TDY & PDS as pertain to contractor?

[ExitStrategy 0]

Client is a government contractor. Has both T&M and CPFF subcontracts w/ large system integrator which are under defense prime contract.  

Employee travels from residence (distance > 100 mi) on a regular and consistent basis for 3-4 days/week for an extended period (greater than 24mos) and stays in hotel. Employee submits each week,  M&IE and Lodging for the 3-4 days and Client has reimbursed employee citing TDY assignment. This is employee's only work place other than residence.

Client invoices SI and SI has paid said expenses-no questions asked.

New leadership at client's is questioning policy stating this can't be TDY per JTRs, must be PDS and therefore must stop policy of paying employee M&IE and lodging and accordingly cease billing SI. New leadership states every contractor's travel is governed by JTRs (which I believe is incorrect). Client's travel policy states the company will follow JTRs.

SI subcontract clause pertaining to travel states:

(a) Travel incurred by SELLER in the performance of this Contract shall not be reimbursed by SI unless such travel is expressly authorized in writing in advance by SI Procurement Representative.
(b) When travel is authorized under this Contract, SELLER shall be reimbursed for necessary, reasonable, and actual travel expenses for transportation, lodging, meals and incidental expenses only to the extent that they (1) do not exceed the maximum per diem rate in effect at the time of travel, as set forth in the United States Federal Travel Regulations for the area of travel authorized under this Contract and (2) are otherwise reimbursable pursuant to the Allowable Cost and Payment clause of this Contract.

Employee claiming TDY doesn't, in my view, pass the "smell" test. Seems like employee's permanent assignment is SI's workplace.

Seems like client isn't necessarily violating SI travel clause (?) but is not following own policy.

Questions:

1) Contractors bound by FAR 31.205-46 not JTR in it's entirety. FAR stipulates per diem rates to be followed under JTR, FTR, SR. Correct?

2) Are TDY definitions from JTR applicable to client under subcontract?

3) Client could have issue in that expenses charged may not be considered necessary and reasonable ?

 

Thx

[Guest Vern Edwards]

In answer to your first question, see FAR 31.205-46, paragraph (a)(4):

Quote

(4) Paragraphs (a)(2) and (a)(3) of this subsection do not incorporate the regulations cited in subdivisions (a)(2)(i), (ii), and (iii) of this subsection in their entirety. Only the maximum per diem rates, the definitions of lodging, meals, and incidental expenses, and the regulatory coverage dealing with special or unusual situations are incorporated herein.

However, notwithstanding that language, the SI might have an advance agreement with its customer that provides otherwise.

The answer to your second question depends at least in part on the interpretation of the subcontract clause you quoted. The clause says your client's costs won't be reimbursed unless (1) authorized by the SI's procurement representative and (2) if authorized, they are reasonable. The language you quoted does not stipulate any conditions for withholding of authorization. The SI can argue that it has complete discretion about what it will or will not authorize, and the TDY definitions that you asked about could have a bearing on what travel expenses are reasonable.

Could your client have an "issue"? It appears that it does. 

[here_2_help 0]

Client has an issue because it violated its own travel policy. See 31.201-3(b)(4).

Full stop.

[Retreadfed 0]

H2H, what problem can the client have if it did not adhere to a policy that was inconsistent with the FAR but followed a practice that was consistent with the FAR and the terms of its subcontract?

[here_2_help 0]

Retreadfed,

The contractor's policy was NOT inconsistent with the FAR. It was consistent with the requirements of 31.205-46 and, in addition, established additional requirements on its employees not specifically required by the FAR. The additional requirements were similarly not prohibited by the FAR either. Once it established those additional conditions, it had to abide by them consistently.

I think that if you go back and think about what the OP is saying, you come to the conclusion that an employee's normal commute from home to the permanent duty station was treated as TDY and reimbursement for mileage, lodging, and per diem/M&IE was claimed. Looking solely at the FTR/JTR and 31.205-46 is a mistake, in my view. Looking solely at the subcontract language is similarly a mistake. You also need to consider IRS rules. (No the contract doesn't invoke the IRS rules but wouldn't you be worried that something prohibited by IRS rules was being claimed as an allowable reimbursable expense? I would.)

In sum the OP is correct that this doesn't pass the smell test and is likely to be flagged by auditors. The employee should have been relocated if the daily commute was too much. Failing that, the employee and company seem to be claiming personal commute expenses as TDY and I bet the company is claiming that as a business deduction for tax purposes. Not good.

[Retreadfed 0]

H2H, the OP stated "Client's travel policy states the company will follow JTRs."  This policy is inconsistent with FAR 31.205-46 which, I am sure you know, applies the FTR in determining allowable lodging and per diem costs for travel within CONUS, and the DSSR when determining how much of those costs are allowable when travel is to a foreign country.

The subcontract contains a clause that limits the allowability of lodging and per diem to the maximum amount allowed by the FTR.  The subcontractor's travel policy would not take precedence over the terms of the subcontract.

Even if the company wants to otherwise use the JTR as the basis for its travel policy, you would have to see how the JTR defines commuting to see if the policy was permissible.  My quick read of the JTR does not reveal a definition of commuting or commuting area.  If the JTR does not address commuting, I see no reason why the payments for the travel performed by the employee could not be paid. 

On a side note, I had a situation a few years ago where the owner and president of a small R&D firm lived in California and had his company in New Mexico.  While he generally worked from home, periodically he would fly to New Mexico to visit the company.  DCAA questioned the cost of these trips as commuting costs.

[here_2_help 0]

Retread,

You and I are normally on the same page, or close to it. In this case I pretty much disagree with you 100% on all points.

Specially, 31.205-46 does not work the way you say in your paragraph 1.

(a) Costs for transportation, lodging, meals, and incidental expenses.

(1) Costs incurred by contractor personnel on official company business are allowable, subject to the limitations contained in this subsection. Costs for transportation may be based on mileage rates, actual costs incurred, or on a combination thereof, provided the method used results in a reasonable charge. Costs for lodging, meals, and incidental expenses may be based on per diem, actual expenses, or a combination thereof, provided the method used results in a reasonable charge.

(2) Except as provided in subparagraph (a)(3) of this subsection, costs incurred for lodging, meals, and incidental expenses (as defined in the regulations cited in (a)(2)(i) through (iii) of this subparagraph) 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 the --

• (i) Federal Travel Regulations, prescribed by the General Services Administration, for travel in the contiguous United States, available on a subscription basis from the --
  Superintendent of Documents
  U.S. Government Printing Office
  Washington, DC 20402
  Stock No. 922-002-00000-2;

  (ii) Joint Travel Regulation, Volume 2, DoD Civilian Personnel, Appendix A, prescribed by the Department of Defense, for travel in Alaska, Hawaii, and outlying areas of the United States, available on a subscription basis from the --
  Superintendent of Documents
  U.S. Government Printing Office
  Washington, DC 20402
  Stock No. 908-010-00000-1; or

  (iii) Standardized Regulations (Government Civilians, Foreign Areas), Section 925, “Maximum Travel Per Diem Allowances for Foreign Areas,” prescribed by the Department of State, for travel in areas not covered in (a)(2)(i) and (ii) of this subparagraph, available on a subscription basis from the --
  Superintendent of Documents
  U.S. Government Printing Office
  Washington, DC 20402
  Stock No. 744-008-00000-0.

See the bolded part?

The FAR cost principle requires the contractor to comply only with the lodging, meals and incidental limits -- i.e., those limits are invoked as ceilings on allowable costs. This the contractor has done. In addition, the contractor has invoked the rest of the requirements. The contractor didn't have to do it; it was a choice. Now that the choice has been made, the contractor has to live with it and cannot use a contract clause to make allowable costs that would have been unallowable because they violated company policy.

Regardless of the above, the costs in question are unreasonable because they violate the company's policy and the FAR definition of reasonableness states that deviations from policy may be unreasonable. In this case they are unreasonable because nobody running a competitive business would allow an employee to live more than 100 miles away and then pay for the POV mileage and put the employee up at a hotel, just to facilitate the employee working at the Permanent Duty Station. Further, in this case the reason it's being done by the company is because they found a sucker higher-tier contractor who would pay for it, along with profit.

ETA: Also note that transportation costs are limited by the cost principle to amounts that are reasonable.

H2H

[Guest Vern Edwards]

1 hour ago, here_2_help said:

[T]he costs in question are unreasonable because they violate the company's policy and the FAR definition of reasonableness states that deviations from policy may be unreasonable.

Emphasis added.

H2H:

When you refer to "company policy," are you referring to "contractor's established practices," as used in FAR 31.201-3, "Determining reasonableness"?

Quote

(a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer’s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

(b) What is reasonable depends upon a variety of considerations and circumstances, including—

(1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance;

(2) Generally accepted sound business practices, arm’s-length bargaining, and Federal and State laws and regulations;

(3) The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and

(4) Any significant deviations from the contractor’s established practices.

Emphasis added.

[Retreadfed 0]

H2H, the OP only raised the issue of whether payment of M&IE was unreasonable in this circumstance.  For travel within the contiguous states, 31.205-46 limits those costs to the amounts determined by the FTR not the JTR.  If the contractor's policy is that M&IE will be paid based upon the limits in the JTR, that is inconsistent with the cost principle.  Mileage was not raised.

The underlying issue here is whether the travel is TDY travel or commuting.  This is largely a question of company policy as I can find no definition of what constitutes commuting in either the JTR or the FTR.  However, the general rule of thumb that seems to be used is commuting involves travel of 50 miles or less.  On the other hand, here is two definitions from the JTR that are pertinent:

 TEMPORARY DUTY (TDY) STATION. A place, away from the PDS, to which the traveler is authorized to travel.

TEMPORARY DUTY (TDY) TRAVEL. Travel to one or more places away from a PDS to perform duties for a period of time and, upon completion of assignment, return or proceed to a PDS.

Based on these definitions, if the contractor has adopted the JTR as the basis for its travel policy, the JTR would allow for the contractor to consider an employee that travels 100 miles from his/her PDS 3-4 days a week to be on TDY and entitled to M&IE.

As for reasonableness,  I do not consider payment of M&IE in these circumstances to be a deviation from the contractor's stated travel policy.  As shown above, the JTR would permit payment of M&IE to the employee.  Further, limiting that M&IE cost to the amount specified in the FTR would not be unreasonable for two reasons.  First, the subcontract incorporates the FTR as the standard for judging reasonableness of travel costs.  In this regard, one of the tests for reasonableness is a contractor's obligations to its customers.  One such obligation is to comply with the terms of contracts with the customers.  Second, this does not appear to be a significant deviation from the contractor's established policy.

As to why a PCS did not occur, we simply do not have enough information on that.  It may be quite reasonable under the circumstances to follow the pattern that has been followed instead of pay the cost of a PCS move.  To say that not forcing a PCS would be unreasonable is to engage in pure speculation.

[here_2_help 0]

Vern,

Yes. Practices are documented in policies/procedures and the like, or else they are established though consistent repetition.

 

Retreadfed,

I continue to disagree. In my view the workplace -- which is the only workplace the employee has -- is the permanent duty station not a temporary duty station.

 

[Guest Vern Edwards]

22 minutes ago, here_2_help said:

Practices are documented in policies/procedures and the like

Yes, but I think there is a difference between policy and practice. You can have a policy that is not practiced and you can have a practice that is against policy. What if the policy says one thing but practice is another?

Does policy documentation "establish" a practice or is it established through actual application? Do you have authority for an answer one way or the other? This is interesting, and my question is the kind that comes up in litigation.

[here_2_help 0]

Vern,

CAS and FAR use the phrase "disclosed or established cost accounting practices" when discussing the topic (see FAR 30.604). You can have a noncompliance with company policy based on an actual practice that violates policy. I would argue that's where the reasonableness standard comes in. You can have a CAS or FAR noncompliance between FAR/CAS requirements and disclosed practices (whether disclosed via policy or via Disclosure Statement). You can have a CAS or FAR noncompliance between actual practices and disclosed practices. Or you can have a noncompliance between estimated practices and disclosed/established practices. They are all noncompliances and have different contractual remedies associated with them.

[Matthew Fleharty 0]

Retreadfed,

Based on your last post, are you considering the traveling employee's PDS (permanent duty station) to be his or her residence?  What would warrant such a conclusion?

[Retreadfed 0]

Matthew, no I do not consider the employee's residence to be his PDS.  Perhaps it was an error on my part, but I assumed the subcontractor was located some distance from the prime contractor so that the employee was not reporting to the subcontractor's facility 3-4 times a week, but was traveling to the prime's location.  Assuming the employee works a five day week, the employee would be working at the subcontractor's facility 1-2 days a week.  For those 1-2 days, the employee would be working at his PDS.  I should have stated these assumptions earlier and asked for clarification on these points from the OP.

[Retreadfed 0]

On 6/24/2016 at 2:45 PM, here_2_help said:

You can have a noncompliance with company policy based on an actual practice that violates policy. I would argue that's where the reasonableness standard comes in.

I am a little confused by this.  If the company's policy is not consistent with the FAR, would a cost covered by that policy be unreasonable if in practice the contractor complied with the FAR?  For example, if the contractor's subcontracting policy states that for administrative convenience, in no circumstance will more than three sources be solicited for offers for subcontracts, but in practice the contractor seeks to achieve competition the the extent practicable.

[Guest Vern Edwards]

In connection with contractors (not agencies or the Government), FAR Part 31 uses the phrases "established policy" and "established practice." Sometimes it uses the locution "established policy or practice" or "established plan or policy. FAR also uses the word "established" in connection with plans of various kinds. In connection with CAS we also see "disclosed practice."

As matters or regulatory and contract interpretation, we have some issues. First, what constitutes having been "established"? What evidence is necessary to show that a plan, policy, or practice has, in fact, been "established"? Also, Is a plan, policy, or practice established because the contractor has acted in accordance with it or done it, or must the other party be aware of the practice and rely on the contractor's expressed intent to use it or actual use of it in order for the practice to be established? Second, what if any distinction can be made between a "plan," a "policy," and a "practice"? Third, whatever the distinction between plans and policies, both seem possibly different from practices, the former being things said or documented and the latter being things done, what said or documented.

If there is a plan or a policy and there has been a practice, and if the practice differed from the plan or policy, which takes precedence in establishing a duty, right and a liability--the plan, the policy, or the practice?

These matters are interesting, at least to me, and seem worthy of further investigation and discussion.

[here_2_help 0]

Vern,

Don't forget the language at 31.205-6(f) --

(f) Bonuses and incentive compensation.

(1) Bonuses and incentive compensation are allowable provided the—

(i) Awards are paid or accrued under an agreement entered into in good faith between the contractor and the employees before the services are rendered or pursuant to an established plan or policy followed by the contractor so consistently as to imply, in effect, an agreement to make such payment; and

(ii) Basis for the award is supported.

In addition, there has been a least one article discussing whether or not a "special allocation" under 9904.410-50 or under another CAS Standard is, or is not, a cost accounting practice.

[bob7947 0]

here_to_help:

Is this article from Gibson Dunn entitled: Special Allocations Under the Cost Accounting Standards, such an article.   

[here_2_help 0]

Yes bob7947, that's the one I was thinking of...

 

Thank you, again

[ExitStrategy 0]

So, thoughtful dialogue occurring here in this post and thanks to all who have contributed.  

I think there can be debate on whether contractor's policies have been followed or not. Interesting side note, contractor (previously referred to as client) is debating whether a change in policy is warranted given language that "use of JTR is NOT appropriate" by contractors (see response to question 3 at https://www.defensetravel.dod.mil/site/faqctr.cfm)

To me, regardless of the regulation applied, the question comes to the application and/or definition of PDS (and therefore TDY). I have researched the JTR and FTR and find no clear threshold for determination of PDS (such as greater than 50% of work time). Under definitions of PDS for Civilian Employees in JTR, there is,

"The employee/invitational traveler's permanent work assignment location. For the purpose of determining PCS travel allowances, a PDS is the building or other place (base, military post, or activity) where an employee regularly reports for duty."

Looking for other resources where PDS might be defined, I have found the FTR's use of "Official Duty Station" which is,

"An area defined by the agency that includes the location where the employee regularly performs his or her duties or an invitational traveler’s home or regular place of business (see 301-1.2). The area may be a mileage radius around a particular point, a geographic boundary, or any other definite domain, provided no part of the area is more than 50 miles from where the employee regularly performs his or her duties or from an invitational traveler’s home or regular place of business. If the employee’s work involves recurring travel or varies on a recurring basis, the location where the work activities of the employee’s position of record are based is considered the regular place of work."

 

Continuing down the rabbit hole, I then looked to the IRS (which brings into question commuting cost reimbursed to be declared as taxable income) which uses the term "Tax Home" defined as,

 

  “your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.”

  If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. You also cannot deduct the cost of meals and lodging while at your tax home."

 

The IRS further defines Temporary and Indefinite Assignments as follows:

"The employer must determine whether an assignment is realistically expected to last less than one year when the assignment begins. An assignment is generally considered temporary if it is realistically expected to be, and does in fact last, one year or less.

Reimbursements of expenses for "indefinite" travel are taxable. Reimbursements of travel expenses for "temporary" assignments away from the tax home are generally not taxable to the employee. If the assignment is "indefinite," the employee is considered to have moved his/her tax home to the new work location.

An assignment is generally considered indefinite if it is realistically expected to last, and does in fact last, for more than one year. The above are the general rules. All relevant facts must be considered to determine whether the travel assignment was intended to be temporary or indefinite."

Again, to me, the crux of the matter is the definition of PDS, Official Duty Station and Tax Home. Given the above, an employee reporting to work at a location 3-4 days/week for multiple years, the location should be considered the PDS, Official Duty Station or Tax Home. Therefore, the reimbursement should be discontinued or if continued, be considered taxable income to the employee and not be a contract expense.

 

Thoughts on those statements?

 

Thx

 

[Retreadfed 0]

Exit, you are talking about recovery of costs under a contract.  Therefore, the starting point is the language of the contract.  In your original post, you quoted an excerpt from your contract.  There are several significant points in that excerpt.  First, the travel must be approved/authorized by your customer before it occurs.  Presumably, you have done this.  Second, the travel must be necessary for performance of the contract.  This relates to the authorization process.  It is unlikely that the customer would approve of travel that it did not consider necessary.  Next, the travel cost must be reasonable.  In this regard, the contract caps the travel expenses to the maximum allowed by the FTR.  You state that your costs meet the FTR criteria.  However, the contract goes on to state that the costs must be otherwise allowable under the Allowable Cost and Payment clause of the Contract.  It is unclear as to whether this refers to a clause used by the customer in its subcontracts or FAR 52.216-7.  Assuming the latter, that clause makes costs allowable if they comply with the cost principles in effect on the date of the contract.

There are two cost principles that should be considered here.  First, is 31.205-46.  The substance of that cost principle was specifically incorporated in the contract by reference to the FTR.  The second is the reasonableness cost principle, 31.201-3.  The overarching test for reasonableness is that "[a] cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business."  From the government's perspective, the question is whether it is reasonable for the SI to reimburse you for these travel costs in the manner that it has.  Hopefully, for you, the SI will be able to do so.  However, you need to be prepared to assist the prime in supporting the costs.  To do so, you need to consider the overarching definition of a reasonable  cost.  Further, the cost principle also says that what is reasonable depends on a variety of considerations and circumstances.  It goes on to list 4 factors for consideration.  However, that list is not exclusive and there is no specific weight given to any listed factor, and the listed factors might not be dispositive in a given situation.

None of the regulatory provisions you cited are part of your contract or the FAR.  They may or may not be factors to be considered in determining the reasonableness of the travel.  However, they are rather vague in what they require.  For example, what does "regularly" mean in the FTR extract?  It seems that this is a nebulous term that is left to each agency to define.  Similarly, the last sentence in the extract refers to "recurring" travel and provides a different test for determining an official duty station in that circumstance but with no definition of "recurring."

Going back to 31.201-3, some factors to consider might be:  did the employee work for you prior to being assigned to this contract, and if so, where did the employee work then; when the current contract ends, will the employee continue to work for your company, if so, at what location; what does the employee do when (s)he is not at the customer location; does the employee have a unique skill set that would be difficult to duplicate if the employee is no longer an employee; is your contract an IDIQ contract so that work is subject to you receiving orders; does the contract contain options so that its continued performance depends on an option being exercised?

In short, I do not think that the regulations you cited are determinative of whether the costs are proper.  Instead, the proper analysis is whether they meet the reasonableness test of 31.201-3.

[joel hoffman 0]

The most basic questions are whether this is "travel" or is this the employee's regular place of work. 

[Retreadfed 0]

Joel, I notice that you put "travel" in quotation marks.  Exactly what did you mean by that?  To me, travel is simply movement from one point to another.  Also, note that the travel cost principle does not use the terms TDY, principle duty station, official duty station or similar terms.  It only says that travel by an employee on official company business is an allowable cost.  It seems like that test has been met here.

[here_2_help 0]

Retreadfed,

I believe you are taking a myopic view. I agree with Joel. If the company is paying for an employee's commuting cost, then that is not company travel. it's reimbursement of a personal expense.

 

[Retreadfed 0]

H2H, what is the contractual basis for what you say?  What language in 31.205-46 indicates that this is not travel for company business?  Is there a procurement regulation that defines commuting and makes that cost unallowable?  It seems to me that the prime is satisfied with paying the costs which indicates that the conditions for allowability in the subcontract have been met.  Therefore, the most likely way this could become an issue between the prime and sub is if the government raises a question over the costs with the prime.  In a dispute over allowability, the government has the burden of proving that a cost is unallowable.  Looking at FAR 31.201-2, what, other than reasonableness, would be the basis for questioning the cost?