Setting an accurate outturn cost (TOC) presents a complex and difficult challenge for any alliance. It is also a critical factor in terms of delivering the best overall VfM for the state.
Current industry guidelines recommend that the process of developing and agreeing a TOC (and other performance targets) for an alliance is typically performed by Owner and NOP resources working as a single integrated team. In the absence of comparative price competition, achieving and demonstrating that a TOC represents VfM is largely subjective, due to a potentially large number and range of input variables and the use of individual experiences and judgement in combining the variable inputs. As behavioural researchers have pointed out, any estimate of cost is influenced by the incentives faced by the individual making the estimate.80
Key points considered worthy of discussion are:
• commercial misalignment issues
• role of the Independent Estimator
• use of 'hybrid' pricing elements