Why Federal Leases Are
are several key differences between Federal and all other government
(e.g. state, county or municipal)
leases, and Federal leases are quite different from commercial leases. Lets start with the #1 difference
with Federal leases:
is no First Capital lease document, as in the municipal or private sectors.
The "paperwork" originates with the government's
not the leasing company. The government purchase order ("Order For
Supplies & Services") is accompanied by a set of "Terms and Conditions"
which can be a very detailed set of product and payment specifications
and most times is only document describing the transaction. Government lease purchase orders
are generally issued directly to the vendor ("prime contractor"). The
financial proceeds of each purchase order, as they are issued (see
below), are assigned to First Capital, via a routine federal
transaction known as a "Assignment of Claims."
The Federal Government Buys One
Year At A Time...
Vendors Are Paid In Full, On Delivery!
Federal agencies are funded
year-by-year by Congress. By statute, 98% of those agencies can only spend or commit to
spending funds from the current year's appropriation. There are of
course many situations where it is in the Federal Government's
interest to make multi-year commitments (e.g. leases) to spread their
acquisition and ownership costs over several budget years. Federal
government agencies will issue purchase orders for the current fiscal
year AND can make a "good faith" commitment confirming the government
agency's intention to issue additional purchase orders, in
subsequent fiscal years, in amounts totaling the full amount of lease (i.e.. 36,
48 or 60 months etc). Legally however, the government cannot
issue a purchase order for any year other than its current fiscal
Leasing Protects The Vendor From
Here's why: Although
the equipment vendor is PAID IN FULL by First Capital on delivery and
two very significant risks with every Federal lease:
1) Non-Appropriation. As discussed, government entities
will enter into multi-year lease agreements, but cannot guarantee the
issuance of any purchase order for any period other than the current
budget period. If Congress does not appropriate funds necessary for that Federal agency, one or more of the future purchase
orders that together make up the full purchase price--may not be issued.
One need look no further than financial fiasco of 2012 to get a sense of
the potential risks on this. First Capital's documentation does not include any recourse to
the vendor (who has been paid in full), nor is their any legal recourse
to the Federal agency.
2) Termination For Convenience. Many
Federal agencies request the inclusion "Termination for Convenience"
language in the Terms & Conditions of their purchase orders (see below).
Simply put, termination language allows the agency the unilateral
prerogative to designate the leased products as "no longer essential" to
that agency--and to simply "terminate" the issuance of additional
purchase orders and to return leased products at the conclusion of the
fiscal year. As with non-appropriation, there is no
contractual recourse between First Capital, the vendor or the government under this
Federal Acquisition Regulations
And The Critical "Terms & Conditions"
Regulations (FAR's) form the basis of the Terms & Conditions that are
attached to and/or referenced in Federal agency's P.O.'s (Order for Supplies and
Services). The "Terms & Conditions" can be quite extensive and will
detail almost of every aspect of the transaction and the agreed-to
It is not unusual for there to be some "give and take" in the
finalization of terms and conditions. Contracting officers seem to have
a fairly wide range of discretion on certain issues within certain
agencies. First Capital will need to see the actual order to know what issues may need
further clarification etc. (We may also suggest the application of Terms
and Conditions currently defined under existing GSA contracts)