Target Cost & Open Book Accounting

Financial success on a project is impossible to achieve without an appropriate robust commercial mechanism.

It is essential to implement a well designed Target Cost contract when a Client aims to:

• Make efficiency savings
• Maximise value for money, or
• Provide cost transparency 

Lump sum contracts just won’t deliver these objectives.

A Target Cost contract that is administered through Open Book Accounting will deliver these objectives when it is:

• Well designed
• Clearly understood by the project team
• Implemented with attention to detail

Driven by the need to deliver better value for money, many public sector clients are actively embracing Target Cost contracts and Open Book Accounting.

Stradia provides the right advice to help Clients and Contractors succeed and prevent them from falling into the common pitfalls, which can result in wasted time and higher costs rather than generating the promised cost savings and value for money.

Common pitfalls include:

• Inadvertently creating a difficult and time consuming process that becomes an administrative burden
• Inability to deliver or demonstrate cost savings or value for money 
• Cost information not being presented by the Contractor in an easy-to-use format 
• Cost information not being received on time, which limits or negates effectiveness of the cost management process 
• Limited understanding of the process by the team, which results in poor commercial decision-making and poor cost control 

To implement Target Cost contracts and Open Book Accounting successfully the whole project team must have a thorough understanding of how to:

• Agree the Target Cost 
• Implement Open Book Accounting
• Prevent problems by avoiding the potential pitfalls 

The Client’s role - to lead and manage the process

The Contractor’s role - to provide accurate, timely information in the format required by the Client and to work closely with the Client to reduce costs and/or maximise design opportunities

How we can help

Our bespoke services build your team’s expertise and promote best practice, with the benefits of improved financial control, demonstrable value for money, quicker implementation, less pressure and frustration for team members and no wasted time on systems that don’t deliver.

Our Target Cost & Open Book Accounting services include:

• Clear advice, support and guidance - drawing on our significant experience and numerous successful implementations
   
• New Target Cost arrangements – designing and implementing practical processes to agree the Target Cost and effectively administer the Open Book process
   
• Improving existing Target Cost arrangements - an independent review of your process to clearly identify where improvements can be made and assisting in making improvements or solving problems
   
• Auditing existing Target Cost arrangements to verify costs - an independent audit ensures accurate feedback and demonstrates accuracy to Internal Audit or Inspectors, providing trust and confidence in the process – it also identifies any problem areas, which we can help to resolve if required
   
• Informative, high-impact training - designed to get teams fully up to speed and able to implement a Target Cost Contract and Open Book Accounting process - avoiding costly and time consuming mistakes 
   
• Support for Contractors and Sub-contractors - improving your ability to win work let under Target Cost contracts and ensuring your ability to deliver on projects 
   

Stradia, in partnership with the Chartered Institute of Public Finance and Accounting (CIPFA), has developed an Open Book Accounting fact sheet, which provides an introduction to the principles of open book accounting for organisations that are new to the subject or in the early stages of developing open book systems and processes in support of a target contract.