Types of Government leases
Types of Federal Leasing Contracts
The GSA standardized leasing language years ago, and so GSA terms are usually universally understood by government contracting officers and contractors. What are the differences? There are some very important differences in how the government views each lease type, how the contractor views each type for booking purposes, and how the bank views each.

The GSA standardized leasing language years ago, and so GSA terms are usually universally understood by government contracting officers and contractors. What are the differences? There are some very important differences in how the government views each lease type, how the contractor views each type for booking purposes, and how the bank views each.

Following is a brief overview of the types of government leases:

Lease to Ownership Plan (LTOP)
An LTOP is simply a financed sale, usually of equipment. The Government enters into a multi-year contract (ex: 2-5 years), expecting that clear title will pass to the Government upon the last payment. The contract is still structured as a base year, plus one or more “option years” (see Non-Appropriations).
The Difference: To the government, an LTOP is simply the mechanism to pay for equipment, software and services over multiple contract years. The Government clearly intends to own the equipment and software at the end of the lease. For this reason, an LTOP is known as a Capital Lease for government accounting purposes.
To the contractor, an LTOP can usually be booked as a FAS 140 sale, if properly financed. To a bank (funding source), this is a loan, with the risks inherent in a government lease.

Lease With Option to Own (LWOO)
An LWOO affords the Government the option of deciding at the end of the contract whether to purchase the assets or return them to the contractor. An LWOO-Fixed Purchase Option specifies the exact amount the Government would have to pay the contractor at the end of the lease if it desires to purchase the equipment.
The Difference: This is the middle-of-the-road approach for the government. The user simply wants the option, and what to know in advance how much to budget for exercising this option. The problem on the government side is that the presence of a fixed buy-out automatically “scores” the lease as a Capital Lease.

Fair Market Value Lease (FMV)
An LWOO-FMV lease has no pre-defined end-of-lease purchase option. The amount is negotiated at the end of the lease, and is usually based on a third-party (arm’s length) quote. No ownership is accrued during the lease, no matter how long the lease term, so the government must pay whatever the equipment is worth at the end of the lease, regardless of how much it has already paid.
The Difference: When the Government enters into an FMV lease, the user is making clear that the agency has no real intention of purchasing the equipment – it intends instead to return all of the equipment to the contractor. The lease may be scored as an “Operating Lease”. This allows the agency to fund the FMV lease annually using the Operations and Maintenance budget instead of the Capital budget.

Alternate Payment Plan (APP)
This is usually a software license payment plan, and works pretty much like an LTOP (above).

Infrastructure Services (IaaS)
This is not a lease at all, at least not to the Government. The contract is written as a multi-year services agreement, even though the Government is paying for the use of equipment and software. (See IaaS)
 

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