GSA Publishes 2020 Travel Per Diem Rates

The U.S. General Services Administration (GSA) recently released their fiscal year (FY) 2020 travel per diem rates, which will take effect on October 1, 2019. GSA sets these rates for the continental United States annually. Per diem rates provide caps, or maximums, to the amounts that can be reimbursed to federal employees for lodging and meals while on official travel. Lodging per diem rates are based on local market costs of mid-priced hotels.

But these rates don't just apply to federal employees. They also represent caps on what the Government is willing to reimburse contractors for their travel costs charged to Government contracts. Not only are they limits on what the Government will reimburse contractors under cost-type contract but also represent limits on what the Government will consider when negotiating fixed-price contracts.

These limitations or caps are found in FAR (Federal Acquisition Regulations) 31.205-46, Travel:

... costs incurred for lodging, meals, and incidental expenses (as defined in the [Federal Travel Regulations] shall be considered to be reasonable and allowable only to the extent that they do not exceed, on a daily basis, the maximum per diem rates in effect at the time of travel as set forth in ...

Those same regulations also provide examples of extenuating circumstances when those rates may be exceeded.

The 2020 rates did not change significantly from the 2019 rates. The standard rate for lodging increased by $2 per night, from $94 to $96. The standard rate for meals and incidental expenses remains the same at $55. However, the standard rates are rarely used because most cities, therefore most locations where contractor employees will travel to, have higher rates. The lodging rate for Los Angeles, for instance will be $181 (up from $180 per night in 2019) and the lodging rate for Washington DC ranges from $169 to $256 per night, depending upon the month of travel.

Contractors need to prepare to implement the new rate schedule beginning October 1st. To view the new per diem rates, go to the GSA website.

Travel Cost Principle Too Difficult to Implement - Here's Your Chance to Propose Changes

Back in February, the President signed an Executive Order (EO) entitled "Enforcing Regulatory Reform Agenda" which established a policy to alleviate unnecessary regulatory burdens on the American people. Included in that EO was a requirement for Federal agencies to establish Regulatory Reform Tax Forces to, among other things, evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement, or modification.

In this regard, agencies are to identify regulations that

• eliminate jobs, or inhibit job creation
• are outdated, unnecessary, or ineffective
• impose costs that exceed benefits
• create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies
• rely on data, information, or methods that are not publicly available
• derive from or implement EOs or other presidential directives that have been subsequently rescinded or substantially modified.

GSA (General Services Administration) is the first (that we're aware of) to take a swipe at complying with this EO and they are taking on a big project - the Federal Travel Regulations (FTRs). Now the FTRs apply primarily to Federal civilian and military employees. However sections of the FTRs have been incorporated into the Federal Acquisition Regulations (FAR). Those sections include:

1. maximum per diem rates
2. the definitions of lodging, meals, and incidental expenses, and
3. the regulatory coverage dealing with special or unusual situations.

Throughout our experiences, we have noted that many Government contractors have found it burdensome to implement these regulations, particularly the maximum per diem rates. Its not that the concept is problematic but it adds extra steps to the travel reimbursement process. Often, small companies (and sole proprietors in particular) do not collect their travel costs on a voucher or expense form. Air fare gets charged to one account, car rental to another, hotel fees to a third, meals to even another. When it comes time to assemble, say, an annual incurred cost proposal, those contractors find it burdensome to collect and ensure that the sum does not exceed the maximum per diem rates listed in the FTRs. Often times, those business people spend a lot more than the maximum per diem rates, unaware that there are ceilings. Of course, there's the special or unusual situation exemption that allows for higher than maximum per diem but those exceptions must be approved in advance of the travel (usually).

The GSA is giving Government contractors a chance to weigh in on these regulations. Perhaps the implementation costs exceed the benefits. Perhaps some contractors will have data to show just that.

If you want to provide input to this project, follow the instructions published today in the Federal Register.

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).

Documenting Lowest Priced Airfares

Since January 2010, the FAR travel cost principle (FAR 31.205-46) has limited airfare costs to the lowest priced airfare available to the contractor during normal business hours. There are some exceptions including where circuitous routing would be required, travel during unreasonable hours, excessively prolonged travel, or to meet the medical needs of the traveler.

Many companies, including Government contractors allow certain employees to fly business class or even first class. The excess over the lowest priced airfare is unallowable and should be removed from any billing to the Government or the annual incurred cost submission. A problem arises however in determining what the lowest priced airfare was at the time the travel literary was arranged and paid for.

Contractors need to set up a process for contemporaneously documenting the lowest priced airfare when reservations are made. That way, its easy to apportion the business class or first class airfare between allowable and unallowable amounts. Barring that, what is a contractor to do after the fact - like when it is preparing its annual incurred cost submission?

One resource for determining the lowest priced available airfares in effect at the time of travel is to utilize the Department of Transportation's "Domestic Airline Consumer Airfare Report". DOT's Office of Aviation analysis collects air fare data and prepares them in compliance with public law, to be used in the development of Airport Competition Plans, not for determining the lowest priced airfare at a particular time. The quarterly report shows the average airfares between two cities, average airfare by the largest carrier and average airfare by the lowest priced carrier. For example, in the 4th quarter 2012, the average one way ticket from Seattle to Boston was $300, the average for the largest carrier in the market (Alaska Airlines) was $293, and the average for the lowest cost carrier (Jet Blue) was $242.

Using this information source should be a last resort - the best method is to set up a system that documents the lowest available airfare at the time reservations are made. However, using this method has some very good precedence - DCAA is utilizing the method to question costs when auditing annual incurred cost submissions.

Travel Costs - Additional Documentation Requirements

Why do Government auditors always seem to include travel costs when reviewing contractor incurred costs audits? Even where travel costs are not significant, auditors often spend a disproportional amounts of time reviewing travel costs. There are several reasons and those reasons have a lot to do with the explicit documentation requirements of FAR 31.205-46, Travel Costs. This is one of those "low hanging fruit" areas that we've talked about before. Contractors, especially small contractors with limited internal control systems, do not do a very good job of complying with the documentation requirements of this standard. The auditors know this and they can come up with some easy audit findings and cost disallowance and have a fair chance at sustaining the findings.

Besides what you would normally expect to document the allowability of costs (e.g. authorization, invoice, payment), the travel cost principle requires the following: additional documentation:

• Date and place (city, town, or other similar designation) of the expenses
• Purpose of the trip
• Name of person on trip and that person's title or relationship to the contractor

Additionally, this FAR cost principle requires that airfares be limited to the lowest priced airfare available to the contractor during normal business hours (with a few limited exceptions). Think about a contractor's difficulty in proving that it obtained the lowest priced airfare. Think about the added difficulty when the auditor begins the review several years after those costs were incurred and booked and the supporting data has been archived. Contractors need great internal control systems to ensure that they bought and claimed the lowest priced airfare as well as efficient documentation retention practices.

Travel Costs - Excess Over Maximum Per Diem

FAR 31.205-46, Travel Costs, requires that, except in special and unusual situations, costs incurred by a contractor for lodging, meals, and incidental expenses shall be considered to be reasonable and allowable only to the extent that they do not exceed on a daily basis the per diem rates in effect as of the time of travel as set forth in the Federal Travel Regulations (for the lower 48), the Joint Travel Regulations (Alaska, Hawaii, Puerto Rico, and other U.S. territories and possessions) and State Department Regulations (foreign travel).

What, according to FAR are the "special and unusual" situations  that would justify travel costs in excess of those limits? There are four.

1. Lodging and/or meals are procured at a prearranged place such as a hotel where a meeting, conference or training session is held.
2. Costs have escalated because of special events (missile launching periods, sporting events, World's Fair, conventions, natural disasters; lodging and meal expenses with prescribed allowances cannot be obtained nearby; and costs to commute to/from the nearby location consume most or all of the savings achieved from occupying less expensive lodging
3. Because of mission requirements
4. Any other reason approved within your organization.

FAR further requires a written justification for use of the higher amounts and this justification must be approved by an officer of the contractor's organization or designee to ensure that the authority is properly administered and controlled to prevent abuse. This approval justification must be retained as part of the contractors documentation to support actual costs. Also, receipts for expenditures greater than $75 must be retained as part of the documentation package.

Finally, whenever the actual expense method is used the amounts allowable under Government contracts can never exceed 300 percent of the maximum per diem rates specified in the JTR/FTR/State Department regulations.

Note, FAR 31.205-46 requires other documentation in connection with travel costs. We will discuss that tomorrow. In the meantime, contractors should ensure that their policies for justifying and documenting the incurrence of travel costs in excess of the maximum per diem amounts line up with these requirements. Failing to do so risks subsequent disallowance and perhaps penalties.

IRS Increases Standard Mileage Rate to 55.5 Cents

Last week, the Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes. Many Government contractors use this rate to reimburse their employees for mileage.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

"This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

Taxpayers and contractors always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Purpose	Rates 1/1 through 6/30/11	Rates 7/1 through 12/31/11
Business	51	55.5
Medical/Moving	19	23.5
Charitable	14	14

2011 Standard Mileage Rates

Last month, the Internal Revenue Service issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business.

Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 51 cents per mile for business miles driven. This is a reduction from the 2010 rate of 50 cents per mile but still well under the 2009 rate of 55 cents per mile. The mileage rate for 2011 reflect generally higher transportation costs compared to a year ago. It is based on an annual study of the fixed and variable costs of operating an automobile.
 
If gasoline prices keep rising as they have in the past month or so, we may see a mid-year adjustment to this rate like we saw in 2008 where the rate was 50.5 cents per mile for the first half of the year and 58.5 cents per mile for the second half.

Travel Costs ....... Again.

At the risk of beating this subject to death, we present, yet again, another discussion on travel costs. Travel costs, though not always significant in the scheme of things, is an area that Government auditors find low hanging fruit - a high probability of finding unallowable costs. Within the general cost category of travel, there are several cost limitations that contractors without a good set of travel policies, procedures, and practices, can easily exceed. Today we will cover the types of costs that are included in the maximum per diem rates.

Maximum per diem rates are based on one of three sources depending on destination. For the continental U.S., FAR prescribes the use of the FTRs (Federal Travel Regulations). For Alaska, Hawaii, and "outlying areas" FAR requires that JTR (Joint Travel Regulations) rates be used. And, for international travel, the State Department rates (Department of State Standardized Regulations) are to be used. However, the rates from these sources have different compositions. Under FTR, taxes on hotel rooms and laundry/dry cleaning can be charged separately whereas under the State Department, these costs are included in the rate and may not be billed separately. Under the JTR, hotel tax is separately billable but laundry and dry cleaning are included. Confusing? You can incorporate the following table in your policy and procedure manual to help you avoid unallowable costs.

All of these rates include the following "incidental expenses": fees and tips to waiters and porters; transportation between places of lodging or business and places where meals are taken, if suitable meals cannot be obtained at the TDY site; and mailing costs associated with filing travel vouchers and payment of Government-sponsored charge card billings.

As we stated earlier, this is a prime area for contract auditors to review, especially during their audits of incurred cost. Contractors without intricate knowledge of the travel regulations are at risk for noncompliance.

Maximum Allowable Travel Costs

From time to time, we like to remind everyone of the FAR limitations on per diem costs. FAR 31.205-46 generally limits the cost of lodging, meals, and incidental expenses cannot exceed on a daily basis the maximum per diem rates in effect at the time of travel as set forth in the Federal Travel Regulations (for contiguous US) or the Joint Travel Regulations (for Alaska, Hawaii, and foreign countries). Where do you find the FTRs or JTRs? The easiest way is to use various online resources.

FTRs:  (per diem rates for contiguous 48 states), GSA has a nice user-friendly website for FTRs. Use a map of the US where you can drill down until you find the right location. Alternatively, you can find the information by entering city and state or by zip code.

JTRs:  (per diem rates for AK, HI, and foreign travel), refer to DoD's travel website. Its not quite as slick as GSA's but will give you the information nonetheless.

It is important to know that Government contractors are not bound by any of the other regulations found in the FTRs and JTRs. The only thing binding on contractors is the maximum per diem rates.

One cautionary note, travel costs, like any cost, must meet the reasonable test. FAR states that the maximum rates specified in the FTRs and JTRs might not be reasonable when no lodging costs are incurred or for partial travel days (e.g. day of departure and return). Your internal travel policies and procedures should cover these situations.

Government Airfares

GSA’s (General Services Administration) City Pairs program is a great deal for government employees traveling on official business, agencies, and taxpayers. The City Pairs program is a managed airline program that pairs sets of origins and destinations and leverages the buying power of the federal government to achieve significant savings. GSA claims to have saved the taxpayer $6.3 billion through this program. The program offers unrestricted air fares to government employees traveling on official government business at rates that average 68 percent less than full commercial air fares. Right now, thirteen air carriers participate in the program with more than 5,000 different paired cities including 1,400 international destinations.


As an example, the unrestricted GSA fare between Seattle and Los Angeles is $79 one way. By comparison, the lowest fare we found on a quick Internet search was $138 and that one contained restrictions. The lowest unrestricted fare we found was $232 one way. So you can see, the GSA City Pair program does offer good pricing.

So how do contractors avail themselves of this low-cost alternative? It seems logical, especially contractors who are operating under cost type contracts, that the taxpayer would be well-served if contractors could obtain the GSA pricing. And, we know of cases where contracting officers and auditors have limited airfare costs to GSA rates in pricing situations and one case where a contracting officer promised to wield influence to allow a contractor to utilize those rates.

The short answer is that Government contractors are not allowed to book airfares under the GSA rates and any pressure by the Government to limit proposed amounts or reimbursement of costs to those rates should be rebuffed. Here is GSA’s policy on the matter:

GSA recognizes that contractors often sit next to federal employees, work on the same projects as federal employees, and travel with federal employees. However, contractors are not federal employees.

All of the major airlines have made it clear to GSA that because the contract rates are so low and the terms so favorable, the airlines would drop out of the City Pair Program (CPP) rather than extend the contract rates to contractors. GSA has made the business decision not to jeopardize the program nor the over $4.4 billion savings for taxpayers.

GSA cautions agencies that the purchase of contract fare tickets on behalf of contractors is a misuse of the CPP and could jeopardize its future success. In addition, invitational travel orders or the agency's Centrally Billed Account (CBA) should not be issued or used to allow contractors access/use of Contract City Pair fares. The numbering sequence on the government charge card indicates official government employee travel. If a contractor's commercial fare is put on a CBA, the CBA identifies the traveler as eligible for Airline City Pair contract fares.

Revised Travel Cost Principle

Back on December 11, last year, we reported on the revision to the Travel cost principle (FAR 31.205-46) that became effective for contracts awarded after January 10, 2010. Prior to the change, allowable airfare costs were limited to the lowest customary standard, coach, or equivalent airfare. After the change, allowable airfare costs are limited to the lowest priced airfare available to the contractor. You'll probably have to read that a few times to understand the distinction. To read our previous post, click here.

DCAA recently issued audit guidance on this revised cost principle. The guidance includes steps that contractors need to adhere to in order to comply with the regulation. The focus here is on contractor policies and procedures and documentation requirements. While the DCAA expectations might seem onerous, they are proffered as a means to demonstrate compliance with the regulation. For small contractors or contractors with infrequent travel, the guidance is probably overkill. At the end of the day, however, it is contractors' responsibility to demonstrate that claimed/proposed airfares were the lowest available at the time the itenerary became known. Here's the DCAA guidance:

To comply with the revised rule, the contractor's policies and procedures should provide for advance planning of travel to assure that the lowest priced airfare available to the contractor for flights during normal business hours is documented and utilized as the baseline allowable airfare cost. To determine the lowest airfare available to the contractor for flights during normal business hours, the contractor must now consider nonrefundable airfares and lower airfares negotiated with airlines, travel service providers, credit card companies, etc. However, auditors should not question airfare costs claimed in excess of nonrefundable airfare available during normal business hours if the contractor's data show that its experience with cancelling nonrefundable tickets results in increased cost in comparison to the cost of refundable tickets. The contractor must utilize the lowest airfare so determined as the baseline allowable airfare cost unless substantiating documentation is maintained for one of the exceptions to the lowest priced airfare requirement in FAR 31.205-46(b).

 

Ordinarily, with adequate advance planning, documentation substantiating the lowest airfare available takes the form of quotations from competing airlines or travel service providers from which the lowest priced airfare can be selected, giving proper consideration to any potential discounts or credits to the contractor's cost. There may be instances where only one flight is available for a given mission need and therefore, only one quote is obtained, in which case the one quotation would substantiate the lowest priced airfare available. However, auditor observing frequent instances in which a single quotation is obtained to support the airfare should assess whether the design or execution of the contractor's policies and procedures results in unreasonable airfare costs.

 

Costs associated with cancelling or changing restricted or non-refundable tickets should be considered in ordinary and necessary business expense unless the contractor's data show the costs are the result of a history of inadequate advance travel planning procedures.

 

The exceptions that might justify higher than lowest available airfare include the following. Note however, that when an exception is used, FAR requires that the conditions must be "documented and justified."

• requires circuitous routing,
• requires travel during unreasonable hours
• results in excessively prolonged travel
• results in increased cost that would offset transportation savings
• are not reasonably adequate for the physical or medical needs of the traveler
• are not reasonably available to meet mission requirements

Travel Costs - Documentation Required

It is well known that allowable costs for lodging, meals, and incidental expenses is limited to maximum reimbursements listed in the Federal Travel Regulations (FTR) for travel in the lower 48 and in the Joint Travel Regulations (JTR) for overseas travel including Alaska and Hawaii. Unfortunately, more than a few contractors forget that the cost principle covering travel costs also includes specific documentation requirements.

FAR 31.205-46(a)(7) states that travel costs shall be allowable only if the following information is documented:

• date and place of the expense
• prupose of the trip
• name of person on trip and that person's title or relationship to the contractor

Contractors who fail to maintain this documentation are at risk of having the costs suspended or disapproved.

One of the first tests an auditor is trained to perform is to assess the availability and adequacy of documentation. Sometimes, adequacy is a subjective assessment. Other times, such as in the travel cost principle, the adequacy of documentation determination is very objective - date, location, purpose, and name/title.

Auditors will look for contemporaneous documentation - documentation prepared at the time of travel. Some contractors attemp to prepare documentation after the fact, sometimes years after the fact. There are several problems with this practice. First, auditors will consider it a high risk area and increase the level of transaction testing. Second, after-the-fact documentation preparation is time consuming. Thirdly, trying to "remember" the purpose of the trip months or even years after the fact is very difficult. Finally, sometimes, everyone who might remember trip details have left the company.

To avoid problems in this area, contractors should examine their travel policies and procedures to ensure that the required documentation is captured and maintained.

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.

IRS Announces 2010 Standard Mileage Rates

The Internal Revenue Service today issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 50 cents per mile for business miles driven.  This is a reduction from the 2009 rate of 55 cents per mile.  The mileage rate for 2010 reflect generally lower transportation costs compared to a year ago. It is based on an annual study of the fixed and variable costs of operating an automobile.