Adding Markup on Direct Travel - What is Reasonable?

 

INQUIRY:

In your experience what do contractors do as a rule about Travel? Is there usually some kind of administrative markup applied or not? What would you say is the norm? Is there a range of markup %’s that might be reasonable. 

 

RESPONSE:
What is reasonable can be so subjective. I can say that whatever I choose is reasonable...smile! But that won't fly. So let's look at one simple application to address your inquiry:

Typically, a firm charges G&A to travel, when their G&A Base is Total Cost Input (TCI) and therefore travel is part of the G&A BASE. This is allowable and acceptable as part of “Actual Cost” referred to in a solicitation when the language limits these types of cost to actual cost incurred. That is because G&A is a part of Actual Costs!

Those firms who don’t include travel in the G&A Base, that is they use a Value Added G&A Base that excludes the direct costs such as Materials, Subcontracts, Consultants, and/or Travel, then they typically use their “Handling Rate” as a markup on Direct Travel.

This "Handling Rate" is developed using the estimated/actual costs to administer and manager the Direct Travel, Materials, Subcontracts, etc. These costs go into the Pool and the Base consist of those applicable Direct Costs mentioned above. The result is Handling Pool divided by Handling Base equals Handling Rate!

I can say based on experience, that "Handling Rates", especially for us small to medium firms, tend to generally be in the 2.5% to 6.5% range. This is if a firm is using the Value Added instead of the TCI Base for G&A.

In either case, it is your policy identifying where you include Direct Travel in the Base that is used to develop your corresponding Indirect Rate (whatever you call it). It is this policy that determines what the MAXIMUM is that you can charge as additional Actual Cost. Of course you can always charge less or even zero for billing purposes, but you must track, record and apply all associated costs in your records to the contracts.