Analysis of FAR Subpart 7.4 - Equipment Acquisition

Overview

FAR Subpart 7.4 establishes the policies and procedures federal agencies must follow when deciding whether to purchase, rent, or lease equipment. It mandates a comparative cost analysis to ensure the government selects the acquisition method providing the greatest financial and operational advantage, applying to both new acquisitions and the renewal of existing agreements.

Key Rules

• Mandatory Comparative Analysis: Agencies must conduct a case-by-case analysis of comparative costs and other factors before selecting an acquisition method.
• Methods for Comparison: The analysis must, at a minimum, evaluate:
  • Outright purchase.
  • Short-term and long-term rental or lease.
  • Interagency acquisitions.
  • Agreements with State or local governments.
• Decision Criteria for Purchase: The purchase method is generally preferred if the equipment will be used beyond the "break-even" point where cumulative leasing costs exceed the purchase price.
• Leasing Preferences: If leasing is necessary, a "lease with option to purchase" is the preferred arrangement. Long-term leases should generally be avoided unless they include purchase options or particularly favorable terms.
• Pricing Transparency: If a lease includes an option to purchase, the contract must explicitly state the purchase price or the specific formula used to calculate it.
• Emergency Exemptions: The requirement for a formal comparative analysis is waived during Presidentially declared emergencies, major disasters (Stafford Act), or situations involving the immediate protection of human life and property.

Responsibilities

• Agencies/Program Managers: Responsible for conducting the cost analysis, estimating the period of use, and evaluating the "Total Cost of Ownership," including maintenance and storage.
• Contracting Officers (COs):
  • Must ensure the selected acquisition method is the most advantageous to the government.
  • Must insert FAR clause 52.207-5 (Option to Purchase Equipment) in applicable solicitations and contracts.
  • Must ensure lease-to-purchase formulas are clearly defined in the contract.
• Agency Heads: Responsible for making "determination of necessity" findings to bypass analysis requirements in non-Stafford Act emergency situations.
• General Services Administration (GSA): Provides market intelligence, price adjustment data for Federal Supply Schedules, and technical guidance on industry trends to help agencies make informed decisions.
• OMB: Provides the overarching budgetary framework and "Benefit-Cost Analysis" guidelines via Circulars A-94 and A-11.

Practical Implications

• Avoidance of "Lease Traps": This subpart prevents agencies from entering indefinite rental agreements that result in the government paying multiple times the equipment's value without ever gaining ownership.
• Total Cost of Ownership (TCO) Focus: Procurement teams must look beyond the monthly "sticker price" of a lease and factor in transportation, installation, and the "imputed interest" of government funds.
• Technology Management: While the FAR cautions against avoiding purchase solely due to fear of obsolescence, the analysis requirement allows agencies to choose leasing for high-tech equipment (like medical or IT gear) where the risk of rapid technological change outweighs the benefits of ownership.
• Market Research Requirements: For contractors, this means that government RFPs for equipment may require detailed pricing for both lease and purchase options, as the CO needs this data to satisfy the FAR 7.401(a) analysis requirement.