Further information on whole life performance

Key issues under common law

The main area of concern that would affect a practitioner carrying out whole life performance or whole life costing assessments would be the issue of negligence.

A claim of negligence may arise if an organisation is relying on the whole life cost model or plan to set aside an annual allowance to build up a fund to pay for future replacement of expensive items, for example, passenger lifts or air-conditioning plant. If premature failure occurs, the organisation may have insufficient funds money to cover the earlier than planned replacement. The organisation has then suffered a loss and may sue the whole life cost practitioner.

This situation may be avoided by structuring the whole life assessment as described below under contract law. The key point is that the whole life costs are a model or a plan based on a statistical appraisal of component durability and maintenance frequencies. The assumptions and data sources should be made clear, should be referenced and should be applicable, so that it is clear that the whole life performance and whole life cost practitioner has carried out the work to the standard that could be reasonably expected of a reasonably competent person setting themselves out to be a whole life cost practitioner.

Where the whole life cost model (or aspects of the model) is critical to the business or operation of an organisation these issues should be identified within the brief and proposal.

It may be appropriate to consider an insurance option to cover critical risks.

Key issues under contract law

A contract is established where:

• two or more parties enter into a legally binding agreement;
• where one party makes an offer to carry out to do something - prepare a whole life performance and whole life cost assessment;
• for another party who accepts this offer; and
• is prepared to pay a price for this work - consideration.

To avoid problems in contract law when carrying out whole life performance and whole life cost assessments it is advisable to:

• define the scope of services very clearly, include definitions, state what is included, excluded and the sources of data. See the next section for more details.
• list prices and rates for extra work. It is almost inevitable that extra or additional analysis may be required. This may be due to the iterative process of whole life assessments or as the cost benefits of the methodology are recognised and the process is applied to more components.
• state clearly the basis and reliability of any whole life cost model or plan. Predicting service lives is an evolving science; components, assemblies or elements may perform better or worse than anticipated. Maintenance activities may be required earlier or later than planned. Durability data is statistical in nature and this should be made explicit.
• Typically whole life performance and cost assessments are for specific clients and projects based on an individual set of circumstances. Use of the report and its conclusions should be limited. For example, it may not be appropriate to use the whole life performance and cost data from one building across all the asset holdings of an organisation.

This list identifies key areas where there may be contractual issues when carrying out whole life performance and whole life cost assessments: it is not a definitive list.

Issues to consider to avoid legal problems

There are some common areas in carrying out whole life costing where it is best to be absolutely clear and transparent from the onset about what is included, and excluded, from a whole life cost or a whole life performance analysis (as well as confirming assumptions, definitions and data sources). This is particularly important where detailed information is not available to those carrying out the assessment. Being open and documenting what is included and/or excluded and the basis of assumptions may avoid a difficult situation later.

For example:

Inclusions

• building fabric material and component life cycle replacements;
• mechanical and electrical material and component life cycle replacements;
• external works material and life cycle replacements;
• external and internal decorations;
• catering equipment life cycle replacements and annual maintenance;
• allowance for fixed furniture replacement costs.

Exclusions

• unplanned, running and condition-based maintenance;
• scaffolding, VAT, professional fees, life-cycle management fees;
• energy costs;
• cleaning.

Assumptions, definitions and data sources

The whole life cost assessment is based on:

• visual inspection;
• stock condition survey data;
• drawings and specifications;
• assumptions as to the quality of materials and components have been made where a full specification is not available;
• the basis of the Net Present Value (NPV) calculation;
• cost data - the base date of cost information;
• defining costs associated with maintenance and replacements such as whether access arrangements are included;
• defining whether works are costed individually or where possible work packages can be grouped together in order to procure the works as economically as possible;
• assumptions which underlie the estimated lifespans, typically on the basis that the installation and subsequent maintenance is in accordance with recognised industry guidelines and codes of practice as well as the manufacturer's recommendations;
• assumption about the use of the building - typically that it will remain as currently used;
• component replacement strategy defined, usually assume that components are replaced on a like-for-like basis notwithstanding that at the time of replacement new or upgraded components may be available.

These lists are by no means definitive and a list of inclusions, exclusions and definitions should be agreed with the client for each specific project.