Leasing looks better and better for agencies

A decade ago, leasing was a popular way for the government to get
computer hardware and software. In fact, people often forget that when computing was all
mainframe host-and-terminal setups, processors were routinely leased with their operating
systems. When, in the 1980s, IBM Corp. converted most of its leases to buys, it seemed to
be the end of an era.

Imagine how much more equipment federal agencies could procure today if they obligated
only the cost of the first year of a lease instead of the entire price of a computer and
peripherals. First-year savings don’t even include the saved maintenance costs that
were typically—and still often are—the responsibility of the lessor.

In the ’80s, warranties lasted only a few months for purchased items, and
computers needed a lot of maintenance. Buy-out funds usually came with directives to
terminate leases, which were considered expensive, in favor of ownership. Of course, we
all knew this would happen, and we loaded up on leased equipment—although, in
retrospect, what we bought wasn’t worth owning.

Leasing made good sense then. It makes good sense now. The General Services
Administration, trying to anticipate the greatest good for the greatest number of
agencies, has traditionally provided contracting support for leasing. Multiple-Award
Schedule contracts are available to provide indefinite-quantity access to leasing. Blanket
purchasing agreements that provided leasing options as extensions of the schedule program
are popular.

Now that the various information technology schedules have collapsed into one, leasing
and purchasing are available on just about any schedule contract from any willing vendor.

Major direct-sale PC makers are offering leases for those who don’t want to shell
out $2,000 or $3,000 up front. Clearly, the idea of leasing relatively cheap items such as
PCs isn’t a government phenomenon.

Even indefinite-delivery, indefinite-quantity contracts negotiated by agencies contain
leasing options. On the civilian side, for example, the Transportation Department’s
multiple-award Integrated Transportation Omnibus Procurement contracts and the National
Institutes of Health’s governmentwide acquisition contracts offer leasing to agency
buyers.

Defense Department units are slower to lease IT through BPAs, but the tide is changing
for them. The Air Force recently awarded a contract to lease an enterprise workflow
package that includes training and maintenance along with the commercial hardware for
232,000 desktop PC users. DOD’s Office of Health Affairs entered into a four-year
lease for network routers and switches for 100 medical facilities worldwide. As Defense
officials put it, they couldn’t anticipate where the technologies were going and
didn’t want to pay to learn.

But leasing products goes only partway toward helping federal workers do their jobs.
Given the increasing complexity and instability of the average LAN, most agencies also
require a desktop service contract. That’s why today contracts of a new generation,
collectively referred to as seat management, are becoming available to support desktop PC
workers.

Industry is encouraging agencies to go this route. Vendors see a way to make profits
while satisfying feds, who are reluctant to continue paying for upgrades.

Seat management includes more than leasing hardware. It provides a set of services that
includes desktop computer installation and configuration, technology upgrades,
maintenance, help desk functions and network management.

It is in these services that industry expects to make up for the expensive process of
technology installation, upgrade and support.

Indeed, under GSA’s Seat Management Program, agencies won’t be able to pick
various components of the packages. Don’t worry about vendors having to dispose of
returned PCs that are seemingly worthless. Most of them have long experience in doing seat
management for industry and know precisely where the costs and profits are.

In a recent informal poll, conducted by Market Access International Inc. of Chevy
Chase, Md., the level of interest in seat management was evenly distributed among very
interested, moderately interested and not-at-all interested.

But most of the two dozen officials interviewed said there is ample room in their IT
budgets to accommodate any transition to desktop product and service leasing.

Agencies reported high budget figures for anticipated leasing during fiscal 1999,
including $1.6 billion for hardware, $1.4 billion for software and a whopping $5.1 billion
for outsourced processing and communications services.

According to Market Access figures, some of these dollars will go to seat management
but most will not. More than half are already earmarked for capital items besides desktop
computing support.

Vendors who hope that agencies will spend more through seat management contracts than
for standard leasing of capital items will have to wait a year to see if agencies will
shift to these services.

Here’s yet another push for year 2000-readiness options. Leasing processing
capacity on systems that are already 2000-ready can accommodate application testing
requirements. You have three operational scenarios available:

At least the government, through leasing, has an opportunity for more than dollar
savings and improved desktop services. After all, every manager lists year 2000 as his or
her agency’s top priority. 

Robert Deller is president of Market Access International Inc., an information
technology market research, sales and support company in Chevy Chase, Md. His e-mail
address is bdeller@markess.com.