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Thursday, July 17, 2014

Indirect Costs Restrictions: Fly America, Premium Class and Compensation above USAID CST

Do you need to apply Fly America to airfares charged to Indirects or can you fly whatever air carrier you want because the contract terms do not govern indirects?

How about First Class Travel or unjustified Premium Class Travel - can you charge it to Indirects since you can not charge it under direct costs for contracts/grants?

How about the difference in compensation of the company's executives making over the USAID Contractor Salary Threshold, who are approved and being charged to cost reimbursable contracts with USAID?

How about surplus in the salaries above the approved rates of pay under cost reimbursable contracts?

The answer to all these questions is - No.  Costs that are unallowable directly are also unallowable indirectly, which means that any such costs must be segregated outside your indirect pool applicable to US Government contracts & grants.

For in depth allowability of costs blog post go to Allowable and Unallowable Costs

To answer the above questions in depth:

FAR 52.247-63 (b) Preference for U.S. Flag Air Carriers states in part:

b) Section 5 of the International Air Transportation Fair Competitive Practices Act of 1974 (49 U.S.C. 1517) (Fly America Act) requires that all Federal agencies and Government contractors and subcontractors use U.S.-flag air carriers for U.S. Government-financed international air transportation of personnel (and their personal effects) or property, to the extent that service by those carriers is available. It requires the Comptroller General of the United States, in the absence of satisfactory proof of the necessity for foreign-flag air transportation, to disallow expenditures from funds, appropriated or otherwise established for the account of the United States, for international air transportation secured aboard a foreign- flag air carrier if a U.S.-flag air carrier is available to provide such services.

So, the travel that is charged to the Indirect Pool which is allocated to USG contracts and grants is travel that is funded by the US Government, hence must comply with the applicable limitation on use of non-US flag carriers.

The same would be true for travel in First Class or any unjustified premium class travel.  The cost principles for both for- and non-profits require justification for use of other than cheapest available airfare. That limit applies for direct or indirect costs.

By the way, international travel that is specifically serving a certain contract should be charged to that contract and not to overhead unless serving a genuine overhead purpose.  If such international travel (not serving an overhead purpose) can not be charged to the contract because the CO would not approve it, then its unallowable for direct or indirect charge.

USAID Threshold for salaries only applies to directly charged labor costs and ADS specifically mentions at ADS 302.3.6.10c "the indirect cost pool, to which this policy does not apply."  This means that executives who are charged indirectly are subject to general cost principles for compensation and not to USAID Contractor Salary Threshold.   This all changes if such executive gets approved to work under one of the USAID CPFF contracts.  The CO will likely only approve the maximum rate of USAID CST for any personnel, which means that any compensation above that limit for the time the executive works on that contract should be charged to Unallowable Pool and not to Indirect Pool.

The same goes for salaries above the approved amount in the contract for any consultants etc.  All unapproved amounts must be segregated in the Unallowable Pool and not Indirect Pool.


  1. I am pretty new to the non-profit sector and would appreciate help navigating the system!! I have a question regarding consultants hired on with a subcontractor, under a USAID contract. A consultant I know makes more than the approved rate for a certain position, in the USAID contract. Would it be unlikely, to get a higher rate approved for the consultant? Also, would the consultant's rate be subject to the USAID maximum, currently $642.30/day or can an exception be made beyond this rate, with approval as well?

    Lastly, is prior written approval also required for international travel under USAID Grants and Cooperative Agreements from the AO, if not previously incorporated into the initial award?

    Many, many thanks for your help with this.

    1. For the first question: if the consultant's rate is higher than the approved rate for a certain position in the contract, you would need to make a case why this consultant merits a higher rate, based on his/her salary history, market survey of comparable positions and comparable level of expertise and also your company's matrix of comparable jobs/qualifications. It has to be done under the Cost Principles for Compensation for Professional Services (applicable to your organization) to be considered for approval by the CO. You would also need to indicate that although you plan to pay a higher rate for that position, your total contract cost ceiling will not require an increase or be affected and you will find money to accommodate this rate increase from other source within the total ceiling.

      To answer the second part: Yes, consultants are subject to USAID Contractor Salary Threshold under cost reimbursable contracts and subcontracts. If you hire a consultant on a fixed price basis through a competitive procurement, then the threshold would not apply since the total price is competed.

      Lastly, yes, prior approval of international travel is normally required under USAID Grants and Cooperative Agreements through application of Mandatory Standard Provision for Travel. To be incorporated in the award, it has to be listed in detail in that award or incorporated budget.

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