Contract, Open Book

Open book contracts are arrangements where the contractor is reimbursed their actual expenses, which are validated through allowing the client access to the contractor’s actual expenditure, the ‘open book’. The contractor may be allowed a fee on top of the allowable expenses, either a fixed fee or a percentage of the expenses. Open book approaches are appropriate when it is hard to scope the work and not appropriate or possible to transfer the risk to the contractor. Accordingly, some clients incorporate an incentive in cost-reimbursable contracts, to promote cost-sensitive behaviour. Open book contracts require some trust between client and contractor, so that the contractor is confident that the client will accept allowable expenses and not use access to the contractors actual cost information to renegotiate the terms. See also Contract and Cost Plus.