User:Lexius

OPEN BOOK ACCOUNTING

There is no universal definition for open book accounting but it is the:

"transparent and structured management and sharing of financial information between parties" Including data which may be commercially sensitive and might have otherwise been kept secret. It is a transparent process for verifying the actual cost properly incurred often associated with the administration of cost reimbursable or target price construction contracts but more broadly used by many public sector organisations. It often relies on a collaborative arrangement – with integrated teams working together to cooperate and develop trust.

There has been significant growth in open book accounting in construction, this has arisen out of the use of target price contracts. However, open book accounting and target price contracts may be used independently of each other where clients are looking to use a cost reinbursable contracts or implement incentives for delivering cost savings. As a result, attention to how target contracts should be operated has turned to the underlying concepts and principles of open book accounting, which are necessary to support their use in practice. Open book accounting will work best when you have an ongoing relationship and there is a common ambition to collaborate with the aim of generating efficiencies. The parties to a contract (including key members of the supply chain) need to be willing to open up their books and recognise the full benefits that can be generated. It is very important that this also extends to the supply chain as there is no point in opening up the books if what you find is that you cannot retrieve the right cost data at the right time. Using Pareto’s 80/20 Rule you need to ensure that in the 20% of cost components (providing 80% of the overall cost) you are in a position to interrogate the cost base in sufficient detail. Knowledge can be powerful provided that you understand its value. It is the raw cost data collated through open book accounting that is valuable as it will help to inform decision-making and lead to greater efficiencies.

1.GUIDE TO OPEN BOOK ACCOUNTING - for use with target price contracts published by [CIPFA]