Leasing controversy heads for resolution

Industry and government officials are working toward a quick end to a 60-day moratorium imposed last week by the General Services Administration on leasing of information technology products under the Federal Supply Service schedule, industry and GSA officials said April 4.

The GSA announced in a memo March 29 that it would suspend IT leasing under the FSS schedule for 60 days, beginning April 5. About $100 million in leasing is generated under the FSS IT Multiple Award Schedule each year. About $10 billion a year is spent through the schedule, according to GSA.

Although only about 1 percent of spending under the schedule goes to leasing, the moratorium will cause hardship for agencies and vendors, said Larry Allen, executive director of the Coalition for Government Procurement in Washington.

"It leaves schedule customers high and dry at a time of year a lot of leases are entered into. It undermines buyer confidence in the schedules program needlessly," Allen said.

The GSA initiated the moratorium because it is concerned about high fees charged to agencies for early termination of leases, Allen said. The federal Anti-Deficiency Act prohibits agencies from obligating funds for fiscal years that they don't yet have funding for, he said.

Concerns had arisen after the Navy awarded the Navy-Marine Corps Intranet contract and canceled some leases early, causing it to face greater charges than it had anticipated.

More recently, the Department of Health and Human Services was faced with seven-figure early termination charges under a GSA Federal Technology Service contracting vehicle, which brought the issue to light again, Allen said. However, the moratorium does not apply to leasing under FTS contracts.

"Leasing has been an incredibly popular way for agencies to acquire software and other IT goods that allow them to share information in the name of homeland security. And to the extent you are taking away the government's most popular leasing method when homeland security is still a front-burner issue, you are putting a crimp in homeland security efforts," he said.

A GSA spokesperson said the agency will work with customers that have major IT leasing projects "to ensure that they are able to maintain the focus on their mission. We will address each situation on a case-by-case basis. It is extremely important to us that any impact on customers is minimal, if at all."

The council has been meeting with GSA daily to try to work out new leasing terms and is hopeful the moratorium will end soon, giving the two sides an opportunity to work out new terms while leasing under FSS continues.

Until the issue is resolved, companies are turning to schedules run by the National Institutes of Health and NASA to do leasing and, as a result, the GSA stands to lose millions of dollars in business, Allen said.

The council is proposing three options in its negotiations with GSA, Allen said. They are:

*Leasing charges that are higher than commercial rates, but free of early termination fees;

*Termination fees that are payable within a contract year;

*Rates akin to the commercial sector for agencies with multiple-year funding, such as some Department of Defense entities.

"We look forward to continuing forthright discussions with the contractors regarding the new leasing terms. ... We anticipate a quick resolution to the issue," the GSA spokesperson said.