(Editor’s Note.  We have reported on numerous proposed and actual changes to travel costs in the GCA REPORT.  Some changes were proposed and withdrawn while other were passed, leaving many contractors confused over current rules.  The following is a summary of the current status of the general rules.  It is based on numerous articles and texts we have come across as well as well as our experience as consultants.)

Costs related to transportation, lodging, subsistence and incidental expenses that are incurred by employees for travelling on business  are generally allowable subject to limitations on first class air fare, “reasonableness” standards and on  a daily basis, do not exceed per diem rates set for the in the Federal Travel Regulations, Joint Travel Regulations or Standardized Regulations. Costs incurred for the overall administration of the business or in support of more than one contract are allowable indirect costs while travel costs directly attributable to performance of one contract may be charged directly to a given contract.
 
Per Diem.  Per diem rates applied to government contractors combine meals and lodging rates into one and are available on the web at www.policyworks.gov/perdiem. Costs may be based on actual cost incurred, on rates such as per diem and mileage rates or a combination of actual costs incurred and rates.  In determining which location limitation to use, most contractors use the location of the lodging rather than the business location.  The per diem rates are to be applied on a daily basis not on an overall trip basis.  Car rental costs are not included in the per diem rates except if the car is used for transportation to and from meals as opposed to travel to the work site.

“Reasonable” vs. JRT rates.  In the Federal Acquisition Streamlining Act of 1994, Congress repealed the requirement that per diem costs be limited by the government travel regulations and substituted a “fair and reasonable” cost criteria.  However, the following regulations did not provide any practical way of determining what was fair and reasonable so rates in the travel regulations became the objective way of making this determination.  In 1999 a proposed rule to return to the “fair and reasonable” cost criteria was put forth but as of this writing the rule has been rejected on the grounds that use of different criteria for government contractor employees would result in unequal rates for government and contractor employees.

Room Taxes.  Beginning January 1, 1999, application of the JTR changed by excluding any room taxes from the per diem amounts.  Federal employees had been able to claim the room taxes as a separate expenses in addition to the per diem rates and the change made the room tax exclusion apply to government contractors.  Alternatively, DOD and NASA issued blanket deviations that permitted contractors to retain 1998 per diem rates as well as previous definitions to allow contractors time to modify their cost accounting and administrative systems to accommodate the new rules.

Documentation.  In 1996 the cost rules were amended to require contractors to provide the following information related to travel costs: (1) date and place where costs were incurred (2) purpose of the trip and (3) names of the individuals incurring travel costs as well as their relationship to the contractor.  Requirements for receipts of expenditures should follow the contractor’s established policies.  With the exception of lodging expenses, requirements to provide receipts followed internal revenue requirements that limited the need to provide receipts for expenditures over $75.  

Airfares.  Air fares in excess of the lowest customary standard, coach or equivalent airfare during normal business hours are usually unallowable unless necessary to meet business requirements.  Exceptions commonly accepted are if cheaper fares result in circuitous routing, travel during unreasonable hours, excessively prolonged travel, increased costs that offset transportation savings or accommodations that are not reasonably adequate for a traveler’s physical or medical needs.  We are seeing an increase in government auditors questioning even coach fares that do not take advantage of various airline offers such advance purchases, weekend layovers, off-peak flights, etc.   Contractors should be prepared to convince the government that reasonable efforts were made to obtain the lowest possible fare at the time the reservations were made (e.g. a standing order with travel agents used to book the lowest fare available).  Members of Congress have attempted to force a rule that limits contractor air fares to those available to the government through its contract with airlines but government agencies have resisted such efforts because there is no way to force airlines to extend the government rates to the commercial market.

In 1998 there was a proposal to place specific criteria on when business class travel is allowable but that was withdrawn.  Business class airfares are allowable if customary and normal for the circumstances such as intercontinental flights.   Contractors often find interesting ways to make sure employees are allowed to travel in ways consistent with reasonable business practices.  For example, in Data-Design Laboratories, the government denied the differential for first class air fare for executives while the contractor stated security requirements justified the first class travel.  To circumvent the disallowance, the contractor paid its employees for business travel conducted during non-working hours with the intention of permitting employees to purchase a first class upgrade with the payment.  Though the government objected to this practice, the appeals board rejected their position stating the added payments were insignificant and employees’ compensation had to be evaluated in their totality.  The Board concluded the payments were applied consistently in accordance with established policies and the contractor benefited by employees travelling during non-work hours.  Unfortunately, there is no consistent guidance auditors follow so what is considered perfectly acceptable by some offices and even individual auditors is frequently questioned by other offices or even other auditors in the same office.  Unreasonable assertions should be challenged and taken up with auditors’ supervisors and then the branch manager.

Limited Applicability of FTR.  In the mid-1990s a FAR revision was published to clarify aspects of the travel rules.  First, only three portions of the government travel regulation were incorporated into the FAR: (1) maximum per diem rates (2) definitions of lodging, meals and incidental expenses and (3) coverage of special or unusual situations that allow deviations from the maximum per diem amounts.  The clarification was considered necessary because government representatives often attempted to apply other portions of the FTR to contractors.  The second part of the revision established that for partial travel days it is not reasonable for the government to pay full per diem amounts.  Contractors were permitted to establish their own rules for partial day travel with the condition that the full amount would not be acceptable.

Special Circumstances.  Higher costs than the published lodging and per diem rates are allowable under special circumstances as long as they do not exceed the amounts permitted to federal employees.  These higher amounts cannot exceed 300 percent of the per diem rate.  The special circumstances cited by the federal regulations include: (1) if lodging and meals must be obtained at a prearranged meeting site for which the costs absorb most of the daily allowance (2) if short-term conditions such as a world’s fair, convention or natural disaster cause higher costs or (2) if a superior or extraordinary accommodation is necessary due to the work assignment such as a meeting space.  A responsible contractor official must approve any deviations and if they are frequent at a given location, advanced approval by the CO must be obtained.

Frequent Flyer Benefits.  Though executive branch employees are prohibited from retaining frequent flyer benefits, most companies permit frequent flyer benefits for personal use.  Though there have been occasional proposals to reduce reimbursement no such limitation currently exists.  Government auditors frequently ask contractors to have a stated policy on these benefits – if the policy requires employees to relinquish frequent flyer benefits to the company they will insist the policy be enforced but a policy permitting employees to retain the benefits will not be challenged.

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