Software as a Service - Supply or Service?

[Guest Vern Edwards]

From the OP is seems that the objective was to classify it for purposes of synopsis and to determine what PSC to use. My own checks at FBO showed me that different people used different classifications. Those choices were not necessarily arbitrary, but I don't know how to determine how the choices were made.

[ji20874]

On Monday, April 04, 2016 at 1:33 PM, Vern Edwards said:

This strikes me as an area in which the rules are inconsistent and non-determinative. I think a CO can put an acquisition of software licenses into whatever category he or she wants to as long the category isn't nonsensical.

I'm okay with this thought.  As for me an my house, so to speak, we will pick supply.

On Monday, April 04, 2016 at 1:33 PM, Vern Edwards said:

Just for fun, I'll say that when you use a company's software you are hiring the company to provide information processing services as performed by a surrogate employee (the software) using GFP (the computer). It's like having a contractor employee in the cubicle next to you, doing what you tell him or her ("it") to do.

I'll play.  Does this mean that when buying a washing machine, I would be hiring the company to provide clothes-washing services as performed by a surrogate employee (the washing machine) using GFP (my soap, water, and electricity)?

[apsofacto]

 

Quote

I also remind everyone that the government categorizes acquisitions for at least three related, but not entirely common reasons: (1) to determine what laws and policies apply, (2) to determine what boilerplate contract clauses to use, and (3) for record-keeping purposes. As far as I can tell there is no common and internally consistent system of classification for all three purposes. For example, the definition of "supplies" in FAR 2.101 includes alteration and installation of supplies, and for years contracting personnel have debated whether elevator maintenance and painting were services or construction. 

Another reason to add to the list is to help notify potential offerors who register to receive e-mails from FBO. 

[Guest Vern Edwards]

1 hour ago, ji20874 said:

I'll play.  Does this mean that when buying a washing machine, I would be hiring the company to provide clothes-washing services as performed by a surrogate employee (the washing machine) using GFP (my soap, water, and electricity)?

No. A washing machine is tangible property other than real property. If you buy one, you've clearly and indisputably bought an an item of supply as defined in FAR 2.101. It is not analogous to software, which is more like a hired mind. The analogy fails for that reason alone.

Software itself is intangible, which is the only reason we're having this discussion and which is the reason businesses and the courts struggle with the problem of the applicability of Article 2 of the U.C.C. The tangible disk on which software is recorded is not the software, so the fact that software is on a disk does not make it a tangible thing. What sense does it make to call the acquisition of a software license a supply contract because the software arrives on a disk? What matters most, the conformity of the disk to a specification or the functioning of the software? Saying you should inspect the disk would be like saying you should inspect janitorial services based on the condition of the van in which the janitors arrive.

If you go to a laundromat to use someone else's washing machine, almost everyone would say that you're receiving a service, even though you load the clothes yourself and use your own soap. Think of buying a license to use someone else's software is analogous to using someone else's washing machine, and even more analogous to contracting for the provision of a temporary employee.

 

[Guest Vern Edwards]

All:

I have nothing more to add, so I'm moving on.

The bottom line for me is that the categories of supplies, services, construction, etc., are multipurpose, multifaceted, internally inconsistent, and, therefore, have vague boundaries.

I don't think software should be considered any category other than, well, software. The simple fact is that the definitions of "supplies" and of "service contracts" are very old, and the policymakers have been too passive or lazy to revisit them as industries and markets have changed and to revise them or add new ones as needed. The result is disparate outcomes as people try to put new wine into old wineskins. It we had energetic, proactive, and knowledgable people making policy at the top, we'd have better polices, regulations, and outcomes at all levels.

I have enjoyed this discussion. It's been fun. I thank everyone who has participated. Please continue to enjoy yourselves.

Vern

[Whynot]

I think the NAICS designation is important - if it is a supply the non-manufacture rule may apply and if it is a service the limitation of subcontracting rule may apply. 

[Whynot]

I also think that the use of operational funds versus capital funds is important - with services being more aligned with operational funds. From industry, revenue recognition is important, anything that creates a future obligation may encumber the entire recognition of the revenue of the effort until the final obligation is performed. I am speaking of revenue not cash. Therefore, services need to be carefully crafted.

I would also like to know how DFARS 227 supports cloud software/computing as a service.

[frank.watson]

Sorry to revive an old thread. Something caught my eye on this discussion mentioned by "Whynot". In the example of cloud services (paid monthly for example Amazon Computing) would the NAICs have to be specific to a IT VAR such as 541519 or could 541512 work? Or would 541512 be considered just for services (Where contractors perform work) 

[ji20874]

I wouldn't let the appearance of the word "services" in the NAICS code title become the dispositive answer that the acquisition in question is for services.

[frank.watson]

On September 1, 2016 at 3:49 PM, ji20874 said:

I wouldn't let the appearance of the word "services" in the NAICS code title become the dispositive answer that the acquisition in question is for services.

Thanks. Good point