52.207-5 Option to Purchase Equipment
Source: FAR 52.207-5 on acquisition.gov
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.
As prescribed in 7.404 , insert a clause substantially the same as the following:
Option to Purchase Equipment (Feb 1995)
(a) The Government may purchase the equipment provided on a lease or rental basis under this contract. The Contracting Officer may exercise this option only by providing a unilateral modification to the Contractor. The effective date of the purchase will be specified in the unilateral modification and may be any time during the period of the contract, including any extensions thereto.
(b) Except for final payment and transfer of title to the Government, the lease or rental portion of the contract becomes complete and lease or rental charges shall be discontinued on the day immediately preceding the effective date of purchase specified in the unilateral modification required in paragraph (a) of this clause.
(c) The purchase conversion cost of the equipment shall be computed as of the effective date specified in the unilateral modification required in paragraph (a) of this clause, on the basis of the purchase price set forth in the contract, minus the total purchase option credits accumulated during the period of lease or rental, calculated by the formula contained elsewhere in this contract.
(d) The accumulated purchase option credits available to determine the purchase conversion cost will also include any credits accrued during a period of lease or rental of the equipment under any previous Government contract if the equipment has been on continuous lease or rental. The movement of equipment from one site to another site shall be "continuous rental."
(End of clause)