New Per Diem Setting

In the last decade or so, the General Services Administration (GSA) has spent thousands of man hours and tens of thousands of tax payer dollars reforming the way that it sets federal per diem rates for lodging.  And in recent years, there has been increasing contentment and acceptance of the practice because, above all things, whether or not hotels are satisfied with their established rates, the system was fair. Currently, GSA solicits room rate data through an independent research firm and uses the information to calculate average daily rates for specific geographic areas.  They seek to eliminate the extremes – ridding the luxury segment and economy segments and using the mean of hotel rates in the mid price range.  They are also deliberate about using business travel days – Sunday through Thursday.   Once a mean has been calculated, GSA reduces this number by 5%, and rounds to establish the per diem for the fiscal year.  While flaws will forever exist, and debates will always rage, there is no arguing that this system is inherently reasonable.  The foremost flaw now is the definition of what comprises a geographic area rather than that limited-service hotels are deflating the rates.

But under the proposed new system, GSA may include only lower hotel rates in the mid-price range when calculating their means in an effort to intentionally reduce rates and thus reduce government spending on travel.  This manipulation of data is an embarrassment to the process of government, and a complete contradiction of the intent of GSA’s lengthy study of last decade.  The American Hotel & Lodging Association is already asking the industry to send letters of protest about this idea to their local legislators.

What does this mean in layman’s terms?  If new, lower rates go into effect based on skewed data, it will mean the government traveler will be less likely to glean lodging in the very spot he or she requires.  Hotels in the city center, which are nearest to federal buildings and installations, will no longer be able to accept the government rate, forcing travelers into the periphery and necessitating their use of additional transportation means.  These additional fees and travel headaches will be at a cost to the tax payer, both in dollars and in time, offsetting any perceived savings with the lodging.

Meeting planners and third parties also stand to be adversely affected.  It isn’t so much about collecting smaller commissions, although smaller they may be – it’s about spending more time trying to find lodging suitable for the government traveler.  And time is money – meeting planners will double the time they spend on site selection meaning less time on critical logistics and meeting content.  Harder yet, government groups will likely be relegated to fitting only holes and will be nearly impossible to book with the lead time they wish.  Hotels will not be inclined to layer in government business far in advance when they can hold out for the association or corporate group not bound by the irrational restrictions GSA imposes with their twisted data.

Within the current guidelines, GSA models per diems on what the market is bearing.  Under the proposed rule change, GSA seeks to shape the market based on its initiative to cut costs.  No good has ever come of letting government dictate the market – GSA should be the last agency to set socialist precedents.

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