In addition to Reimbursable Costs, the Owner will pay the NOPs an agreed fee, comprising two components: Corporate Overhead and Profit.
The Corporate Overhead and Profit may be paid to the NOPs as either a:
mark-up percentage on the NOPs' actual Reimbursable Costs incurred; or
fixed amount, which is determined with reference to the NOPs' Reimbursable Costs component of the TOC.
In the context of an alliance it is essential that the rationale and composition of the NOPs' Corporate Overhead and Profit (often referred to as the NOPs' 'fee') is understood. Firstly, the Owner may wish to compare fees between different NOPs as part of the selection process. Secondly, the Owner will want to be clear that the NOPs' fee doesn't inadvertently reimburse the NOPs for project costs that already comprise part of the Corporate Overhead component of the NOPs' fee.
The Profit component of the NOPs' fee is relatively straightforward and represents the NOPs' reward or 'margin' for the service they provide and the risks they take in performing the work.
The Corporate Overhead component of the NOPs' fee is less straightforward, particularly for professional service firms such as design consultants. In principle, it represents the recurring indirect costs of running the NOPs' business that are not linked directly to a project. These costs are usually recovered by the NOPs' corporate office by way of a cost-loading on each project expressed as a percentage of project value. However, the method of recovery varies considerably between designers and contractors and the Owner may need expert advice to understand this.
It is recommended that the Corporate Overhead and Profit of the individual NOPs be separately tendered and not aggregated into a single fee until the PAA is agreed. The primary reason is to allow transparency for the Owner and to assist in negotiating and developing the TOC.