Thursday, April 4, 2013

Allowability of Lodging, Meals and Incidental Expenses under the Travel Cost Principle

When it comes to determining the maximum allowable costs for lodging, meals, and incidental costs under the Travel cost principle, FAR 31.205-46, contractors are directed to base those ceilings on Government travel regulations; either the Joint Travel Regulations, the Federal Travel Regulations or the Department of State Standardized Regulations, depending upon the destination.

These Government travel regulations provide for two ceiling amounts, one for lodging and the other for meals and incidental expenses. Government employees cannot exceed the individual ceiling amounts. Contractors on the other hand are held to one ceiling amount, the combined amount for lodging, meals, and incidental expenses. This is clear from the plain reading of the regulations (FAR 31.205-46(a)(2)) and the regulatory intent of the provision.

Some auditors have been trying to apply the caps individually rather than combined. They do this of course, to find questioned costs. A traveler might have spent a little too much on the hotel but spent less on food when compared to individual caps but the combined expenditure did not exceed the combined cap. The auditor would question the overage but not offset the underage. The deviation from accepted practice has become so chronic that DCAA (Defense Contract Audit Agency) Headquarters was forced to issue an Audit Alert last month telling its auditors to cease the practice. The alert states:

The Government travel regulations provide for two ceiling amounts: one for lodging and one for meals and incidental expenses. However, as provided in CAM 7-1002.3c(2), contractors are subject to only one ceiling, a total of lodging plus meals and incidental expenses. This CAM guidance is consistent with the regulatory intent that the “maximum per diem” rates represent a single combined ceiling. (CAM is DCAA's Contract Audit Manual).

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