Learn to Present Finance and Payment Options Early in the Sales Cycle to Avoid Roadblocks
August 16, 2013 Leave a comment
Congress is concerned that agencies are not doing the required lease versus buy trade-off analysis before starting procurements as required by FAR 7.4 and asked its watchdog, the Government Accountability Office (GAO), to study the matter. GAO 12-281R found problems within the two departments sampled (Air Force and Interior).
When GAO identifies problems and makes recommendations to Congress it’s a good idea for the Executive Branch to do something. In this case update the rules as recommended. The FAR Council is seeking input from government and industry before proposing changes and this request was published in the Federal Register July 16 with responses requested by September 16. Interestingly, it appears the Council is going beyond the concerns raised in the GAO report to questions about lease versus rentals in addition to lease versus purchase.
Stemming from the Boeing Tanker lease scandal, the oversight community remains concerned that agencies are not doing adequate lease vs. purchase total life-cycle cost analysis before making procurement decisions. Today we are seeing an uptick in lease-to-own procurements, structured with annual options, as a way for the government to get what it wants while living within its increasingly constrained annual appropriation authority. Further, we are seeing agencies wanting to transition from a model of owning assets to buying the production of those assets as a service, with leasing seen as an interim transition phase between those two financial models.
The GAO report recommended agencies redouble their efforts to train the acquisition workforce to do the trade-off exercise and defend the recommended approach before conducting procurements involving leases because, as the report states:
The 24 contract files we reviewed where lease versus purchase analyses were not conducted did not contain sufficient information to allow the contracting official to perform an analysis. Specifically, in most cases, neither the request from the activity in need of the equipment nor other supporting documents, such as market research information, contained sufficient details that would enable contracting officials to perform a lease versus purchase analysis.
DoD responded to the report and is addressing the concern with updates to the Defense Acquisition University curriculum, so we can expect more total life-cycle cost questions from our government customers during the sales cycle as they will increasingly be asked to include the data necessary to justify a lease to the contracting shop.
Finally, the FAR Council is using this as an opportunity to look at rental, and whether short-term usage situations should also be analyzed during this phase of acquisition planning. This piqued my interest. As the government moves to a consumption model akin to renting, I suppose it’s just a matter of time before the rules will need to be updated to require buyers to analyze the long-term economics of buying a capability as a service versus buying the assets to deliver the service.
What does this mean for people selling to government? Learn to automatically present lease vs. buy trade-off options early in the sales cycle so no matter what fiscal hurdles come up, your customer has what they need to make the argument they need to make in the purchase request file. Otherwise your deal has a high probability of hitting insurmountable roadblocks. Your customers are going to be learning how to do a lease vs. purchase trade off. Maybe you should too.