Formula used to calculate purchase conversion cost for 52.207-5 (Option to purchase equipment)

[T3W_09]

Historically our office has leased equipment without performing a lease vs. buy analysis. Now that we have done the analysis, it is clear that we should buy.  Of course, we do not have funds to replace all of the leased equipment at once and would like to begin leasing with the option to purchase as described in FAR clause 52.207-5, Option to Purchase Equipment. 

52.207-5, when included appears to give the Government the unilateral right to purchase at any point during the lease.  Paragraph (c) references, the purchase conversion cost (purchase price minus total purchase option credits accumulated during the period of lease, calculated by "A FORMULA CONTAINED ELSEWHERE IN THIS CONTRACT.")

Does anyone have experience with lease with the option to purchase and have a sample formula to calculate a purchase conversion cost that they would be willing to share?

[ji20874]

Your own market research should reveal formulas that are customarily used in your market sector.  You should not attempt to develop a formula without meaningful market research.

[formerfed]

Agree with ji20874.  You need to do research and have an understanding of the marketplace.  There are many factors that affect pricing and they very depending upon the specific commodities.

[formerfed]

This subject is often dealt with competitive acquisitions.  The solicitation specifies contract life in months, asks for proposals on various acquisition approaches (lease, lease with option to purchase, lease to ownership, purchase, etc.), and provides necessary assumptions for the evaluation.  For example it might say the government will exercise the purchase option under leases 15 months after award.  Offerors provide prices for purchase, lease, percentage of monthly lease payments that accrue against purchase, etc.   So the formula gets established mutually with offerors.