From Ascgroup
The Role and Supporting Clauses for Variation in Quantity (VIQ) in Contracting
VIQ is Basis of Payment (B of P) item used on some service contracts. Since TF!© is a resource and cost estimating software tool, these B of P items can readily be modeled within the TF!© software when desired by the customer.
Variation in Quantity (VIQ)
Objective: VIQ is designed to avoid contract amendments each time an actual quantity differs from the stated Estimated Quantity, while addressing both increasing AND decreasing changes in service scope.
Contract Type(s): Firm Fixed (Firm Lot) Price, Fixed Price.
Prerequisite(s):
1. Contractually binding Estimated Quantities, usually linked to their applicable Technical Requirement.
2. Complex or multi-activity service contracts with a large number of Estimated Quantities.
3. A mechanism (usually Contractor provided as specified in the contract) for capturing and reporting Actual Quantities to be compared to the Estimated Quantities.
4. The ability to correlate actual costs to the Technical Requirements in the competitive winning Contract Price [TF! provides this prerequisite].
5. Allocates a defined level of performance risk to the service provider who is best able to control and contain the potential financial impact of variations in workload within operational norms.
Description: VIQ is a mechanism to address changes in quantities without Amending the contract each time they occur. Instead, there is an annual retroactive price “consideration“ (but not a “given”), based upon the differences in Actual from Estimated Quantities (both higher AND lower). The “trigger” for consideration is usually set at +/-10%. Variations outside of operational norms can be identified for contract amendment to future periods or for execution through other contract provisions. VIQ has provisions to ensure that there are no unfunded obligations created on the part of the service receiver while ensuring the continuity of contracted services.
Pros:
1. Fewer amendments simplifies day-to-day management of the Basis of Payment during the year.
2. Reduces risk to a contractor (thus reducing contractor price).
3. Basis of negotiation is original Contractor price buildup, so competitive pricing is sustained.
4. Since estimated quantities are replaced with actual, the quality of the technical requirements improves with time, flowing into contract re-competitions which can improve competition and pricing by eliminating incumbent advantage (or disadvantage) because of inaccurate basis of competition.
5. Addresses both increasing AND decreasing changes in service levels, resulting in reduced costs through scope reduction offsets to scope increases.
6. Eliminates potential disruption to the continuity of services that can be caused by the Amendment process.
Cons:
Annual effort, particularly first year, required to conduct the negotiation can be complex and labor intensive. This will be OFFSET in subsequent years as Quantity accuracy improves, making VIQ “self-destructive” for contracts that are reasonably stable in scope but known to be until after implementing the VIQ process.
Sample Clauses: