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My question is this:

When a contractor uses a commercial credit card like AMEX, Discover, etc. and accumulates either travel points or some other type of award for using that credit card as a result of travel or expenses required by a contract with the Government is the Government entitled to those points?

Would it be permissible to add contract language which would stipulate prior to direct charging the contract for either travel or ODCs the contractor would be required to use points generated from work executed for that particular contract?

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ndean,

If the contract is subject to cost principles for commercial organizations, see FAR 31.201-5:

31.201-5 Credits.

The applicable portion of any income, rebate, allowance, or other credit relating to any allowable cost and received by or accruing to the contractor shall be credited to the Government either as a cost reduction or by cash refund.

Other cost principles have similar provisions.

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Usually such points are non-transferrable. If that is the case, they could not be transferred to the government. Also, many contractors have their employees use their own credit cards for travel then reimburse the employee for the travel expenses. When this happens, it is the employee who earns the points, not the contractor. Thus, the credits cost principle would not apply in that circumstance.

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Usually such points are non-transferrable. If that is the case, they could not be transferred to the government. Also, many contractors have their employees use their own credit cards for travel then reimburse the employee for the travel expenses. When this happens, it is the employee who earns the points, not the contractor. Thus, the credits cost principle would not apply in that circumstance.

Correct.

And, besides the obvious that it would be overly cumbersome for us to be monitoring points accumulated on airfare or any other mode of travel, we'd be setting two different standards. The JTRs expressly allow for travelers to keep any promotional material, including frequent flyer benefits, for personal use (points, upgrades, etc.). See JTRs for civilian use, Chapter 3, Part D, Section B.1. So as long as they are no additional cost to the Government and they are hte same terms offered to the general public, DoD at least allows you to keep them.

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ndean's question, as I understood it, has to do with benefits accruing to the contractor through the use of a corporate credit card--not benefits accruing to contractor employees through use of personal credit cards. If the contractor received awards for using the card (i.e., cash back or purchase discounts) for allowable costs reimbursed by the Govt., those would have to be passed on to the Govt. in the form of cost reductions or cash refunds.

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ndean's question, as I understood it, has to do with benefits accruing to the contractor through the use of a corporate credit card--not benefits accruing to contractor employees through use of personal credit cards. If the contractor received awards for using the card (i.e., cash back or purchase discounts) for allowable costs reimbursed by the Govt., those would have to be passed on to the Govt. in the form of cost reductions or cash refunds.

I think we're both right, but ndeans question jumbled both: travel points and personal points accumulated. In the case of travel points, they are allowed to keep them if traveling under JTRs. In the case of personal cc use, they'd have to reimburse the Govt as you stated. I don't think the JTRs differentiate between what card is used to purchase the flight, as long as you are traveling on Government approved travel you are entitled to keep those points.

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The issue is fairly black and white.

1. Points, e.g., frequent flyer "miles" or credit card points, though they are rebates, are not taxable income and have no value until used. Thus, the IRS and government contractors don't care about them. (I believe DOD policy is similar but I'm not sure). Not an issue.

2. "Cash back" on travel usage is usually not an issue for an individual traveler, if a personal card. Like miles or points, nobody really cares. But if a corporation accrues cash back or other income/rebates on the travel volume generated by its employees, then the government would expect a share of that under the Credits Cost Principle.

Hope this helps.

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For our readers, DCAA Contract Audit Manual 7-1002.5(d):

Increased competition among airlines has resulted in certain airline companies offering various promotional benefits, including cash, merchandise, gifts, prizes, bonus flights, reduced-fare coupons, upgrade of service, membership in clubs, check-cashing privileges, and free vacations. Contractors are not required to collect airline promotional benefits from their employees. It is up to each contractor to establish its own policy addressing the treatment of these promotional benefits. However, if a contractor has a policy that results in its employees turning in the frequent flyer bonus credits for company use, then the auditor should ensure that the Government receives its applicable share of any credits actually received by the contractor. In those instances where contractors have executed agreements with individual airlines for discounts and bonuses, auditors should determine that appropriate credits or cost reductions are being reflected in forward pricing and actual cost submissions, and that appropriate use of the agreement is being made.

H2H, Retreadfed,

Consider the following scenario:

A contractor has a cost-reimbursement contract and uses a corporate credit card to make purchases that are directly charged to the contract. The card is only used for this purpose. The contractor accrues frequent flyer miles or hotel points (i.e., the kind the IRS doesn't care about according to H2H's point #1) whenever the card is used. The contractor redeems the miles/points to defray travel costs under its fixed-price Government contracts and commercial contracts.

In your opinion, has the contractor done anything wrong?

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Don,

Sure. There was a failure to comply with the requirements of 31.201-5 ("Credits"). But that was YOUR scenario.

Here's my scenario:

A contractor has a cost-reimbursement contract. The contractor issues a corporate card to each employee, who is responsible for paying the credit card company for costs charged to the card. The corporate card may only be used for bona fide corporate expenses; personal use is prohibited by policy. The employee receives reimbursement for expenses charged to the card by submitting an expense report. On the expense report, the employee identifies the benefiting cost objective, such as (but not limited to) a contract, or an indirect expense account, or an IR&D or B&P project.

The employee uses the corporate card to pay for air fares and lodging expense, for which frequent use points are awarded and accumulate in the employee's name. The air fares and lodging expenses listed on the expense report for reimbursement are identified to a Federal cost-reimbursement contract.

The frequent use points/miles are used by the employee to book a vacation trip to Hawaii (the Big Island).

The contractor charges the reimbursed expenses directly to the cost-reimbursement contract and does not reduce those expenses by the value of the points/miles accumulated by the employee. Separately, the travel agency issues an annual rebate to the company based on the total value of all air fares and lodging expense booked through them. The company accounts for that rebate as a credit to its G&A expense pool, which is allocated to all contacts.

This is compliant with 31.201-5.

Don, my scenario is much more common than yours.

Best!

H2H

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