1. Establishment of Need
An agency must first establish and document a need for the equipment. The agency should determine whether the need for the equipment is long-term or short-term because this is a determining factor in deciding on an acquisition method.
2. Required Approvals
There are three control agencies involved in the equipment acquisition process: Division of the Budget (DOB); Office of General Services (OGS); and the Office of the State Comptroller (OSC).
DOB approval is required, pursuant to Sections 66-b and 167-a of the State Finance Law, for all new installment purchases and lease purchases, including those financed by Certificates of Participation (COPs) and for all refinancings of such purchases. Agencies must submit completed H-101 forms to their budget examiner to secure prior DOB approval for all equipment contracts, contract amendments, or purchase orders procured through a new installment or lease purchase, regardless of the method of financing. Agencies should refer to Budget Policy and Reporting Manual Item H-101 and Budget Bulletin H-1004 for information on the DOB H-101 approval process. Agencies should also refer to Budget Policy and Reporting Manual Item D-800 regarding DOB and OGS approval of acquisition of telecommunication systems, services, and equipment.
OGS approval is required pursuant to Section 174 of the State Finance Law. OGS approval signifies that the provisions of the statute have been met.
OSC approval is required for all contracts for the acquisition or lease of equipment pursuant to Section 112(2) of the State Finance Law.
3. Methods of Acquisition
In the determination of need, a decision must be made whether the equipment should be purchased (either outright, or over an extended term), or simply leased. Generally, equipment should be acquired through some form of purchase. Generally, the only circumstances where a straight lease should be utilized is to meet a short-term need or when the equipment has a short useful life due to agency program requirements or to the obsolescence of the equipment because of changing technology.
a. Outright Purchase
Usually, the most economical method to acquire equipment is by outright purchase. If an agency has funds available, it should first consider this method. (If an agency has an extended term purchase contract, it should also consider executing the early buy-out provision if funds are available.) The useful life and potential obsolescence of the equipment are factors that should be considered in the decision to purchase or lease the equipment.
OSC requires agencies to acquire the equipment by outright purchase when the cost is less than: $50,000 for equipment acquired during the fiscal year 1988-89; $100,000 during subsequent fiscal years. OSC may issue regulations establishing higher levels for the fiscal years beginning with 1990-91. Multiple items of the same type equipment or related items of equipment procured pursuant to a single request for proposal may be grouped under one or several contracts as part of a procurement package to reach the above stated dollar levels.
b. Extended Term Purchase
As a general rule, an extended term purchase should be considered under the following circumstances:
(1) The equipment was customarily purchased or leased over an extended term and was not traditionally acquired by outright purchase, (i.e. computer hardware, telecommunication systems).
(2) The total cost is less than the cost for a straight lease.
Equipment can be acquired over an extended term in one of the following methods
(1) Installment Purchase
Title to the equipment transfers to the state immediately and the payments are made over an extended term (more than one year). The term of the contract cannot be longer than the useful life of the equipment. The payments are computed based on the purchase price (principal) and interest. Maintenance of the equipment requires a separate contract.
(2) Lease Purchase
Title automatically transfers to the state after the final payment. The payments are computed in the same manner as an installment purchase, except maintenance generally is included with the principal and interest in the payment. A nominal amount (i.e. $1.00) may be required before title passes to the state.
(3) Lease with an Option to Purchase
Title does not automatically pass to the state unless the option is exercised. The lease payments are structured as in a straight lease. Principal and interest components are not listed separately. Generally, a percentage of the lease payments accrues toward the purchase option price.
c. Straight Lease
The primary difference between a straight lease and a purchase is that the state has no intention of acquiring title to the equipment. The lease payment does not segregate into principal and interest and is usually obtained from a published price list.
The straight lease method is not required to be approved by OGS because it is not a purchase. Agencies may not use the straight lease to circumvent the OGS approval requirement by subsequently making arrangements for the purchase of the equipment.
A straight lease should be considered in the following circumstances:
(1) The equipment vendor only supplies the equipment under a straight lease.
(2) The agency has only a short term need for the equipment.
(3) The equipment to be acquired is experiencing rapid technological changes that may render the equipment obsolete in a relatively short period of time.
4. Requirement for Legislative Approval
Agencies must obtain specific legislative approval to acquire capital equipment through any method other than outright purchase.
Equipment of a capital nature is generally purchased outright with monies appropriated for the purchase by the Legislature. (See attached listing)
Office equipment such as computer systems, telecommunication systems, copiers, and word processors, is generally acquired through extended term purchase contracts or straight lease contracts. The funding for the contracts is usually provided in the annual state operations appropriation.
If a decision is made to acquire equipment over an extended term, instead of by outright purchase or straight lease, a method of financing must be chosen. Financing methods available are:
a. Certificates of Participation (issued only through OSC or with OSC approval).
b. Installment purchase or lease purchase contracts financed through:
(1) Equipment manufacturer or a manufacturer's subsidiary credit corporation.
(2) Private third-party financing company selected through competition.
Pursuant to Budget Bulletin H-1004 and Budget Policy and Reporting Manual Item H-101, agencies must submit H-101 forms to request prior DOB approval for all new installment purchase and lease purchase financings of new contracts, contract amendments and purchase orders for equipment with a purchase price of $50,000 or over, regardless of the method of financing and for all refinancing of such purchases. The information on the H-101 forms is used by DOB to plan the issuance of Certificates of Participation.