How to avoid returning unspent contract funds
Most city, county and grant service contracts are not-to-exceed: the agency is paid for the services it delivers, up to the contract value. Whatever is not billed by the end of the period is simply not paid. It lapses, or goes back to the funder, and an underspent contract is easier to cut at renewal.
Why contracts come in under
- Slow ramp-up at the start of the year, while referrals and approvals catch up.
- Clients leaving faster than new ones are approved.
- Scheduled services not delivered: missed visits, cancelled meals, staff vacancies.
- Rates or units per client lower than the budget assumed.
Project the landing every month
The simplest useful projection is: billed to date + average monthly billing × months remaining. Compare it with the contract value every time an invoice goes out. A projection more than about 5% below the contract value is worth acting on.
Example: a $600,000 twelve-month contract has billed $120,000 after three months. Average monthly billing is $40,000, so the projection is $120,000 + $40,000 × 9 = $480,000. That is 80% of the contract, and $120,000 that will not be paid. To spend it fully, the agency needs to bill $480,000 over the nine months left: $53,333 a month, a third more than it bills today.
In month three that gap can still be closed. In the closeout letter it cannot.
What to do when a contract is heading under
- Work out the census it takes to bill the rest (see How many clients does it take to spend a contract?) and how many referrals that means today.
- Reduce undelivered units: look at missed-visit and cancellation patterns.
- Talk to the funder early about moving money between budget lines or services, while there is time for an amendment.
- Check that every service delivered has been invoiced, and that invoices went out on time.
How ContractPlan helps
ContractPlan reads each contract and its invoices and shows, for every contract, billed to date, where it will land at period end and whether it is under, over or on pace. A contract heading under is flagged as soon as the invoices show it.
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ContractPlan does this for every contract you hold.
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