Propose Your Projected Costs, Not the FAR Maximums

Back in June 2011, someone called GAO's (Government Accountability Office's) "FraudNet" Hotline and reported that a Government contractor was enhancing its profits by forcing employees to stay in cheaper hotels than the lodging rates that were proposed and negotiated.

According to the DoD-IG report that was just published, the contractor had negotiated rates base on the maximum rates published in the Joint Travel Regulations, following FAR 31.205-46 that sets such a limit. However, when it came time for employees to travel, the contractor required employees to stay at hotels charging far less than the maximum per diem rates. The practice allowed the contractor to pocket the difference, thereby enhancing its profits on the contract.

The DoD-IG did not substantiate the allegation. For the most part, the task orders identified by the relator were not fixed-price as was alleged, but were cost-type and the contractor had billed the Government for only the actual cost of travel, as was required. On the one task order that was fixed-price, the DoD-IG had no visibility into the detail of the billing - there was no requirement that the contractor separately identify travel costs.

We bring this up for its application to estimating systems. While it is true that FAR 31.205-46 limits meals, lodging, and incidental expenses to the rates prescribed in the Joint Travel Regulations (JTR), the overriding requirement on negotiated contracts is that the cost or pricing data be based on current, complete, and accurate information. If you've got special deals with hotels and airlines, you need to disclose that information in your proposals.

When evaluating proposals, DCAA or DCMA will usually investigate history to help determine the propriety of proposed costs. If these organizations find that historical costs were not considered but should have been, they will impact proposed costs accordingly. Additionally, they may also cite an estimating system deficiency because of the contractors failure to disclose current, complete, and accurate cost or pricing data. (Estimating deficiencies can lead to contract withholds).

Just because FAR sets "maximums" for some costs, doesn't mean that contractors can or need to propose those maximums. TINA (Truth in Negotiations Act) requires contractors to propose current, complete, and accurate costs. If projected actual costs are lower than these maximums, contractors must propose the lower amounts.