Business Class Travel and FAR 31.205-46(b)

[ContractPriceAnalyst 0]

Please share your thoughts on the interpretation of the allowability of Business Class Travel for an excessively long flight (i.e. from California to the Middle East)

FAR 31.205-46( "Airfare costs in excess of the lowest priced airfare available to the contractor during normal business hours are unallowable except when such accommodations require circuitous routing, require travel during unreasonable hours, excessively prolong travel, result in increased cost that would offset transportation savings, are not reasonably adequate for the physical or medical needs of the traveler, or are not reasonably available to meet mission requirements. However, in order for airfare costs in excess of the above standard airfare to be allowable, the applicable condition(s) set forth above must be documented and justified."

A Branch Manager at DCAA informed me that the reason that they questioned the travel eventhough the flight period is over 20 hours is as follows: "What the FAR cite is saying is that airfare costs in excess of the lowest priced fares would be allowable IF the cheaper fare caused the flight to be excessively longer than the business class fare. However, the contractor provided no evidence that the business class fare got them there significantly faster than the coach fare. I.e., the coach fare got them to the site as fast as business class, thus the coach fare did not excessively prolong the flight, and thus is not allowable on that basis."

Do you concur or disagree with the DCAA interpretation of FAR 31.205-46( and why?

[Marcelle Green 0]

Please share your thoughts on the interpretation of the allowability of Business Class Travel for an excessively long flight (i.e. from California to the Middle East)

FAR 31.205-46( "Airfare costs in excess of the lowest priced airfare available to the contractor during normal business hours are unallowable except when such accommodations require circuitous routing, require travel during unreasonable hours, excessively prolong travel, result in increased cost that would offset transportation savings, are not reasonably adequate for the physical or medical needs of the traveler, or are not reasonably available to meet mission requirements. However, in order for airfare costs in excess of the above standard airfare to be allowable, the applicable condition(s) set forth above must be documented and justified."

A Branch Manager at DCAA informed me that the reason that they questioned the travel eventhough the flight period is over 20 hours is as follows: "What the FAR cite is saying is that airfare costs in excess of the lowest priced fares would be allowable IF the cheaper fare caused the flight to be excessively longer than the business class fare. However, the contractor provided no evidence that the business class fare got them there significantly faster than the coach fare. I.e., the coach fare got them to the site as fast as business class, thus the coach fare did not excessively prolong the flight, and thus is not allowable on that basis."

Do you concur or disagree with the DCAA interpretation of FAR 31.205-46( and why?

Why did the Branch Manager cite just one of several possible justifications from the regulation? If the traveler had a medical or physical reason to require the additional room of Business Class -- size of the individual, for example -- that would seem to meet the justification. The Branch Manager's reading of the regulation seems very narrow to me.

[FAR Fetched 0]

You're only sharing one side of the story. What was the reason given by the individual/company that chose the Business Class flight?

[ContractPriceAnalyst 0]

Excessively long travel is at issue here; travel time including stops is a minimum of 20 hours. The DCAA comment is in reply to my comment back to them in that the contractor is arguing that the flight time is excessively prolong travel.

I should have asked the forum if you concur or disagree with the DCAA interpretation of what is meant by the phrase, "excessively prolong travel" in FAR 31.205-46(?

[here_2_help 0]

You might want to check out the promulgating comments found in FAC 2005-038.

In my view, the rule is ambiguous. That said, one way to measure the value of the unallowable air fare would be to compare the actual fare paid to the cost of the lowest-cost ticket available to the contractor, assuming reasonable routing during normal business hours. The difference would seem to be unallowable.

There are some mitigating circumstances that might be argued. One is to show avoidable labor cost if the traveller was a direct-charging employee and travel over night resulted in less hours charged to a contract. Another might be to compare the contractor's actual travel policies for upgrades to premium fares against what's permitted in the FTR/JTR (e.g., 301-10.125) to determine reasonableness.

Hope this helps.

[woops85 0]

I'm with DCAA on this one. The phrase is "excessively prolong travel", not "excessively long travel". If it's 20 hours of travel time, regardless of which class of ticket you have, then the contractor cannot use that reason to justify the business class ticket. Making me more comfortable on a long flight if I don't have a physical or medical need isn't sufficient justification in my opinion.

[dwgerard 0]

When I worked with a Defense Contractor a few years ago, they had a section in all their Government contracts dealing with Business Class travel. Basicially, all intercontinental flights the company made were to be in Business Class, scheduled to fly overnight and work would begin upon arrival. During my time with that company, I made numerous flights to Asia, all in Business Class and all involving both overnight flights and some work while aboard the aircraft.

From what I see, if its in the contract, and the Government signed the contract, then DCAA must abide by the terms of the contract. If DCAA believes those terms are incompatible with the regulations, then they should seek a ruling through the appropriate legal forum to resolve the matter. If the Business Class travel terms are not in the contract, then the contract only needs to meet one of the exceptions listed in the FAR should Business Class travel be required. If the Contracting Officer agrees with the contractor's reasons for the exception, then DCAA should not be able to override that determination without obtaining a ruling from the appropriate legal forum for such disputes.

[Guest Vern Edwards]

Any across-the-board agreement on business class travel would not be binding on DCAA without a deviation from the FAR cost principles, which require compliance with either the Federal Travel Regulation or the Joint Travel Regulations on a case-by-case basis in accordance with FAR 31.205-46(a)(2). An individual deviation from the cost principles must be approved by the agency head or a designee. See FAR 31.101. DCAA need not abide by an unauthorized deviation.

[ContractPriceAnalyst 0]

When I worked with a Defense Contractor a few years ago, they had a section in all their Government contracts dealing with Business Class travel. Basicially, all intercontinental flights the company made were to be in Business Class, scheduled to fly overnight and work would begin upon arrival. During my time with that company, I made numerous flights to Asia, all in Business Class and all involving both overnight flights and some work while aboard the aircraft.

From what I see, if its in the contract, and the Government signed the contract, then DCAA must abide by the terms of the contract. If DCAA believes those terms are incompatible with the regulations, then they should seek a ruling through the appropriate legal forum to resolve the matter. If the Business Class travel terms are not in the contract, then the contract only needs to meet one of the exceptions listed in the FAR should Business Class travel be required. If the Contracting Officer agrees with the contractor's reasons for the exception, then DCAA should not be able to override that determination without obtaining a ruling from the appropriate legal forum for such disputes.

This is a FFP that is currently being negotiated in which DCAA questioned the difference in cost between a business class fare and a coach class fare. The comment from the DCAA Branch Manager was in reply to my comments back to them regarding the contractor's assertion that the cost for the business class fare was reasonable due to the duration of the flight.

I was only looking to see if others agree with the DCAA interpretation as I want to ensure that we treat the contractor fairly.

Thanks again for your input!

[FAR Fetched 0]

This is a FFP that is currently being negotiated...

You should have shared this nugget of information sooner.

[Cajuncharlie 0]

Looks like everybody forgot the part of 31.205-46( b ) that reads, "...during normal business hours...". In my 25+ years of working in the Near East, I cannot recall a single flight that went fast enough to start and end during normal business hours, at least, not the same day.

The FAR also lists an exception "...when such accommodations ... require travel during unreasonable hours...". The latter term is not defined, but it would not be hard to make a case that anything outside normal business hours is unreasonable, and easier still to make a case that any trip over 20 hours (14 in FTR) includes travel during some very unreasonable hours.

Also, the exceptions in 31.205-46( b ) are conditions linked by an "or," not an "and," so it is not necessary to meet all the conditions, only one of them, to qualify for the exception to the blanket statement of unallowability of any fare "...in excess of the lowest customary standard, coach..." (noting also the last sentence of 31.205-46( b ) requiring the condition(s) to be documented and justified).

Every contractor I have ever heard of, that does a lot of overseas work, understands this FAR cite and the corresponding JTR and FTR to mean that a traveler on a flight that would take over 14 hours by the most economical direct routing has a choice, either cheap seats and an overnight hotel, or business class.

Not every contractor implements that understanding the same way. My current employer, for example, is generally more conservative in its travel policies than JTR/FTR, and will not authorize business class, period.

Also see FTR "?301-10.123 When may I use other than coach-class airline accommodations?" at http://www.gsa.gov/portal/ext/public/site/...1868/#wp1088868, "6) Where the origin and/or destination are OCONUS, and the scheduled flight time, including stopovers and change of planes, is in excess of 14 hours, in accordance with ?301-10.125; "

[here_2_help 0]

Looks like everybody forgot the part of 31.205-46( b ) that reads, "...during normal business hours...". In my 25+ years of working in the Near East, I cannot recall a single flight that went fast enough to start and end during normal business hours, at least, not the same day.

Cajuncharlie, if by "everybody" you mean "everybody but Here_2_Help" then I agree with your assessment.

If I were the contractor, during negotiations with my government customer, I would accept DCAA's recommended reduction in my air fare budget only if the government accepted an increase in my proposed direct labor hours to account for travelling only during normal business hours.

[Guest Vern Edwards]

Now that we know that the parties are negotiating a firm fixed price, all this talk of the cost principle is a pointless exercise. While it figures in bargaining positions to some extent, it otherwise has nothing to do with anything, since I presume that the parties are seeking agreement on only a bottom line price, and not on individual cost elements.

Thank the DCAA branch manager for his professional opinion, then focus on the bottom line. If I were the contractor I would not even discuss this with the CO during negotiations other than to say: "I understand your position on airfare. Thanks." I certainly would not go into any details about "normal business hours."

[ContractPriceAnalyst 0]

Looks like everybody forgot the part of 31.205-46( b ) that reads, "...during normal business hours...". In my 25+ years of working in the Near East, I cannot recall a single flight that went fast enough to start and end during normal business hours, at least, not the same day.

The FAR also lists an exception "...when such accommodations ... require travel during unreasonable hours...". The latter term is not defined, but it would not be hard to make a case that anything outside normal business hours is unreasonable, and easier still to make a case that any trip over 20 hours (14 in FTR) includes travel during some very unreasonable hours.

Also, the exceptions in 31.205-46( b ) are conditions linked by an "or," not an "and," so it is not necessary to meet all the conditions, only one of them, to qualify for the exception to the blanket statement of unallowability of any fare "...in excess of the lowest customary standard, coach..." (noting also the last sentence of 31.205-46( b ) requiring the condition(s) to be documented and justified).

Every contractor I have ever heard of, that does a lot of overseas work, understands this FAR cite and the corresponding JTR and FTR to mean that a traveler on a flight that would take over 14 hours by the most economical direct routing has a choice, either cheap seats and an overnight hotel, or business class.

Not every contractor implements that understanding the same way. My current employer, for example, is generally more conservative in its travel policies than JTR/FTR, and will not authorize business class, period.

Also see FTR "?301-10.123 When may I use other than coach-class airline accommodations?" at http://www.gsa.gov/portal/ext/public/site/...1868/#wp1088868, "6) Where the origin and/or destination are OCONUS, and the scheduled flight time, including stopovers and change of planes, is in excess of 14 hours, in accordance with ?301-10.125; "

Thank you for your input!!!

[ContractPriceAnalyst 0]

Now that we know that the parties are negotiating a firm fixed price, all this talk of the cost principle is a pointless exercise. While it figures in bargaining positions to some extent, it otherwise has nothing to do with anything, since I presume that the parties are seeking agreement on only a bottom line price, and not on individual cost elements.

Thank the DCAA branch manager for his professional opinion, then focus on the bottom line. If I were the contractor I would not even discuss this with the CO during negotiations other than to say: "I understand your position on airfare. Thanks." I certainly would not go into any details about "normal business hours."

Vern, I have found your posts and advice provided on this forum to be extremely valuable. In this case, I would like to add a little more to your comment.

At times, the difference at the cost line is too significant to bury elsewhere (i.e. profit). Also, some agency guidelines require the negotiation results to be documented by cost element with at least a "considered negotiated amount" with a detailed explanation of the reasons for any differences from the objective. Also, a well documented negotiated memorandum can be very useful to DCAA in a post award audit. Therefore, I would advise contractors to at least make sure that the CO fully understands their position.

Personally, I would rather deal with a contractor that can provide reasonable support/rationale for each of their positions so that I could then sell that to my upper management.

For example, a reasonable argument for business class travel for a trip from California to the Middle East might be that travel by coach only during normal business hours should entitle the contractor to two rest periods which would add x amount of additional costs and potential schedule delays which is more than offset by the difference in cost for the business class airfare.

Thanks again to everyone for their input!

[Retreadfed 0]

Looks like everybody forgot the part of 31.205-46( b ) that reads, "...during normal business hours...". In my 25+ years of working in the Near East, I cannot recall a single flight that went fast enough to start and end during normal business hours, at least, not the same day.

The FAR also lists an exception "...when such accommodations ... require travel during unreasonable hours...". The latter term is not defined, but it would not be hard to make a case that anything outside normal business hours is unreasonable, and easier still to make a case that any trip over 20 hours (14 in FTR) includes travel during some very unreasonable hours.

Also, the exceptions in 31.205-46( b ) are conditions linked by an "or," not an "and," so it is not necessary to meet all the conditions, only one of them, to qualify for the exception to the blanket statement of unallowability of any fare "...in excess of the lowest customary standard, coach..." (noting also the last sentence of 31.205-46( b ) requiring the condition(s) to be documented and justified).

Every contractor I have ever heard of, that does a lot of overseas work, understands this FAR cite and the corresponding JTR and FTR to mean that a traveler on a flight that would take over 14 hours by the most economical direct routing has a choice, either cheap seats and an overnight hotel, or business class.

Not every contractor implements that understanding the same way. My current employer, for example, is generally more conservative in its travel policies than JTR/FTR, and will not authorize business class, period.

Also see FTR "?301-10.123 When may I use other than coach-class airline accommodations?" at http://www.gsa.gov/portal/ext/public/site/...1868/#wp1088868, "6) Where the origin and/or destination are OCONUS, and the scheduled flight time, including stopovers and change of planes, is in excess of 14 hours, in accordance with ?301-10.125; "

I have seen multiple references to the FTR and JTR in this thread. I hope everyone recognizes that the JTF and FTR are only referenced in 31.205-46 in regard to lodging and per diem. Further, for overseas travel, the DSSR is the regulation that applies for lodging and per diem. While these regulations might be instructive in regard to air travel, they are not part of the FAR for that purpose. Finally, for overseas travel, FAR 52.247-63 needs to be considered.

[ContractPriceAnalyst 0]

I have seen multiple references to the FTR and JTR in this thread. I hope everyone recognizes that the JTF and FTR are only referenced in 31.205-46 in regard to lodging and per diem. Further, for overseas travel, the DSSR is the regulation that applies for lodging and per diem. While these regulations might be instructive in regard to air travel, they are not part of the FAR for that purpose. Finally, for overseas travel, FAR 52.247-63 needs to be considered.

Thanks for directing me to the DSSR as the allowances will provide a good base for analyzing overseas costs but it does not appear to govern contractor overseas travel anymore than the FTR and JTR. The Department of State Standardized Regulations (DSSR) governs allowances and benefits available to U.S. Government civilians assigned to foreign areas. The per diem rates in the DSSR appear to be the same as those at http://www.defensetravel.dod.mil/site/perdiemCalc.cfm. Contractors should know that the additional allowances identified in the DSSR can help to determine reasonableness but that they do not govern cost allowability.

By the way, I found that DCAA issued a MFRD on April 12, 2004 on compensation costs for contractor employees located in foreign countries (see DCAA Memo 04-PPD-023® which can be found by clicking on "Open Audit Guidance" from the DCAA home page.

[Guest Vern Edwards]

Personally, I would rather deal with a contractor that can provide reasonable support/rationale for each of their positions so that I could then sell that to my upper management.

For example, a reasonable argument for business class travel for a trip from California to the Middle East might be that travel by coach only during normal business hours should entitle the contractor to two rest periods which would add x amount of additional costs and potential schedule delays which is more than offset by the difference in cost for the business class airfare.

What if the contractor said: It's company policy that when anyone must travel for more than 15 hours, travel will be in business class. That is to reduce the ill effects of long distance travel on our personnel.

[ContractPriceAnalyst 0]

What if the contractor said: It's company policy that when anyone must travel for more than 15 hours, travel will be in business class. That is to reduce the ill effects of long distance travel on our personnel.

FAR 31.201-2 © When contractor accounting practices are inconsistent with this Subpart 31.2, costs resulting from such inconsistent practices in excess of the amount that would have resulted from using practices consistent with this subpart are unallowable.

I would argue that the company policy would result in unallowable costs under FAR 31.205-46(. However, I would be happy to consider the contractor's response to that argument.

[Guest Vern Edwards]

From the contractor: Well, I told you why that's in the proposal. I have nothing more to say. Since the contract is to be FFP, there is no need for use to reach an agreement on individual elements of cost. Once the contract is awarded, the cost principles will be inapplicable except for modifications and claims and there will be no issues of allowability. You understand my position and I understand yours. I suggest that we move on toward agreement at the bottom line.

[joel hoffman 0]

From the contractor: Well, I told you why that's in the proposal. I have nothing more to say. Since the contract is to be FFP, there is no need for use to reach an agreement on individual elements of cost. Once the contract is awarded, the cost principles will be inapplicable except for modifications and claims and there will be no issues of allowability. You understand my position and I understand yours. I suggest that we move on toward agreement at the bottom line.

In my opinion, the contractor's argument is only valid for a lump sum payment. Where travel is billed at expense, there would probably be an issue of allowability. The KO has already said that the company policy would result in unallowable costs under FAR 31.205-46 ? with the caveat that he/she would be happy to consider the contractor's response to that argument. So the contractor is on notice that the KO probably wont allow reimbursement for premium travel.

[Retreadfed 0]

Thanks for directing me to the DSSR as the allowances will provide a good base for analyzing overseas costs but it does not appear to govern contractor overseas travel anymore than the FTR and JTR. The Department of State Standardized Regulations (DSSR) governs allowances and benefits available to U.S. Government civilians assigned to foreign areas. The per diem rates in the DSSR appear to be the same as those at http://www.defensetravel.dod.mil/site/perdiemCalc.cfm. Contractors should know that the additional allowances identified in the DSSR can help to determine reasonableness but that they do not govern cost allowability.

By the way, I found that DCAA issued a MFRD on April 12, 2004 on compensation costs for contractor employees located in foreign countries (see DCAA Memo 04-PPD-023? which can be found by clicking on "Open Audit Guidance" from the DCAA home page.

You have restated the point I was trying to make. The FTR, JTR and DSSR only apply to lodging and per diem. None of them apply to the cost of air travel by contractors.

Also, don't take the DCAA MRD at face value. Look at the underlying rationale for the postion taken and compare that against what the FAR, DFARS, contract and case law say. In many circumstances, DCAA guidance is a distortion of what is required or permissible.

[Guest Vern Edwards]

In my opinion, the contractor's argument is only valid for a lump sum payment. Where travel is billed at expense, there would probably be an issue of allowability. The KO has already said that the company policy would result in unallowable costs under FAR 31.205-46 ? with the caveat that he/she would be happy to consider the contractor's response to that argument. So the contractor is on notice that the KO probably wont allow reimbursement for premium travel.

It will be a fixed-price contract. Who cares about reimbursement? Travel will come out of the fixed price.

See FAR 31.102:

31.102 Fixed-price contracts.

The applicable subparts of Part 31 shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to contracts and subcontracts whenever (a) cost analysis is performed, or ( a fixed-price contract clause requires the determination or negotiation of costs. However, application of cost principles to fixed-price contracts and subcontracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered.

The CO has used the principles in pricing. Good for the CO. But the contractor need not yield to the CO's position. It can simply keep negotiating to agreement on the bottom line, saying that it understands the CO's position. Once the parties have an agreement, the contractor can spend its money any way it wants to.

[MP2009 0]

The FTR, JTR and DSSR only apply to lodging and per diem. None of them apply to the cost of air travel by contractors.

Correct me if I'm wrong but JTR applies to DoD personal services contract employees per JTR para C1001(A)(1)

PART A: APPLICATION AND GENERAL RULES

C1001 APPLICATION

A. Inclusion. Except as indicated in par. C1001-B, JTR applies to:

1. A DoD personal services contract employee (27 Comp. Gen. 695 (1948));

[joel hoffman 0]

It will be a fixed-price contract. Who cares about reimbursement? Travel will come out of the fixed price.

Edited: Vern, I didn't disagree with that reasoning. But your argument only addresses a lump sum fixed price contract.

My point in my previous post was only that there will probably be an allowability problem IF travel is billed at expense rather than as part of a lump sum CLIN or contract price. The KO has a problem with reasonableness of using business class fares. I've seen many service contracts with travel CLINS, wherein the amount of travel is unknown, which include a CLIN that provides for reimbursement of travel expenses.

I don't know if that is the case here or not and neither does anyone else except the original poster.

Per this thread, the KO appears to have problems with allowing reimbursement for business class travel. If travel is to be billed at cost, then the KO should put the contractor on notice now, before award. Then the parties will have to discuss it further, either before award or during performance.

When the time comes to travel there is no presumption of reasonableness of the contractor's reimbursable costs, unless there was an advanced agreement or some other written indication in the contract (see FAR 31.201-3 (a) concerning determinable of reasonableness).

Upon further thought, I don't agree with your argument if the fixed price contract includes a significant unit priced line item for travel (with estimated quantities that may vary), that are based in large part on the cost of airfare and the parties don't agree that the unit price is reasonable. If there will be some type of unit priced item for air travel, if the government and contractor don't agree on the unit price, the parties should negotiate this item .

Fixed priced contracts may include unit priced items based upon some estimated quantity. The KO should negotiate at the unit priced item level when there can be significant variation in actual quantities. It would be a very poor business practice for a KO to only agree on the bottom line FFP contract price while ignoring unit prices for items that may well vary in actual quantity.