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First, this is a great question. Second, never a good idea to argue with lawyers.
I'm going to caveat this answer with one assumption and that is that there was only one contractual action (see FAR 2.101 definition for contract) and it included both services and hardware/products.
In that case your lawyer and the office who runs your GPC program are correct. See FAR subpart 22.10 Service Contract Labor Standards and FAR 22.1002-1. The FAR and the Statute say it applies to contracts in excess of $2,500 (bold italics added for emphasis). It does not say only to the services portion of the contract.
Note there are additional references in FAR subpart 22.10 which states "contract in excess of..." again, bold italics added for emphasis.
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