52.207-5
Option to Purchase Equipment
This clause enables the Government to purchase leased or rented equipment at any time during the contract by unilateral modification, with the purchase price reduced by accumulated lease or rental credits.
Overview
FAR 52.207-5, "Option to Purchase Equipment," provides the standard clause for contracts where the Government leases or rents equipment with an option to purchase. This clause outlines the procedures and terms under which the Government may exercise its right to purchase the leased or rented equipment during the contract period, including any extensions. It details how the purchase option is exercised, how charges are handled, and how the purchase price is calculated, including credits for prior lease or rental payments.
Key Rules
- Exercise of Purchase Option
- The Government may purchase leased or rented equipment at any time during the contract by issuing a unilateral modification specifying the effective date.
- Lease/Rental Charges Discontinuation
- Lease or rental charges stop the day before the effective purchase date; only final payment and title transfer remain.
- Purchase Price Calculation
- The purchase price is the contract price minus accumulated purchase option credits, calculated per the contract formula.
- Credits from Previous Contracts
- Credits from continuous lease or rental under previous Government contracts are included in the purchase price calculation if the equipment has been continuously leased or rented.
Responsibilities
- Contracting Officers: Must issue a unilateral modification to exercise the purchase option and specify the effective date.
- Contractors: Must comply with the terms for discontinuing lease/rental charges and calculating the purchase price, including applying all eligible credits.
- Agencies: Ensure proper documentation and adherence to the clause when exercising purchase options.
Practical Implications
- This clause ensures clarity and fairness in transitioning from leasing/renting to purchasing equipment.
- It impacts contract administration, payment processing, and asset management.
- Common issues include miscalculating credits, failing to properly document the modification, or misunderstanding the timing of charge discontinuation.