To Proponents, the TOC represents a contract sum similar in many ways to other tendered prices in its makeup of estimated direct and indirect costs plus allowances for risk and opportunity, escalation and a fee including expected profit margin.
In the same way that a Proponent will risk margin on its performance against the budget estimates in a tendered price, Proponents are prepared to risk the Fee against similar budgets and allowances in a TOC though the gains and losses are shared with the Owner in accordance with agreed commercial terms.
For Proponents, the TOC development process also represents an opportunity to optimise VfM by innovations on the most significant cost items and at the same time demonstrating their project management ability and leadership skills. Proponents can use the TOC development process to demonstrate the ability of their team to significantly influence the AOC outcome in matching or beating the TOC.
Due to the nature of projects suited to alliance contracting and the requirement for effective collaboration, the Owner's and Proponent's team must be highly experienced and capable. Although a 'high capability team' may increase the Owner's own costs and incur a higher NOPs Fee, a 'low capability team' can simply cost more overall. An Owner would generally benefit from spending more on an 'A' or 'B' team, as the benefit to the Owner is in the quality of the project solution and the outcome the team will deliver as opposed to the relatively minor difference in costs between an 'A' or 'B' team and a 'C' or 'D' team.