Municipal Asset Management

DRAFT ASSET MANAGEMENT/PROCUREMENT POLICIES

 MasonryWorx

Lowest Total Cost of Ownership (LTCO) refers to the sum of all costs incurred throughout the lifetime of owning or using an asset.

Municipal purchasing decisions, especially on major capital projects, are usually based on the original purchase price. LTCO enables decision makers to look at asset procurement in a more strategic way (beyond the lowest bidder) and to level the playing field when choosing among competitive bids where the lowest priced bid may or may not be the least costly asset over time.

Asset Management Planning allows municipalities to examine their major assets  to ensure that the municipality is achieving the best value during the lifetime of the asset. Aligning a municipality’s procurement policy or purchasing by-law, and incorporating language to evaluate bids and tenders for major capital projects, using total lifecycle costing, achieves lower costs in the long run.

Without looking at how you procure new assets, you’re not really doing asset management in a complete, holistic way. Lifecycle cost assessment helps to anticipate costs down the road as the asset ages.

The following draft policies recommend language identified by MasonryWorx to augment asset management plans and procurement policies to enable the implementation of lifecycle cost assessment into the major construction procurement process.

DRAFT ASSET MANAGEMENT POLICY LANGUAGE

(Definition:) Lowest Total Cost of Ownership (LTCO) – A model of procurement in which the successful bid is that which presents the lowest total financial impact when calculating all costs incurred throughout the lifetime of owning or using an asset.

Additions to mandated priorities, Sec. 3, Infrastructure for Jobs and Prosperity Act, 2015

11.i. Infrastructure planning and investment shall consider means of reducing carbon footprint through technologies, components and structural elements which mitigate energy costs.

  1. Infrastructure planning and investment shall include the procurement of new major construction assets through a Lowest Total Cost of Ownership (LTCO) methodology, considering the total lifecycle costs of the asset over its lifespan.

DRAFT PROCUREMENT POLICY LANGUAGE

Although all municipalities have a procurement policy or by-law which determines purchasing decisions, there are commonalities in these documents.  Below is suggested draft wording that can be used to implement Lowest Total Cost of Ownership (TCO) and Life Cycle Costing (LCC).

 

Procurement Goals & Objectives

The municipality will strive to provide value to the taxpayer by achieving the lowest total cost of ownership (TCO) over the lifetime of any major capital asset purchase.  As a result, any major capital asset* purchase may be evaluated on a lowest total life-cycle cost.

Lowest Total life-cycle costs will include not just the initial construction/purchase price but the operating, maintenance and upgrade costs over the lifetime of the major capital asset.

Incorporating a total cost of ownership perspective in the procurement process will encourage effective asset management in the time period following the initial capital investment.

 

Procurement Policy Recommended Language

(Definition:) Lowest total cost of ownership (LTCO) refers to a model of procurement in which the successful bid is that which presents the lowest total financial impact when calculating all costs incurred throughout the lifetime of owning or using an asset.

The projected budget for all new build infrastructure projects over 5 – 10 million dollars shall be based on projected lowest total cost of ownership (LTCO) over a lifespan of a minimum threshold of 50 to 100 years.

Initial LTCO assessment shall be integrated into the design phase based on preliminary estimates of primary mechanical and electrical divisional components and structural components of the asset.

APPENDIX A: DRAFT MUNICIPAL RESOLUTION

WHEREAS municipalities are facing aging infrastructure, growing populations and funding and capacity constraints when considering new infrastructure; and

WHEREAS O. Reg. 588/17  requires all Ontario municipalities to prepare and publish an Asset Management Policy (AMP) by July 1, 2019; and

WHEREAS asset management planning is the process of making the best possible decisions regarding the building, operating, maintaining, renewing, replacing and disposing of infrastructure assets; and

WHEREAS the objective of asset management planning is to maximize benefits, manage risk, and provide satisfactory levels of service to the public in a sustainable manner; and

WHEREAS the Asset Management Plan should align and integrate into a municipality’s strategic planning process, as well as other key plans; and

WHEREAS aligning a municipality’s AMP with their procurement policy will ensure the best possible decision making; and

WHEREAS in procurement, price is merely the specified amount for the infrastructure asset at the time of purchase/selection and is only a fraction of the total cost to a municipality over the lifetime of the infrastructure asset; and

WHEREAS the cost-effective procurement of new, financially viable assets is of foundational importance to how the Municipality’s assets are managed; and

WHEREAS it is in the interests of the Municipality to procure and operate assets which deliver the most favourable costs not just up front, but over the entire lifespan of the project; and

WHEREAS amending the municipality’s procurement policy to implement lifecycle costing and lowest total cost ownership (LTCO) on major capital projects ensures the lowest cost to the municipality over the lifetime of the asset; and

WHEREAS lifecycle costing takes into account other costs the infrastructure asset will incur over its’ lifetime including maintenance and operating costs, repairs, energy efficiency, amongst other costs; and

WHEREAS by implementing LTCO practices into the municipality’s procurement policy allows the municipality to determine the overall lifecycle cost of infrastructure asset or capital project, dig deeper into the performance metrics, compare and contrast different variables associated with ownership, integrate sustainability into the procurement process, assess the ongoing costs of the asset and deliver the best value over time for the Municipality and its’ taxpayers;

THEREFORE BE IT RESOLVED that in order to truly reflect the principles of asset management planning, that Council pass a motion directing staff to implement lifecycle costing and lowest total cost ownership (LTCO) on major capital projects, into their procurement policies.

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