
212
122
90
88
285
154
131
59
190
122
68
78
252
154
98
54
173
122
51
70
227
154
73
56
180
142
38
67
216
161
55
48
155
126
29
61
198
157
41
44
143
122
21
57
185
154
31
43
138
122
16
55
177
154
23
42
134
122
12
53
171
154
17
57
184
175
74
240
227
13
10
41
133
126
52
167
157
10
11
46
147
147
55
179
179
12
38
122
122
48
154
154
13
38
122
122
48
154
154
14
50
160
160
56
180
150
15
39
126
126
49
157
157
16
38
122
122
48
154
154
17
38
122
122
48
154
154
18
38
122
122
48
154
154
19
63
203
203
80
257
257
20
PART 2, SECTION 2
Page 43
PART 2, SECTION 2
CAPITAL ALLOWANCE
GFA: 1500 m2
Proposed capital allowance for taxation purposes

Subject to negotiation and agreement with the Inland Revenue on evidence of eventual costs
Total cost
k
Elemental cost plan

Demolition
Substructure
Superstructure
External walls
Internal walls
Internal finishings
Fittings/fixtures
Sanitary appliances
Public Health services
Mechanical services
Electrical services
70
42
315
490
14.5
84
2.0
9.5
21
252
147
OPTION A
% tax allowable
k
Tax allowable
k
Total cost
k
OPTION B
% tax allowable
k
20
100
100
60
0.4
9.5
252.0
88.2
14
17.5
101
54
105
9.5
21
94.5
126
30
30
100
100
60
Tax
Remarks
allowable k
5.3
16.2
9.5
94.5
75.6
Lift installation
External work
Drainage
Sub-total
Preliminaries (% of sub-total)
77
21
8.5
1553.5
233
100
27.5
27.5
77.0
427.1
64.1
91
7
3
634.5
96.5
100
45.4
45.4
91.0
292.1
43.8
Contingencies (% of sub-total)
Total construction cost
Professional fees
(% of construction cost)
VAT
Total tax-allowable capital costs
to previous page
46.5
1833
321
27.5
12.8
45.4
8.9
27.5
88.3
19.5
759.5
144.5
45.4
65.6
377
27.5
103.7
696
158
45.4
71.7
482.1
Page 44
BWIC allowable on refurbishment

BWIC allowable on refurbishment
Office lighting and associated

switchgear not allowable
Taken on proportion of
construction costs
Option A Fees only
PART 2, SECTION 2
2.2.5.7
A SELECTION FROM PARRYS VALUATION AND INVESTMENT TABLES

(for full tables rewference is made to Parrys Valuation and Investment Tables, A
W Davidson (1989), (111th Edition) (Estates Gazette)
YEARS PURCHASE
No Income Tax
Single Rate
RATE PER CENT

Years
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
60
2
0.9804
1.9416
2.8839
3.8077
4.7135
5.6014
6.4720
7.3255
8.1622
8.9826
9.7868
10.5753
11.3484
12.1062
12.8493
13.5777
14.2919
14.9920
15.6785
16.3514
17.0112
17.6580
18.2922
18.9139
19.5235
20.1210
20.7069
21.2813
21.8444
22.3965
22.9377
23.4683
23.9886
24.4986
24.9986
25.4888
25.9695
26.4406
26.9026
27.3555
27.7995
28.2348
28.6616
29.0800
29.4902
29.8923
30.2866
30.6731
31.0521
31.4236
34.7609
3
0.9709
1.9135
2.8286
3.7171
4.5797
5.4172
6.2303
7.0197
7.7861
8.5302
9.2526
9.9540
10.6350
11.2961
11.9379
12.5611
13.1661
13.7535
14.3238
14.8775
15.4150
15.9369
16.4436
16.9355
17.4131
17.8768
18.3270
18.7641
19.1885
19.6004
20.0004
20.3888
20.7658
21.1318
21.4872
21.8323
22.1672
22.4925
22.8082
23.1148
23.4124
23.7014
23.9819
24.2543
24.5187
24.7754
25.0247
25.2667
25.5017
25.7298
27.6756
4
0.9615
1.8861
2.7751
3.6299
4.4518
5.2421
6.0021
6.7327
7.4353
8.1109
8.7605
9.3851
9.9856
10.5631
11.1184
11.6523
12.1657
12.6593
13.1339
13.5903
14.0292
14.4511
14.8568
15.2470
15.6221
15.9828
16.3296
16.6631
16.9837
17.2920
17.5885
17.8736
18.1476
18.4112
18.6646
18.9083
19.1426
19.3679
19.5845
19.7928
19.9931
20.1856
20.3708
20.5488
20.7200
20.8847
21.0429
21.1951
21.3415
21.4822
22.6235
5
0.9524
1.8594
2.7232
3.5460
4.3295
5.0757
5.7864
6.4632
7.1078
7.7217
8.3064
8.8633
9.3936
9.8986
10.3797
10.8378
11.2741
11.6896
12.0853
12.4622
12.8212
13.1630
13.4886
13.7986
14.0939
14.3752
14.6430
14.8981
15.1411
15.3725
15.5928
15.8027
16.0025
16.1929
16.3742
16.5469
16.7113
16.8679
17.0170
17.1591
17.2944
17.4232
17.5459
17.6628
17.7741
17.8801
17.9810
18.0772
18.1687
18.2559
18.9293
6
0.9434
1.8334
2.6730
3.4651
4.2124
4.9173
5.5824
6.2098
6.8017
7.3601
7.8869
8.3838
8.8527
9.2950
9.7122
10.1059
10.4773
10.8276
11.1581
11.4699
11.7641
12.0416
12.3034
12.5504
12.7834
13.0032
13.2105
13.4062
13.5907
13.7648
13.9291
14.0840
14.2302
14.3681
14.4982
14.6210
14.7368
14.8460
14.9491
15.0463
15.1380
15.2245
15.3062
15.3832
15.4558
15.5244
15.5890
15.6500
15.7076
15.7619
16.1614
7
0.9346
1.8080
2.6243
3.3872
4.1002
4.7665
5.3893
5.9713
6.5152
7.0236
7.4987
7.9427
8.3577
8.7455
9.1079
9.4466
9.7632
10.0591
10.3356
10.5940
10.8355
11.0612
11.2722
11.4693
11.6536
11.8258
11.9867
12.1371
12.2777
12.4090
12.5318
12.6466
12.7538
12.8540
12.9477
13.0352
13.1170
13.1935
13.2649
13.3317
13.3941
13.4524
13.5070
13.5579
13.6055
13.6500
13.6916
13.7305
13.7668
13.8007
14.0392
8
0.9259
1.7833
2.5771
3.3121
3.9927
4.6229
5.2064
5.7466
6.2469
6.7101
7.1390
7.5361
7.9038
8.2442
8.5595
8.8514
9.1216
9.3719
9.6036
9.8181
10.0168
10.2007
10.3711
10.5288
10.6748
10.8100
10.9352
11.0511
11.1584
11.2578
11.3498
11.4350
11.5139
11.5869
11.6546
11.7172
11.7752
11.8289
11.8786
11.9246
11.9672
12.0067
12.0432
12.0771
12.1084
12.1374
12.1643
12.1891
12.2122
12.2335
12.3766
Page 45
PART 2, SECTION 2
No Income Tax
PRESENT VALUE OF 1
RATE PER CENT
Years
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
60
Page 46
2
.9803922
.9611688
.9423223
.9238454
.9057308
.8879714
.8705602
.8534904
.8367553
.8203483
.8042630
.7884932
.7730325
.7578750
.7430147
.7284458
.7141626
.7001594
.6864308
.6729713
.6597758
.6468390
.6341559
.6217215
6095309
.5975793
.5858620
.5743746
.5631123
.5520709
.5412460
.5306333
.5202287
.5100282
.5000276
.4902232
.4806109
.4711872
.4619482
.4528904
.4440102
.4353041
.4267688
.4184007
.4101968
.4021537
.3942684
.3865376
.3789584
.3715279
.3047823
3
.9708738
.9425959
.9151417
.8884870
.8626088
.8374843
.8130915
.7894092
.7664167
.7440939
.7224213
.7013799
.6809513
.6611178
.6418619
.6231669
.6050164
.5873946
.5702860
.5536758
.5375493
.5218925
.5066917
.4919337
.4776056
.4636947
.4501891
.4370768
.4243464
.4119868
.3999871
.3883370
.3770262
.3660449
.3553834
.3450324
.3349829
.3252262
.3157535
.3065568
.2976280
.2889592
.2805429
.2723718
.2644386
.2567365
.2492588
.2419988
.2349503
.2281071
.1697331
4
.9615385
.9245562
.8889964
.8548042
.8219271
.7903145
.7599178
.7306902
.7025867
.6755642
.6495809
.6245970
.6005741
.5774751
.5552645
.5339082
.5133732
.4936281
.4746424
.4563869
.4388336
.4219554
.4057263
.3901215
.3751168
.3606892
.3468166
.3334775
.3206514
.3083187
.2964603
.2850579
.2740942
.2635521
.2534155
.2436687
.2342968
.2252854
.2166206
.2082890
.2002779
.1925749
.1851682
.1780463
.1711984
.1646139
.1582826
.1521948
.1463411
.1407126
.0950604
5
.9523810
.9070295
.8638376
.8227025
.7835262
.7462154
.7106813
.6768394
.6446089
.6139133
.5846793
.5568374
.5303214
.5050680
.4810171
.4581115
.4362967
.41552-7
.3957340
.3768895
.3589424
.3418499
.3255713
.3100679
.2953028
.2812407
.2678483
.2550936
.2429463
.2313774
.2203595
.2098662
.1998725
.1903548
.1812903
.1726574
.1644356
.1566054
.1491480
.1420457
.1352816
.1288396
.1227044
.1168613
.1112965
.1059967
.1009492
.0961421
.0915639
.0872037
.0535355
6
.9433962
.8899964
.8396193
.7920937
.7472582
.7049605
.6650571
.6274124
.5918985
.5583948
.5267875
.4969694
.4688390
.4423010
.4172651
.3936463
.3713644
.3503438
.3305130
.3118047
.2941554
.2775051
.2617973
.2469785
.2329986
.2198100
.2073680
.1956301
.1845567
.1741101
.1642548
.1549574
.1461862
.1379115
.1301052
.1227408
.1157932
.1092389
.1030555
.0972222
.0917190
.0865274
.0816296
.0770091
.0726501
.0685378
.0646583
.0609984
.0575457
.0542884
.0303143
7
.9345794
.8734387
.8162979
.7628952
.7129862
.6663422
.6227497
.5820091
.5439337
.5083493
.4750928
.4440120
.4149644
.3878172
.3624460
.3387346
.3165744
.2958639
.2765083
.2584190
.2415131
.2257132
.2109469
.1971466
.1842492
.1721955
.1609304
.1504022
.1405628
.1313671
.1227730
.1147411
.1072347
.1002193
.0936629
.0875355
.0818088
.0764569
.0714550
.0667804
.0624116
.0583286
.0545127
.0509464
.0476135
.0444986
.0415875
.0388668
.0363241
.0339478
.0172573
8
.9259259
.8573388
.7938322
.7350299
.6805832
.6301696
.5834904
.5402689
.5002490
.4631935
.4288829
.3971138
.3676979
.3404610
.3152417
.2918905
.2702690
.2502490
.2317121
.2145482
.1986557
.1839405
.1703153
.1576993
.1460179
.1352018
.1251868
.1159137
.1073275
.0993773
.0920160
.0852000
.0788889
.0730453
.0676345
.0626246
.0579857
.0536905
.0497134
.0460309
.0426212
.0394641
.0365408
.0338341
.0313279
.0290073
.0268586
.0248691
.0230269
.0213212
.0098759
PART 2, SECTION 2
No Income Tax
ANNUAL SINKING FUND FOR THE REDEMPTION OF 1 CAPITAL INVESTED
Years
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
60
2
1.0000000
.4950495
.3267547
.2426238
.1921584
.1585258
.1345120
.1165098
.1025154
.0913265
.0821779
.0745596
.0681184
.0622020
.0578255
.0536501
.0499698
.0467021
.0437818
.0411567
.0387848
.0366314
.0346681
.0328711
.0312204
.0296992
.0282931
.0269897
.0257784
.0246499
.0235963
.0226106
.0216865
.0208187
.0200022
.0192329
.0185068
.0178206
.0171711
.0165557
.0159719
.0154173
.0148899
.0143879
.0139096
.0134534
.0130179
.0126018
.0122040
.0118232
.0087680
RATE PER CENT

3
1.0000000
.4926108
.3235304
.2390270
.1883546
.1545975
.1305064
.1124564
.0984339
.0872305
.0780774
.0704621
.0640295
.0585263
.0537666
.0496108
.0459525
.0427087
.0398139
.0372157
.0348718
.0327474
.0308139
.0290474
.0274279
.0259383
.0245642
.0232932
.0221147
.0210193
.0199989
.0190466
.0181561
.0173220
.0165393
.0158038
.0151116
.0144593
.0138439
.0132824
.0127124
.0121917
.0116981
.0112298
.0107852
.0103625
.0099605
.0095778
.0092131
.0088655
.0061330
4
1.0000000
.4901961
.3203485
.2354900
.1846271
.1507619
.1266096
.1085278
.0944930
.0832909
.0741490
.0665522
.0601437
.0546690
.0499411
.0458200
.0421985
.0389933
.0361386
.0335818
.0312801
.0291988
.0273091
.0255868
.0240120
.0225674
.0212385
.0200130
.0188799
.0178301
.0168554
.0159486
.0151036
.0143148
.0135773
.0128869
.0122396
.0116319
.0110608
.0105235
.0100174
.0095402
.0090899
.0086645
.0082625
.0078820
.0075219
.0071806
.0068571
.0065502
.0042018
5
1.0000000
.4878049
.3172086
.2320118
.1809748
.1470175
.1228198
.1047218
.0906901
.0795046
.0703889
.0628254
.0564558
.0510240
.0463423
.0422699
.0386991
.0355462
.0327450
.0302426
.0279961
.0259705
.0241368
.0224709
.0209525
.0195643
.0182919
.0171225
.0160455
.0150514
.0141321
.0132804
.0124900
.0117554
.0110717
.0104345
.0098398
.0092842
.0087646
.0082782
.0078223
.0073947
.0069933
.0066163
.0062617
.0059282
.0056142
.0053184
.0050396
.0047767
.0028282
6
1.0000000
.4854369
.3141098
.2285915
.1773964
.1433626
.1191350
.1010359
.0870222
.0758680
.0667929
.0592770
.0529601
.0475849
.0429628
.0389521
.0354448
.0323565
.0296209
.0271846
.0250045
.0230456
.0212785
.0196790
.0182267
.0169043
.0156972
.0145926
.0135796
.0126489
.0117922
.0110023
.0102729
.0095984
.0089739
.0083948
.0078574
.0073581
.0068938
.0064615
.0060589
.0056834
.0053331
.0050061
.0047005
.0044149
.0041477
.0038977
.0036636
.0034443
7
1.0000000
.4830918
.3110517
.2252281
.1738907
.1397958
.1155532
.0974678
.0834865
.0723775
.0633569
.0559020
.0496508
.0443449
.0397946
.0358576
.0324252
.0294126
.0267530
.0243929
.0222890
.0204058
.0187139
.0171890
.0158105
.0145610
.0134257
.0123919
.0114487
.0105864
.0097969
.0090729
.0084081
.0077967
.0072340
.0067153
.0062368
.0057951
.0053868
.0050091
.0046596
.0043359
.0040359
.0037577
.0034996
.0032600
.0030374
.0028307
.0026385
.0024598
8
1.0000000
.4807692
.3080335
.2219208
.1704565
.1363154
.1120724
.0940148
.0800797
.0690295
.0600763
.0526950
.0465218
.0412969
.0368295
.0329769
.0296294
.0267021
.0241276
.0218522
.0198323
.0180321
.0164222
.0149780
.0136788
.0125071
.0114481
.0104889
.0096185
.0088274
.0081073
.0074508
.0068516
.0063041
.0058033
.0053447
.0049244
.0045389
.0041851
.0038602
.0035615
.0032868
.0030341
.0028015
.0025873
.0023899
.0022080
.0020403
.0018856
.0017429
Extracts from Parrys Valuation and Investment Tables, A W Davidson (1989), (11th Edition) (Estates
Gazette) reproduced by permission of the College of Estate Management which owns the copyright.
Page 47
PART 2, SECTION 2, APPENDIX A
Appendix A: Residual Values

A1
At the end of the life of a building, the component/building and the land will
have a residual value.
A2
There will be one of two situations. Either the building will have reached the
end of its life, with no alternative use, or the building will have reached the
end of the life for its planned purpose, but does have an alternative use.
A3
In either situation the residual value of the building and/or the land may be
significant and will need to be carefully assessed as it may have a substantial
effect on life cycle costing calculations. Residual values will be of particular
significance if the time horizon used for life cycle costing calculations is
relatively short.
A4
In considering residual values, an allowance should be made for the cost of

disposing of plant and equipment and for the demolition of buildings, if
appropriate. In assessing demolition costs, allowance should be made for the
value of any re-usable materials.
A5
Owners also need to be cognisant of taxation issues and whether these affect
their property/building decisions.
A6
There are strict guidelines for taxation adjustments that arise at disposal. If the
plant and machinery is scrapped the remaining value is written off and a
balancing allowance brought into account. Alternatively if the building (and
the plant and machinery contained therein) is sold, the vendor should declare
whether allowances have been claimed. An adjustment to their after tax cost
will arise depending upon whether the disposal value is greater or less than the
written down value remaining on the vendors accounts.
A7
This area of tax advice is experiencing increased scrutiny from the Inland
Revenue and the District Valuers Department, as parties to property
transactions sometimes select/contract disposal values of tax relievable
components with specific tax planning objectives.
Part 2, Section 2,
Appendix A (4/99)
Page 1
PART 2, SECTION 2, APPENDIX B
Appendix B: Obsolescence
B1
Building life is influenced by obsolescence. Almost all its forms relate to

economic considerations. However, six different forms of obsolescence can
be categorised as:
physical
economic
functional
technological
social
legal.
B2
Buildings usually end their life before the end of their physical life. The most
common reasons for buildings becoming obsolete are probably economic and
functional considerations. Buildings designed for a specific specialised use,
with little or no flexibility for changing their use, are therefore likely to have
shorter lives than buildings offering flexibility for the change of function of
the building.
B3
The table below gives definitions and examples of each form of obsolescence:
Types of
obsolescence
Definition of type
of obsolescence
Basis for
assessment of
building life
Examples of factors
leading to
obsolescence
Physical
Life of the building

to when physical
collapse is
possible.
How long will the

building stand up?
Deterioration of
external brick walls
affecting their structural
stability.
Deterioration of
suspended concrete
floors, containing high
alumina cement, in
multi-storey buildings,
affecting structural
stability.
Economic

to when occupation
is not considered to
be the least cost
alternative of
meeting a
particular objective.
How long will the

building be
economic for the
client to own or
operate?
The value of the land on

which the building
stands is more than the
capitalised full rental
value that could be
derived from letting the
building.
The asset would
achieve a better rate of
return in the possession
of another, or in the
redevelopment or
refurbishment scheme.
Part 2, Section 2,
Appendix B (4/99)
Page 1
PART 2, SECTION 2, APPENDIX B
Types of
obsolescence
Definition of type
of obsolescence
Basis for
assessment of
building life
Examples of
factors leading to
obsolescence
Functional

to when the
building ceases to
function for the
same purpose as
that for which it
was built.
How long will the

building be used
for the purpose for
which it was built?
Cinemas converted into

bingo halls, village
railway stations
converted into private
houses.
Technological

until the building is
no longer
technologically
superior to
alternatives.
How long will the

building be
technologically
superior to
alternatives?
Prestige office unable

to accommodate
introduction of high
level of computing
facilities.
Storage warehouse
unable to
accommodate the
introduction of robotics
for goods handling.
Social and
Legal
Page 2
The life of a
building until the
time when human
desire or legal
requirement
dictates
replacement for
reasons other than
economic
considerations.
How long will the

building meet
human desires,
(with the exclusion
of economic
considerations).
Timber football stand

replaced (following
Bradford Football Club
fire disaster).
Multi-storey flats in
inner city demolished
(following social and
community problems).
B4
Notwithstanding the difficulty of the task, the surveyor, in consultation with

the client, should make an informed assessment of the building life to be used
in any particular study. In making that assessment the surveyor will need to
take account of a number of factors which may influence the final assessment
of building life in any particular case.
B5
While the above examples relate to the whole building, obsolescence of

elements or components is also relevant, for example major refurbishment of
retail buildings at say 15-year intervals to remain attractive.
Part 2, Section 2,
Appendix B (4/99)
PART 2, SECTION 2, APPENDIX C
Appendix C: Costs And Values

The following checklist provides suggestions for cost and value categories to be
considered. This list is not exhaustive and items may need to be added or others
disregarded as applicable to any particular project.
C1
C1.1
C1.2
C1.3
C1.4
C1.5
C1.6
C1.7
C1.8
C1.9
C1.10
C1.11
C1.12
C1.13
CAPITAL COSTS
Land
Fees on acquisition
Design team professional fees
Demolition and site clearance
Construction price for building work
Cost of statutory consents
Development Land Tax
Capital Gains Tax
Value Added Tax
Furnishings
Other capital costs
Commissioning expenses
Decanting charges
C2
C2.1
C2.2
C2.3
FINANCING COSTS
Finance for land purchase and during construction
Finance during period of intended occupation
Loan charges (public sector)
C3
C3.1
C3.2
C3.3
C3.4
C3.5
C3.6
C3.7
C3.8
C3.9
C3.10
C3.11
OPERATION COSTS
Energy
Cleaning
Rates
Insurances
Security and Health
Staff (related to the building)
Management and administration of the building
Land charges
Energy conservation measures
Internal planting
Equipment associated with occupiers occupation
C4
ANNUAL MAINTENANCE COSTS, INTERMITTENT MAINTENANCE, REPLACEMENT

ALTERATION COSTS
Main structure
External decorations
Internal decorations
Finishes, fixtures and fittings
Plumbing and sanitary services
Heat source
C4.1
C4.2
C4.3
C4.4
C4.5
C4.6
Part 2, Section 2,
Appendix C (4/99)
AND
Page 1
PART 2, SECTION 2, APPENDIX C
Page 2
C4.7
C4.8
C4.9
C4.10
C4.11
C4.12
C4.13
C4.14
C4.15
Space heating and air treatment

Ventilating systems
Electrical installations
Gas installations
Life and conveyor installation
Communications installation
Special and protective installations
External works
Gardening
C5
C5.1
OCCUPANCY COSTS
Clients occupancy costs
C6
C6.1
C6.2
C6.3
RESIDUAL VALUES
Resale value building, land and plant and equipment
Related costs demolition and site clearance and disposal of fees and charges
Capital Gains Tax and balancing charges
Part 2, Section 2,
Appendix C (4/99)
PART 2, SECTION 2, APPENDIX D
Appendix D: Glossary of Terms for Taxation

D1
CAPITAL EXPENDITURE
Money expended in acquiring long life assets which includes land, buildings,
permanent improvements or additions/extensions to existing assets including
associated professional fees, furniture and equipment thereto, which are
intended for use in the carrying out of business operations. These assets
should have a useful life of more than one year.
D2
REVENUE EXPENDITURE
Expenditure incurred as a trading expense e.g. salaries, consumables,
occupancy and regular maintenance costs.
D3
TAXATION DEPRECIATION ALLOWANCES (FOR TAXATION PURPOSES)

This is a collective term for taxation relief afforded to commercial (tax
paying) organisations to offset the cost of capital expenditure incurred upon
assets used for the purposes of their trade.
As explained in 2.2.3 there are various types of taxation allowances and the
proportion of initial expenditure which attracts tax relief is often varied by
successive Finance Acts.
This should be differentiated from the rate of depreciation adopted by
accountants/auditors when preparing company management accounts to allow
provision for replacement of assets. This is because the depreciation
allowance for taxation purposes is fixed by legislation.
When an asset is disposed of a review of the allowances received is required
and an adjustment may be necessary.
D4
INDUSTRIAL BUILDING
Industrial buildings or structures which qualify for capital allowances are
defined in the statutes CAA 1968 S7 and CAA 1990 S18. These include
factories, manufacturing, storage, docks, tunnels and mines. There are specific
rules which apply where part of the building is used for a non-qualifying
purpose.
D5
PLANT AND MACHINERY

This type of tax relief was introduced after the second world war to provide an
incentive to industry to replace equipment used in industry and commerce.
The precise definition of plant and machinery is frequently contested in the
courts. To assist clarification examples of items likely to attract taxation relief
are illustrated in Appendix E.
D6
INITIAL ALLOWANCES/FIRST YEAR ALLOWANCES

These were introduced to provide an acceleration to the standard rate of
annual tax relief (depreciation allowance) being a proportion of the original
capital expenditure.
Part 2, Section 2,
Appendix D (4/99)
Page 1
PART 2, SECTION 2, APPENDIX D
Governments use successive Finance Acts to vary the proportion awarded to

increase or reduce this incentive as a method of influencing or stimulating
capital investment within the commercial sector of the economy.
D7
ANNUAL WRITING DOWN ALLOWANCE

This is the annual depreciation allowance awarded in respect to qualifying
expenditure as a proportion of the residual balance of the initial expenditure
i.e. original cost less the amounts already calculated and benefiting from tax
relief.
D8
BALANCING ALLOWANCE
Upon disposal of an asset a comparison between its value and the written
down amount remaining on the owners accounts is required.
If the asset is sold for a sum in excess of the vendors after tax relief cost, then
a profit has arisen which is subject to an adjustment to the depreciation
allowance (i.e. reduction of tax relief), termed a balancing charge.
Alternatively, if the asset is scrapped or disposed of at low value (compared
with the residual amount) then an additional tax relief is awarded, termed a
balancing allowance.
Page 2
Part 2, Section 2,
Appendix D (4/99)
PART 2, SECTION 2, APPENDIX E
Appendix E: Examples of items of Expenditure Likely to Attract

Taxation Allowances
Item
Finishes/fixtures/
fittings
Plant and equipment

1.
2.
3.
4.
5.
6.
7.
8.
Wall finishes where they can be removed from the building, e.g.
curtains, curtain track, battens for fixing
Floor finishes such as carpets and any floor finishing that can be
removed from the building
Door mats and matwell frames
Suspended ceilings which are airtight and can be used as an
extract system or any ceiling which is an integral part of the
heating, ventilating or air conditioning system
Any movable fixtures and fittings
Demountable partitions
Curtains, blinds and furnishing
Cupboards, lockers, shelves, display counters, chalkboards,
dustbins, cloakroom fittings, telephone booths
Plumbing and
sanitary services
1.
2.
3.
4.
5.
6.
7.
8.
9.
Sanitary fittings (not the pipework)

Vanity units
Soap dispensers
Mirrors
Demountable toilet partitions
Coat hooks and racks
Towel rails and cabinets
Toilet roll holders
Tanks
Heat source
1.
Boilers and equipment, fuel pumps, water pumps, flue, etc. (not
the pipework from the boiler)
Boiler bases and foundations
Oil storage tanks and foundations
Fuel hoppers, ash removal plant
Control equipment to the heating system
Builders work in connection with the heat source
Part cost of boiler room
2.
3.
4.
5.
6.
7.
Space heating and air
treatment
1.
2.
3.
4.
5.
6.
Ventilation systems
1.
2.
3.
4.
Electrical installations
1.
2.
3.
4.
5.
6.
7.
Gas installations
1.
Equipment in connection with heating, air conditioning and hot

water installation (not the pipework or ducting)
Builders work in connection with the equipment
Plant room
Electrical and mechanical control system
Solar heating systems
Insulation to pipework
Dust and fume extraction equipment including ductwork and
builders work in connection
Extract fans and builders work
Ventilators
Instrumentation controls
Electrical installation to all plant and equipment (excludes conduit
and wiring to power and lighting for the building generally)
Light fittings
Emergency lighting
Switchgear and transformers
Control gear and distribution boards
Plant rooms
Builders work in connection with the electrical installation
Gas fires, cookers and equipment including flues and builders
work in connection
Part 2, Section 2,
Appendix E (4/99)
Page 1
PART 2, SECTION 2, APPENDIX E
Item
Lift and conveyor
installations
Communications
installations
Special installations/
protective installations
Plant and equipment

1.
2.
Lift installation complete including builders work in connection

with lift motors, lift guides and plant room
Escalators and hoists are as for lifts
1.
2.
3.
4.
5.
6.
Clocks
Sound distribution, bells, signals and the like
Fire alarms
Burglar alarms
Telephone installation
Builders work in connection with communication installations
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
Page 2
Sprinkler system
Dry riser system
Hosereel system
CO2 system
Fire extinguishers
Refrigeration equipment
Kitchen equipment
Laundry equipment
Health equipment
Laboratory equipment
Manufacturing equipment
Incinerators and flues
Water heaters
Hand dryers
Window cleaning hoists and equipment including track, motors
and ancillary builders work
Refuse disposal equipment including ancillary builders work
Lighting conductors and earthing systems
Occupational equipment associated with the building user
Computer equipment and all ancillary work
Crane gantries
All builders work in connection with items 1 to 20 above
Special items within a

building (the items
shown are only given
as indicative of the
types of item)
1.
2.
3.
4.
5.
6.
7.
8.
Removable fire escapes

Shelving
Safes and strong rooms
Roller shutters
Ladders
Dock levellers
Signs/notice boards
Interior planting
External works
1.
2.
3.
4.
External signs
Traffic signs, crash barriers
Drainage where it is specifically required for plant and equipment
Cycle racks
Part 2, Section 2,
Appendix E (4/99)
PART 2, SECTION 2, APPENDIX F
Appendix F: Further Reading

Ferry, D.J.O., Flanagan, R., Life Cycle Costing: A Radical Approach, Construction
Industry Research and Information Association (CIRIA Report 122), London, 1991
Flanagan, Roger, Norman, George, Furbur, J. David & Townsend, Geoffrey M., Life
Cycle Costing For Construction, Surveyors Publications, London, 1983
Flanagan, Roger, Norman, George Meadows, Justin Robinson, Graham, Life Cycle
Costing: Theory and Practice, BSP Professional Books, Oxford, 1989
HM Treasury. Guidance Note No. 35: Life Cycle Costing, Central Unit on Procurement,
HM Treasury, London, 1992
Data Sources
Bernard Williams Associates, Facilities Economics. Bernard Williams Associates,
Building Economics Bureau Ltd, Kent. Tel: 0181 460 1111, 1995. A comprehensive
study including hard costs.
BMI. Energy Consumption Study, Building Maintenance Information, 12 Great George
Street, London, SW1P 3AD, Tel: 0171 222 7000, 1996. Covers typical energy costs for
different building types.
BMI. Occupancy Cost Planning, Building Maintenance Information, contact details as
above, 1992. Includes addresses of numerous trade and professional organisations as
possible data sources.
BMI. Review of Maintenance and Occupancy Costs, Building Maintenance
Information, contact details as above, 1994
British Standard 7543: 1992 Guide to Durability of Buildings and Building Elements,
Products and Components, British Standards Institution, London, 1992
Building Research Energy Conservation Support Unit. Energy Efficiency Best Practice
Programme. Building Research Energy Conservation Support Unit, Watford, WD2
7JR. Tel: 01923 664 258. Includes numerous good practice case studies, good practice
guides and energy consumption guides for different building types including costings.
CIB. CIB W80 report 96: Prediction of Service Life of Building Materials and
Components
CIBSE. CIBSE Guide, Section B18, Owning and Operating Costs. Chartered Institute of
Building Services Engineers, London. Gives indicative details of energy consumption,
maintenance costs and rough life spans for plant (currently being updated in more
detail).
Part 2, Section 2,
Appendix F (4/99)
Page 1
PART 2, SECTION 2, APPENDIX F
HAPM Component Life Manual. E & FN Spon. Tel: 0171 204 2481, 1985.
Comprehensive life-span assessment for over 500 housing components based on
insured life assessments.
ISO Guide to Service Life Planning of Buildings (under preparation at the time of
writing but it will include a method of estimating the durability of individual building
components).
Jones Lang Wootton. Office Service Charges Analysis 1995, Jones Lang Wootton,
London, 1995. A review of 300 buildings including unit costs.
Kirk, Stephen J., Dellisola, Alphonse J., Life Cycle Costing For Design Professionals,
(2nd Edition), McGraw-Hill Inc, New York, 1995. Includes 45 pages of maintenance
and replacement data (in dollars) covering all elements.
NBA Construction Consultants. Maintenance Cycles and Life Expectancies of Building
Components and Elements: a guide to data and sources. NBA Construction Consultants
PSA Cost in Use Tables, 3rd Edition, London HMSO 1991. Includes elemental analysis
of cleaning, maintenance and repair costs.
RICS. Life Expectancies of Building Components. RICS Research Paper Series No 11,
1992. Preliminary results from a survey of Building Surveyors views.
Page 2
Part 2, Section 2,
Appendix F (4/99)

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PART 2, SECTION 2

PART TWO: CONSTRUCTION DESIGN & ECONOMICS

SECTION 2: LIFE CYCLE COSTING

evaluate design options at the elemental or component level;

2.2.1 The Client Context

The Surveyors Construction Handbook

Part 2, Section 2 (4/99)

Effective from 1/6/99

THE LATHAM REPORT

CONSTRUCTION (DESIGN AND MANAGEMENT) REGULATIONS 1994

Every designer shall:

ensure that any design he prepares and which he is aware will be

to avoid foreseeable risks to the health and safety of any

to combat at source risks to the health and safety of any

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors Construction Handbook

THE PRIVATE FINANCE INITIATIVE (PFI)

ENERGY EFFICIENCY ISSUES IN RELATION TO BUILDING PROJECTS

The Surveyors Construction Handbook

Part 2, Section 2 (4/99)

Effective from 1/6/99

MECHANICAL AND ELECTRICAL BUILDING SERVICES

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors Construction Handbook

way to minimising the obsolescent properties which currently dominate

2.2.2 The Life Cycle Costing Calculation

the building life;

THE BUILDING LIFE

THE DISCOUNT RATE

The Surveyors Construction Handbook

Part 2, Section 2 (4/99)

Effective from 1/6/99

As money today has a different value from money tomorrow or money in

DISCOUNT RATE METHODS

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors Construction Handbook

available, a test discount rate of 4% is used. This method is often adopted in

(c) Average risk premium discount rate

Therefore if construction is deemed to be half as risky as equities, the discount

(d) A further approach to establishing a discount rate is to analyse transactions

The Surveyors Construction Handbook

Part 2, Section 2 (4/99)

Effective from 1/6/99

Discount rate (i.e. Treasury Bond rate net of inflation

THE COST AND FREQUENCY OF FUTURE PAYMENTS

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors Construction Handbook

An expanded check list of costs is given in Appendix C.

the accounting effect of capital employed;

Part 2, Section 2 (4/99)

Effective from 1/6/99

2.2.3 Tax Allowances, Incentives and Business Rates

Part 2, Section 2 (4/99)

Effective from 1/6/99

The Surveyors Construction Handbook