PPN 004 Open Book Contract Management: the official note, explained

The key facts

• PPN 004 is an information note originally issued on 24 May 2016 and updated in February 2025.
• It applies to all central government departments, their executive agencies and non-departmental public bodies.
• Open Book Contract Management is defined as the scrutiny of a supplier's costs and margins through the reporting of, or accessing, accounting data.
• The approach is tiered so Open Book is applied proportionately according to the risk level and complexity of the contract.
• The overall approach comprises a Decision Tool to choose the Tier, an Application Model identifying the proportionate tools and processes for that Tier, and 5 Tools used in Open Book processes and collaborative behaviours.
• The Tools should only be applied fully for more complex contracts, typically in Tiers 3 or 4, and are built around agreeing and tracking allowable costs.
• In-scope organisations should review contract portfolios to establish which Tier to apply, and may use third party support at their own cost, estimated in the region of £15k per organisation.
• The February 2025 update reflects Procurement Act 2023 and Procurement Regulations 2024 terminology, which apply to procurements commenced on or after 24 February 2025.
• For procurements commenced and contracts awarded before 24 February 2025, the note directs readers to PPN 05/16.
• The Public Accounts Committee report Transforming Contract Management said government's approach gave too much advantage to contractors and that Open Book Accounting should be the norm.

What Open Book Contract Management is

Open Book Contract Management, abbreviated to OBCM in the note, is the scrutiny of a supplier's costs and margins through the reporting of, or accessing, accounting data. Its use is often associated with managing and controlling delivery of large, high value, high risk and complex contracts.

The note sets out what that transparency is for. It allows both parties to be clear on the supplier's charges, costs and planned return. It also provides a basis to review performance, agree the impact of change and bring forward ideas for efficiency improvements. Implemented well, the technique should help improve value for money outcomes and build mutual understanding and trust between government and its suppliers.

PPN 004 is an information note, originally issued on 24 May 2016 and updated in February 2025. It applies to all central government departments, their executive agencies and non-departmental public bodies, and should be circulated to those with a commercial, procurement or contract management role.

The tiered, proportionate approach

The intention of the note is to ensure a proportionate and consistent Open Book approach is applied across a broad range of different contracts. It starts with an assessment of the needs of the contract to determine the type and level of Open Book practices that should be applied, using a tiered framework so that Open Book is used proportionately depending on risk level and complexity. The principle stated is that Open Book should be used on contracts where the additional cost is justified by the perceived level of benefits and risk.

The overall approach has three components. A Decision Tool is used to decide the optimal benefit and cost Tier of Open Book application. An Application Model identifies the proportionate set of tools and processes for that Tier. Then there are 5 Tools used in Open Book processes and collaborative behaviours.

The Tools should only be applied fully for more complex contracts, typically those in Tiers 3 or 4. They are built around agreeing and tracking allowable costs: those that qualify as being appropriate and attributable and so valid costs within the contract. A clear definition of allowable costs is then used in assessing whether the costs incurred are reasonable.

The note adds an important caveat. Although assigning a Tier determines the most appropriate processes, a commercial sense check remains critical. The guidance provides a structure for deciding the Tier, but the final determination must consider whether the Tier allocated will deliver good benefits without those benefits being outweighed by the costs.

What in-scope organisations should do

Using the accompanying OBCM guidance, in-scope organisations should review their contract portfolios to establish which Tier of Open Book to apply. That review includes a decision on whether third party support is required. Where it is, organisations were directed to contact the Complex Transactions Team in Cabinet Office to access those services. Where it is not, the review proceeds using in-house resources.

Organisations should then apply the guidance where the output of the portfolio review dictates, deploying the tools as appropriate. They should also seek coaching and training support by accessing available resources and by proactively sharing best practice with others in similar roles across government.

The note is clear that an initial assessment of contract portfolios is required to establish where Open Book can be applied and to what extent. Third party provider services were made available for reviewing existing portfolios, which organisations could choose to take up at their own cost, estimated in the region of £15k per in-scope organisation. Those using the support would also receive a final output report showing resource pinch points across their portfolio with respect to implementation.

Why the note is cautious, and how the update fits

The background explains where the policy came from. The Public Accounts Committee report Transforming Contract Management said government's approach to contracting gave too much advantage to contractors and that Open Book Accounting should be the norm. The government response included a commitment to trial Open Book to inform future policy, and Cabinet Office led that trial with departmental stakeholders.

The trial findings are unusually frank. With the exception of the Ministry of Defence's use of Open Book on single source contracts, it concluded that Open Book was not well understood, that there was limited evidence of a standard approach in use across industry, and limited common understanding of the technique. Open Book is often resource intensive and requires a mix of specialist skills. With limited commercial levers in place and a lack of sound commercial judgement, it can be costly to deliver, and poor execution can easily damage supplier relationships when trying to retrofit it into existing contracts where the right levers are not available.

That explains the emphasis on capability. Implementation requires a particular combination of skills, bringing together finance, commercial and subject matter specialists. Organisations are recommended to ensure adequate multi-disciplinary resources are available, with support from the Complex Transactions team in the Government Commercial Function, and to commit to building resource capability to develop and maintain knowledge and expertise. The February 2025 update reflects the terminology of the Procurement Act 2023 and the Procurement Regulations 2024, which apply to procurements commenced on or after 24 February 2025. It does not constitute a change in policy or a new call for action, and for procurements commenced and contracts awarded before that date, readers are directed to PPN 05/16.

How eSourcing Data helps

Open Book depends on a reliable view of the contract portfolio before any Tier can sensibly be assigned. eSourcing Data gives commercial teams consolidated contract and supplier records, so the portfolio review the note asks for starts from actual data on value, duration and supplier concentration rather than a manually assembled list.

Once Tiers are assigned, the work becomes a recurring reporting and evidence cycle. Holding contract documentation, agreed cost definitions and supplier correspondence in one place gives contract managers and finance colleagues the same source of truth, which is exactly the multi-disciplinary working the note says the technique requires. It also makes the commercial sense check auditable, because the reasoning behind a Tier decision is recorded alongside the contract.

Because the note stresses proportionality, the ability to run lighter workflows for lower Tier contracts matters as much as the detailed ones. A single platform that supports both avoids the failure mode the trial identified, where Open Book is applied where the cost outweighs the benefit and the relationship suffers for no gain.

What to do about it

1. 1Review your contract portfolio and assign an Open Book Tier to each significant contract using the Decision Tool.
2. 2Decide whether third party support is needed for the portfolio review, or whether in-house resource is sufficient.
3. 3Apply the full set of tools only where the Tier justifies it, typically Tiers 3 and 4.
4. 4Agree and document a clear definition of allowable costs for each contract where Open Book applies.
5. 5Apply a commercial sense check to every Tier decision, confirming benefits are not outweighed by cost.
6. 6Bring finance, commercial and subject matter specialists together before implementation rather than after.
7. 7Avoid retrofitting Open Book into existing contracts where the commercial levers to support it are absent.
8. 8Invest in coaching and shared best practice so capability is maintained rather than rebuilt for each contract.