Friday, December 11, 2009

Revised Travel Cost Principle

The FAR Councils have amended the FAR travel cost principle to tighten up language that has led to inconsistent interpretations on the allowability of air fares. The current standard limits allowability to "the lowest customary standard coach, or equivalent airfare offered during normal business hours" (see FAR 31.205-46(b)). The new standard, which becomes effective on January 11, 2010, limits allowability to "the lowest priced airfare available to the contractor during normal business hours.

The FAR Councils identified three problems with the current standard. First, the Councils believed that the reasonable standard to apply in determining the allowability of airfares is the lowest priced airfare available to the contractor. They reasoned that it is not prudent to allow the cost s of the lowest priced airfares available to the general public when contractors have obtained lower priced airfares as a result of direct negotiation (often referred to as "city-pairs"). Secondly, the Councils believed that the cost principle should be clarified to omit the term "standard" form the description of the classes of allowable airfares since that term does not describe actual classes of airline service. Thirdly, the Councils believed that the term "coach or equivalent" given the great variety of airfares often available, may result in cases where a "coach or equivalent" fare is not the lowest airfare available to contractors, and should be omitted.

Implementation of the revised principle should be fairly straight-forward. At the time travel reservations are made, contractors simply book the lowest-priced available airfare - whether it is a negotiated rate with an airline, a published fair, or some kind of special (sale) rate. Supporting the cost (demonstrating compliance with the cost principle) however, could be problematical. How will a contractor prove to the Government that it booked the lowest available fare? There is no repository of historical information showing all the fares that were available/offered on a given date that one could refer to for comparison purposes. This is one area that will benefit from contemporaneous record keeping - documenting all the fares offered at the time the reservations were made.

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