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.

Use of Corporate Aircraft

Government contractors that use company aircraft must maintain logs of flights containing specified information as required by FAR 31.205-46, Travel. Such information would include:

• Date, time and point of departure
• Destination, date, and time of arrival
• Name of each passenger and relationship to the contractor
• Authorization for trip, and
• Purpose of trip.

Regardless of the cost of trips using corporate aircraft, the amount that is reimbursed under Government cost-type contracts is limited to "the lowest priced airfare available to the contractor during normal business hours". Exceptions apply including travel by such aircraft that is specifically required by contract specification, term, or condition, or a higher amount approved by the contracting officer. A higher amount is justified when accommodations require circuitous routing, require travel during unreasonable hours, excessively prolong travel, result in increased cost that would offset transportation savings, or are not reasonably adequate for the physical or medical needs of the traveler.

The manifest information required by FAR 31.205-46(c) is used by auditors and contracting officers to ensure that costs of owned, leased or chartered aircraft are properly charged against Government contracts and that directly associated costs of unallowable activities are not charged to such contracts.

The FAR Council estimates that there are about 6,000 trips per year on corporate aircraft where some or all of the costs are charged to Government contracts.  That might seem like a small number for the hundreds of thousands of Government contractors, but the number of Government contractors with corporate aircraft is relatively small. We don't know what that number is but if the top 25 contractors utilized private aircraft, the 6.000 trips would equate to 240 tips per year each.

Some contractors utilizing corporate aircraft don't bother to charge the Government for the use, even if the travel is allocable to a contract. To them, the cost of compliance far outweighs the amount that would otherwise be reimbursable under a contract (i.e. the lowest priced airfare available to the contractor during normal business hours).