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105 CONS

Supply vs Service

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FAR 37.101 Defines service contract as 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.  Included in this definition is repair of equipment.  Recently, one of our members paid for services rendered on their GPC to repair a floor sweeper that was broken down. A representative from the manufacturer had to travel to our location to perform repair services that totaled just over $3,200.00.  The total included roughly $2,000.00 for travel/labor and $1,000.00 for new parts.  Our position is that this is considered a service since it is a repair of equipment that we already own and it therefore violated the micro-purchase threshold of $2,500.00 for services.  The requirement should have instead been issued under contract with the inclusion of the proper prevailing wage rates.  The member differs in opinion based on the fact that roughly $1,000.00 spent was for new parts and it therefore can be considered a supply purchase, which the micro-purchase threshold of $3,500.00 for supplies would be applicable under this situation.  

Are we correct in our interpretation? Is this in fact a service since we are paying for labor associated with a repair for equipment?  Further, anyone have other policy/guidance that provides a clear definition of a supply vs. a service?

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105 CONS,

1) Before deciding that the Service Contract Labor Standards Act (SCLSA) applies, you might consider if the "representative of the manufacturer")  was really an employee of the manufacturer. 

If, instead, the individual who performed the services was directly engaged by the government for his or her services, see the 

FAR 22.1003-3 (f) exemption which includes "Any employment contract providing for direct services to a Federal agency by an individual or individuals;"

2) The point is now moot, but if the vendor had already provided the necessary certification and if the contracting officer had already made the subject determination,  you might be using the exemption to SCLSA at FAR 22.1003-4 (c) for office/business machine repair, subject to the listed qualifications. 

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On ‎2‎/‎17‎/‎2017 at 1:24 PM, 105 CONS said:

Are we correct in our interpretation? Is this in fact a service since we are paying for labor associated with a repair for equipment?  Further, anyone have other policy/guidance that provides a clear definition of a supply vs. a service?

If FAR 22.1003-6 does not apply, the following may help you.  It is not a matter of whether or not your requirement is a supply or service, but whether or not the Service Contract Labor Standards (SCLS) statutes apply.

"Micropurchase threshold" is defined at FAR 2.101 and is $3,500 for services, unless the SCLS statutes apply. 

FAR 22.1003-1 states "This subpart 22.10 applies to all Government contracts, the principal purpose of which is to furnish services in the United States through the use of service employees, except as exempted in 22.1003-3 and 22.1003-4 of this section, or any subcontract at any tier thereunder. This subpart does not apply to individual contract requirements for services in contracts not having as their principal purpose the furnishing of services. The nomenclature, type, or particular form of contract used by contracting agencies is not determinative of coverage."

Below are some excerpts from guidance that I have used in the past that may help you. 

 

---------------

The SCLS apply to all Federal contracts where, “the principal purpose of which is to furnish services in the United States through the use of service employees” (FAR 22.1003-1). The SCLS apply only when all of these criteria are met. Review statutory and administrative exemptions only if the contract first meets these coverage criteria.

Principal Purpose      

If the principal purpose of the contract is for services, then the SCLS may apply. If the contract is mainly for construction or supplies then SCLS do not apply. Services involve time and effort performing a service, as opposed to furnishing an end product. The SCLS cover most maintenance and repair of equipment and machinery (see FAR 22.1003-6).  The DOL regulations state that “The proportion of labor cost to the total cost of the contract and the necessity of furnishing or receiving tangible non-labor items in performing the contract obligations will be considered, but are not necessarily determinative.”  The DOL regulations go on to state that “…no hard and fast rule can be laid down as to the precise meaning of the term ‘principal purpose’….”  The regulations also cite Congressional intent to include “…those contracts which have as their principal purpose the procurement of something other than the construction activity described in the Construction Wage Rate Requirements statutes (40 U.S.C.  chapter 31, subchapter IV; formerly known as the Davis-Bacon Act) (CWRR) or the materials, supplies, articles and equipment described in the Contracts for Materials, Supplies, Articles, and Equipment Exceeding $15,000 statutes (41 U.S.C. chapter 65) (formerly known as the Walsh-Healey Public Contracts Act).”  This language makes it clear that any contract that is not principally for construction (covered by the CWRR statutes) and/or for supplies (covered by 41 U.S.C. chapter 65) will likely be construed as being principally for services. 

 

In the United States   

Only services to be performed “in the United States” require SCLS coverage. For SCLS purposes, the term “United States” includes the 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Outer Continental Shelf Lands, American Samoa, Guam, Wake Island, the Northern Mariana Islands, and Johnston Island. On contracts performed both inside the U.S. and outside the U.S., the SCA applies only to the portion of the contract performed inside the U.S.

 

Service Employees     

Contract work must be performed by “service employees” for the SCLS to apply to the contract. “Service employees” (as defined at FAR 22.1001) are persons performing service contract work as hourly-paid non-exempt workers. The term excludes bona fide executive, administrative, or professional employees who meet the exemption criteria set forth in 29 CFR 541.  A DOL fact sheet providing more detail on these exceptions can be found at http://www.dol.gov/whd/overtime/fs17a_overview.pdf.  These exemptions often include, but are not limited to professionals (engineers, doctors, etc.), executives (upper level managers), or administrators (personnel directors, etc.). Note that highly skilled technicians and lower level supervisors would normally not qualify for exemption. If the contract will involve significant or substantial use of service employees, or their use will constitute more than a minor factor in contract performance, SCLS should be included if no exemption is applicable.  See 29 CFR 4.113(a)(3).  DOL generally considers 20% of the workforce to be substantial (SCLS), and 10% or less to be a “minor factor” (no SCLS).  SCLS coverage where service employees are in between 10 and 20% can hinge on the actual number of employees, and may require consultation with DOL. Even if SCLS are applied to the contract, the SCLS protections will apply to the service employees, only.

 

If the contract services will be performed personally by the contractor, and the Contracting Officer knows when soliciting or concluding negotiations that service employees will in no event be used by the contractor in providing the contract services, it is not necessary to include SCLS clauses or a wage determination.  Thus, certain contracts performed by individuals such chapel organists, financial counselors, test proctors, etc. may not be subject to the SCLS.  However, the subsequent contract should be written to ensure that the work is performed personally and not by an employee or service worker.

 

 

If SCLS applicability remains uncertain after reading the applicability of the Act at 29 CFR, Part 4, Subpart C, then consult the U.S. Department of Labor (DOL), Wage and Hour Division (WHD), Field Operations Handbook, Chapter 14 which relates to applicability of SCA.  The handbook can be accessed at http://www.dol.gov/whd/FOH/index.htm.  In addition to providing more background on applicability, it also provides interpretations of applicability for certain types of requirements such as surveying, demolition, disaster relief contracts, drilling work, and maintenance.  If the SCLS does not apply then it should be determined if the  CWRR apply.  If not, then neither may apply.

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1 hour ago, Todd Davis said:

It is not a matter of whether or not your requirement is a supply or service, but whether or not the Service Contract Labor Standards (SCLS) statutes apply.

Well said. In contracting, we categorize things for a particular purpose. So before we categorize something as a supply or service, we need to know the purpose of the categorization. Something can be categorized as a supply for one purpose and a service for another. 

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2 hours ago, Don Mansfield said:

So before we categorize something as a supply or service, we need to know the purpose of the categorization.

I don't understand that statement.

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For example, are we categorizing for the purpose of applying labor laws? Applying domestic preference laws? Applying limitations on subcontracting? Reporting in FPDS?  

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In other words, there is no universal contract categorization, no single one, but different categorizations for different purposes. Is that it?

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And you think that theory is universally true? There is no such thing as a contract that is a supply contract for all purposes, or a service contract for all purposes, or a construction contract for all purposes?

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13 hours ago, Vern Edwards said:

And you think that theory is universally true? There is no such thing as a contract that is a supply contract for all purposes, or a service contract for all purposes, or a construction contract for all purposes?

It strikes me that this discussion, removed  one level, is really about the usefulness in our career field of both inductive and deductive reasoning.  To me, Don's observations here demonstrate the usefulness of inductive reasoning, that is, arguing from the particular case toward that of the general case. I think that Vern's query aims at considering a rule by process of deduction, that is, a rule from the general case to the particular case.  The Wikipedia article on inductive reasoning gives a succinct example of these two kinds of reasoning: 

"Given that "if A is true then that would cause BC, and D to be true", an example of deduction would be "A is true therefore we can deduce that BC, and D are true". An example of induction would be "BC, and D are observed to be true therefore A might be true". A is a reasonable explanation for BC, and D being true." (https://en.m.wikipedia.org/wiki/Inductive_reasoning)

The two methods when offered in argument variously for or against a proposition present an interesting challenge that we might find on the job fairly often. As a novice, I try to think carefully about such things to avoid confusion. I might find it useful to ask myself "what, if anything, has been refuted?" At times, I may be tempted to surrender too early and be too easily convinced of an alternative proposition. At other times I have let myself  get needlessly stubborn in the face of a better argument to the contrary. 

Vern, I find your observation, above, curious. I am interested what direction this will take and what, if anything might be refuted. 

 

 

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Don said, "In contracting, we categorize things for a particular purpose." That is sometimes true, as with the SCA or the Davis-Bacon Act, but not always. In most cases we categorize contracts as supply, service, or construction, etc., based on the definitions in FAR 2.101 and 37.101.

My point is that I think Don's statement is true in some cases, but not all. FAR provides general category definitions, but it sometimes defines particular categories in special ways in connection with the application of particular rules. The key for a contracting practitioner is to know when a particular rule uses a special definition.

If no such special definition applies, then the contract will be for supplies, services, etc., for all purposes under all applicable rules. Hence, my comment.

I don't think this was an issue of induction versus deduction.

 

 

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Thank you for the explanation...with that I see  no issue with induction/deduction.  

Understanding definitions can be a fun ride...I learned that in Guam, which sonetimes does or most of the time does not fall under the pertinent FAR or DFARS definition of the United States. 

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Even fun in this case.    

FAR part 2 does not define a service contract.

FAR Part 22 defines a “Service contract” as “ 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 41 U.S.C. chapter 67; Service Contract Labor Standards; 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 Service Contract Labor Standards statute.”

FAR part 37 defines  “Service contract” as  “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. “ 

FAR Part 37.000 states -  This part includes, but is not limited to, contracts for services to which 41 U.S.C. chapter 67, Service Contract Labor Standards, applies (see subpart 22.10).”

Conclusion the definition of FAR Part 22 is inclusive in the definition in FAR part 37. 

So does this mean that there is only one definition of “Service Contract” in the FAR?

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Retreadfed - It is a category under that you can contract for with a "service contract".   Like supplies or construction, are not defined contracts but categories of what you can contract for.

More fun!   So by my read the FAR refers to "service contract", "supply contract", and "construction contract" but only specifically defines "service contract".

Don said this and it makes my head spin  -

On ‎2‎/‎24‎/‎2017 at 8:42 AM, Don Mansfield said:

we categorize things for a particular purpose. So before we categorize something as a supply or service, we need to know the purpose of the categorization. Something can be categorized as a supply for one purpose and a service for another. 

It seems a departure from what Todd Davis actually posted which was that you simply determine if a labor law applies which FAR part 22 says at 22.00.   Not sure but this might be better when talking specifically about the FAR -

We can categorize services, supplies and construction for particular purposes but for services it is a "service contract" to which FAR part 22 applies.  Sounds like a repeat of Vern I guess when you get down to it (also consider his blog here -

The OP asked this -

"Are we correct in our interpretation? Is this in fact a service since we are paying for labor associated with a repair for equipment?  Further, anyone have other policy/guidance that provides a clear definition of a supply vs. a service? "

Answers - Yes, see FAR part 37.  Yes, again see FAR part 37.  Yes again see FAR part 37 for the definition of "service contract" and FAR part 2 for a definition of supplies.  

The FAR needs definitions of "supply contract" and "construction contract" and let FAR 22 guidance remain as to what labor laws you put in any "contract" as the labor regulations implemented by FAR part 22 such as 29 CFR 4.111(a) seem clear - ".... the nomenclature, type, or particular form of contract used by procurement agencies is not determinative of coverage."

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On 2/24/2017 at 11:44 AM, Vern Edwards said:

And you think that theory is universally true? There is no such thing as a contract that is a supply contract for all purposes, or a service contract for all purposes, or a construction contract for all purposes?

I'm sure that most contracts fit neatly into a preconceived category for most, if not all, purposes. However, when the question arises whether something is a supply or a service, the underlying purpose of the question usually has to do with the proper application of a rule. As such, my response to questions such as "Is X a supply or service?" would be "For what purpose do you need to categorize X?" 

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Don:

Based on your assumption of underlying purpose, i agree with you. But here's some additional thinking on the matter. Scanning clause prescriptions, I think that there are three broad official categories of contract that are based on the general object of purchase: supply, service, and construction. All contracts that I can think of (at the moment, sitting in Reagan Airport, being driven batty by the public announcements that we Americans love so much) fall into one of those three broad categories. For instance, research and development contracts and architect-engineer contracts are subcategories of service contracts.

Occasionally, a clause prescription requires that we determine if a particular contract of general purpose is in a subcategory that requires application of a particular rule, such as the SCA. The SCA applies only to service contracts. Under the DOL's SCA regulations, there are two subcategories of service contract for purposes of the SCA: (a) service contracts to which the SCA applies and (b) service contracts to which it does not apply. So the first question is whether the contract is for services. The next question is whether the services are in the subcategory to which the sCA applies.

So I think that all categorizations of contracts are initially based on the general object of purchase, and further inquiry proceeds from there. If someone asks whether a contract is for supplies or services, I would ask what they're buying and would answer accordingly. I try not to read intentions into questions. I expect professionals to ask good questions. If the questioner says "Thanks" and walks away, I have done my duty. It's their problem if they don't mention that they have a particular issue in mind. But suppose that they ask whether the contract is one to which the SCA applies. I would ask what they're buying, to find out if they're buying services. If they are buying services, I might have to ask additional questions. But if they said they are buying the services of physicists to study subatomic particles, I would know enough to answer that the SCA does not apply to such services. My thought process would be: (1) they're buying services and (2) physicists are not "service employees"

Thus, before you would think to ask yourself whether the SCA applies to a contract, you would first have to ask yourself if the contract is for services. If yes, you would then have to ask yourself if the services are the kind to which the SCA applies. If you start by asking if the SCA applies, you would still have to determine if the contract is for services and, if so, you would then have to determine if it is the kind of service contract to which the SCA applies. It may be that a response answers both questions: I'm buying the work of physicists to study subatomic particles. In that case there would be no need to ask the second question.

Think of taxonomical keys, such as botanists, entomologists, and ornithologists use to classify plants and animals. You start with the most general questions/categories and proceed to more specific questions/categories: Does the animal have six legs? If yes, does it have wings? And so forth. see e.g., https://www.amentsoc.org/insects/what-bug-is-this/adult-key.html.\

Kingdom, Phylum, Class, Order, Family, Genus, Species.

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Vern,

I think that your approach works in most instances, but there are categorizations that are dependent on the purpose of the categorization. Naval ship repair is a good example: 

For purposes of labor laws, the Navy applies 41 U.S.C. chapter 65, Contracts for Materials, Supplies, Articles, and Equipment Exceeding $15,000--a statute that generally applies to the manufacturing or furnishing of supplies.

For purposes of applying domestic preference policies in FAR part 25, ship repair is not considered a supply. (G. Marine Diesel Corp., 68 Comp. Gen. 411, B-234196 (May 1, 1989))

For purposes of contract reporting, ship repair is reported as a service under the Product Service Code (J9) and reported as manufacturing under the NAICS code (336611).

For purposes of applying the limitation on subcontracting clause, the SBA has applied the standard for supplies in determining responsibility. (Puglia Engineering v. 2005 WL 106785 (N.D.Cal.)).

The FAR Councils referred to ship repair as a service when it modified FAR 52.246-4, Inspection of Services--Fixed-Price (55 FR 52158-01).

Naval ship repair does not fit neatly in the Supply Kingdom or the Service Kingdom.

In cases where it's not obvious whether the contract is for supplies or services, like the one presented by the OP, I think we must consider the purpose of the categorization. That's why I liked when Todd Davis wrote "It is not a matter of whether or not your requirement is a supply or service, but whether or not the Service Contract Labor Standards (SCLS) statutes apply."

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Quote

Naval ship repair does not fit neatly in the Supply Kingdom or the Service Kingdom.

Dpm:

Based on what you have said, it appears to me that it's simply a matter of ship repair being a category of its own. So we have the general categories of supplies, services, construction, and ship repair, ship repair being a hybrid, like a mule. You wouldn't say that a mule is a horse under this circumstance and a donkey under that. You'd simply say that it's a mule.

Once you know your contract is for ship repair you must be on the lookout for inconsistent rule application and reporting requirements. I wouldn't say my contract is for supplies under this circumstance and services under that circumstance. I would say my contract is for ship repair, and I would apply rules and reporting requirements accordingly.

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On ‎2‎/‎17‎/‎2017 at 1:24 PM, 105 CONS said:

FAR 37.101 Defines service contract as 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.  Included in this definition is repair of equipment.  Recently, one of our members paid for services rendered on their GPC to repair a floor sweeper that was broken down. A representative from the manufacturer had to travel to our location to perform repair services that totaled just over $3,200.00.  The total included roughly $2,000.00 for travel/labor and $1,000.00 for new parts.  Our position is that this is considered a service since it is a repair of equipment that we already own and it therefore violated the micro-purchase threshold of $2,500.00 for services.  The requirement should have instead been issued under contract with the inclusion of the proper prevailing wage rates.  The member differs in opinion based on the fact that roughly $1,000.00 spent was for new parts and it therefore can be considered a supply purchase, which the micro-purchase threshold of $3,500.00 for supplies would be applicable under this situation.  

Are we correct in our interpretation? Is this in fact a service since we are paying for labor associated with a repair for equipment?  Further, anyone have other policy/guidance that provides a clear definition of a supply vs. a service?

Did anyone ever answer your question?

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On 2/17/2017 at 2:24 PM, 105 CONS said:

Are we correct in our interpretation?

105 CONS,

What difference does it make?  A card holder made a decision, and supports the position.

Do you want the information so that you can punish the card holder, revoke the purchase, and require a ratification?  Or do you want the information to use it for training or professional discussion in the future?

I tend to treat contracts for commercial product warranties, software and hardware maintenance plans, insurance policies, and so forth as supply contracts -- not because there is any tangible item of supply ever delivered, but because I am forced to categorize them as either supply or service, and I cannot abide calling them service.  For example, a health insurance contract DOES NOT purchase the services of a nurse or medical technician.  For these types of contracts, a contractor delivers a warranty paper or maintenance plan or an insurance policy, and we pay in full immediately after delivery even though the period of coverage may reach into the future.  I insert a delivery date into my automated system and FPDS-NG of when the warranty, plan, or policy is due -- not a period of performance date equal to the coverage period.  Then, after payment, the contractor honors the promises it made in the warranty, plan, or policy.

I encourage you to have a professional discussion with your staff on supply versus service.  Everyone will agree on some examples, but on other examples there might be some differences of opinion.  

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1 hour ago, joel hoffman said:

Did anyone ever answer your question?

Hello.  Yes, I did receive some useful responses.  Thanks.

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On 2/17/2017 at 11:24 AM, 105 CONS said:

Are we correct in our interpretation?

If, as he said, 105 CONS is defining "service contract" as in FAR 37.101, then the answer to that question is No. FAR 37.101 does not apply to implementation of the Service Contract Act pursuant to FAR Subpart 22.10. Under the rules for definitions in FAR 2.101, definitions that appear in particular parts, such as Part 37, do not apply to other parts, such as Part 22.

Instead of looking at the definition of "service contract" in FAR 37.101, 105 CONS  should be looking at the definition of "service contract" in FAR 22.001, which is very different. He should also be researching in Title 29 of the Code of Federal Regulations, Subtitle A, Part 4, Subpart C, "Application of the Mcnamara-O'hara Service Contract Act."

Learn to research the rules, people.

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