"Not sure why it would even need Location Services" - Yes, I agree and frankly, this feeds into the wider question of trust with such "track and trace" systems/applications. One of the key aspects of using the google/Apple api/process is to ensure that your data is secure and as part of the there is a commitment that you locations is not shared, yet the first thing that you have to do is to turn on location services and specifically such a thing as "Significant Locations". Now clearly, that would be a useful thing to demographically identify virus hot-spots through the location of where people visit on a regular basis, viz:
Bob, Mary and Sam all test positive within a few days of each other,
Bob's significant locations are Home, The Golf Club, XYZ work, ABC Sport Centre,
Mary's significant locations are Home, The Airport, NNN work, The Golf Club and The Swimming Pool,
Sam's significant locations are Home, PPP Work, The Golf Club and The Sailing Club
The one common location is The Golf Club, so that may be the location where the virus is being shared.
While this may be of great benefit to the community with regards to COVID-19, my understanding is that Apple does not do that analysis, so why the need for the information? Further, have that information available to a nefarious government (and here I am going to put the tin foil hat on) and change The Golf Club with "The Trotsky Appreciation Meeting House" and then Track and Trace takes on a whole new raison d'être.
Huge areas of the population (here in the UK) would refuse to take the original Track and Trace system designed by the national heath service because of the lack of privacy and [fear of] tracking your actual location. Apple/google should be mindful of the optics of requiring location services.