Expert: John Dowse - 12/10/2008

Question
QUESTION: What is an open book philosophy in a contract?

ANSWER: Thank you for your question.

My understanding of an 'open book' philosophy is that such refers to the full disclosure by the Contractor of his accounts for the project.

The Contractor is required to maintain a full record of particulars of the cost of performing the obligations under this Contract; and when requested by the Employer, provide a summary of any of the costs, possibly including details of any funds held by the Contractor specifically to cover such costs.

The form of the records is usually specified by the Employer, who may also require that the Contractor provides explanations, to monitor the performance by the Contractor.

For this system to work, the Employer also requires the Contractor to make available facilities for the Employer's representative to visit the places where the records are held and make an inspection of the records.

Compliance requires the Contractor to keep (and to ensure that his Subcontractors keep) books of account in accordance with best accountancy practice with respect to this Contract showing in detail, for example:

(A)direct labour and indirect labour costs;

(B)direct materials and Subcontract costs;

(C)overhead costs analysed to identify appropriate categories such as administration;

(D)payment details to suppliers and Subcontractors;

(E)capital expenditure and such revenue expenditure as not detailed above;

(F)such other available items relating to the Contractor’s costs, income and profit as the Employer may reasonably require;

(G)such other items as the Employer may reasonably require to conduct cost audits for verification of cost expenditure or estimated expenditure; and

(H)the cash flow statements of the Contractor,

Usually it is specified that the Contractor shall have (and ensure that the Subcontractors shall have) the books of account available for inspection by the Employer (and any expert) upon reasonable notice, and shall present a report of these to the Employer as and when requested.

I trust that this assists you. However if you have any further queries, please contact me.

---------- FOLLOW-UP ----------

QUESTION: We are the ERC(Employers representatives Consultant) and the project managers are working as ER.What could be ERC's role in this type of Contract.Let me mention that the cost consultants(QS)is with a different firm.

Answer
Hello once again and thank you for this follow up question.

Whether you are to have a role as the ERC will depend both upon the terms of reference applicable to your company's engagement (with the Employer) and to the specific requirements for managing the project, as agreed between the Employer and Contractor.

Your role will either be contractual - under the agreement you have with the Employer - or it will be administrative (under the contract between the Employer and Contractor).

Kind regards,
John Dowse