17/6/2015

OpenbookaccountingDesigningBuildingsWiki

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Fixedpricecontract.

Openbookaccounting

Frameworkagreement.
Procurementroutes.
Profitandoverheads.

Contents
1Introduction
2Definitionofactualallowedcosts
3Contentiouscosts
4Auditing
5Scheduleofrates
6Targetcost
7Findoutmore

Scheduleofrates.
Targetcostcontract.

Featuredarticlesandnews

Apprenticeships

7.1RelatedarticlesonDesigningBuildingsWiki

Introduction

Openbookaccountingisamethodofprocuringworkunderwhichcontractorsarereimbursedon
thebasisoftransparentrecordsofthecoststheyhaveincurred.Itisgenerallyassociatedwith
incentivisedtargetcostcontracts,managementcontractsandframeworkcontracts,butcanalso
beappliedtothefirststageofatwostage,fixedpricecontract.Transparencycanapplytothe
maincontractor(whosedirectcostsmayonlyamountto20%ofthetotalconstructioncost)who
procurestendered,fixedpricedsubcontractsthatarenotopenbookand/ordownthewhole
supplychainforeverypartyinvolvedinaproject.

Governmentannouncesprovisionsforthe
termapprenticeshiptobeprotectedinlaw.

Definitionofactualallowedcosts
DesignCommissionInquiry
Thereisnoindustrystandardastohowincurredcostsarerecorded.Somepublicsector
frameworkagreementsandcivilengineeringcontractscarrystandardformatsbutinthemajority
ofcasesitisamatterfortheclienttobegivenaccesstothecontractorsrecordsand
accountingsystemsandthenagreeinghowcostscanbemonitoredandauditedusingdata
outputfromsuchsystems.
Collaborationandtrustareparamounttosuccessundersucharrangements.Clearlytheclient
mustbesatisfiedthatcodesarebeingusedthatseparatelyallocateaccounts,hoursworkedand
invoicespaidprojectbyproject.Wherecostsareshared,suchasheadofficestaffandoverhead
costs,theseneedtobeanalysedonanannualbasisandthenproratadtotheclientsproject.
Thisshouldbeagreedpriortothestartofconstruction.Normallyoverheadsareexpressedinthe
formofapercentageagainstthetotalspecificprojectexpenditurerunningthroughthe
contractorsbooks.Theagreedprofitneedstobedeterminedattheoutsetonthebasisofthe
amountofriskbeingtakenbythecontractorandmarketforces.Profitcanbepaidasafixed,
lumpsumorasapercentageonthesamebasisasoverheads.Itisbesttoagreethatprofit
coverspensioncontributionsandfinancecharges,whethercorporateoraprojectcost.

DesignCommissioncallsforevidencefor
inquiryintodesignandbehaviourinthebuilt
environment.

Housingtaskforce

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Contentiouscosts
Alltradediscountsandothercreditssuchasinsuranceclaimreceiptsshouldbenefitthe
client.Theymaywellberecordedseparatelyfromtheexpendituresystems.Somediscounts
maybepaidannuallyandapplytopurchasesacrossallprojectssuchasbrickorders,sothey
needtobetrackedandproportioned.
Careshouldbetakenthatthecontractorisachievingvalueformoneyinobtainingprices.This
meansrandommarkettesting.Relationshipswithsubsidiarycompaniescangiverisetoa
conflictofinterests.
Anycostassociatedwithrectificationofdefectiveworkisnormallydisallowed.
Havingdefinedwhatisaheadofficeoverhead,itshouldnotthenbeduplicatedinthe
reimbursableelement.Examplesmightbeavisitingsafetyinspector,ortransportcosts
betweentheheadofficeandsite.
Unauthorisedoroverpaymentstosubcontractorsshouldnotbereimbursed.
Costsincurredthroughcontractornegligenceshouldbechallenged,thoughitemssuchaspoor
planning,overorderingandwastagemightbefiercelycontested.

Auditing

Auditingiswithintheskillsetofeitheraprofessionalquantitysurveyororanaccountant.Both
willrequireexperienceandknowledgeofconstructioncontracting.Detailedunderstandingofthe
contractorscostsystemsandprojectproceduresisessential.Thiswillinclude:
Codenumberingsystems.
Siterecords.
Allocationsheetsforlabourandplant.
Bonusandnonproductiveovertimepayments.
Valuationandpaymenttosubcontractorsincludingclaimsandvariations.
Intercompanycharging.
Nationalagreementswithunions,suppliersandsubcontractors.
Discountcredits.
Insuranceclaims.
Policyonaccruals.
Randommarkettestingtoensurepricinghasobtainedfairvalue.
Changesinlegislationaffectingcost.
Anunderstandingofthecontractconditions.

Housingimplementationtaskforcecreatedto
driveeffortstoincreasethesupplyofnew
housing.

UKGBCtaskgroup
TheUKGreenBuildingCouncilhas
establishedazerocarbonnondomesticand
allowablesolutiontaskgroup.

Basementrestrictions
Billproposespresumptionagainstgranting
planningpermissionforcertainsubterranean
developments.

HeatEnergy

Thisrequiresroutinesiteandheadofficeinspectionofdocumentation.

Scheduleofrates

Somepublicsectorauthoritieslooktotenderschedulesofunitpriceswithorwithoutinflation
criteria.Inparticularthiscanapplytoframeworkcontracts,orwhereworkisofanunknown
quantitybutitsgeneralscopecanbeidentified.Insuchcasesadocumentrequestingunitprices
againstvariousspecificationsandquantitiesissentouttoselectedcontractorsfortendering,
togetherwithpercentagestobeappliedforoverheads,riskandprofit.Astheprojectreachesthe
pointofstartingconstruction,thecontractorcommencesworkonthebasisofmeasurementof
quantityappliedtotheappropriateunitrate.Thissavesalotofauditingsincethemajorityof
paymenttothecontractorisbasedonquotedpricingandnotactualcost.Openbookswillbe
requiredtodemonstratequantitiesinvolvedandtheunitrateapplied.Howevertherewillbethe
questionofitemsforwhichthereisnoappropriaterate.Generallythisissettledbytransparency
ofaccountsandopenbookstoestablishactualcosts.

InstitutionofMechanicalEngineers'report
warnsoftheneedforrenewalofthenations
heatinfrastructureandcallsforalegislatively
driveninsulationprogramme.

Energystorage
BSRIAsHenryLawsonassessestheuseof
batteriestostoreelectricityforbuildings.

Formorenews,gotothehomepage.
Targetcost

Althoughopenbookaccountingisaboutactualcosts,veryoftenatargetpriceissetonthe
basisofasharedriskformula.Ineffecttheclientandcontractorshareanygainbynotional
savingsofactualcostsagainstthetarget,oranypainthroughnotionallosses.Theformulais
normallysetasastickorcarrotagainstfeesorprofit.Thereareusuallycutofflevels,sofor
example,aslidingformulasetata3%basefeeforthetargetpricemightbecappedat4.5%as
amaximumand1.5%asaminimum.Thetargetpricewillincludeallowancesforcontingency
andinflation.Itwillbesubjecttoadjustmentiftheclientintroducesvariationstothebase
schemeagainstwhichthetargetpricewasagreed,providingthevariationisdeemedtohavea

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significanteffectonactualcost.Theadvantageofatargetcostarrangementisthatit
incentivisesthecontractortobuildwithinthebudgetandachievesavingswheneverpossible.
Somefeeisguaranteedandthereimbursementofcostremovestheelementofcontractorrisk
thatsooftenleadstoadversarialrelationships.

Findoutmore

RelatedarticlesonDesigningBuildingsWiki
Collaborativepractices.
Contract.
Fixedpricecontract.
Frameworkagreement.
Procurementroutes.
Profitandoverheads.
Scheduleofrates.
Targetcostcontract.
Twostageopenbook.
Twostagetender.
Managementcontracts
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