In the Memorandum for Regional Directors (MRD) released by DCAA on March 22, 2013, it clarifies the FAR 31.205-46(a)(2) clause for determining contractor’s claimed per diem costs. The latest instruction emphasizes existing Agency guidance of one ceiling when determining the maximum allowable travel per diem rates for contractors. More importantly, it confirms that the daily per diem claimed by contractors would be questioned only if the total cost of lodging plus meals and incidental (M&IE) expenses exceeded the total ceiling amount set forth in the applicable Government travel regulations.
For the most part, the Federal Travel Regulation (FTR), Joint Travel Regulations (JTR) and Statement Department’s Standardized Regulations (SR) apply primarily to Government employees. The parts that do apply to contractors are the definitions of lodging, meals and incidental expenses and the maximum per diem rates. Nevertheless, if you are a contractor, the Federal Acquisition Regulation (FAR) should be the starting point for any questions on travel costs.
Per the travel cost principle in the FAR, maximum per diem rates for contractors traveling in the Contiguous United States are established in the FTR. For traveling in Hawaii, Alaska and U.S. territories, the maximum per diem rates are set in the JTR. For traveling outside of the United States, the maximum per diem rates can be found in the SR. The FTR, JTR and SR provide one specific ceiling amount for lodging and another for meals and incidental expenses. Military personnel and Federal Government employees are subject to the two separate ceilings when on travel. On the other hand, contractors are subject to just one ceiling, the total of lodging, meals and incidental expenses, also known as the “maximum per diem rate.”
In the past, auditors would audit M&IE expenses individually as opposed to combining them with the purpose of finding questioned costs. Any travelers who spent too much on food and less on lodging but did not exceed the combined ceiling would raise a red flag. However, the auditors’ misapplication of the regulatory intent often yielded overstated questioned costs and flawed conclusions of contractor’s internal control deficiencies. Consequently, contractors would need to devote valuable resources to responding to faulty audit findings and incorrect decisions rendered by the Administrative Contracting Officer (ACO).
This guidance from DCAA ought to serve two purposes: (1) Putting an end to auditors’ current practice of measuring the allowability of per diem by separating lodging and meals & incidentals expenses and comparing the individual ceilings to each per diem amounts, (2) Maintaining consistency with the DCAA Contract Audit Manual (CAM) 7-1002.3c(2) where “maximum per diem” rates represent one single combined ceiling.
As a side note, contractors are allowed to set per diem rates below the Government set ceilings. Employees whose actual travel expenditure exceeded the per diem must provide itemized receipts and give explanations as to why expenses went over budget. It is then up to the discretion of the contractor to reimburse for the additional expenses.
With this in mind, contractors should take notice of this memo and make sure your auditors are not disallowing per diem at the individual ceiling component when it comes to M&IE expenses.
Please contact Nicole Mitchell at 301.222.8231 or firstname.lastname@example.org for questions or assistance related to DCAA audits, inquiries, etc. and federal government compliance issues.
About the Author: Grant Lee is a senior consultant in Aronson LLC’s Government Contract Services Group, where he specializes in contract administration, FAR and financial compliance and government audits. His expertise includes cost accounting, financial reporting, financial forecasting and modeling, and contract management.