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Performance-based deductions (non-performance issues)


mPhilly127

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Good afternoon all, I've had a username for quite a while it appears, however, I don't believe I've posted here. I'm a somewhat regular visitor to these forums, and find the input/opinions from other users helpful.

I have a question I would like some members to weigh in on. It pertains to fixed-price building services contracts (recurring services for O&M and/or Custodial). They are all performance-based, and include criteria for taking deductions. The issue at hand in my organization is whether a contract modification should also be completed with each deduction. For example, we have vacant space deductions taken (short-term reductions), which is obviously not the cause of the contractor. They are usually caused by someone moving offices, or vacating any other space, where the Government will no longer require services for that space in the short-term. Also, we have contractor-caused deductions for contractor-caused performance deficiencies. We have Contracting Officer's Representatives out in the field who serve as our eyes and ears, and, on a monthly-basis, will inform the COs of deductions taken for a given month. We're having a debate in my organization as to whether we should, upon notification of the deduction, initiate a modification to deduct the money each month, or keep a payment log that includes a record of deductions taken during a given period of performance, and then, upon the end of that period, process one modification that encompasses the entire performance period's deductions. This consolidated modification could be completed either on an annual basis, when exercising an option, or even at the end of a 5 year contract. The main debate is whether to complete a modification monthly and/or for each deduction taken vs. whether to allow the deductions to accumulate over a performance period (either an option/follow-period, or even at the end of the fourth option year).

One consideration is the administrative cost to process a modification. Obviously, it would be ridiculous to do a modification for $18. We're curious as to the cost of the average modification of this type (considering the time it would take to do the paperwork). Some of us (including me) believe that if payment logs are maintained during contract administration, including deductions within the logs, that it would be simple to do a modification at the end of each period (either every year, or at the very end of the contract). If we've over-looked any other factors that you deem important, or if any fellow COs have other ideas, I'd be very appreciative of anyone's insight.

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If your contract has any estimated quantities or any positive performance incentives, you won't want to be too hasty in deobligating money.

It isn't necessary to do a deobligating every month, unless your organization really needs the money somewhere else.

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Guest Vern Edwards

If the contract reflects an advance agreement on deductions, including a schedule and computation formula, then it should not be necessary to modify the contract in order to take the deductions, since you are not changing the contract price, but only deducting scheduled and agreed upon amounts from invoices. However, at some point you will have to modify the contract in order to deobligate funds remaining due to the deductions. Arguably, that could be done by administrative change since you would not be altering the rights and obligations of the parties.

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