FAR 7.402—Acquisition methods.
Plain-English Summary
FAR 7.402 explains how agencies should choose between buying equipment and renting or leasing it. It covers the purchase method, when purchase is generally preferred, and the rule that agencies should not reject purchase just because newer technology may appear later. It also covers the rent-or-lease method, when that approach is appropriate, when it may be used as a short-term solution, why a rental or lease with an option to purchase is preferred, why long-term rentals or leases are generally discouraged, and the requirement to state the purchase price or a clear formula when an option to purchase is included. In practice, this section is about making a sound business decision based on current needs, cost, and timing rather than speculation. It helps contracting personnel avoid paying more over time than necessary and ensures that lease arrangements are structured so the Government understands its eventual acquisition cost.
Key Rules
Purchase when cost-effective
The purchase method is generally appropriate when the equipment will be used long enough that cumulative rental or leasing costs would exceed the purchase price. The key question is whether ownership is the better value over the expected period of use.
Do not reject purchase for speculation
Agencies should not avoid buying equipment simply because future technological advances might make the equipment less desirable. The decision should be based on present needs and cost, not on uncertain future developments.
Lease when advantageous
The rent or lease method is appropriate when it is to the Government's advantage under the circumstances. This means the agency must have a reasonable business justification for choosing temporary use instead of ownership.
Short-term lease as interim solution
Renting or leasing may be used as a short-term measure when immediate equipment use is needed to meet program or system goals, but current conditions do not support purchase. This allows the Government to meet urgent needs without committing to a premature buy.
Option to purchase preferred
If renting or leasing is justified, a rental or lease agreement with an option to purchase is preferable. This gives the Government flexibility to convert to ownership if continued use later makes purchase the better value.
Avoid long-term leases
Long-term rental or lease agreements should generally be avoided, although they may be acceptable if they include an option to purchase or other favorable terms. The rule reflects concern that extended leasing can become more expensive than buying.
State purchase price terms
If the agreement includes an option to purchase, the contract must state the purchase price or provide a formula for determining it at the time of purchase. This prevents uncertainty and disputes when the Government decides whether to exercise the option.
Responsibilities
Contracting Officer
Evaluate whether purchase or lease is the better value based on expected use, cost, and program needs. Ensure lease arrangements are justified, prefer options to purchase when leasing is used, avoid unnecessary long-term leases, and include a stated purchase price or a clear formula when an option to purchase is part of the agreement.
Agency
Make acquisition decisions that support the Government's advantage under the circumstances and avoid rejecting purchase based only on possible future technology changes. Ensure equipment acquisition choices align with program goals, timing, and cost-effectiveness.
Program/Requirement Officials
Identify the operational need for immediate equipment use, explain why purchase is not currently supportable if leasing is proposed, and provide the factual basis for the acquisition method decision.
Contractor or Lessor
Offer lease or rental terms that comply with the solicitation and contract requirements, including any option-to-purchase terms and the stated purchase price or pricing formula when applicable.
Practical Implications
This section pushes agencies to do a real cost comparison instead of defaulting to leasing or buying out of habit.
A common pitfall is using a lease for too long, which can quietly cost more than a purchase and create avoidable budget pressure.
Another mistake is rejecting purchase because the equipment may become outdated later; FAR 7.402 says that alone is not a valid reason to avoid buying.
If a lease includes an option to purchase, the contract must be precise about the purchase price or how it will be calculated, or the Government may face disputes later.
Contracting officers should document the business rationale for the chosen method so the file shows why the decision was in the Government's interest.
Official Regulatory Text
(a) Purchase method. (1) Generally, the purchase method is appropriate if the equipment will be used beyond the point in time when cumulative rental or leasing costs exceed the purchase costs. (2) Agencies should not rule out the purchase method of equipment acquisition in favor of renting or leasing merely because of the possibility that future technological advances might make the selected equipment less desirable. (b) Rent or lease method. (1) The rent or lease method is appropriate if it is to the Government's advantage under the circumstances. The rent or lease method may also serve as a short-term measure when the circumstances— (i) Require immediate use of equipment to meet program or system goals; but (ii) Do not currently support acquisition by purchase. (2) If a rent or lease method is justified, a rental or lease agreement with option to purchase is preferable. (3) Generally, a long term rental or lease agreement should be avoided, but may be appropriate if an option to purchase or other favorable terms are included. (4) If a rental or lease agreement with option to purchase is used, the contract shall state the purchase price or provide a formula which shows how the purchase price will be established at the time of purchase.