Thursday, September 6, 2018

Proposed Rule: Rental Cost Analysis in Equipment Acquisitions

When we first viewed the title of this proposed FAR (Federal Acquisition Regulation), our minds went immediately to the cost principle on Rental Costs (FAR 31.205-36) wondering whether the FAR Councils were planning to make some changes, particularly to Section (b)(3) dealing with leases between related parties, a section that frequently poses problems to contractors. But no, that's not the case. This change relates to equipment that the Government leases. If you are in the business of leasing equipment to the Government you need to be familiar with these proposed changes because they will become final. Most likely future Government's analyses will become much more rigorous than what you might be accustomed to.

The proposed change directs agencies to evaluate comparative costs and other factors when considering whether to lease or rent equipment versus purchase equipment. The rule also adds a link to a GSA site that provides additional guidance on renting and leasing equipment. Finally, it adds a link to a GSA office from which agencies may request information when making lease or purchase decisions. Finally it clarifies that the term "lease" applies to both the lease and rental of equipment to avoid confusion on whether there the differing terms are subject to different rules. They're not.

Based on Fiscal Year 2016 data, the Government issued approximately 34,925 contract actions for the rent, lease, or purchase of equipment. Of that amount, approximately 20,100 awards were made to 6,670 unique small business entities. The average award to small businesses was valued at approximately $700 thousand.

The new analysis requirements will apply to both the initial acquisition of equipment and the renewal or extension of existing equipment leases (and rentals). Rental agreements are typically for shorter periods of time than lease agreements. Additionally, maintenance requirements and financial terms differ between a lease and a rental agreement.

The GSA guidance that agencies will now need to follow and document can be found here.

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