How Government Contractors Can Make Sense of Open Books

This post, written by Jeremy Higbee, originally appeared on Public Spend Forum

If you’ve ever worked in government contracting, you know that there are a lot of acronyms to learn and hoops that need to be jumped through in order to become a federal vendor. Whether you’re trying to self-certify as a certain type of small business or trying to register for the System of Awards Management, government contracting is a maze of regulations and rules from the get-go.

Once a contract finally gets awarded to a federal vendor, it’d be a nice reprieve to have some clarity in the contract. But, alas, there has not been much luck in that sector. Many contracts have been described as “open-book” upon being awarded, but it turns out that only a third of the contracts have actual open-book accounting clauses in them.

An open-book clause is a clear-cut way to write a contract. Essentially, the federal vendor and the government agency agree on which costs are remunerable and the margin that the federal vendor can add to the costs. So, the vendor is paid for all allowed expenses and is paid additionally to allow a profit margin.

Open-book contracts are favored over fixed-price contracts because, in a fixed-price, a negotiated amount is paid regardless of any extra expenses. Contractors, then, don’t make a profit, rendering the government contracting revenue opportunity null. If contractors can’t make a profit working with the government, a lot of the talent that the government needs to function will leave. Truly, if the government wants to be better, it’s gotta be better to its workers, including contractors.

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