Oct 05 2010

Toeing the Line

Federal agencies protect lean budgets through IT leasing.

Capital constraints and temporary projects often drive federal agencies to lease rather than purchase IT equipment. Leasing technology can help government IT managers sidestep some common challenges: Products quickly become obsolete, and moving end-of-life equipment out the door can be a difficult, time-consuming prospect.

In agencies large and small, new technology acquisitions live or die by the bottom line. “We don’t always have sufficient cash in hand to do a full purchase,” explains Debra Sonderman, director of the Office of Acquisition and Property Management for the U.S. Department of the Interior (DOI).

Sonderman, who also serves as DOI’s senior procurement executive, says the department works around this reality by using a mix of leased and purchased IT equipment — from mainframes to photocopiers. “If it’s something where we have an ongoing need, we try to purchase when we can,” she says. But leasing with an option to purchase allows the department to stretch out payments.”

Photo: Drake Sorey
Debra Sonderman says the U.S. Department of the Interior’s IT infrastructure includes leased and purchased equipment. “Leasing with an option to purchase allows the department to stretch out payments,” she explains.

Indeed, leasing has proved to be a viable alternative for many agencies, including the U.S. Equal Employment Opportunity Commission (EEOC). “We choose lease arrangements for office equipment that would otherwise require a large capital investment in a single year,” says CIO Kimberly Hancher, citing as examples large-scale, network-attached equipment such as copiers, printers, scanners and fax machines from Xerox and other manufacturers.

A Worthy Substitute

“What leasing allows you to do is substitute maintenance fees for capital fees,” says IDC’s Joseph Pucciarelli, research director, technology financing and executive strategies. “The way it saves money is not through being more efficient financially or lowering costs, but rather by allowing a shift to resources that are newer, more productive and reliable.” For example, he says, a five-year-old PC that originally cost $500 might eat up that much or more in repairs if it fails two or three times during those five years.

“In the realm of IT, leasing can help manage the lifecycle of older equipment,” Pucciarelli continues. “That’s where the business value comes to an agency.”

DOI’s Sonderman cites other scenarios in which leasing makes sense. “If the technology is one where there might be rapid changes,” for example, “that would be another reason to lease, because we don’t want to get stale,” she says. It’s certainly smarter, both economically and programmatically, for the agency.

The department also leases for temporary needs, such as notebook computers for its wildland fire program. “Most of the people employed at DOI as firefighters are temporary,” Sonderman says. “We only bring them on for a fire or during fire season. So that’s a need where it makes better sense for us to lease rather than purchase.”

Out of Sight, Front of Mind

Temporary needs can mean a short stay for leased equipment, however, so Sonderman recommends IT managers take a close look at the liabilities of returning property early when they’re negotiating lease contracts. For example, a program started in one fiscal year that’s not continued could leave a department with unneeded leased equipment.

There are other factors to consider as well. EEOC’s Hancher expects the leasing manufacturer to provide technical support, because the agency needs to integrate the scanning function of the equipment into its network.

$264 billion The value of IT equipment expected to be acquired through leasing this year, accounting for roughly one-third of overall expenditures

SOURCE: U.S. Department of Commerce

Hancher says federal agencies also should look to their leasing providers for “ongoing training for end users and documentation that people can actually use.” She further recommends establishing meaningful service levels and a clear escalation process for any complicated problems that might arise.

Certainly, leasing can eliminate the headaches associated with properly disposing of obsolete IT equipment. Sonderman remembers DOI using a computer system that was so old, the IT staff had to search eBay for the proper parts to support it. Now, they make sure that equipment is disposed of in an environmentally responsible way. “Otherwise we’re in a situation where we’re working through the General Services Administration to sell excess equipment,” she says. “And there may or may not be a market for that.”

“Leasing can help improve functionality and productivity and reduce maintenance,” Pucciarelli concludes. “It’s a strategy to help agencies ride the technology curve.”