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    I'm trying to find specific guidance within the FAR or other appropriate regulations that would define clearly the difference between a service, and supply contract. On the surface it seems simple, but i've heard things like "if there's any installation involved" it becomes a service even if the installation only makes up a small fraction of the overall cost with the rest being materials, etc. The 2nd thing i've received inconsistent guidance on is the IGCE. To me, you should avoid involving industry at all costs (pun intended) when creating the IGCE. This way you mitigate the risk of bias in creating the IGCE. I've searched around in the FAR for more precise guidance on both of these subjects, and haven't found anything clear to date. Is this the sort of thing that's subjective, and left to the discretion of the various contracting offices? Thx in advance!


    Answer

    Short answer:  The primary purpose of the work – to perform an identifiable task (“service”) or to furnish an end item of supply (“supply”) – should be what determines whether the work is considered a service or a supply.  Some situations involve discretion in the interpretation and treatment of what is considered to be the primary purpose of the contracting action.  Whether something is treated as a “service” or “supply” may impose different or additional responsibilities on the contractor and the Government, and even among different stakeholders within the Government team (e.g., procuring contracting officer or project/program office).  Sometimes, the regulations or policies of the local procuring activity may dictate how the procuring contracting officer (PCO) will designate the work as “service” vs. “supply” if certain conditions apply.  When the situation allows for PCO discretion (i.e. sound business judgment), ideally this determination should be a mutually agreeable one between the procuring contracting officer and the customer submitting the procurement request.  For further consideration, additional information is provided below.
    “Supplies”, as defined at Federal Acquisition Regulation (FAR) 2.101, “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 or installation of any of the foregoing.” Note the words “…and the…installation of any of the foregoing”.

    “Service contract”, as defined at
    FAR 37.101 --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 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).
    (8) Transportation and related services (see Part 47).
    (9) Research and development (see Part 35).”

    [Emphasis added.]   Note that while “installation” is not identified in the areas listed above, the list is not an all-inclusive.

    When determining the primary purpose of the work being procured, it is important to note how the work is being defined within the contract vehicle [i.e. for each contract line item number (CLIN)] as well as for the contract vehicle as a whole.  Often a contract vehicle will contain both services and supplies. 

    If a supply item is the end item deliverable for a CLIN, that effort is consider “supplies” even if the CLIN requires effort to install the item before final inspection and acceptance of the supply item.  Note the earlier definition of “supplies” included “…installation of any of the foregoing”.  In this scenario, the statement “if there’s any installation involved, you are procuring services, not supplies” is not correct. 

    If the primary purpose of the work under a CLIN is an identifiable task involving the use of supply items, it is a service.  For example, the Government is procuring “X” number of widgets (a supply item) under one CLIN (which would be considered a supply).  However, because the Government may not be at this time sure if it wants to install the items itself or have the contractor do the installation, the Government may include an option CLIN for the installation of the widgets at a later date.  In this situation, the option CLIN for installation is a service.

    It is important to note whether more dollars are spent on services CLINs vs. supply CLINs does not automatically determine whether the contract as a whole is considered a service or supply contract.  For example, there is a contract for a vendor to maintain existing Government-owned systems that have some very expensive parts, the primary purpose of the contract is a service (i.e. maintain existing Government-owned systems).  While there is a CLIN for the maintenance effort yet, there also is a CLIN to reimburse the vendor ordering very expensive replacement parts (i.e. supplies) that far exceed the value of the maintenance CLIN for removal and installation of the old parts and install the new parts.  One PCO may code the overall contract as a service even though more dollars are spent on supplies while another PCO may code the overall contract as a supply.  In some cases, the overall coding of the contract vehicle may be immaterial.  However, in other cases, it may result in dollar threshold requirements for approval requirements or peer reviews related to the acquisition of services.  Sometimes, the PCO may have discretion is making such designations.  Sometimes, the regulations or policies of the local procuring activity may dictate how the PCO will designate the work as “service” vs. “supply” if certain conditions apply.

    In addition, the appropriate designation of work as a “service” vs. “supply” is important as the contract specialist/PCO will need to include different contract clauses depending on whether the work for a CLIN is considered a “service” or a “supply”.  For example, there are different Federal Acquisition Regulation (FAR) clauses for the inspection of services vs. supplies.  Also, some procuring activities require the use of a Contracting Officer’s Representative (COR) and/or a Quality Assurance Surveillance Plan (QASP) if a service is being acquired.   

    Thus, when the PCO has discretion on the determination of “service” vs. “supply” -- is the primary purpose of the work to perform an identifiable task (“service”) or to furnish an end item of supply (“supply”) -- ideally that decision should be a mutually agreeable one between the procuring contracting officer and the customer submitting the procurement request.
     

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