2.16 In addition to the capital cost of making a change to the asset, there may also be ongoing costs. In particular, a new item may require regular maintenance and there may need to be a plan for its replacement over the lifetime of the contract (the "lifecycle" element). The advantage of including these ongoing costs is that it offers transparency as to the true cost of a change over the lifetime of the contract. It also provides an incentive to the contractor to carry out the job properly, as the contractor takes the risk of more frequent or more costly replacements than anticipated.
2.17 Against these advantages, the pricing of the lifecycle element in particular can be subjective, requiring judgement about how often an item is likely to need replacing over 25 or 30 years and an estimate of what it is likely to cost. Reaching agreement over what should be charged for lifecycle can be difficult and lead to delays. Contract managers from both the public and private sector have told us that the pricing of the lifecycle element is "more of an art than a science".11