In December 2009, we reported on changes to allowability rules regarding air fare costs. We noted several problems with the new rule and predicted problems with implementation and with DCAA audit guidance.
We wrote, “based on our experience with Government auditors, that is not how the rule will be interpreted in audits of such costs.”
We were correct. Implementation has proved difficult, and DCAA has just issued audit guidance that will cause problems and—likely—litigation.
On March 22, 2010 DCAA issued MRD 10-PAC-010(R) entitled “Audit Guidance on Revision to FAR 31.205-46(b) and (c) – Limiting Airfare to the Lowest Airfare Available to the Contractor.” See the entire MRD here. The MRD contains the following guidance—
- Auditors should question airfare costs claimed in excess of the lowest airfare available to the contractor.
- 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.
- 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, auditors 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.
Notice that DCAA has taken the ambiguous FAR rule and decided (without support for its position) that contractors now need “quotations from competing airlines … from which the lowest priced airfare can be selected….” If one is to comply with DCAA’s position, one would need to run mini-competitions for each trip, and justify any fare paid over the lowest price offered. This is a patently absurd position and one that is almost certain to result in a challenge from a contractor who has air fare costs questioned because of a lack of such competing quotes.
We predicted that the poorly drafted rule, whose language did not align with the purpose articulated in the promulgating comments, would cause unintended problems. We don’t necessarily relish saying so, but we were right.
Contractors must review the rule and their travel practices, establish a position (which may or may not match DCAA’s flawed interpretation of the rule), and be prepared to fight with DCAA regarding differing interpretations and compliance mechanisms.
Not fun. We told you so. And we were right.
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