Sign In
  • Question

    Whether severance pay that is mandated by local Thailand law for a local Thailand employee can be charged as a direct cost under a cost reimbursement contract to the government?


    Answer

    1. The FAR references quoted below in pertinent part are applicable to this response.

    FAR 2.101 -- Definitions.
    “Should” means an expected course of action or policy that is to be followed unless inappropriate for a particular circumstance.

    FAR 16.301-3 -- Limitations
    (a) A cost-reimbursement contract may be used only when --
      (3) The contractor’s accounting system is adequate for determining costs applicable to the contract or order;

    FAR 31.205-6 -- Compensation for Personal Services
    (g) Severance pay.
      (6) Under 10 U.S.C 2324(e)(1)(M) and 41 U.S.C. 4304(a)(13), the costs of severance payments to foreign nationals employed under a service contract performed outside the United States are unallowable to the extent that such payments exceed amounts typically paid to employees providing similar services in the same industry in the United States. Further, under 10 U.S.C 2324(e)(1)(N) and 41 U.S.C. 4304(a)(14), all such costs of severance payments that are otherwise allowable are unallowable if the termination of employment of the foreign national is the result of the closing of, or the curtailment of activities at, a United States facility in that country at the request of the government of that country … .

    FAR 37.113 -- Severance Payments to Foreign Nationals
    FAR 37.113-1 -- Waiver of Cost Allowability Limitations
    (a) The head of any agency may waive the 31.205-6(g)(6) cost allowability limitations on severance payments to foreign nationals for [certain] contracts … .

    (b) Waivers can be granted only before contract award.

    FAR 37.113-2 -- Solicitation Provision and Contract Clause
    (b) When the head of an agency has granted a waiver pursuant to 37.113-1, use the clause at 52.237-9, Waiver of Limitation on Severance Payments to Foreign Nationals.

    FAR 52.216-7 -- Allowable Cost and Payment
    (a) Invoicing.
      (1) The Government will make payments to the Contractor when requested as work progresses, …, in amounts determined to be allowable by the Contracting Officer in accordance with Federal Acquisition Regulation (FAR) Subpart 31.2 in effect on the date of this contract and the terms of this contract.

    FAR 52.237-9 -- Waiver of Limitation on Severance Payments to Foreign Nationals
    (a) Pursuant to 10 U.S.C. 2324(e)(3)(A) or 41 U.S.C. 4304(b)(1), as applicable, the cost allowability limitations in FAR 31.205-6(g)(6) are waived.

    2. First, if clause FAR 52.237-9 is not included in the prime contract, then the severance payment made to the foreign national in this case generally would not be an allowable expense under the prime contract pursuant to FAR 31.205-6(g)(6), either as a direct expense or as an indirect expense. If this clause is included in the prime contract, then this expense must be changed to this cost-reimbursement contract in accordance with the prime contractor’s current, “Government-approved” cost accounting system.

    3. If the approved accounting system normally allocates severance payments as an indirect expense, then the contractor must obtain approval from the cognizant contracting officer (with support from the cognizant Government audit activity) to charge this severance payment as a direct expense to the prime contract. The contracting officer must justify the approval of such a change from the prime contractor’s established cost accounting system as being appropriate for this particular circumstance. DAU takes no position as to whether or not the contracting officer should grant any such approval in this case.


    Open full Question Details
Chat with DAU Assistant
Bot Image