Is there a correct way to add the reference clauses/provisions that need to be modified that can be compatible with the SPS system?
FAR 52.104(b) states,
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When modifying provisions or clauses incorporated by reference, insert the changed wording directly below the title of the provision or clause identifying to the lowest level necessary (e.g., paragraph, sentence, word), to clearly indicate what is being modified.
The first section in your office seems to be following that guidance. Incorporating by reference is not a legal requirement, but a way to simplify contract documents. Inserting the clause or provision by full text is acceptable as well, but the first method is preferred for document streamlining reasons.