The General Services Administration has approved new terms for information technology leasing under its Part 70 Schedule.  The new terms are being issued as a contract modification to existing IT schedule contractors.  Vendors are being asked to sign and return the modification by May 3.   The modification contains multiple new terms and provisions which Schedule vendors should review in detail before signing.  (On April 5, GSA had suspended Federal agencies’ ability to issue leasing orders under the IT Schedule.  GSA intends to lift its restriction on IT leasing on a vendor by vendor basis following the vendor’s consent to the new leasing terms.)

 The new terms contemplate three types of leases:  lease to own, lease with an option to own and step leases.   The modification also includes a number of standardized leasing  provisions which must be included in all leases.  Schedule vendors need to review the modification and become familiar with the new leasing terms being mandated by GSA. 

 Contractors must also choose between two options for lease pricing.  Under option one, the lease would automatically expire on September 30 of each year and the contractor could not recover cancellation charges if the Government does not renew the lease.  In addition, the Government may terminate the lease at any time for convenience. 

 Under option two, a contractor may include in the lease agreement a Termination Ceiling amount in return for a lower lease price.  In the event of an early cancellation of the lease, the contractor may receive an amount up to the Termination Ceiling, but only to the extent the ordering agency agrees that the amount is “reasonable” and “represent[s] the value the Government received for the work performed based upon the shorter lease term.”

 Choosing option one means accepting the full risk of non-renewal of the contract at each option period.  Choosing option two mitigates this risk somewhat but involves several complex issues which require analysis and negotiation.

Contact Petrillo & Powell for further assistance in negotiating leasing terms with GSA.

 Joseph J. Petrillo 202-887-0405 jp@petrillopowell.com

Karen D. Powell 202-887-4827 kdp@petrillopowell.com

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