How Are Travel Costs Allocated as Direct Costs?

ReliAscent was involved in a recent negotiation with a Government Laboratory (the Lab is currently being run by a contractor), ReliAscent was told by the contractor that “travel time should NOT be charged or added to the cost of the contract”.   ReliAscent informed the contractor that this was not proper but the contractor asked for references from the FAR to support the position ReliAscent was supporting.  Through our experience with many contractors, ReliAscent believes that this point of view (not charging travel to the contract) is held by a number contractors.  This point of view could originate from the commercial practice of company’s doing commercial work that expect their people to travel on their own personal time (rather than charge the company, or in this instance – the contract for travel).

 The basis of the requirement to charge travel in going to a customer’s site for contract work as a direct cost is that the travel benefits only one contract (FAR 31.202 Direct costs – see below).  To charge something else, like an indirect labor account FAR 31.203 Indirect costs” (see below), would be fraudulent and would place the company in violation of a criminal activity. “False Statements, 18 U.S.C. 1001” (see below).    To not charge would also be fraudulent since it is work for the company and must have a cost associated with it.   The person is not spending the time for their personal pleasure.   

Thus, the FAR requires you to charge the travel as a direct expense.  This can be a difficult concept for a small business to adopt if they have done a lot of work in the commercial marketplace.  This is why it is a good reason to have a seasoned accountant and contract specialist on your side to advise on subtle issues such as this.  Government Contracting is not always easy.  Assumptions can be dangerous.  While all of the information on a government contract is publicly available, it can be very difficult to first navigate the regulations properly and then interpret the regulations correctly. This is one of our main missions at ReliAscent, to help Small Business navigate this difficult water.    

 “FAR 31.202 Direct costs.

(a) No final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose in like circumstances have been included in any indirect cost pool to be allocated to that or any other final cost objective. Direct costs of the contract shall be charged directly to the contract. ….”


“FAR 31.203 Indirect costs.

….. (b) After direct costs have been determined and charged directly to the contract or other work, indirect costs are those remaining to be allocated to intermediate or two or more final cost objectives…”

“False Statements, 18 U.S.C. 1001. a. This statute makes it illegal to engage in any of three types of activity in any matter within the jurisdiction of any department or agency of the United States.  (1) Falsifying, concealing, or covering up a material fact by any trick, scheme, or device;  (2) Making false, fictitious, or fraudulent statements or representations; …”  (Source: DOD Inspector General:  Handbook on Indicators of Fraud in DOD Procurement)

“The criminal penalties for violation of these statutes can result in up to 10 years imprisonment and a $1 million fine.”