In an open-book contract, the customer and the service provider agree which costs are re-numerable and the mark-up that the contractor can apply to them. The customer is then invoiced for the work based on the actual costs incurred plus the agreed margin.
This form of contract is a practical mechanism to ensure that a competitive price is obtained in cases where the complexity of service makes a fully detailed tender competition impractical. It is also useful if the work is difficult to specify precisely up front, or if the buyer wishes to avoid the risk-premium that sellers typically add when giving fixed prices.
This open accounting approach requires a good deal of trust as stories abound of contractors hiding additional profit elsewhere in the bill or outside of the contract through volume discount or centrally returned rebates from their supply chain.