Per diem rates could continue to rise

The General Service Administration's move to base per diem rates on market forces could create greater annual volatility in the rates that determine how much a government traveler is permitted to pay for a hotel room, according to industry officials.

The most recent adjustment to the per diem increased the rates at 17 locations by an average of $6, and the only major market included in the increase was Seattle, where the summer seasonal rate increased by $1 per day. The largest increase overall was in Newark, N.J., where the rate jumped from $83 to $104 for a hotel room, but other large markets such as New York City saw no increase.

The rate change occurred after agencies asked GSA to review per diem rates because employees were unable to obtain hotel rooms under the current rates.

Industry observers expect GSA to increase per diem rates again at the beginning of the next fiscal year, due to a strong U.S. travel market.

To determine the fiscal 2006 rates, GSA will include, in addition to chain hotels, independent hotels that are considered in the mid-scale and upscale price categories. Also, luxury and economy hotels will be considered for the first time in determining the rates. According to the agency, this will allow for a lodging rate that better reflects the locations. GSA also will use a workweek that starts Monday and ends Thursday, instead of the full Monday through Sunday workweek when evaluating prices.

GSA contracts with hotels in more than 420 locations designated by the agency as high-travel locations and sets prices using a standard hotel industry gauge called the average daily rate. It is based on location, price, occupancy levels for seasonal locations and fire safety standards set by the Federal Emergency Management Agency.

The per diem rates were last adjusted Aug. 31, 2004, when GSA lowered the maximum per diem rate for several major cities. At the time, the agency was criticized for basing that decision on data from 2002 and 2003, when global uncertainty on the possibility of a war with Iraq and SARS took a toll on the travel industry.

GSA must learn how to use more current market data in setting per diems, according to Kevin Maher, vice president of governmental affairs for the American Hotel and Lodging Association and former member of the Governmentwide Per Diem Advisory Board, which made the recommendation to base per diems on market conditions.

The hotel price data is collected for GSA by Smith Travel Research, a Hendersonville, Tenn.-based firm.

According to Maher, per diem adjustments will be necessary as GSA learns to base the rates on market conditions. "They were getting shut out of some markets, or not being able to stay in the hotels they need to," Maher said.

"Four or five dollars isn't large in the grand scheme of things, but when you're competing against a lot of other business and a lot of other travelers, that $5 may keep government travelers from staying at that hotel," Maher said. "GSA is going to have to figure out, [are] the rates that they're giving allowing government workers to stay in those hotels."

A complete listing of GSA's per diem rates can be found on its Web site.