FAR 52.237-8—Restriction on Severance Payments to Foreign Nationals.
Plain-English Summary
FAR 52.237-8 is a solicitation provision that puts offerors on notice that severance payments to foreign nationals working under a service contract performed outside the United States are generally unallowable unless the agency grants a pre-award waiver under FAR 37.113-1. The provision ties directly to the cost principle at FAR 31.205-6(g)(6), so it affects both proposal pricing and later cost allowability if the contract is awarded. It explains when an agency may consider a waiver and identifies the three findings the agency must make: the contract must support significant services for U.S. forces overseas or executive agency employees overseas, the contractor must have minimized severance incidents to the extent within its control, and the severance must be required by applicable foreign law or a collective bargaining agreement. In practice, this provision matters because it can change whether severance costs are recoverable, influence how contractors structure overseas staffing and separations, and require offerors to disclose or plan for foreign labor law obligations before award. It is primarily a pre-award compliance and pricing issue, but it also has post-award cost accounting consequences if severance costs are later claimed under the contract.
Key Rules
Severance costs are limited
The provision incorporates FAR 31.205-6(g)(6), which limits the allowability of severance payments to foreign nationals employed under service contracts performed outside the United States. Unless a waiver is granted before award, those costs may not be recoverable as contract costs.
Waiver must be pre-award
Any waiver must be granted by the agency under FAR 37.113-1 before contract award. The provision does not create an automatic exception; it only alerts offerors that a waiver is possible if the required findings are made in advance.
Program support must be significant
The agency must determine that applying the severance limitation would adversely affect continuation of a program, project, or activity that provides 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.
Contractor must minimize severance
The agency must also find that the contractor has taken, or has concrete plans to take, appropriate actions within its control to reduce both the amount and the number of severance payments to foreign-national employees under the contract.
Severance must be legally required
The payment must be necessary to comply with a law generally applicable to a significant number of businesses in the country where the services were performed, or necessary to comply with a collective bargaining agreement. This prevents waivers for discretionary or avoidable severance arrangements.
Responsibilities
Contracting Officer
Include the provision in applicable solicitations and ensure offerors are on notice of the severance-payment restriction. If a waiver is sought, coordinate the pre-award waiver process and ensure the required findings under FAR 37.113-1 are documented before award.
Agency
Evaluate whether a waiver is justified and make the required determinations about mission impact, contractor mitigation efforts, and foreign legal or labor-agreement requirements. The agency must decide whether the contract should be exempted from the normal cost limitation.
Contractor/Offeror
Assess whether foreign-national severance costs may arise, price the proposal accordingly, and seek a waiver if needed. The contractor should also implement staffing, separation, and labor-relations practices that minimize severance exposure to the extent within its control.
Cost/Price Analysts and Contract Administrators
Review proposed severance-related costs for consistency with the cost principle and any waiver terms. After award, monitor claimed severance costs to ensure they remain allowable only if the waiver and underlying conditions support payment.
Practical Implications
Offerors performing overseas service work should identify foreign-national severance exposure early, because the default rule is nonallowability unless a waiver is already in place before award.
A common pitfall is assuming that local labor law alone makes severance allowable; the provision requires both legal necessity and a pre-award agency waiver when the FAR limitation would otherwise apply.
Contractors should document efforts to reduce severance obligations, such as workforce planning, contract transitions, and separation practices, because the agency must find those efforts were taken or planned.
If the contract supports U.S. military personnel or executive agency staff overseas, the waiver analysis becomes especially important because the agency must weigh mission continuity against the cost limitation.
Failure to address this issue during proposal preparation can lead to underpricing, unallowable costs, disputes over reimbursement, or the need to absorb severance payments as contractor overhead or profit expense.
Official Regulatory Text
As prescribed in 37.113-2 (a) , use the following provision: Restriction on Severance Payments to Foreign Nationals (Aug 2003) (a) The Federal Acquisition Regulation (FAR), at 31.205-6 (g)(6), limits the cost allowability of severance payments to foreign nationals employed under a service contract performed outside the United States unless the agency grants a waiver pursuant to FAR 37.113-1 before contract award. (b) In making the determination concerning the granting of a waiver, the agency will determine that- (1) The application of the severance pay limitations to the contract would adversely affect the continuation of a program, project, or activity that provides 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; (2) The Contractor has taken (or has established plans to take) appropriate actions within its control to minimize the amount and number of incidents of the payment of severance pay to employees under the contract who are foreign nationals; and (3) The payment of severance pay is necessary in order to comply with a law that is generally applicable to a significant number of businesses in the country in which the foreign national receiving the payment performed services under the contract, or is necessary to comply with a collective bargaining agreement. (End of provision)