The Target Outturn Cost (TOC) is central to the alliance Commercial Framework and will be the subject of some detail in Guidance Note No 5.39 The TOC is used to confirm alignment with Business Case cost assumptions before executing the PAA and it is also the basis on which alliance cost performance will be assessed upon project completion.
For all practical purposes, the TOC is the Proponent's tendered price to the Owner.
However, there are some significant differences to a traditional tendered price. The TOC is, as the name suggests, a 'target' price offered by Proponents where the actual costs on completion of the alliance (i.e. actual outturn costs or AOC) will be compared against this target and any differences (usually termed underruns or overruns) will be shared between NOPs and the Owner in accordance with the agreed Commercial Framework.
It is at this price that the Proponent is prepared to share the project risks and financial performance with the Owner in accordance with the agreed Commercial Framework.
While the TOC as described above is a single dollar figure or number and is similar to a traditional tendered price, the development of the TOC in alliance contracting is fundamentally different to the development of a tendered price in a traditional delivery method. This is discussed further in Guidance Note 5.
The TOC can be developed in one of three ways, dependent upon the approach taken to selecting the NOPs as described in Chapter 5. The TOC may be:
competitively bid by Proponents through a full price competitive process based upon a detailed scope of work and Commercial Framework;
negotiated by the Owner with a Preferred Proponent using, as a base, the partial proposal which has been competitively bid between two shortlisted Proponents; and
negotiated by the Owner with a Preferred Proponent on the basis of the Proponent's final proposal that has not been competitively bid.
The differences between these three approaches to selecting the NOPs are discussed in Chapter 5; however, regardless of the approach, there are certain common components and principles underlying the TOC. These are:
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39 Refer to Guidance Note No 5, Developing the TOC in alliance contracting, Department of Infrastructure and Regional Development, Commonwealth of Australia, March 2011.