Software as a Service - Supply or Service?

[shall7]

I currently have an active F type contract for a term software license.  No period of performance was establish in section F; only a delivery date was established.  However, in section B the item description describes a period of performance for 12 months from date of delivery.

I am working on a procurement package for the follow-on competition and I have run into a question I can't find the answer to.

What is the right way to identify term software licenses?  Should PSC 7030 be used or is there a specific service code that should be used?

https://psctool.us/search?pscsearchkeyword=7030&requesturi=https%3A%2F%2Fpsctool.us%2Fsearch%3F

Thanks for the help everyone.

[ji20874]

7030 works for me.  

 

A a software license is a supply, not a service.  Your order should set a delivery date, not a period of performance.  

[Guest Jason Lent]

I wish I could recover the source from my experiences, but I remember reading that software could be considered a service if there was a regular deliverable identified (such as scheduled updates). Otherwise, a license would indeed be a supply.

[sdvr]

Software as Service can be done in a few different ways... Imagine a per user per month scenario, where charges are based by actual users per month. Still FFP, but billed at the actual usage. Would still have a POP.  Also many software companies have converted "subscription licenses" to SaaS. They own the IP and the actual software, and charge for access for the most recent version. I look at SaaS as more of a payment option. Doesn't change the product, or how its being delivered, just how its being billed.   

Now I have no clue on the PSC question. 

[ji20874]

sdvr,

I agree that SaaS is a payment arrangement -- given that we must categorize software license purchases as either supply or service (we have no other choice), SaaS is still a supply (notwithstanding the second "S" in SaaS).  In all commercial software buys, all we get is a license -- in all of them, "they" still own the IP and the actual software.  

[shall7]

If anyone is curious this is the software...it's called "Ideascale" and it's one of SECNAV's projects.  It's a user based, crowd sourcing platform.  The Navy can only guess as to how many users will be signed up in the coming years so it's difficult to estimate the price.  The current product is offered by Alamo City Engineering Services, Inc.  They are on GSA.

https://doninnovation.ideascale.com/a/index

[Guest Vern Edwards]

On March 24, 2016 at 9:41 AM, ji20874 said:

7030 works for me.

A a software license is a supply, not a service.  Your order should set a delivery date, not a period of performance.  

 

On March 24, 2016 at 3:46 PM, ji20874 said:

sdvr,

I agree that SaaS is a payment arrangement -- given that we must categorize software license purchases as either supply or service (we have no other choice), SaaS is still a supply (notwithstanding the second "S" in SaaS).  In all commercial software buys, all we get is a license -- in all of them, "they" still own the IP and the actual software.  

I see no rationale in either of those responses for claiming that the acquisition of a software license is an acquisition of supplies. All I see is insistence.

Supplies are property, except real property. All of the examples in FAR 2.101 are tangible things. An acquisition of supplies is an acquisition of property and property rights. But a software license is a use agreement. A license typically does not transfer any property rights, except, perhaps to any physical medium on which the software is delivered. But that's like the cardboard box in which the book arrives from Amazon. Do you own the box? Sure. Why not? Do you care that you own it after you take the book out?

What do you get when you obtain the license right to use software? Automated information processing services. Right? Then why is the acquisition of a software license an acquisition of supplies?

In any case, why must a software license be categorized as either? What if it's neither? Shouldn't we think outside the box?

[ji20874]

The FAR speaks to supplies and services (and construction), and FPDS-NG and so forth do as well.  Given that choice, the original poster should choose supplies.  The suggestion of neither might be true in a strict semantic sense, but probably isn't practical in a FAR context.   

That said, I would be interested in exploring how software could be bought (licensed) while seeing it as neither supplies nor services.

 

 

[Guest Vern Edwards]

Quote

That said, I would be interested in exploring how software could be bought (licensed) while seeing it as neither supplies nor services.

Before we discuss that, which I'll be happy to do, I need you to explain why the original poster should choose supplies as the right category for a software license. You have said that several times, but you have never given a reason. (Did I miss it?)  I might agree with you if you would give me a reasonable argument.

[Jamaal Valentine]

shall7:

Can your questions be answered by reviewing the GSA contract? It should have the clauses (services or supply), NAICS, and PSC. 

You might find luck directing your questions directly to the GSA contracting officer.

[ji20874]

Supply or service?  We have to pick one, right?

A software license does not engage employees to perform a task -- hence, not a service contract.  A license is delivered (so to speak) to the customer and kept in the agency's files.  A software license might be thought of as an intangible supply item, like health insurance.  We pay for it one time, up front.  My health insurance does not engage the services of nurses and doctors, and if purchased under the FAR, should be purchased as s supply.  Or, like a subscription -- my magazine subscription does not engage the services of writers and editors, and if purchased under the FAR, should be purchased as a supply.  My recent automobile purchase did not engage the services of welders, machinists, and rubber plantation workers, and is best thought of as a supply rather than a service (although I could write a service contract to build a car).  Well, this last one wasn't intangible.

 It simply makes no sense to call commercial software, for which we seek a license, a service where we pretend like we are engaging the services of coders and so forth.  We aren't hiring coders to develop software for us if we're talking about a license for commercial softeare.  Given the structural bi-modal choice of supply or service, it is better and professionally honest to call it a supply with a delivery date (delivery of the license and shrunk-wrapped or downloadable software) rather than a service with a period of performance (where the period of performance is the license term).  The terms and conditions for standard FAR supply contracts work better for software licenses than the service clauses.  And imagine the joke of trying to impose a Service Contract Act wage determination on a commercial software firm -- it simply can't be done.  

Even if the license includes upgrades, patches, and fixes, it is still a supply.  Even if it includes up to a certain number of service center calls.

For all these reasons, I choose to look on commercial software licenses as supplies rather than services.  

If if there is a third way, please share it.  

[joel hoffman]

29 minutes ago, ji20874 said:

Supply or service?  We have to pick one, right?

A software license does not engage employees to perform a task -- hence, not a service contract.  A license is delivered (so to speak) to the customer and kept in the agency's files.  A software license might be thought of as an intangible supply item, like health insurance.  We pay for it one time, up front.  My health insurance does not engage the services of nurses and doctors, and if purchased under the FAR, should be purchased as s supply.  Or, like a subscription -- my magazine subscription does not engage the services of writers and editors, and if purchased under the FAR, should be purchased as a supply.  My recent automobile purchase did not engage the services of welders, machinists, and rubber plantation workers, and is best thought of as a supply rather than a service (although I could write a service contract to build a car).  Well, this last one wasn't intangible.

 It simply makes no sense to call commercial software, for which we seek a license, a service where we pretend like we are engaging the services of coders and so forth.  We aren't hiring coders to develop software for us if we're talking about a license for commercial softeare.  Given the structural bi-modal choice of supply or service, it is better and professionally honest to call it a supply with a delivery date (delivery of the license and shrunk-wrapped or downloadable software) rather than a service with a period of performance (where the period of performance is the license term).  The terms and conditions for standard FAR supply contracts work better for software licenses than the service clauses.  And imagine the joke of trying to impose a Service Contract Act wage determination on a commercial software firm -- it simply can't be done.  

Even if the license includes upgrades, patches, and fixes, it is still a supply.  Even if it includes up to a certain number of service center calls.

For all these reasons, I choose to look on commercial software licenses as supplies rather than services.  

If if there is a third way, please share it.  

So, you are saying that you are essentially purchasing a product or the rights to use the product, not the services to produce the product right?

[Guest Vern Edwards]

ji20874:

I am on a train with unreliable wifi going to a remote place with even less reliable wifi, if any. I will respond, but it might take a few days. Please bear with me.

Vern

[C Culham]

Service or Supply? – these might help.

https://dap.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=14&cgiQuestionID=108481

http://www.gao.gov/assets/520/510646.pdf

And just because Jamaal proposed a great idea on how to solve the PSC question itself as posed by the OP…..confirms that 7030 as the correct code it appears.

https://www.gsaadvantage.gov/ref_text/GS35F0598S/0PDAL3.3A0VJT_GS-35F-0598S_ACESGSAPRICELISTMARCH102016.PDF

[ji20874]

Joel,

For a commercial software license, the services to produce the software application have already been completed.  It's not so much that I insist that a software license must be called a supply (it is sort of an intangible supply), but rather, I most strenuously object to calling it a service and treating it as a service for FAR purposes.  Given our bi-modal scheme in the FAR, supply works better than service, and service simply doesn't fit at all.

In this thread, I am only discussing a license for already-existing commercial software -- I am not discussing situations where the Government contracts for software developers and coders and so forth, tasks them to develop software, and pays them by the hour.

[shall7]

Wow, interesting read!  Just for the record, it is commercial software without any software development.  The GSA contract is GS-35F-0598S.  Here is the price list, see IS-15.

ACES GSA pricelist IdeaScale April 21 2015.pdf

[Guest Vern Edwards]

On March 24, 2016 at 9:41 AM, ji20874 said:

7030 works for me.  

A a software license is a supply, not a service.  Your order should set a delivery date, not a period of performance.  

A question: Would PSC W070, "Lease or rental of equipment - Information technology equipment (Including firmware), software, supplies, and support equipment" work for you? If not, why not?

I could find no official guidance on the use of W070.

[Guest Vern Edwards]

I've found several FBO notices about software license renewals that were categorized as D, "Information technology services, including telecommunication services." Here's a  link to one posted by DOD's Washington Headquarters Services for license renewals: https://www.fbo.gov/?s=opportunity&mode=form&id=21c0fe1483c8506fc7daa26527d9d810&tab=core&_cview=0.

[ji20874]

Well, we usually think in terms of buying a license, not leasing a license.

[Guest Vern Edwards]

Isn't a software license just a kind of lease? You're acquiring the right to use the software for a specified period. Right?

[ji20874]

If calling it a lease means we have to do complicated lease-versus-purchase computations, then I don't want to call it a lease.  Besides, I don't think industry will accept us calling it a lease.  But if it is a lease, then it is necessarily a supply rather than a service, right?

 

Note:  I understand that software leasing does occur in the commercial marketplace...

[Guest Vern Edwards]

ji20874:

You're not going to have to do a lease versus purchase analysis, and the industry is not going to care what you call it for government purposes as long as they get their terms.

FAR 12.212 tells us to acquire commercial software under the terms of commercial licenses unless those terms are inconsistent with Federal law. FAR 27.405-3 prescribes a clause to use "when there is any confusion" in that regard.

I don't think there is any need to declare the acquisition of a license either a supply or a service, except for purposes of FBO and FPDS and maybe some agency contract writing software. I can't say anything about the contract writing software, because I don't use the stuff. As for FBO and FPDS is appears to me that agencies are using all kinds of PSC codes, not just 7030. The confusion is probably due in part to the fact that GSA develops the services codes and DLA  develops the supply codes, and they are not mutually exclusive. The fact that DLA develops the supply codes suggests to me that they are thinking in terms of tangible items, not stuff like software, but I don't know.

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.

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. It's not really the software that you care about, it's the quality of the output.

[Todd Davis]

The product service codes (PSC) manual is managed by GSA.  It is used to describe products, services, and research and development purchased by the government.  While PSC codes are used for other means (e.g. FBO notices), it is primarily used for coding transactions in FPDS.  While one should endeavor to select the correct code to help ensure data in reports are correct, I don’t think selecting the wrong one is of significant consequence.  Unlike a NAICS code (when using small business set-asides), a PSC doesn’t have any impact on the solicitation.

https://www.acquisition.gov/?q=Acquisition_Systems and https://www.federalregister.gov/articles/2015/05/28/2015-12891/federal-procurement-data-system-product-service-code-manual-update

 

Having said that, it appears that 7030 (Information Technology Software) would be a good code to use if one is simply purchasing software that is not being developed, designed to Government unique specifications, or include other supporting services. 

 

The notes section of 7030 (product) states:

“Notes Software is a series of instructions or statements in a form acceptable to a CPU, designed to cause the Information Technology Equipment or Automated Data Processing Equipment configuration to execute an operation or operations; or a collection of data in a form capable of being processed and operated on by a computer.  Includes: System programs, such as operating systems, assemblers, compilers, executive routines, interpreters, translators; utility programs, such as sort/merge programs, media conversion, maintenance diagnostic programs; and application programs, such as payroll, inventory control, and engineering analysis programs.

Excludes: Software designed to Government specifications to satisfy the requirements of a particular user or for use with ADPE properly classifiable in an FSG other than FSG 70. Also excludes operating manuals and programmers' manuals properly classified in FSG 76.”

 

Code D318 (service)

“IT and Telecom- Integrated Hardware/Software/Services Solutions, Predominantly Services

Includes: Contracts Buying Hardware, Software, and Related Services, Where Services Are The Predominant Portion of The Contract Value”

 

The author of the manual (GSA) would probably be the most appropriate organization to advise on which code is the most appropriate.  However, I don’t know that it is worth pursuing for the reason stated above.

 

While not applicable to PSCs, NAICS code definitions may be helpful to determine how best to classify a software purchase (manufacturer of a product vs service provider).   

 

Manufacturing

334614  Software, packaged, mass reproducing

NAICS definition.  This U.S. industry comprises establishments primarily engaged in mass reproducing computer software or other prerecorded audio and video material on magnetic or optical media, such as CD-ROMs, DVDs, tapes, or cartridges. These establishments do not generally develop any software or produce any audio or video content.

 

Information

511210  Software publishers (uses a revenue size standard which is typically used for service providers versus manufacturers)

NAICS definition.  This industry comprises establishments primarily engaged in computer software publishing or publishing and reproduction. Establishments in this industry carry out operations necessary for producing and distributing computer software, such as designing, providing documentation, assisting in installation, and providing support services to software purchasers. These establishments may design, develop, and publish, or publish only. (From U.S. Census Bureau website http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=511210&search=2012 NAICS Search)

 

Services

541511  Software analysis and design services, custom computer

NAICS definition.  This U.S. industry comprises establishments primarily engaged in writing, modifying, testing, and supporting software to meet the needs of a particular customer.

 

541512  Computer software consulting services or consultants

NAICS definition.  This U.S. industry comprises establishments primarily engaged in planning and designing computer systems that integrate computer hardware, software, and communication technologies. The hardware and software components of the system may be provided by this establishment or company as part of integrated services or may be provided by third parties or vendors. These establishments often install the system and train and support users of the system.

 

541519  Software installation services, computer;

Note from SBA Size Standard Manual “NAICS code 541519 – An Information Technology Value Added Reseller (ITVAR) provides a total solution to information technology acquisitions by providing multi-vendor hardware and software along with significant value added services…” (additional text in SBA size standard table).

 

Unless services are the predominate portion of the contract value, I would use 7030 to acquire the right to use an existing software product (intellectual property).  While software may not be “personal property”, that is transportable, it is still property and a product sold for authorized use.  Also, unless some sort of additional services are being acquired with the software, it may or may not classify as a service for which the Service Contract Labor Standards statues apply (see DOL Field Handbook http://www.dol.gov/whd/FOH/FOH_Ch14.pdf).

 

For what it’s worth, I would also use NAICS 511210, which is neither in a manufacturing or services NAICS code series, but rather the “information” series. 

[Guest Vern Edwards]

I don't care about NAICS codes. They categorize industries, not products and services. To the extent that they tell us anything, they tell us something about the groups we buy buy things from, not about the nature of the things we buy.

[jtolli]

3 hours ago, Vern Edwards said:

Isn't a software license just a kind of lease? You're acquiring the right to use the software for a specified period. Right?

It depends on the specific software.  Some (most) software licenses are perpetual.  Some software licenses are term licenses.