FAR 29.402-2—Foreign cost-reimbursement contracts.
Plain-English Summary
FAR 29.402-2 tells contracting officers which tax clause to include when the Government is using a cost-reimbursement contract in a foreign setting. It covers two related situations: (1) a cost-reimbursement contract performed wholly or partly in a foreign country, and (2) a cost-reimbursement contract with a foreign government. The section requires use of clause 52.229-8, Taxes-Foreign Cost-Reimbursement Contracts, for the first situation, unless the contract is expected to be with a foreign government; and use of clause 52.229-9, Taxes-Cost-Reimbursement Contracts with Foreign Governments, for the second. Its purpose is to make sure the contract allocates responsibility for foreign taxes correctly and gives the Government the right contractual language to address tax treatment in overseas performance. In practice, this section is a drafting rule: if the contract type and place of performance fit the rule, the contracting officer must put the right clause in the solicitation and contract so tax costs, reimbursement, and foreign-government tax issues are handled consistently from the start.
Key Rules
Use 52.229-8 for foreign performance
When a cost-reimbursement contract will be performed wholly or partly in a foreign country, the contracting officer must insert clause 52.229-8, Taxes-Foreign Cost-Reimbursement Contracts. This applies even if only part of the work is overseas, because foreign tax exposure can arise from any foreign performance.
Exception for foreign governments
The contracting officer does not use 52.229-8 if the contemplated contract will be with a foreign government. In that case, the special foreign-government tax clause applies instead.
Use 52.229-9 for foreign governments
When a cost-reimbursement contract with a foreign government is contemplated, the contracting officer must insert clause 52.229-9, Taxes-Cost-Reimbursement Contracts with Foreign Governments. This clause is tailored to the tax issues that arise when the other party is a sovereign foreign government.
Applies in solicitations and contracts
The clause must be inserted both in the solicitation and in the resulting contract. This ensures offerors know the tax terms before pricing and that the final contract contains the required allocation of tax responsibility.
Limited to cost-reimbursement contracts
This section applies only when a cost-reimbursement contract is contemplated. It does not itself govern fixed-price contracting, so the contracting officer must first confirm the contract type before applying these clause requirements.
Responsibilities
Contracting Officer
Determine whether the contemplated contract is cost-reimbursement and whether performance will occur wholly or partly in a foreign country, or whether the contemplated contract is with a foreign government. Then insert the correct clause—52.229-8 or 52.229-9—in both the solicitation and the contract.
Offerors/Contractors
Review the solicitation to understand which tax clause applies, account for foreign tax exposure in pricing and proposal assumptions, and comply with the contract’s tax-related requirements during performance.
Agency
Ensure acquisition planning and contract review processes identify foreign performance or foreign-government contracting early enough so the correct tax clause is included before award.
Practical Implications
This is a front-end drafting requirement, so the key risk is omission: if the wrong clause is used or no clause is inserted, the contract may not properly address foreign tax reimbursement issues.
Contracting officers should verify both the contract type and the identity of the counterparty; the foreign-government exception changes which clause applies.
Even partial performance overseas triggers the foreign-country rule, so a small overseas workshare can still require 52.229-8.
Offerors should not assume foreign taxes are automatically reimbursable; the clause selected will control how tax costs are treated and what documentation may be needed.
Early identification matters because foreign tax treatment can affect pricing, proposal assumptions, and post-award administration, especially where local taxes, duties, or exemptions may apply.
Official Regulatory Text
(a) The contracting officer shall insert the clause at 52.229-8 , Taxes-Foreign Cost-Reimbursement Contracts, in solicitations and contracts when a cost-reimbursement contract is contemplated and the contract is to be performed wholly or partly in a foreign country, unless it is contemplated that the contract will be with a foreign government. (b) The contracting officer shall insert the clause at 52.229-9 , Taxes-Cost-Reimbursement Contracts with Foreign Governments, in solicitations and contracts when a cost-reimbursement contract with a foreign government is contemplated.