FAR 37.113-1—Waiver of cost allowability limitations.
Plain-English Summary
FAR 37.113-1 addresses when an agency may waive the cost allowability limits in FAR 31.205-6(g)(6) for severance payments to foreign nationals. The section is aimed at contracts that provide significant support services to members of the armed forces stationed or deployed outside the United States, or to executive agency employees posted outside the United States, and that will be performed wholly or partly outside the United States. It explains that only the head of the agency may approve the waiver, and only before contract award, which makes the issue a pre-award planning and acquisition strategy matter rather than a post-award remedy. The section also identifies two categories where waivers are prohibited: military banking contracts covered by 10 U.S.C. 3744(d), and certain DoD service contracts in the Republic of the Philippines where severance results from the termination of U.S. military basing rights. In practice, this rule matters because it determines whether severance costs for foreign national employees can be treated as allowable contract costs, affecting pricing, competition, and contractor staffing decisions on overseas support contracts.
Key Rules
Agency head may waive limits
The head of the agency has discretion to waive the FAR 31.205-6(g)(6) allowability limitations on severance payments to foreign nationals. This is not automatic; it requires an affirmative agency-level decision.
Applies only to certain support contracts
The waiver authority applies only to contracts that provide significant support services to members of the armed forces stationed or deployed outside the United States, or to executive agency employees posted outside the United States. The contract must also be performed in whole or in part outside the United States.
Waiver must be pre-award
A waiver can be granted only before contract award. If the issue is not addressed before award, the agency cannot later cure the allowability limitation through this waiver authority.
Military banking contracts excluded
Waivers are not permitted for military banking contracts covered by 10 U.S.C. 3744(d). These contracts are expressly carved out from the waiver authority.
Philippines basing-rights exception excluded
Waivers are also prohibited for severance payments to foreign nationals employed under a DoD service contract in the Republic of the Philippines when the severance results from termination of U.S. military basing rights there. This is a specific statutory prohibition.
Responsibilities
Head of the Agency
Determine whether the contract meets the eligibility criteria for a waiver and, if appropriate, approve the waiver before award. The agency head must also ensure the contract is not one of the expressly excluded categories.
Contracting Officer
Identify early whether the solicitation or proposed contract may involve severance payments to foreign nationals, determine whether a waiver is needed, and elevate the matter for agency-head consideration before award. The contracting officer must not rely on a post-award waiver.
Contractor
Disclose or account for severance payment issues in pricing and proposal preparation, and understand that allowability depends on whether a waiver is granted before award. The contractor should not assume severance costs will be allowable absent an approved waiver.
Agency Acquisition/Legal Staff
Support the waiver determination by confirming statutory and regulatory eligibility, including whether the contract falls within the permitted support-service categories and whether any exclusion applies.
Practical Implications
This rule is mainly a pre-award pricing issue: if severance payments to foreign nationals may arise, the team must address allowability before award or risk unallowable costs later.
Contractors supporting overseas military or executive agency personnel should flag foreign-national severance exposure early, especially where local labor law or workforce transition issues could create termination costs.
A common pitfall is assuming the agency can fix the issue after award; FAR 37.113-1 allows waivers only before award, so late requests are too late.
Another pitfall is overlooking the exclusions for military banking contracts and the Philippines basing-rights scenario, both of which bar waiver authority entirely.
For contracting officers, the practical takeaway is to coordinate early with program, legal, and pricing personnel whenever overseas performance and foreign-national staffing are involved, because the waiver can materially affect evaluated cost and contract structure.
Official Regulatory Text
(a) The head of the agency may waive the 31.205-6 (g)(6) cost allowability limitations on severance payments to foreign nationals for contracts that- (1) Provide significant support services for- (i) Members of the armed forces stationed or deployed outside the United States, or (ii) Employees of an executive agency posted outside the United States; and (2) Will be performed in whole or in part outside the United States. (b) Waivers can be granted only before contract award. (c) Waivers cannot be granted for- (1) Military banking contracts, which are covered by 10 U.S.C. 3744(d) ; or (2) Severance payments made by a contractor to a foreign national employed by the contractor under a DoD service contract in the Republic of the Philippines, if the discontinuation of the foreign national is the result of the termination of basing rights of the United States military in the Republic of the Philippines (section1351(b) of Public Law102-484, 10 U.S.C.1592 , note).