Overview
FAR 7.402 outlines the criteria for deciding whether the government should purchase, rent, or lease equipment, prioritizing the method that offers the greatest financial advantage and functional utility.
Key Rules
- Purchase Method: Preferred when the equipment's period of use will result in cumulative rental or leasing costs that exceed the total purchase price.
- Technological Considerations: Potential future technological advances should not be the sole reason for rejecting the purchase method.
- Rent or Lease Method: Appropriate when it is in the Government's best interest or as a short-term solution for immediate needs when a purchase is not yet supported.
- Preference for Options: If leasing is justified, agreements that include an option to purchase are preferred over straight leases.
- Long-Term Leases: Generally discouraged unless they include favorable terms or an option to purchase.
- Price Transparency: Any lease with an option to purchase must explicitly state the purchase price or provide a specific formula to calculate it at the time of exercise.
Practical Implications
- Contracting Officers must perform a "lease vs. purchase" financial analysis to justify the acquisition method, ensuring the taxpayer is not paying more for a lease than the asset is worth.
- When drafting lease solicitations, agencies should include clauses for purchase options to maintain flexibility and protect the government's interest if long-term needs change.