What Does Open Book Mean in Contract Management

The content of this page is provided for general interest and informational purposes. It contains only brief summaries of aspects of the subject matter and does not contain any complete statement about the law. It does not constitute legal advice and does not replace it. While we are currently going far beyond the era when open-book contracts were considered the « holy grail » of procurement, many companies are still actively working with suppliers on an open-book basis as part of their procurement process and collaborative model. Demanding and experienced 3PL customers don`t want to risk paying inflated premiums and margins hidden in a closed-ledger scenario. The open-book relationship should ensure that a competitive price is achieved and that the 3PL is honest in its operations. The type of contract referred to by the OBMC is broad, but is likely to be highly relevant for contracts awarded under one of the complex procurement procedures, the competitive dialogue and the competition procedure with negotiations. That is, the OBMC should always be used in a proportionate manner. The guidelines are published at the same time as the NPP, which defines the process that organizations must follow. In summary, the steps companies should take are: 1. « Reasonable bandwidth »: Costs are often checked in a « reasonable bandwidth » (by cost engineers), allowing providers to add 5-10% per cost factor as long as they stay within a « reasonable » range. Doing this for all cost drivers allows suppliers to « move » an additional 10% profit without triggering red flags. Cost engineers use reference information based on untraded values, which are usually already well above the rates negotiated by the supplier for a cost driver.

Suppliers often know what the white spots are for their customers when it comes to understanding cost drivers so that they account closely or more closely to the reality of cost factors where the customer has very good ideas and data points and hides more margin in areas that are less visible to the buyer. If you need help with an open book contract, you can publish your legal needs in the UpCounsel marketplace. UpCounsel only accepts the top 5% of lawyers on its website. UpCounsel`s lawyers come from law schools such as Harvard Law and Yale Law and have an average of 14 years of legal experience, including working with or on behalf of companies such as Google, Menlo Ventures and Airbnb. In addition to the problem of ensuring effective management of operations in recent years, there has been a tendency for clients to try to minimize management fees in response to recent economic challenges that have put pressure on margins. While it`s easy to understand the reasons for reducing fees, it can often be counterproductive if it leads to less efficient contract management. A saving in administration costs can quickly be lost if the result is less efficient operational management or does not meet the changing needs of the customer. It is far better for the customer for the contractor to take 2% of the operating costs than 10% of the administration fee.

Open books also allow suppliers to anchor themselves. By requesting an open book before negotiation, we invite suppliers to set anchor points from which it will be difficult to negotiate them. The next time you consider an open book contract with a supplier, we hope you`ll benefit from our recommendations and find ways to avoid the pitfalls. Good luck! When you use an open-book contract, you have full transparency on everything, including: On the number of customers who negotiate open-book contracts in logistics, few actually query the information or perform regular supplier audits once the contract is finalized. The buying client often underestimates the time, expertise and effort required to properly manage the relationship. This is the classic conundrum: control vs. the cost of control. Competition allows for « rules-based » bargaining that does not rely on open-book breakdowns to arrive at a good market price, as the multilateral negotiation process requires suppliers to honestly declare their market price.

You can find more information about this process here and here. An open book contract is an agreement between a buyer and seller that provides for a labor/service contract whose cost is not limited. In addition, there is a margin that the provider can add to the final cost of its services. At the end of the project, the supplier will provide an invoice for the materials used based on the actual costs plus the agreed margins set out in the contract. Effective cost management means having the right solution and managing both unit costs and productivity. The contractor`s mere review to ensure that the passed-on costs have been incurred does not answer the question of what realistic unit costs are, what a reasonable level of productivity is, or whether operation is the most efficient solution. SECOND, contractors should demonstrate that they themselves regularly test the prices charged by their suppliers on the market. This could include assets, consumables and services provided by other organizations. The NPP proposes that companies be granted by the 24th. June 2016 is expected to begin evaluating their contract portfolios and mobilizing resources to begin implementing the OBMC by July 24, 2016. .