I am contemplating an order against the GSA Federal Supply Schedule to lease several PCs. The terms of the GSA Schedule's lease agreement clearly state that the parties understand and agree that they are entering into a 36-month lease. The terms go on to describe the conditions for termination. Specifically, a "termination for convenience" may be done however, the Agency is responsible for the net present value of the remaining lease payments less the residual value of the equipment. The termination provision goes on to state that in the event the Agency does not get sufficient funding for the lease, then termination may be done without further payment.

For this particular order, my program office only has sufficient funds (this year) for the first year of the lease. The program would like to fund each of the following years as its funds are made available. Given this condition, I am concerned about anti-deficiency. Since sufficient funds have not been made available for obligatoin to cover a termination for convenience, I feel exposed. Also, I am unclear about the standard that would be applied to prove the "Agency" does not have sufficient funds to fund the remaining term of the lease.

Are there any other folks partially funding leases? If so, how have you resolved the above concerns?

By formerfed on Thursday, February 14, 2002 - 08:08 am:

Unfortunately this is an example of GSA trying to do too much again. I can see seat mangement where customer agencies pay a monthly or annual fee for complete desktop functionality (hardware, software, maintence, support, etc.). But they shouldn't be putting contracts in place for lease. This will certainly cause lots of problems in administering orders. Many people will enter into these leases only to find they want to cancel as soon as the next model of hardware comes out. vendors don't want to get stuck with cancellation so that's why there's a 36 month period.

In response to your question, my interpretation is you need to have sufficent funds available to cover TfC costs. You don't necessarily need to obligate the money, but you should have it on hand.

As opposed to getting into a lease, I would gather data and put together a brief business case showing the realtive cost of leasing versus purchase. Let your budget/Comptroller folks know how much more leasing costs plus the hidden difficulites of cancelling should something occur (like a program person deciding in six months they want the latest and greatest).

By Stan March on Thursday, February 14, 2002 - 08:28 am:

At SSA we intrepret OMB circular A-11 to require you to obligate the full 36 months for the lease otherwise you would have an unfunded liability. This lease is the same as an installment payment plan

By formerfed on Thursday, February 14, 2002 - 09:00 am:

Stan,

I thought of that too. The difference here is PCs and I don't think they meet the criteria of A-11. The GSA contract language for major capital expenditures have different language which essentially requires full funding.

By Stan March on Friday, February 15, 2002 - 09:24 am:

I would agree that since we are talking about small number of PCs that A-11 may not apply, likewise the following guidance from A-94 only demonstrates the concept that you can't use leasing to get around a lack of funding:

"(a) The leases in question would generally result in substantial savings to the Government that could not be realized on a purchase;
(b) The leases are so small or so short-term as to make separate lease-purchase analysis impractical; and
(c) Leases of different types are scored consistently with the instructions in Appendices B and C of OMB Circular No. A-11"

By rransom on Friday, February 15, 2002 - 08:26 pm:

Thanks all for your input. This is good. Everyone seems to be falling into my camp of concern. My review of A-94 concluded that it only applies to actions valued in excess of $1M. Nevertheless, it lays out a good framework for valuing a lease vs a purchase.

It appears my program office do not understand how other Federal agencies are doing it, but I'm not. Since they don't have sufficient funds to purchase the PCs (74 so far, with 500 total over the next three years) I am getting substantial pressure to change my mind.

I'm thinking of getting the vender to agree that a statement from the C.O. that sufficient appropriated funds are not available to cover the remaining lease term is all that is needed. I'm not clear in my own mind if that is modifying the GSA terms and conditions or simply an agreement on how they will be applied.

More comments are very welcome!

By formerfed on Tuesday, February 19, 2002 - 02:16 pm:

Rranson,

This may or may not be a problem, but I can't help but think if your program office doesn't have enough money to buy PCs which are rather inexpensive, what are they doing for software. In the absence of agencywide site licences or a sufficient of licenses already in place, software funding is often overlooked. In many cases, program offices think they can install the same indiviual shrink wrapped packages over and over again on multiple PCs with paying the software vendor. Often the cost of legitimate software is greater than the hardware costs.

If funding is a problem and you are worried about cancellation costs you can't fund, look at seat management. Most of the GSA seat mangement contracts have a much easier and less financially painful way to get out at FY end.

By rransom on Wednesday, February 20, 2002 - 07:47 pm:

Thanks Formerfed,

Actually, I'm not letting go of this yet. I've researched the Principals of Appropriations Law and found, in chapter 6, a reference to the "Leiter v United States" case. My understanding of this 1927 case is that a contract for a lease that extends beyond the period in which appropriated funds are available, is construed as obligating the the Government beyond its current year's funding authority.

I'm also thinking that the GSA/FSS contract should include one of the Termination provisions and those provisions may offer a measure of protection relative to the ultimate cost (of termination) not exceeding the funded value of the order. I'm in the process of locating the actual GSA contract...

Finally, in the true spirit of thinking outside the box, I'm thinking of funding for twelve months, but also sticking some additional amount in the order to cover my termination liability. However, the lease terms prescribe that the termination for convenience charge will be determined based on the "stipulated loss value" of the lease unpaid payments less the fair market value of the product. The vender is unable to identify the fair market value of the product today, for a undetermined time in the future. So, I'm kind of at a dead-end there.

Good discussion...again, thanks!

By rransom on Wednesday, February 20, 2002 - 07:54 pm:

One more response to Formerfed,

Yes, we do have a site license for software. Also, based on this excercise, I'm not so sure that the lease costs will exceed the purchase price in every instance. My observation is that, taking into account the net present value of lease payments versus the purchase price, they are compatible because the vender is able to offer a steeper unit price discount due to the larger volume of units being obtained. In other words, we are obtaining a further "volume" discount that we would not otherwise be able to obtain (with the funds we currently have on hand).