New NAO Report – Open-book Accounting for Public Sector Suppliers

The UK National Audit Office has issued a new report this morning covering Open Book accounting and supply chain assurance. This is how they introduce it.

“Supply-chain assurance is how a client gathers information to understand what is going on inside its suppliers. Open-book accounting is a particular type of supply-chain assurance where suppliers share information about the costs and profits of a specific contract with their client. In this report, we make a distinction between the use of open‑book and the need for public transparency over profits:

  • The government can use open-book accounting to understand the specific costs and profits of its major contracts as an important tool in managing those contracts.
  • It is in the public interest to have public transparency over the general level of profitability that government suppliers are able to achieve. This can give some confidence, when combined with other information that the system of public procurement is working. Yet the profit of a specific contract may be commercially confidential as knowing it would allow competitors to price future work.”

 

We upset (slightly) a senior NAO person a while back by suggesting that the recent public sector desire for open-book was indicative in the main of a lack of understanding of commercial realities and mechanisms. For us, open-book is generally the best solution only when every other preferable market mechanism has failed! (And by the way, we’d love to have your views on this).

To be fair, the NAO person in question is very smart and we tended to agree on most points once we got into the topic further. And at first sight, and I mean a VERY quick skim through, this new report seems to acknowledge some of the issues we have with open-book. For instance:

Although we asked for examples of organisations that used open-book well, the examples we were given often looked very different from how we understand open-book in central government. Across our case studies we found a range of different approaches being used. None used open-book in isolation and some did not look at their suppliers’ costs and profits at all.

So clearly the term "open-book" itself covers a range of commercial issues, sins, omissions and excuses. But here is an interesting thought from the report.

“The Cabinet Office should set up a task force of government, suppliers and other stakeholders to explore how to establish a common standard for open-book data.”

Wouldn’t it be good if the Cabinet Office engaged with some external procurement thinkers and practitioners on issues such as this and not just £2000 a day strategic consultants (who have probably never actually managed a contract in anger in their lives). Just a thought – and we could give them a good list of possible folk for a start.

We will have more on the NAO report next week after we’ve read it thoroughly. Does it answer the big questions though, such as what happens when open book shows a supplier is making a loss on a government contract?

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