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    Which is the appropriate limit for this request? As the predominant expense is for the furniture/supply portion, the argument from the department is that it's supply. However, because there is a service involved, the CH and AO both contend that the limit is the services limit of $2,500.


    Based on my understanding of your furniture requirement, the FAR definitions for "service contract" and "supplies", and 29 CFR 4.141, I believe you are only subject to the $3,500 micro purchase limitation.  This requirement should be classified as a supply because the installation service is secondary to the actually supply item (furniture) being purchased.
    The definition of supplies in FAR Part 2 does allow for installation.  I also don’t believe your requirement meets the definition for service contract found in FAR 37.  The dollar threshold for a service under micro purchases is connected to the applicability of the Service Contract Labor Standards Statute found in FAR Subpart 22.10.  So, I went to FAR 22 and then on to 29 CFR (Labor Regulations) to fully examine how services are depicted. 
    FAR 2.101- “Supplies” 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.
    29 CFR 4.131-  “……The proportion of the 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. A procurement that requires tangible items to be supplied to the Government or the contractor as a part of the service furnished is covered by the Act so long as the facts show that the contract is chiefly for services, and that the furnishing of tangible items is of secondary importance.”

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