FAR 7.404—Contract clause.
Plain-English Summary
FAR 7.404 addresses a very narrow but important drafting requirement: when the government uses a rental or lease arrangement that includes an option to purchase the equipment, the contracting officer must include a clause substantially the same as FAR 52.207-5, Option to Purchase Equipment. In practice, this section ties the acquisition strategy in FAR part 7 to the actual contract language that protects the government’s ability to convert a rental or lease into a purchase if that option is part of the deal. It covers solicitations and contracts, not just the final award document, so the requirement must be built into the procurement from the start. The section exists to ensure the option-to-purchase right is clearly stated, enforceable, and consistently handled across competing offers and final contract terms. For contractors, it signals that a lease or rental proposal may need to account for a future sale of the equipment under defined terms. For contracting officers, it is a mandatory clause-insertion rule, meaning the issue is not discretionary once the acquisition structure includes a purchase option.
Key Rules
Insert required clause
The contracting officer must include a clause substantially the same as FAR 52.207-5, Option to Purchase Equipment. This is a mandatory inclusion when the procurement involves a rental or lease agreement with an option to buy.
Applies to solicitations and contracts
The clause must appear in both the solicitation and the resulting contract when the arrangement includes an option to purchase. This ensures offerors know the government’s intended rights before award and that the final agreement preserves those rights.
Only for rental or lease with purchase option
This requirement applies specifically to equipment rental or lease arrangements that also give the government an option to purchase. It does not create a general requirement for all leases or all equipment buys.
Substantially the same language
The clause does not have to be copied word-for-word, but it must be materially the same as FAR 52.207-5. Any deviation should preserve the substance of the government’s option rights and related terms.
Responsibilities
Contracting Officer
Determine whether the acquisition is a rental or lease agreement with an option to purchase and, if so, insert a clause substantially the same as FAR 52.207-5 in the solicitation and contract. The contracting officer must ensure the clause is included early enough to inform offerors and carried through to award.
Agency
Support acquisition planning and contract drafting so the rental/lease structure and purchase option are properly identified and documented. The agency must ensure its procurement documents align with the required clause and the intended business arrangement.
Contractor/Offeror
Review the solicitation and contract terms to understand the government’s option-to-purchase rights and price implications. The contractor must account for the possibility that the government may exercise the purchase option under the stated terms.
Practical Implications
This is a drafting checkpoint: if the acquisition is a lease or rental with a buyout option, the clause is not optional and should be added before solicitation release.
A common pitfall is treating the purchase option as a business detail rather than a required contract term; if omitted, the government’s rights may be unclear or harder to enforce.
Contractors should price and structure offers with the option in mind, since the government may later convert the arrangement from rental/lease to purchase.
Contracting officers should verify that the solicitation and final contract match; leaving the clause out of either document can create inconsistency and protest or administration risk.
Because the rule requires a clause substantially the same as the FAR clause, any local edits should be carefully checked to avoid weakening the government’s option rights or changing the clause’s effect.
Official Regulatory Text
The contracting officer shall insert a clause substantially the same as the clause in 52.207-5 , Option to Purchase Equipment, in solicitations and contracts involving a rental or lease agreement with option to purchase.