Monday, September 28, 2015

Company Owned Aircraft

We have not written extensively about the FAR (Federal Acquisition Regulations) allowability criteria for costs related to corporate aircraft because historically, a relatively small number of Government contractors have or utilize corporate aircraft. Also, contractors that are affluent enough to afford such aircraft often voluntarily delete the cost from their billings and incurred cost submissions because of the added burden required to support such costs (more on that later). Historically, this has not been a contentious issue between contractors and the Government's cost allowability czars. However, we are aware that more mid-sized companies are increasingly chartering jets to take their executives and other staff to where they need to go. Obviously, the cost of private charters are considerably more than flying commercially so its time we take a look at the FAR allowability criteria applicable to corporate owned, leased and chartered aircraft. The coverage is found in FAR 31.205-46(c).

An "unrestricted" round trip coach fare from coast to coast and back is usually in the neighborhood of $2,000. A charter for the same round trip would cost $30,000 (or more). However, if you have a group traveling together, that $30 thousand can be amortized over the number of travelers. Put 12 people in a Gulfstream IV and suddenly the difference doesn't seem so great. When contractors consider the convenience and time-savings (from not having to go through airport security, etc), the prospect of chartering a private jet becomes easier to rationalize.

For cost reimbursement purposes however, justifications and rationalizations do not matter - the cost to the Government is limited to the to the lowest priced airfare available to the contractor during normal business hours (there are some exceptions which we will discuss later). And, in addition to documenting the "lowest priced airfare", contractors using corporate owned, leased, and chartered aircraft are required by FAR 31.205-46(c) to maintain manifests/logs that indicate:

  1. Date, time, and points of departure
  2. Destination, date and time of arrival
  3. Name of each passenger and relationship to the contractor
  4. Authorization for trip, and
  5. Purpose of trip

As mentioned, the cost of utilizing corporate owned, leased, or chartered aircraft is limited to the lowest priced airfare available to the contractor during normal business hours. The contracting officer however can approve a higher amount. The contracting officer can approve a higher amount when commercial flights would require circuitous routing, travel during unreasonable hours, excessively prolong travel, or other factors that would offset differences between private and commercial flights. Any of these exceptions must be justified and documented to the contracting officers satisfaction.

Its not an easy sell to persuade a contracting officer to approve the higher cost of corporate owned, leased, or chartered aircraft. Auditors as well, are going to consider such costs, which include personnel, maintenance, depreciation, insurance, etc as "high risk" and subject it to added scrutiny. One aspect they concentrate on is whether there is a business reason for everyone on the plane. There is always the suspicion that contractors add a few extra travelers just to get the Government to pay for more of the flight cost.

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