GSA freezes IT leasing

The General Services Administration last week put a moratorium on new leasing deals for information technology products through Federal Supply Service schedule contracts, just as leasing business appeared to be heading for its best year yet.

The moratorium, effective April 5 through June 4, could cut off millions of federal contracting dollars. But government and industry officials are optimistic that an agreement soon will reopen leasing to agencies.

During the first four years leasing was available on the GSA schedule, business increased from $14 million to $92 million. Leasing sales for fiscal 2002 were headed for another record year, with fiscal 2002 first-quarter numbers exceeding the previous first-quarter high in fiscal 2000 by 67 percent.

GSA called for a halt on new deals after negotiations stalled with industry on new terms for the schedule leasing contracts, according to Deborah Ruiz, an agency spokeswoman.

She did not respond to an inquiry about specific terms of the negotiations but said FSS expects "a quick resolution to the issue." And following a hastily convened meeting with GSA, industry officials agree.

"Everybody now realizes the full gravity of the situation, and I expect that in a week to 10 days, we'll have this issue resolved," said Larry Allen, executive director of the Coalition for Government Procurement, a Washington, D.C., industry group.

The problems during the negotiations centered on the issue of lease termination and "making sure terminations are in line with all the laws that govern federal expenditures," Allen said.

While most agencies still buy IT products outright, some opt for leasing as a way to spread the costs over several years. Leasing computers, like leasing cars, also makes it easier for customers to trade in their equipment for newer models.

Concern about leasing is not new, and much of it has revolved around allowing agencies to terminate a lease agreement if they do not receive funding the following year to pay for it. The Office of Management and Budget has been particularly concerned about how leasing terms fit into the federal budget process, said one expert.

A recent leasing deal negotiated by GSA's Federal Technology Service (FTS) that fell through highlighted those concerns for some GSA officials, according to several sources. And although schedule contracts are being renewed throughout the year, a "significant" number of contracts were set to expire this month, so agency officials felt it was important to nail down the leasing terms now, Ruiz said.

GSA did not respond to inquiries about the FTS contract, but officials believe "leasing will remain a viable option under the [schedule] program," Ruiz said.

"The important point is that this is a temporary situation that provides both FSS and industry with the opportunity to deal with leasing," she said.

Currently, most vendors have different terms for their schedule leasing contracts, Allen said. GSA, the Coalition for Government Procurement and other industry members will be working toward a set of common, baseline leasing terms that individual vendors can add to as needed, he said.

The moratorium should end once that agreement in is place, Allen said.

The moratorium prohibits contractors from accepting any new leasing orders, but they may continue to maintain equipment already installed at agencies. Agencies must also get approval from FSS for new orders on existing lease blanket purchase agreements based on the GSA schedule.

However, agencies can still arrange leasing through the many other governmentwide IT contracts, such as the National Institutes of Health's Chief Information Officer Solutions and Partners 2i contract.

Agencies can also work directly with vendors to arrange leasing deals, even using FSS schedule prices as a starting point, said Ray Bjorklund, vice president of consulting services at Federal Sources Inc. "It will probably take double the time to award [their own contract], but agencies' contracting officers can do it on their own," he said.

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A chilling effect?

Leasing sales through the Federal Supply Service Information Technology Schedule since 1997:

Fiscal 2002 (1st quarter): $35 million

Fiscal 2001: $92 million

Fiscal 2000: $72 million

Fiscal 1999: $109 million

Fiscal 1998: $29 million

Fiscal 1997: $14 million

Total: $351 million

First-quarter leasing sales through the FSS IT Schedule:

Fiscal 2002: $35 million

Fiscal 2001: $19 million

Fiscal 2000: $21 million

Fiscal 1999: $14 million

Fiscal 1998: $6 million

Note: Numbers have been rounded.

Source: FSS Schedule Sales Query report generator