4.4.3  Maintenance and lifecycle costs

Care should be taken to ensure that the level of maintenance and lifecycle costs assumed is consistent with capital costs, operating cost forecasts and residual value requirements.

Maintenance costs are generally recurrent and are associated with maintaining the capability and quality of the existing asset rather than upgrading, improving, or expanding the asset. These typically include:

•  raw materials;

•  tools and equipment; and

•  labour required for maintenance (wages and salaries).

Timing of the cash flows is an important issue in determining capital and maintenance costs. In general, a trade-off exists between capital and maintenance costs. For example, a high residual value allocation may require higher through-life maintenance to maintain the economic life of the underlying asset. Alternatively, low levels of maintenance may require earlier and potentially larger capital upgrades. The following factors should be considered when determining capital and maintenance costs:

•  upfront capital costs;

•  periodic maintenance requirements (this may be influenced by the nature and quality of the asset provided);

•  capital improvements and upgrade to existing facilities; and

•  capital expenditure on additional facilities (expansion), if part of the Reference Project.