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Is the contract for supplies or for services?

Vern Edwards

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The DAU Director for the Center for Contracting, Mr. Leonardo Manning, posted a short, one-paragraph blog entry on February 10 entitled, “Is your Acquisition a Supply or a Service?”

https://dap.dau.mil/career/cont/blogs/default.aspx

It's interesting, but it doesn't analyze the problem in enough detail. It's more complicated than presented.

FAR 2.101 defines supplies as follows:

Supplies means all property except land or interest in land. It includes (but is not limited to) public works, buildings and facilities; ships, floating equipment, and vessels of every character, type, and description, together with parts and accessories; aircraft and aircraft parts, accessories, and equipment; machine tools; and the alteration and installation of the foregoing.

There is no definition of services or service contract in FAR Part 2, which means that there is no definition of those terms that applies throughout the FAR. See FAR 2.101(a). However, there are several definitions pertaining to services and service contract scattered about in various places.

FAR 2.101 defines personal services contract as follows:

Personal services contract means a contract that, by its express terms or as administered, makes the contractor personnel appear to be, in effect, Government employees (see 37.104).

FAR 37.101 defines nonpersonal services contract as follows:

Nonpersonal services contract means a contract under which the personnel rendering the services are not subject, either by the contract's terms or by the manner of its administration, to the supervision and control usually prevailing in relationships between the Government and its employees.

FAR 37.101 defines service contract as follows:

Service contract means a contract that directly engages the time and effort of a contractor whose primary purpose is to perform an identifiable task rather than to furnish an end item of supply. A service contract may be either a nonpersonal or a personal contract. It can also cover services performed by either professional or nonprofessional personnel whether on an individual or organizational basis. Some of the areas in which service contracts are found include the following:

(1) Maintenance, overhaul, repair, servicing, rehabilitation, salvage, modernization, or modification of supplies, systems, or equipment.

(2) Routine recurring maintenance of real property.

(3) Housekeeping and base services.

(4) Advisory and assistance services.

(5) Operation of Government-owned equipment, real property, and systems.

(6) Communications services.

(7) Architect-Engineering (see Subpart 36.6).

(9) Transportation and related services (see Part 47).

(10) Research and development (see Part 35).

That definition applies only in FAR Part 37. It does not apply in any of the other 52 parts. It does not apply to Part 22. See FAR 2.101(a).

FAR 22.001 defines service contract as follows:

Service contract means any Government contract, or subcontract thereunder, the principal purpose of which is to furnish services in the United States through the use of service employees, except as exempted by the Service Contract Act (41 U.S.C. chapter 67; see 22.1003–3 and 22.1003–4). See 22.1003–5 and 29 CFR 4.130 for a partial list of services covered by the Act.

There are also definitions of advisory and assistance services, architect-engineer services, child care services, and utility service.

The purpose of the FAR definitions is to provide a basis for applying appropriate policies, solicitation provisions, and contract clauses when conducting acquisitions. They are not meant to define supplies and services in and of themselves.

There is no definition of service per se; the FAR does not tell us what a service is. The closest we get is that part of the definition of service contract that refers to performance of an identifiable task rather than to furnish an end item of supply. That’s an odd criterion, and it makes the definition of service contract somewhat problematical. If you buy a product of a company’s own design that the company makes, stocks, and sells, you are clearly buying an item of supply. But what if a CO hires a contractor to make and deliver an item of the government’s design? Is the CO buying an item of supply or the time and effort of performing an identifiable task? Seems to me that making something is an identifiable task and that hiring someone to make something for you is hiring them to perform such a task. However, I think that most of us would agree that such a contract would be a supply contract. Right?

If you award a contract to someone to manufacture something to your specifications, have you bought an item of supply or have you hired the contractor to expend time and effort to perform an identifiable task? Surely, the custom manufacture of something to your design is different than contracting with a firm to sell you a standard item that it makes to its own design and stocks or makes on order for sale. Moreover, doesn’t the maintenance, overhaul, repair, servicing, rehabilitation, etc., of items of supply entails the alteration of those supplies, which, according to the definition of supplies, is supplies?

Which brings us to the Service Contract Act. FAR 22.1003-1 says that FAR Subpart 22.10, “Service Contract Act of 1965, As Amended,” applies to all government contracts awarded for the principle purpose of acquiring services to be provided by service employees. It then says:

The nomenclature, type, or particular form of contract used by contracting agencies is not determinative of SCA coverage.

FAR Subpart 22.10 makes no mention of the definition of service contract in 37.101, but 22.1003-5 contains a list of examples of contracts covered by the SCA that includes many that are similar to the list of examples in that definition.

The Department of Labor regulations at 29 C.F.R. Part 4, Labor Standards for Federal Service Contracts, does not define service or service contract, but provides as follows at § 4.111(a), which says, in part:

This remedial Act is intended to be applied to a wide variety of contracts, and the Act does not define or limit the types of services which may be contracted for under a contract the principal purpose of which is to furnish services. Further, the nomenclature, type, or particular form of contract used by procurement agencies is not determinative of coverage. Whether the principal purpose of a particular contract is the furnishing of services through the use of service employees is largely a question to be determined on the basis of all the facts in each particular case. Even where tangible items of substantial value are important elements of the subject matter of the contract, the facts may show that they are of secondary import to the furnishing of services in the particular case. This principle is illustrated by the examples set forth in §4.131.

As for the examples in § 4.131:

(a)… A procurement that requires tangible items to be supplied to the Government or the contractor as a part of the service furnished is covered by the Act so long as the facts show that the contract is chiefly for services, and that the furnishing of tangible items is of secondary importance

* * *

( c ) [An] example of the application of the above principle is a contract for the recurrent supply to a Government agency of freshly laundered items on a rental basis. It is plain from the legislative history that such a contract is typical of those intended to be covered by the Act. S. Rept. 798, 89th Cong., 1st Sess., p. 2; H. Rept. 948, 89th Cong., 1st Sess., p. 2. Although tangible items owned by the contractor are provided on a rental basis for the use of the Government, the service furnished by the contractor in making them available for such use when and where they are needed, through the use of service employees who launder and deliver them, is the principal purpose of the contract.

Okay, but then the regulation says:

In general, contracts under which the contractor agrees to provide the Government with vehicles or equipment on a rental basis with drivers or operators for the purpose of furnishing services are covered by the Act. Such contracts are not considered contracts for furnishing equipment within the meaning of the Walsh-Healey Public Contracts Act. On the other hand, contracts under which the contractor provides equipment with operators for the purpose of construction of a public building or public work, such as road resurfacing or dike repair, even where the work is performed under the supervision of Government employees, would be within the exemption in section 7(1) of the Act as contracts for construction subject to the Davis–Bacon Act. (See § 4.116.)

I presume that equipment rental for other purposes is covered by the Walsh-Healey Public Contracts Act, which applies to contracts for the "manufacture or furnishing" of materials, supplies, articles, and equipment. See FAR 22.602.

If you Google <car rental service> you’ll get the websites for Hertz, National Car, etc. They rent cars without drivers, and Hertz’s corporate profile says that they have provided “Quality Car Rental Service” for over 90 years. So in the commercial marketplace, car rental is a service, as is equipment rental generally. It’s not immediately clear to me why renting laundry is different from renting vehicles without drivers and other equipment.

Assuming that you want to award a fixed-price contract for the recurrent supply of fresh laundry, would you specify the laundering process, the properties of the fresh laundry to be delivered, or both? Would you insert the clause at FAR 52.243-1, Changes--Fixed Price (AUG 1987) (ALT I) (APR 1984), which is the one for services, or would you insert the basic clause which is for supplies? Or would you insert (ALT II) (APR 1984), which is for services and supplies? Would you insert the clause at FAR 52.246-4, Inspection of Services--Fixed-Price (AUG 1996), or the one at FAR 52.246-2, Inspection of Supplies--Fixed-Price (AUG 1996)? There is no alternate inspection clause for both supplies and services. So would you include both clauses and assign them to separate line items or subline items for services and supplies? Would you separately priced the items?

Would those questions occur to you? Would the answers matter to you? Do you think that all practitioners would answer them the same way?

I do not think this is a big problem. My point is that contracting regulations are written over the course of time to implement laws and policies that are often developed on an ad hoc basis in response to particular problems as they arise. They tend to be formulaic in the sense of mandating that when X then Y. A formula specified in one part of the FAR may make perfect sense within its policy domain, but no sense at all within another. (That’s one of the reasons for the definitions rule at FAR 2.101.) Thus, it is possible that a contract might appropriately be thought to be for supplies when selecting clauses, but for services when selecting labor laws.

Veteran practitioners tend to take these things for granted, mainly because they were told how to think about them during their early training. This is supplies. That is services. They know that the regulations do not always answer questions definitively and that, sometimes, practitioner experience is all you have to go on. But newcomers to our business can get hung up on some of these logical inconsistencies.

And now: Is painting the walls of a building a service or is it construction? Does the Service Contract Act apply or the Davis Bacon Act? And while we’re at it, what about elevator repair?



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So what is the answer to "Is painting the walls of a building a service or is it construction? Does the Service Contract Act apply or the Davis Bacon Act?" because I could make a case for either one. Painting is specififcally included in the FAR definition for construction, but it seems to be implicitly included in the service definition " Routine recurring maintenance of real property". I seem to recall a definitiion somewhere that 200sf of painting is a service, more than that is construction. How do others handle their strictly painting contracts?

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This is the exact conversation we were having in our office last week. The discussion focused on industries that custom build items to the customers specifications (e.g., machine shops).

The discussion example was a custom built motorcycle. Are we paying for the motorcycle (supply) or the expertise to make the item (service). Great discussion with no concrete resolution.

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