Friday, January 8, 2016

What are "Incidental Expenses"?

Every Government contractor with a cost-reimbursable contract is aware of the FAR (Federal Acquisition Regulations) limitations on lodging, meals, and incidental expenses. FAR 31.205-46 bases these limitations on the Federal Travel Regulations (FTR) for travel within the continental United States, the Joint Travel Regulations for travel to (or in) Alaska, Hawaii, and outlying areas of the United States and the Standardized Regulations for foreign travel.

Each of these regulations have separate limitations for lodging and for meals and incidental expenses. Contractors are not bound to the separate cap requirement - they can combine the separate limitations into a single cap. Nor are contractors bound to all of the other hundreds of pages of JTR and FTR regulations. Only the maximum per diem rates (i.e. the sum of lodging, meals, and incidental expenses), the definitions of lodging, meals, and incidental expenses, and the regulatory coverage dealing with special or unusual situations are incorporated (see FAR 31.205-46(a)(4)).

It is not uncommon for contractors - especially small contractors without robust internal controls systems - to run afoul of the "incidental expenses" provisions. And, the definitions are not the same between the JTR and the FTR.

Under the JTR, incidental expenses include fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Under the FTR, the definition of incidental expenses includes those listed in the JTR plus laundry, baggage tips and ATM fees. DoD expanded the definition in 2014 and estimated savings of $15.6 million per year.

Now, GSA (General Services Administration) is proposing to expand the definition of incidental expenses in the JTR to include ATM fees. Essentially, that means that contractors will not be able to reimburse employees for ATM charges as a separate miscellaneous expense. Although this does not appear to be a significant change, failure to implement it could become the basis for contract auditors to question costs and recommend penalties for expressly unallowable costs. Its best to be proactive in these matters.

Further details of the proposed change can be found here. The comment period ends on March 8, 2016.

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