National Housing Maintenance Forum
Setting the standards for repairs and maintenance
Open book partnering debate: Against
In general use Open Book accounting on building contracts refers to any arrangement where the actual costs of the work are measured and compared to a target price. The normal situation being an agreement to share savings on the target cost and to share any cost overrun between the client and contractor. The costs consist of the net buy price of materials, specialist plant, etc., an agreed rate for labour times the hours worked, some agreed breakdown of other overheads and a profit margin. The target cost being a pre-estimate of these costs. It largely came into use by clients with substantial needs for continuous development of buildings, warehouses, stores, supermarkets, offices, etc.
The use of open book in social housing maintenance contracts is more recent. The question is whether open book provides the same advantages in this setting. EU procurement regulations do not allow social landlords to continue to use a contractor just because they like them. At the end of the contract term a new procurement has to be undertaken. This factor, more than any other, weakens the argument for open book. Let’s consider three factors: checking the open book account truly reflects the actual costs, the power of the incentive to produce savings and the track record of the arrangement.
Do the clients’ know the real cost? Tescos can, if they want, count the bricks. On a responsive repair contract is there any real way of knowing that the materials you have been invoiced for were actually fixed in your homes or that the costs rendered do not conceal hidden contractor discounts? When it comes to all the variable costs there are real problems in evidencing that what you are paying for is what it actually cost the contractor and is what you pay for what you get. In general you are paying for the labour whether it is working or not.
The sharing of savings appears to be a good incentive but why would a contractor who can obtain 100% of the target cost give back half the saving if they can deliver at 95% of the target cost. The obvious incentive is to ‘make-up’ the costs to 100% and hope that they will not get found out. In a worst-case scenario they could operate at, say, 95% of target cost and make up the costs to 105% and recover 102.5%! Nice work if you can get. And as the song goes “and you can get it if you try.”
The final problem is track record. My work involves a good deal of benchmarking of repairs costs. The few examples of open book costs I have been able to source shows a distinct cost disadvantage against client using other contract arrangements and in many cases the use of open book has produced situations where clients have no effective repair history at all. Generally, my colleague consultants have analysed open book contracts and the track record of cost-efficiency appears to be poor. I have been involved in open book procurements at the insistence of clients on two occasions. I shall, by choice, not be doing any more.
This article first appeared in the 2010 bulletin publication.
Read the original publication here
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