§ 436.18 Measuring cost-effectiveness.

(a) In accordance with this section, each Federal agency shall measure cost-effectiveness by combining cost data established under §§ 436.16 and 436.17 in the appropriate mode of analysis as described in § 436.19 through § 436.22. (b) Federal agencies performing LCC analysis on computers shall use either the Federal Buildings Life Cycle Costing (FBLCC) software provided by DOE or software consistent with this subpart. (c) Replacement of a building energy or water system with an energy or water conservation measure by retrofit to an existing Federal building or by substitution in the design for a new Federal building shall be deemed cost-effective if— (1) Life cycle costs, as described by § 436.19, are estimated to be lower; or (2) Net savings, as described by § 436.20, are estimated to be positive; or (3) The savings-to-investment ratio, as described by § 436.21, is estimated to be greater than one; or (4) The adjusted internal rate of return, as described by § 436.22, is estimated to be greater than the discount rate as set by DOE. (d) As a rough measure, each Federal agency may determine estimated simple payback time under § 436.23, which indicates whether a retrofit is likely to be cost effective under one of the four calculation methods referenced in § 436.18(c). An energy or water conservation measure alternative is likely to be cost-effective if estimated payback time is significantly less than the useful life of that system, and of the Federal building in which it is to be installed. (e) Mutually exclusive alternatives for a given building energy or water system, considered in determining such matters as the optimal size of a solar energy system, the optimal thickness of insulation, or the best choice of double-glazing or triple-glazing for windows, shall be compared and evaluated on the basis of life cycle costs or net savings over equivalent study periods. The alternative which is estimated to result in the lowest life cycle costs or the highest net savings shall be deemed the most cost-effective because it tends to minimize the life cycle cost of Federal building. (f) When available appropriations will not permit all cost-effective energy or water conservation measures to be undertaken, they shall be ranked in descending order of their savings-to-investment ratios, or their adjusted internal rate of return, to establish priority. If available appropriations cannot be fully exhausted for a fiscal year by taking all budgeted energy or water conservation measures according to their rank, the set of energy or water conservation measures that will maximize net savings for available appropriations should be selected. (g) Alternative building designs for new Federal buildings shall be evaluated on the basis of life cycle costs. The alternative design which results in the lowest life cycle costs for a given new building shall be deemed the most cost-effective.