Why capex and whole-life cost are a false dichotomy: Six trends in sustainability by design

Are considerations of capital expenditure privileged over whole-life cost in planning construction and infrastructure projects – and if so, what effect is this having on sustainability? A panel of industry leaders gathered for a recent webinar to discuss how decision-makers can be encouraged to take a longer-term view.

While the construction industry acknowledges the critical importance of sustainability, it is still working out how to integrate it effectively into projects. Indeed, a particular difficulty has been that decision-makers have traditionally taken a short-term view of costs rather than a long-term perspective that also includes risks and savings.

However, there are signs that this may be changing. A recent WBEF webinar brought together senior leaders from the industry to discuss the impact of taking a whole-life-cost approach, and how this can inform the business case for sustainable procurement. They identified six key trends that are advancing sustainability by design.

1. Whole-life costs gain more attention

Matthew Talliss FRICS, global service director for cost and commercial management in the mobility business unit at Arcadis, notes that capital expenditure (capex) has in the past taken priority, being the main factor in major decisions on project scope, quality and programme. Projects would be expected to control costs to minimise such expenditure, whereas life-cycle or whole-life costing – which enable decision-makers to assess the total cost and revenues from an asset over its lifetime – might be a part of the business case or investment analysis for the project.

Matthew says that he is starting to witness a change of approach: ‘I’m seeing life cycle or whole-life costings being requested by clients more frequently, and decisions are being informed by all those factors. Clients who have put whole-life costs at the forefront of their projects have made [significant] operational and maintenance savings.’

For instance, he says, ProRail is a Dutch organisation responsible for the maintenance and extension of rail infrastructure, and it has invested heavily in a performance-based approach to resource allocation that has demonstrably reduced maintenance costs while improving network performance and asset reliability.

Getting the right expertise and the supply chain involved early in the project so that you can increase efficiencies, come up with solutions and limit risks further on in the project life cycle is becoming more common, according to Chloe Cochran MRICS, associate director, major projects advisory infrastructure, at KPMG. ‘If you don’t consider the climate impact on your project, you might not identify possible risks and additional costs in the long term, and could also affect your ability to insure your assets,’ she says.

While the shift in thinking to whole-life costs is in the early stages, stakeholder pressure means infrastructure investors are factoring environmental risks and sustainability benefits into business cases; as the NHS is, for instance.

2. Life-cycle costing encourages sustainability

Matthew explains that, from a construction perspective, there is a clear, direct relation between whole-life costs and sustainability. When we talk about sustainability, he says, we refer to measuring carbon, meeting biodiversity requirements, enhancing social value in communities and embracing circularity in project life cycles.

He adds that whole-life-cycle assessments require professionals to assess building operations, renewal, maintenance and end of life. All of these contribute to cost, but they can also promote sustainability and social value. The role of surveyors in industry is changing, meaning that they will have more of a positive impact on sustainability as it becomes more important to project business cases as well.

Emphasising sustainability will be quite a radical shift, adds Andrew Kidd, director of environmental sustainability for the Lower Thames Crossing programme at National Highways. In the future, he advises, jobs in the built environment are going to be more fundamentally about growing natural capital, improving social outcomes and supporting the economy.

3. Reducing carbon requires creativity rather than additional outlay

‘I think it’s wrong to equate going green with additional costs,’ Andrew says. ‘At the Thames Crossing, we asked for lower-carbon construction, and we knocked 50% of the carbon out of building the scheme. This was for no additional cost – and actually, there’s quite a lot of evidence it has saved us money.’

‘Those savings wouldn’t have been achieved if we hadn’t been pushing so hard on carbon. It’s probably a bit lazy to assume that you must pay more for a more sustainable product, but you do have to be a bit more creative about how you bring that product to market and how you manage it.’

Andrew advises that this 50% carbon reduction was primarily accomplished through procurement. ‘The first approach is value engineering; building less and getting more material-efficient in the design of what we build. The second part is looking at alternative materials, or versions of materials, that have a lower carbon footprint [such as] lower-carbon-intensity steel or concrete.’

This approach also brought benefits in terms of the supply chain, he explains. ‘It started a more engaged or deeper relationship with the supply chain. We are seeing more innovation coming, and real appetite throughout to bring more cutting-edge products into the market.’

A few years ago, carbon reductions were nice to have but not essential, says John Spittle, UK & Ireland representative for WIEHAG Timber Construction GmbH. ‘Now we are getting people advising us that their clients want a low-carbon construction,’ he says. ‘In that situation, everybody works together [to] make it happen.’

4. Legislation spurs change of focus

‘Client demand drives the construction industry, but the clients themselves are driven by regulation, legislation and commercial opportunity,’ explains Andrew. When it comes to more sustainable thinking in the way we develop our projects in the UK, the Climate Change Act 2008 and the Environment Act 2021 are significant in terms of legislation, encouraging change at client organisations, he says.

John agrees. ‘The legislation is starting to take effect. We find planning in some countries is favouring low carbon. It’s making clients very aware of the carbon footprint of their estate, and if they can build a low-carbon [development] and look at the whole life of products they use they will do it. But it is really dependent on the client and sector.’

While legislation is encouraging a focus on whole-life costing and funding, safety is a major concern and always comes first – and could block certain kinds of innovation, explains Chloe. As an example, the UK’s Building Safety Act 2022, introduced following the Grenfell Tower fire of 2017, means there has been considerable expenditure to remediate cladding on residential buildings; but in turn, this limits cash flows that housing developers could otherwise use to innovate and consider alternative materials.

5. Contracts and private finance encourage supply chain sustainability

In the UK, the 2023 green finance strategy provides a framework to mobilise private finance initiatives for sustainability. Chloe says: ‘We’re starting to see more projects use green funding. However, to qualify, you need to be able to [set a] baseline [for] your whole-life sustainability benefits, and demonstrate to the funder how you can realistically meet certain goals.’

The challenge lies in coming up with robust ways to take the sustainability goals of an organisation or project and reflecting these contractually for the supply chain. ‘The NEC4 contract is widely used by the public sector for construction projects,’ says Chloe.

She explains: ‘Clause X21 gives suppliers the opportunity to change the scope to incorporate more sustainable aspects of the design or methodology. Clause X29 provides a performance table, so a client can translate their performance objectives and contract these to a supplier.

‘The client can then use [incentives such as] performance damages through clause X17 to [ensure] adherence. If considered upfront and applied reasonably, these contractual measures are a structured way to align clients’ objectives with the supply chain.’

Andrew agrees. ‘The leading client organisations, whether in the public or private sector, are also pretty good at translating a variety of needs into the business case for investment in infrastructure, and into a practical set of requirements for the construction sector.’

It’s not just sophisticated modelling that allows for this, he adds. National Highways uses standards to promote thinking about whole-life-cost. ‘Baked into a client’s requirement is a product that will do what we need it to do in the long term,’ he says.

6. Innovation offers opportunities but needs proper management

Whole-life costs effectively force people to consider a whole range of materials, and fully acknowledge the potential of unintended consequences and the benefits of taking a longer-term view. John says: ‘Timber was perceived as old-fashioned material, but changes in design, production, installation and technology have made it into a low-carbon [product] for the 21st century.’

But as with any material, he explains, you must play to its strengths, and you need early engagement to make sure you are using the right material in the right situation. He notes that one of the challenges the UK faces is that engineers train on steel and concrete, so they are not familiar with other materials.

John continues that advances in design, especially parametric models, have enabled the creation of organic and free-form shapes such as the Macallan Distillery in both technical and economic terms. ‘But what this technology gives us is endless choices in design meetings, and we’re finding the process can take longer without strong management control.’

There’s a big opportunity to bring in whole-life costs alongside carbon and capex as we digitalise or automate the quantification stages of cost estimating, explains Matthew. If surveying professionals had a database on carbon, another on capex and a third on life-cycle costs, they could automate the production of an estimate on all three approaches at the same time.

To what extent is a short-term cost view being favoured over long-term savings and greater sustainability? Is CapEx largely chosen over whole life cost when planning for construction projects or are we seeing a shift? In this webinar, a panel of senior leaders examines how industry decision-makers can be encouraged to take a longer-term view.