Revised Travel Cost Principle

Back on December 11, last year, we reported on the revision to the Travel cost principle (FAR 31.205-46) that became effective for contracts awarded after January 10, 2010. Prior to the change, allowable airfare costs were limited to the lowest customary standard, coach, or equivalent airfare. After the change, allowable airfare costs are limited to the lowest priced airfare available to the contractor. You'll probably have to read that a few times to understand the distinction. To read our previous post, click here.

DCAA recently issued audit guidance on this revised cost principle. The guidance includes steps that contractors need to adhere to in order to comply with the regulation. The focus here is on contractor policies and procedures and documentation requirements. While the DCAA expectations might seem onerous, they are proffered as a means to demonstrate compliance with the regulation. For small contractors or contractors with infrequent travel, the guidance is probably overkill. At the end of the day, however, it is contractors' responsibility to demonstrate that claimed/proposed airfares were the lowest available at the time the itenerary became known. Here's the DCAA guidance:

To comply with the revised rule, the contractor's policies and procedures should provide for advance planning of travel to assure that the lowest priced airfare available to the contractor for flights during normal business hours is documented and utilized as the baseline allowable airfare cost. To determine the lowest airfare available to the contractor for flights during normal business hours, the contractor must now consider nonrefundable airfares and lower airfares negotiated with airlines, travel service providers, credit card companies, etc. However, auditors should not question airfare costs claimed in excess of nonrefundable airfare available during normal business hours if the contractor's data show that its experience with cancelling nonrefundable tickets results in increased cost in comparison to the cost of refundable tickets. The contractor must utilize the lowest airfare so determined as the baseline allowable airfare cost unless substantiating documentation is maintained for one of the exceptions to the lowest priced airfare requirement in FAR 31.205-46(b).

 

Ordinarily, with adequate advance planning, documentation substantiating the lowest airfare available takes the form of quotations from competing airlines or travel service providers from which the lowest priced airfare can be selected, giving proper consideration to any potential discounts or credits to the contractor's cost. There may be instances where only one flight is available for a given mission need and therefore, only one quote is obtained, in which case the one quotation would substantiate the lowest priced airfare available. However, auditor observing frequent instances in which a single quotation is obtained to support the airfare should assess whether the design or execution of the contractor's policies and procedures results in unreasonable airfare costs.

 

Costs associated with cancelling or changing restricted or non-refundable tickets should be considered in ordinary and necessary business expense unless the contractor's data show the costs are the result of a history of inadequate advance travel planning procedures.

 

The exceptions that might justify higher than lowest available airfare include the following. Note however, that when an exception is used, FAR requires that the conditions must be "documented and justified."

• requires circuitous routing,
• requires travel during unreasonable hours
• results in excessively prolonged travel
• results in increased cost that would offset transportation savings
• are not reasonably adequate for the physical or medical needs of the traveler
• are not reasonably available to meet mission requirements