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Is Rental Equipment a Service?

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15 hours ago, Desparado said:

I find this thread interesting that so many good contracting minds and we cannot even come close to consensus on whether this is a service or a supply...  

Renting equipment shares elements of both a service and a supply, so it ends up being treated differently in different contexts or for different purposes.  

On one hand, from a Product Service Code perspective, it falls under Category W, which suggests a service.  In the context of a delivery schedule, rentals more closely resemble a service than a supply, as the item must be furnished across a range of dates, much like a severable service, and generally unlike a simple supply contract, which typically would have only a delivery date.

On the other hand, you have the examples in this thread and the following.

Quote

 

The “Termination” clause incorporated will depend on the classification of the contract (service or supply). In Blue Ridge Leasing, ENG BCA No. 4666, 82-1 BCA 15,734, the board held that a 12 month auto leasing contract at a fixed monthly rental was a supply contract. The board was not swayed by the Government’s argument that it was a service contract since services were “ancillary to the principal purpose…[i.e.,] the procurement for a time of a motor vehicle.” Blue Ridge’s appeal was sustained, and it was allowed general termination costs, instead of mere rental payments.

 

2 Federal Contract Management ¶ 12.09.  @Lionel Hutz's reference to Part 8 seems consistent with Blue Ridge.  Another fun decision is Anchorage Telephone Utility, GSBCA No. 7030, 84-1 BCA ¶ 17,020, where the Board seems almost frustrated by the whole issue:  "We are not persuaded that this contract can fairly be characterized as either a supply contract or a service contract for the purposes of this appeal.  Sometimes we have no choice but to pick one of two almost equally unappealing alternatives."

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9 hours ago, Lionel Hutz said:

On the other hand, FAR Part 8 specifically directs contracting officers to "Insert ... (e) The provisions and clauses prescribed elsewhere in the FAR for solicitations and contracts for supplies..." when leasing motor vehicles.  FAR 8.1104.

We have to be careful with words here.  That FAR quote talks about leasing.  The point I made is about short term rental.  Accounting makes a distinction in that lease is “A lease is a contract to rent an asset, be it land, a building, or machinery, for a set period of time and for set payment terms. Leases often come with many conditions in terms of the allowed use of the asset and even required maintenance terms.

A typical lease is often long term, ranging from 1 year to as many as 10 or 20 years. Significant penalties can be incurred by either party, the lessor (owner of the asset) or the lessee (user of the asset), in the event that either party violates the lease.”

Rent often is an more or less informal agreement with terms of a day or two up to a month or more. There’s never intent to take title.

Vehicle rentals are a good example.  You lease a car for three years, for example.  You agree to provide insurance, maintenance and keep in proper condition.  In essence you are completely responsible for it.  You also have various options at the end including keeping it.  Not much different than a Hertz rental.

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1 hour ago, formerfed said:

We have to be careful with words here.  That FAR quote talks about leasing.  The point I made is about short term rental.  Accounting makes a distinction in that lease is “A lease is a contract to rent an asset, be it land, a building, or machinery, for a set period of time and for set payment terms. Leases often come with many conditions in terms of the allowed use of the asset and even required maintenance terms.

A typical lease is often long term, ranging from 1 year to as many as 10 or 20 years. Significant penalties can be incurred by either party, the lessor (owner of the asset) or the lessee (user of the asset), in the event that either party violates the lease.”

Rent often is an more or less informal agreement with terms of a day or two up to a month or more. There’s never intent to take title.

Vehicle rentals are a good example.  You lease a car for three years, for example.  You agree to provide insurance, maintenance and keep in proper condition.  In essence you are completely responsible for it.  You also have various options at the end including keeping it.  Much different than a Hertz rental.

I'm not really sure what you are quoting there, but it doesn't appear in the FAR. 

The FAR makes no distinction between rental and lease of motor vehicles.  In fact, FAR 8.1101 Definitions, states, "'Leasing' means the acquisition of motor vehicles, other than by purchase from private or commercial sources, and includes the synonyms 'hire' and 'rent.'"

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Not unusual this thread departed from the OP's question with regard to application of SCA and how application or not would dictate whether the micro-purchase card could be used at the $7000 level.  I hope that the OP and GPC coordinator arrived at the conclusion that it could.  This said and reading the further comments especially the citations offered by @Jacques I was reminded of the following discussion thread.  I am left wondering in todays world of FAR Part 12 whether the categorization  regarding termination clauses would even apply.

Enjoy the read.....

 

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On ‎7‎/‎25‎/‎2019 at 1:00 PM, ji20874 said:

A backhoe is an item of supply, whether you purchase it or rent it.  

 

If the price is expressed in terms of a period of performance, it's not a supply.  You are paying for the rights to use the item for a specified period of time (a service), not 'acquiring a tangible item' (a supply).  No one would ever classify 'data rights' as a supply simply because data is tangible. 

12 hours ago, Lionel Hutz said:

Edit: For the record, I agree with those saying the backhoe rental should be treated as a supply for purposes of SCA applicability and use of the GPC.

 

I'm not sure why it has to be 'treated as a supply' simply because SCA is not applicable.  SCA is not applicable because labor is not involved. That's like saying database subscriptions should be 'treated as a supply for purposes of SCA applicability' 

Regarding leases, a lessor pays rent on a lease for a conveyance of property, which is the legal process of transferring property from one owner to another (in this context, for a specified period).   If you rent a backhoe and it seizes because someone forgot to put oil in it, it's not your problem. If you lease a backhoe and it seizes because someone forgot to put oil in it, it is your problem.

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21 hours ago, Desparado said:

 If SCA doesn't apply, then you should be able to use the GPC since the $2,500 limit wouldn't be applicable. So call it what you want, you should still be able to argue that you can use your card.

The SCA doesn't apply to professional consulting services either, i.e., SCA applicability has nothing to do with the GPC rules.

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2 hours ago, REA'n Maker said:

If the price is expressed in terms of a period of performance, it's not a supply. 

I disagree — but to each his own, right?  In my contracting officer practice, a backhoe is an item of supply — purchase or lease, a backhoe is an item of supply.  

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This thread is a good example of why the procurement profession receives so much criticism.  Despite our beliefs, a contract is not the end result.  😀  Rather we are there to support various agency programs and achieving mission needs.

In this instance we are talking about short term backhoe rental.  The commercial industry describes itself as a service.  Government accountants say it’s a service.  The applicable code to report work is a service.  But we want to disregard FAR part 12 because the government looks at this differently.

Then we complicate with asking if the SCA applies.  Next is an analogy to argue with about an ancient court case that covers a year long vehicle lease.  

Lots of good arguments are made with more recent decisions.  Of course GSA offers short term rentals which they tell agencies to fund with service money. 

Regardless of it being a supply or service, who cares?  A program needs a backhoe.  It doesn’t matter as long as it’s there.  If we pick one method, who’s going to prove it wrong? 

The part of this that really stretches logic is whether the SCA applies.  Read the purpose and intent of the Act.  It has very little to do with DOL current philosophy.  Our job is providing acquisition support to the government.  It’s not saying we did a contract that’s 100% compliant with regulations, didn’t receive any nicks during contract review processes, and is protest free.  It’s about getting the agency what they want, when they need it, and represents economy and efficiency.  

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7 hours ago, REA'n Maker said:

The SCA doesn't apply to professional consulting services either, i.e., SCA applicability has nothing to do with the GPC rules.

So explain how GPC rules differ from the definition of micro purchase and thresholds in FAR 2.101.

@formerfed I pose the same question to you.

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28 minutes ago, C Culham said:

So explain how GPC rules differ from the definition of micro purchase and thresholds in FAR 2.101.

@formerfed I pose the same question to you.

The card threshold is $2500 when the SCA is applicable

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13 hours ago, formerfed said:

in this instance we are talking about short term backhoe rental.  The commercial industry describes itself as a service.  Government accountants say it’s a service.  The applicable code to report work is a service. 

I base my practice on the simple definition of service contract in FAR 37.101 — that’s all I need.  And, for the question in the OP, that is all that matters.  Please read it.

As I said, to each his own, right?

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I’ll add one more comment and quit this thread.  The reason industry characterizes this type of work as a service is for short term use, the customer isn’t really responsible for much and has restricted use.  The company delivers the backhoe, sets it up, instructs on use, and comes back later and retrieves it.  There’s never any semblance of the customer taking ownership, even for a limited time.  They are providing the capability to dig.  

But this entire area is fuzzy.  There doesn’t seem any answer and convincing arguments exist for each side.

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The company delivers the backhoe, sets it up, instructs on use, and comes back later and retrieves it.  There’s never any semblance of the customer taking ownership, even for a limited time.  They are providing the capability to dig.  

Perhaps, if someone steals it and takes it away, it becomes a supply to the thief.😋

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2 hours ago, ji20874 said:

 And, for the question in the OP, that is all that matters

 I think you err in this quote.  For the question in the OP what matters is whether SCLS applies not whether one wants to wring their hands over the supply service determinationi.  Now if you want to go beyond micro- purchase looking at other categorizations such as FAR 37.101 makes sense.

FAR 2.101 (emphasis added) -   "“Micro-purchase threshold” means $3,500, except it means-

           (1) For acquisitions of construction subject to 40 U.S.C. chapter 31, subchapter IV, Wage Rate Requirements (Construction), $2,000;

           (2) For acquisitions of services subject to 41 U.S.C. chapter 67, Service Contract Labor Standards, $2,500; and

           (3) For acquisitions of supplies or services that, as determined by the head of the agency, are to be used to support a contingency operation; to facilitate defense against or recovery from cyber, nuclear, biological, chemical or radiological attack; to support a request from the Secretary of State or the Administrator of the United States Agency for International Development to facilitate provision of international disaster assistance pursuant to 22 U.S.C. 2292 et seq.; or to support response to an emergency or major disaster (42 U.S.C. 5122), as described in 13.201(g)(1), except for construction subject to 40 U.S.C. chapter 31, subchapter IV, Wage Rate Requirements (Construction) (41 U.S.C. 1903)–

                (i) $20,000 in the case of any contract to be awarded and performed, or purchase to be made, inside the United States; and

                (ii) $30,000 in the case of any contract to be awarded and performed, or purchase to be made, outside the United States."

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1 hour ago, bob7947 said:

Perhaps, if someone steals it and takes it away, it becomes a supply to the thief.😋

Notwithstanding the prevalence of fraud, waste, and abuse in government contracting, the theft would NOT be a transaction governed by the FAR.  I wouldn't even call it an "Other Transaction."  :)

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It seems to me that one should decide that it is a service contract before deliberating whether SCA/SCLS applies.  

Answering the first question (is it a service contract?) as NO allows the original poster to proceed with the acquisition as a micropurchase.  For the original poster, NO is a reasonable answer based on FAR 37.001.

However, if one relies on something other than FAR 37.001 for the definition of a service contract, and answers the first question (is it a service contract?) as YES, only then does he or she need to consider the second question of whether SCA/SCLS applies.  YES to the second question means the acquisition cannot be done as a micropurchase; NO means it can.

Because I answer NO to the first question (is it a service contract?) based on the definition of service contract in 37.001, I don’t have to bother with the second question of whether SCA/SCLS applies

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9 hours ago, ji20874 said:

It seems to me...

Following FAR 2.101 there are 2 decision points when not a contingency based on categorization of what wage rates apply not whether a service or construction as defined by FAR Part 37 but by certain USC's that relate to the definitions of FAR Part 22 for either and that are specifically referenced not only in 2.101 but FAR Part 22.  FAR 1.108 suggests that as defined by 2.101  another part of the FAR is not applicable to defining or determining what threshold applies.   

By example using the OP's situation and if a statement were required as why the $7,000 procurement was made it would be bad premise to say because FAR Part 37 definition does not apply rather it would be more appropriate to state that 41 USC Chapter 67, SCLS does not apply.

If SCLS does not apply, nor Wage Requirements (Construction) then the micro-purchase can continue to the full non-contingency threshold.     

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Carl,

Right.  However, one need not reach to 41 USC Chapter 67 to know that SCA/SCLS doesn’t apply to the original poster’s situation — he or she may instead simply look to FAR 22.1003-1.

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Renting a backhoe for a short period without any operator should be a simple commercial item transaction. The rental company provides standard terms and conditions in  its rental contract. If you are going to lease the backhoe for a set period, then it would certainly be a commercial item lease acquisition. 
 
You’d think that this would be  covered in a reg somewhere. Tool and Equipment Rentals.
 
What if the installation needed to rent a special tool for a task to be performed by government employees? You’d check with local rental companies like United Rentals, Blue Rents, Sunbelt Rentals, etc. Select somebody to rent from , go down and sign the paperwork and have it delivered or pick it up - and there Ya Ah!  Bing bang boom. I do it often for my church projects.  If individuals,  companies, churches, etc. can rent tools and equipment so simply, why can’t the government do it simply? I thought that was the beauty of  commercial Item acquisition methods. 

What’s the difference between renting a tool for a specific job and renting a backhoe for a specific job? How would you rent a tool?  How would you rent a tool that you need the rental company to deliver then later pick up? 

...it’s the govt forms...the forms...the forms...They send you the terms and conditions and rental agreement. Too big for a GPC? You send them a purchase order, right?

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On 11/6/2019 at 10:30 PM, C Culham said:

So explain how GPC rules differ from the definition of micro purchase and thresholds in FAR 2.101.

@formerfed I pose the same question to you.

Is the point of this question that the MPT is $3500, the GPC may be used for procurments under the MPT,  but the GPC limitation for actions subject to the SCA is only $2500?  If this thread was about proper use of the GPC, that would be relevant;  however, as it relates to the question of whether an equipment rental is a supply or service, it doesn't seem relevant. 

I'm not following the meaning of GPC rules and MPT thresholds "differing".  They are two different things.

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On 11/7/2019 at 8:46 AM, ji20874 said:

I base my practice on the simple definition of service contract in FAR 37.101 — that’s all I need.  And, for the question in the OP, that is all that matters.  Please read it.

As I said, to each his own, right?

So when you contract with a dedicated carrier for Transportation Services (IAW FAR 47)  you "acquire a tangible item" (the truck), ergo, a supply? 

“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.

Primary purpose:  provide a backhoe for a specified period of time. 

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Equipment rental should be the same type contract for renting tools from an equipment rental company or renting a backhoe from that company. 

They have standard hourly, daily or monthly rental rates for either one and standard delivery rates. 

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6 hours ago, REA'n Maker said:

So when you contract with a dedicated carrier for Transportation Services (IAW FAR 47)  you "acquire a tangible item" (the truck), ergo, a supply? 

A truck is an item of supply.  A contract for the purchase or lease of a truck is a contract for an item of supply.

A transportation services contract where the contractor provides transportation services (driver, loaders, storage, weighing, routing, and so forth) in addition to a truck (which contractor employees drive, load, store, weigh, route, and so forth) is probably better characterized as a contract for a service.

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4 hours ago, REA'n Maker said:

If this thread was about proper use of the GPC, that would be relevant;

The thread is as the OP posed this   "I contend that it is exempted from SCA since the federal employee will be operating it and I can use the GPC to pay for it. "  

 

4 hours ago, REA'n Maker said:

I'm not following the meaning of GPC rules and MPT thresholds "differing".  They are two different things.

They might be the same thing.  Consider the DEPARTMENT OF DEFENSE GOVERNMENT CHARGE CARD GUIDEBOOK FOR ESTABLISHING AND MANAGING PURCHASE, TRAVEL, AND FUEL CARD PROGRAMS and that it states that a GPC Micro-purchase at Table I-1 on Page I-8 is "Services subject to 41 U.S.C. chapter 67, Service Contract Labor Standards".  And, this on page I-10 "For more information about which types of services are subject to labor stand- ards, see: FAR Subpart 22.10, Service Contract Labor Standards Department of Labor (DOL) 29 CFR Part 541. When purchasing services not listed in 29 CFR Part 541, the applicable MPT applies. (Ref. https://www.acq.osd.mil/dpap/pdi/pc/docs/DoD_Govt_Charge_Card_Guide_11-14-18.pdf)

Then consider USDA and their statement that "For USDA purposes, the micro-purchase limit is $3,500 for supplies, $2,500 for services, and $2,000 for construction."   And, this

"The purchase card should be used unless it is clearly in the best interest of the government to use more formal contracting methods. The purchase card can be used to buy:

• Goods (supplies) under $3,500

• Services (personal and non-personal) under $2,500

• Personal property under $3,500

• Construction under $2,000"

  (Ref. https://www.dm.usda.gov/procurement/ccsc/docs/pcref/Department_PurchaseCardProgramGuide_v2.1.pdf)

Overall not one mention of labor standards by USDA!!!!!

Hopefully now you know why I posed the question to you. 

PS - So much for consistency in Federal procurement!!!!!!!!

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