Fly America Act and Allowable Airfares - everything you need to know to avoid questioned costs in audit

This post in made possible with the kind assistance, and expert review by Krista Pages.

Just to make you all feel better about not knowing all of these answers off hand, remember this:

In order to compile this information, we have had to comb through the following sources:

• Federal Acquisition Regulations (FAR)
• 2 C.F.R. 200 Uniform Guidance for Grants and Cooperative Agreements
• USAID ADS 303 Mandatory Provisions for US Recipients
• ADS 302 Mandatory References and Additional Help
• AIDAR
• The Office of International Aviation Information Blog
• U.S. Department of State Open Skies Agreements Webpage
• GSA Open Skies Information Page for Fly America application
• GSA Help Desk to answer burning questions about all the “other Open Skies” nobody has an answer to
• Department of Transportation Air Agreements Information
• Federal Registrar for Comptroller General Notices
• DCAA Guidance Webpages
• Federal Travel Regulations and
• Finally USAID Internal Policies and Internal Memos to Contracting and Agreement Officers

Just saying…. How could anyone know (or for that matter: want to know) that they have to study all these regulations just to find an answer for every question that arises about whether a certain flight will be allowed or not?  

This blog was created to show the benefit of having common information and interpretation in one place, which, if done by an official source, would be so helpful for all the stakeholders -  Auditors, Contracting Officers, Contractors, Grantees and finally tax payers – and save us all so much money and aggravation!

No pride in ownership – GSA, please take notice, you can do this for the Government wide coverage!

Anyway…. this is a very long blog post because there are a lot of frequently asked questions and we wanted to put it all in one place for ease of reference.

The best way to explain the confusing travel cost principle and Fly America requirements is through the kind of questions that we all face all the time from our employees, and an answer to which is normally met with an inevitable “Why?  This does not make any sense!”

We cannot help you with the second part, but perhaps answering with a link to this blog would alleviate some of the pain:

FLY AMERICA ACT

What is the Fly America Act and why is my travel subject to this?  I can fly my native Nauru Airline for so much cheaper?

Federal travelers are required by 49 U.S.C. 40118 (International Air Transportation Fair Competitive Practices Act), commonly referred to as the "Fly America Act," to use United States air carrier service for all air travel and cargo transportation services funded by the United States Government.

USAID grantees are bound by Fly America Act through application of a standard provision at ADS 303 Mandatory Standard Provisions for US Recipients  M-17 “TRAVEL AND INTERNATIONAL AIR TRANSPORTATION (AUGUST 2013)”

USAID contractors, are bound by Fly America through FAR clause 52.247-63 included in their contracts.

What airlines are qualified to provide passenger service under Fly America Rules?

In general, all airlines based in the United States qualify. Specifically, a US flag air carrier is one that holds a certificate under section 401 of the Federal Aviation Act of 1958.  If you have questions on a particular airline, you can search this database.  Some non-US based airlines also qualify through air transport agreements between foreign carrier and the US Government, such as the United States-European Union “Open Skies” agreement (www.gsa.gov/openskies ) See more below.

What about code-shares?

Travelers are allowed to fly on code share flights operated by foreign carriers. A flight qualifies if your ticket identifies the U.S. carrier. For example: “AA 1234 operated by SAA 567” (AA = American Airlines, SAA = South African Airways).

How do I determine if a flight is a code share flight?

Tickets/electronic receipts include the information necessary to determine if a flight is a qualifying code share. Tickets must use the code of a U.S. carrier (e.g. NWA, UA, AA) in addition to the foreign carrier code. 

The US Comptroller General issued a decision on September 25, 1991 which states in part:

Travel under a ticket issued by a US-flag air carrier which leases space on a foreign-flag air carrier under a code-share arrangement is allowable. The ticket (or documentation for an electronic ticket) must identify the US-flag air carrier's designator code and flight number. The requirement that the ticket be issued from U.S.-flag carrier ticket stock is no longer applicable."

Therefore, the ticket DOES NOT have to be on the US Flag Carrier stock or issued by the US Flag Carrier but it MUST have the US Flag Carrier Code for the flight in addition to the foreign carrier code (for example AA142/SAA207)

What are the exceptions to this requirement?

Grantees: 

ADS 303 Mandatory Standard Provisions for US Recipients M-17 “TRAVEL AND INTERNATIONAL AIR TRANSPORTATION (AUGUST 2013)” lists the following exceptions:

• Only for a particular leg of a route on which no US Flag Air Carrier provides service on that route;
• For a trip of 3 hours or less, when the use of a US Flag Air Carrier at least doubles the travel time;
• If he US Flag Air Carrier offers direct service, but the use of the US Flag Air Carrier would increase the travel time by more than 24 hours; or
• If the US Flag Air Carrier does not offer direct service and

o   Use of the US Flag Air Carrier increases the number of aircraft changes by 2 or more,

o   Use of the US Flag Air Carrier extends travel time by 6 hours or more, or

o   Use of the US Flag Air Carrier requires a layover at an overseas interchange of 4 hours or more.

• If the carrier is covered by an air transport agreement between the US and a foreign government that allows for the flight route you are taking.

Contractors:

If service on a foreign air carrier would be three hours or less, and use of the U.S. flag air carrier would at least double your en route travel time, you are not required to use a U.S. flag air carrier.

In addition, when flying between the United States and a foreign location, the following exceptions apply: 

If a U.S. flag air carrier offers nonstop or direct service (no aircraft change) from your origin to your destination, you must use the U.S. flag air carrier service unless such use would extend your travel time, including delay at origin, by 24 hours or more.

 If a U.S. flag air carrier does not offer nonstop or direct service (no aircraft change) between your origin and your des­tination, you must use a U.S. flag air carrier on every portion of the route where it provides service unless, when compared to using a foreign air carrier, such use would:

·         Increase the number of aircraft changes you must make outside of the U.S. by 2 or more; or
·         Extend your travel time by at least 6 hours or more; or
·         Require a connecting time of 4 hours or more at an overseas interchange point.

When flying between two foreign destinations and U.S. service is available, you may use a foreign air carrier if such use would:

·         Increase the number of aircraft changes you must make en route by 2 or more; or
·         Extend your travel time by 6 hours or more; or
·         Require a connecting time of 4 hours or more at an overseas interchange point
·         If use of a foreign air carrier may, in certain circumstances, be deemed necessary for medical or safety reasons,
·         Finally, if the carrier is covered by an air transport agreement between the US and a foreign government that allows for the flight route you are taking.

Where does it say we are allowed to fly EU Airline and other non-US carriers?

USAID grantees in the same standard provision at ADS 303 Mandatory Standard Provisions for US Recipients M-17 “TRAVEL AND INTERNATIONAL AIR TRANSPORTATION (AUGUST 2013)”, under paragraph (c) (2) (i) and (ii) the following exception:

The recipient [ is exempt] if it uses a European Union (EU) flag air carrier, which is  an airline operating from an EU country that has signed the US-EU “Open Skies” agreement

Or

 (ii) Travel to or from one of the following countries on an airline of that country when no city pair fare is in effect for that leg (see 07/21/2014 Partial Revision GSA Open Skies):

a. Australia on an Australian airline,

b. Switzerland on a Swiss airline, or

c. Japan on a Japanese airline

For USAID Contractors:  FAR clause 52.247-63 under its prescription at FAR 47.403-1 "Availability and Unavailability of U.S.-flag air carrier service" includes exceptions to use of US Flag Carrier including:

FAR 47.403-2 Air transport agreements between the United States and foreign governments:

"Nothing in the guidelines of the Comptroller General (see 47.403) shall preclude, and no penalty shall attend, the use of a foreign-flag air carrier that provides transportation under an air transport agreement between the United States and a foreign government, the terms of which are consistent with the international aviation policy goals at 49 U.S.C. 1502(b) and provide reciprocal rights and benefits". 

Some of the Open Skies agreements meet the requirements of 49 U.S.C. 1502 (b).

What is Open Skies Air Transportation Agreement?

The Office of International Aviation and the U.S. Department of State negotiate bilateral and multilateral air service agreements with the United States’ foreign aviation partners.  Such agreements provide the basis for airlines of the countries involved to provide international air services for passengers, cargo and mail.  Through air service agreements, the United States develops a procompetitive operating environment for U.S. airline services between the United States and foreign countries.

Since 1992, The Office of International Aviation and the U.S. Department of State  and have pursued an “open-skies” policy designed to eliminate government involvement in airline decision-making about routes, capacity, and pricing in international markets.  Open-Skies agreements also contain provisions governing commercial opportunities, safety, and security.  The United States has negotiated open-skies agreements with more than 100 aviation partners. 

Which Open Skies Agreements provide an Exception to Fly America Act?

The biggest exception to the Fly America Act is the Open Skies Agreement with the European Union as amended.

The United States and European Union (EU) “Open Skies” Air Transport Agreement published here   Open Skies Agreements qualifies under the exception to Fly America Act, which means that all the airlines of the countries listed in the agreement can be substituted for US-Flag Carries on international flights taken by USAID contractors and Grantees.    As of June 2011, Iceland and Norway are also included in the EU Open Skies agreement and qualify under Fly America as well.

There are also Open Skies Travel Agreements with Australia, Japan and Switzerland, which qualify as exceptions under Fly American Act, but they carry additional restrictions as to the exact routes and city-pair limitations explained further.

All other Open Skies Agreements are more restrictive and do not qualify as an exception under Fly America Act.

Here are the details of qualifying agreements under Fly America exception:

European Union Airlines and Free Trade Association (EFTA) member states Norway and Iceland:

You can use US Flag or an EU airline when traveling to a destination serviced by a European Union airline included in Open Skies Agreement (this means all destinations serviced by EU airlines, including between two points outside the US and also from and to US from EU or any other foreign point serviced by the qualifying EU airline).

Australia:

Travelers using federal dollars can use an Australian airline only if a point of origin/destination is either the US or Australia and there is no city-pair contract flight between the two points (origin and destination).

Switzerland

Travelers using federal dollars can use a Swiss airline only if a point of origin/destination is either the US or Switzerland and there is no city-pair contract flight between the two points (origin and destination).\

Japan

Travelers using federal dollars can use a Japanese airline only if a point of origin/destination is either the US or Japan and there is no city-pair contract flight between the two points (origin and destination).

What countries are included in the EU Open Skies Agreement?

Austria (1995)

Belgium (1952)

Bulgaria (2007)

Croatia (2013)

Cyprus (2004)

Czech Republic (2004)

Denmark (1973)

Estonia (2004)

Finland (1995)

France (1952)

Germany (1952)

Greece (1981)

Hungary (2004)

Ireland (1973)

Italy (1952)

Latvia (2004)

Lithuania (2004)

Luxembourg (1952)

Malta (2004)

Netherlands (1952)

Poland (2004)

Portugal (1986)

Romania (2007)

Slovakia (2004)

Slovenia (2004)

Spain (1986)

Sweden (1995)

United Kingdom (1973)

and

Norway

Iceland (June 2011)

Do all Open Skies Agreements and associated country airlines qualify under Fly America?

No, at this writing only the EU Open Skies Agreement Countries (see above) and Australia, Japan and Switzerland (with restrictions) qualify as exceptions to Fly America Act.

Do you have to fly only to EU destinations on an EU Open Skies listed airline for the flight to qualify as an exception to the Fly America Act?

No, that restriction was lifted on June 24, 2010 when the U.S. – EU Open Skies Agreement was amended (see GSA Federal Travel Regulation Bulletin 11-02 issued October 6, 2010). Now contractors/grantees can fly to any destination served by the qualifying EU airline under the Open Skies Agreement, including flights originating, arriving or stopping in the EU (for example from Miami to Munich to Ankara or from Atlanta to Mexico City on a flight that operates from Frankfurt to Atlanta to Mexico City).

Do I have to check city-pairs fare to qualify for Open Skies?

No - for airlines under the EU Open Skies Agreement (this requirement was removed in the June 2010 amendment to EU Open Skies Agreement).  Yes - for flights on Japan, Australia or Switzerland airlines. 

City- Pairs are set fares available to US Government personnel and not available to contractors, however the contractors/grantees still have to check if such fares are available before they are able to use the exception to Fly America when using Australia, Japan and Switzerland airlines.

ALLOWABLE AIRFARES

What class of travel is allowable under the FAR Cost Principles?

FAR 31.2205-46(b) and 2 CFR 200.474 generally limits the allowable cost for air travel to the lowest priced airfare available to the contractor (after consideration of any negotiated discounts, rebates, or other cost savings.)

Are there any exceptions to the lowest priced airfare available requirement?

Costs in excess of cheapest available airfare during regular business hours are not allowable, however, if the costs are documented and justified and fall within one or more of the exceptions contained in the rule, they should be allowable.

Once the baseline airfare cost is established (cheapest airfare available during regular business hours), a higher cost fare is nonetheless allowable if certain conditions are met. 

For both Contractors and Grantees the conditions are the same:

FAR 31.205-46(b):

Airfare costs in excess of the lowest priced airfare available to the contractor during normal business hours are unallowable except when such accommodations require circuitous routing, require travel during unreasonable hours, excessively prolong travel, result in increased cost that would offset transportation savings, are not reasonably adequate for the physical or medical needs of the traveler, or are not reasonably available to meet mission requirements. However, in order for airfare costs in excess of the above airfare to be allowable, the applicable condition(s) set forth above must be documented and justified.

2 CFR 200.474 (d) 

Commercial air travel. (1) Airfare costs in excess of the basic least expensive unrestricted accommodations class offered by commercial airlines are unallowable except when such accommodations would:

(i) Require circuitous routing;

(ii) Require travel during unreasonable hours;

(iii) Excessively prolong travel;

(iv) Result in additional costs that would offset the transportation savings; or

(v) Offer accommodations not reasonably adequate for the traveler's medical needs. The non-Federal entity must justify and document these conditions on a case-by-case basis in order for the use of first-class or business-class airfare to be allowable in such cases.

What do the exceptions to “lowest priced airfare” mean and how can the exceptions be applied practically to international travel under USAID programs?

Below I break down some of the commonly asked questions that get to the exceptions.

Does purchasing lowest priced airfare mean you should purchase non-refundable tickets?

Yes, in response to public comments on the revised cost principle, the FAR Councils affirmed that applying the “lowest priced airfare” could mean purchasing non-refundable tickets and the cost for changing such tickets or cancellation surcharges would be allowable costs.   See comments and responses here: Revised Travel Cost Principle Public Comments

However, see DCAA guidance on documentation of airfare discussed further below

Can I book any refundable or non-refundable ticket in economy and not the cheapest one available so that I can upgrade it with miles or additional payment?

No, you must always buy the lowest priced airfare available for travel during business hours, unless any of the exceptions discussed further apply.

What does “normal business hours” mean when traveling internationally?

Ideally, normal business hours will be defined by your company’s hand-book.  Hours outside 8:00 am and 7:00 pm would probably not be “normal business hours,” unless the employee works an unusual workday. If any of the travel extends outside of normal business hours, you can justify something beyond the “lowest available fare,” but should keep records to justify the selected fare and all of the exceptions it meets to the rule.

Hypothetical: If the only available fare on the date of travel during the business hours (let’s say at 2 pm) is in business or premium class, it could be justified even if a lower fare is available at midnight, provided you show more of the travel is within normal business hours as defined in your company’s handbook.  Allowability boils down to whether the more expensive fare is reasonable under the circumstances.

What is “travel during unreasonable hours”?

A more expensive fare flight that extends beyond normal business hours, requires overnight flying, or exceeds a defined maximum reasonable travel duration  set by your company policy (for example:  14 hours or more – like USAID travel policy) should be allowable where properly documented.  If a 4 pm flight arrives at your destination at least 3 hours earlier, limiting the time you travel outside normal business hours, and includes “unreasonable” hours (such as an overnight flight), you could justify premium (let’s say “Economy Plus” or “Premium Economy”) or Business Class since it affords a more reasonable accommodation for the hardship of travel during unreasonable hours. 

Also, if business class was the only available fare when you learned the need to travel, you could justify business class fare as the “cheapest” as long as your travel policies assure pre-planning/pre-booking travel to the maximum extent possible.

 What is “circuitous routing”?

The avoidance of “circuitous routing” is a justification for taking a more expensive flight, but would not unto itself justify business class if the total duration of travel was the same or nearly the same.   The example would be if you there were two flights available on the day that you need to travel and one flight was direct with one stop over but only available in business class and the other was cheaper in economy but required you to make additional stop-overs and change of planes, you would be justified in documenting “circuitous routing” as the exception to taking a more expensive business class flight.


What is “adequate medical needs of traveler”?

The physical needs of travelers, including the need for rest during extended flights overseas, requires the comfort and accommodations of a higher class of travel including Business Class.  All such medically required needs must be documented with a copy of physician or other medical professional’s letter confirming the need for such exception. 

No detailed medical information is required and should not be asked for due to privacy requirements under HIPAA (the HIPAA Privacy Rules established national standards to protect individuals' medical records and other personal health information and applies to health plans, health care clearinghouses, and those health care providers that conduct certain health care transactions electronically.


What is the best way for Contractors to allow consideration of other than economy class travel if circumstances warrant it?

In summary, the best practice for invoking exceptions to the “lowest available airfare” restriction requires a written travel policy defining “normal business hours” and “reasonable travel duration hours” within the employee manual and discussing the available alternative travel arrangements if travel takes place outside such hours or exceeds the duration, defined as “reasonable”.

It should be applied equally at all levels of the organization --airfares for executives traveling in business class need the same justification as the rank and file employees; otherwise the excess portion of the executive’s business class fare is unallowable.

USAID’s direct employee policy, for example, allows premium class travel for travel exceeding 14 hours or when it is more expensive to break up the travel and pay per diem and travel time under a lower fare ticket than flying business class directly.

What is the downside of the Contractor’s policy mirroring USAID’s policy for its employees?

The problem with having the same policy as USAID and mandating business class travel for all trips over 14 hours in duration is the cost.  Since the policy is meant to apply equally to all employees under all programs, you would not be able to only offer economy or cheapest fare under the programs that do not have the budget to cover a more expensive class…    That would not be a fair policy and violate the rule of treating the US Government fairly when incurring costs.

This in turn will make your company less competitive on the price and probably result in long arguments during negotiations and potential loss of work.

USAID confirms and recognizes the same issue in its guidance to its Contracting and Agreement officers codified in ADS 302 Mandatory Reference dated 5/5/2006 - See Guidance to Contracting Staff Regarding Business Class Travel for Contractors


"If you agree to a contract/TO budget that reflects a reasonable number of trips and travelers at standard/ economy airfare that is sufficient to meet the requirements of the work needed in the Statement of Work, then why not let it go at that? Allow the contractor to manage the travel funds in accordance with the terms of the contract, including the relevant cost principle. If a situation arises during performance for which the contractor can document and justify using business class and doing so complies with the cost principle--and doesn't result in any increased cost to the contract--then it's their business decision to do so". 

What is the alternative approach to allow flexibility?

A better approach may be to have the following exceptions to your “lowest priced airfare” policy (apart from the medical need, which is pretty straightforward):

Travel outside of regular business hours – if travel is required on a certain date and pre-planning has been accomplished to maximum extent possible, allow the traveler to choose the more expensive fare available during business hours defied by your company policy vs a cheaper fare available outside such hours.  The more expensive fare has to be the only available airfare during business hours, and does not necessarily have to be in business class.

In other words, if you have a choice of fares leaving at 2 pm and midnight, and the airfare leaving at 2 pm is in economy and is more expensive than the same class airfare leaving at midnight, you can choose the 2 pm airfare.  If the only available airfare at 2 pm is in business, then it should also be allowable. 

Travel Duration – “Unreasonable hours”

Once you define what “unreasonable hours of travel” represent for your company (USAID defines it as 14 hours, IRS defines their at 12), to keep the costs low, your policy could  break down what options are available:

1) Option One - break up the trip into increments with associated costs for per diem and hotel and extra pay for travel time (unless the combined cost of such increments is more expensive than flying a premium class airfare) or

2) Allow the next available premium class fare:  Economy Plus or Business Class

You may want to split it and say that personnel permanently relocating (Long Term Personnel and Dependents), and travelling over 14 hours, have the right for Option 1) and split the trip and stay overnight but will only fly cheapest airfare available (again unless the additional cost of splitting the trip will make it more expensive than direct premium class fare).

Short Term personnel who are required to report to work right away and have no time to recuperate and have to travel 14 hours or more can get the Option 2) and get Economy Plus or Business Class Fare – with Economy Plus being the default unless only Business is available.

This will keep the costs more competitive than simply allowing the next comfort class for all 14 hour trips.

Does travel by employees charging to indirect cost – not under a specific Government contract -- require the same rules be followed?

See the answer to this question in the previous blog post at Indirect Cost Restrictions Fly America Act

What documentation does DCAA require?

All of the above exceptions to the class of travel or the use of non -US Flag Carrier airlines must be justified and documented in writing, citing the correct exception BEFORE travel occurs.

Additionally, DCAA published audit guidelines on March 22, 2010 that require specific documentation to exceptions of the cheapest available airfare.  First, the audit guidance asserts that in order to comply with the revised travel cost principle, “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 for allowable airfare costs”.  Second, it states that “documentation substantiating the lowest airfare available takes the form of quotations from competing airlines or travel service from which the lowest priced airfare can be selected; giving proper consideration to any potential discount or credits to the contractor’s cost”.   This means the lowest airfare should consider existence of special agreements between contractors and airlines or travel services offering discounted fares compared to publicly available airfares for the same travel route.

The audit guidance also advises auditors to consider questioning contractor’s policies and procedures if there are frequent instances in which a single quotation is obtained, however it acknowledges that there may be instances where only one flight is available for the mission.

The guidance also advises auditors that contractors can choose refundable tickets over non-refundable tickets when the contractor’s data shows that its experience with cancelling non-refundable tickets results in increased costs as compared to refundable tickets.