Equipment Leases

Equipment Leases

When a department wishes to make a large equipment purchase but does not have the funds to purchase the equipment outright, a lease is helpful in securing the necessary equipment.  In many ways, a lease transaction is very much like other multi-year contracts.  However, certain aspects of leases have broader implications and some additional requirements.  Specifically, University Tax and University Accounting and Financial Reporting must be involved during the process.

Lease Funding

While in most cases, the sales representative works with the department to identify the funding source before the Purchasing and Contract Management Office is involved, once in a while a department will contact Purchasing for guidance on how to utilize the lease process to facilitate their equipment lease request.  A vendor’s financing arm is often separate subsidiary and may have a different FEIN and Vendor ID Number.  Ultimately, the department initiating the request is responsible for securing the financing source – either from the vendor providing the equipment or a third-party financing vendor.  Bidding thresholds may apply. Be sure to review the lease paperwork (where/to whom the payment is remitted) to ensure that the purchase order is issued to the correct vendor.

Lease Process

1. Identify need:  End users work with the vendor to identify their equipment requirements and review the various financing options to determine the best fit for their needs. This may include the offerings from contracted vendors, which can provide added savings. Contact the Purchasing and Contract Management Office for more information about applicable awards.

2. Gather the documentation:  The vendor provides the final quote package to the end-user.
This must include the following:

• • Quote Summary referencing any associated solicitations or contracts
  • Extended Warranty Proposal (if requested by department)
  • Finance Options summary sheet
  • Insurance Quotation

You will also need to provide identification information for any equipment being traded in as part of the new lease.  This information should include equipment description, equipment serial number, and, if applicable, the lease schedule number of the equipment being traded in.

This documentation, along with any other internal department forms, etc. required, is forwarded to the department’s Business Office to initiate a requisition.

3. Initiating the transaction with the Purchasing and Contract Management Office:   The Business Office will complete the iBuy requisition to initiate this transaction.  The Business Office will also initiate a Contract Request in Contracts+

• • Please be sure to include any solicitation (i.e. IPHEC award) and the Contract Request form number in the Internal Notes and Attachments in the purchase requisition form.
  • The total amount of the requisition should include separate line items for:
    • The total payments for the first year of the lease (this could be a single annual payment, or quarterly or monthly payments);
    • Any additional one-time charges (i.e. delivery fee)

Initiating the Contract:

• • Complete a contract request in Contracts+, including  the documentation and information (i.e. trade-in details) for the lease requisition.
    • When completing the Contract Request, upload the quote as an attachment.
    • Answer “Yes” to the GASB87 question on the Contract Request form.
    • The contract amount should be the sum of:
      • All periodic payments for the full lease term;
      • All one-time payments to be made to the vendor
      • The End-of-Lease buy-out amount only if the equipment will definitely be purchased at the end of the lease (do not include if unsure) AND the buy-out amount is known (i.e. a $1 buy-out, or discounted amount identified on the quote; do not include if the buy-out terms are Fair Market Value (FMV) as this amount cannot be determined until the end of the lease).
    • The start and end dates will be estimated, but should reflect the entire life of the lease;
    • Upload any separate documents as separate attachments;
    • Route to the Purchasing and Contract Management Office

Once the requisition is completed and approved at the department level, it goes on to the Purchasing and Contract management Office, and will be assigned to a Buyer specializing in leases.

4. Letter of intent:  A letter of intent is not required with all vendors and may not be needed. Certain vendors do request a letter of intent to start production of equipment.  Once the requisition and associated contract have been assigned to a Buyer, the Buyer will review the documentation provided and may need to compose a Letter of Intent for the transaction.

• • Buyer composes LOI based on documentation/information provided by department;
  • Draft LOI sent to the department for review;
  • Dept reviews LOI for accuracy & sends confirmation/corrections to Purchasing;
  • Dept approved LOI signed on behalf of University & sent to Vendor;
  • Vendor countersigns and returns LOI to Buyer, and initiates equipment order with Vendor.

5. Lease contract execution:

• • The department should forward the following documents to the Buyer:
    • • Lease Schedule;
      • Quote;
      • Equipment Return Provisions;
      • Signature Page;
      • Claim for Tax Exemption;
      • Insurance Premium Notice (if applicable);
      • Advance Lease Payment Invoice (if applicable);
      • Delivery Acknowledgment (if applicable)
      • Buyer routes contract for internal approvals via Contracts+
  • Buyer initiates Comptroller and vendor signature.

6. Purchase Order:  Once the lease contract is fully executed, the Purchasing and Contract Management Office will issue the purchase order.

7. Equipment Delivery:  Upon equipment delivery, department end-user receiving the equipment should fully inspect and test equipment, noting serial number and any deficiencies in equipment.

• • End-user completes the Departmental Equipment Delivery Confirmation form as follows:
    • Fill in delivery date;
    • Check appropriate box indicating either that equipment is acceptable, or that deficiencies have been identified and describe the deficiencies;
    • Complete the signature block with name and title of individual completing form, date form is being completed, and signature of person completing form.
  • Completed form is returned to Buyer;

8. Finalizing Lease Term:  The delivery of the equipment initiates the start of the actual lease term.  Contracts+ information will be updated by the buyer to capture the correct lease term.

9. Annual Requisitions:  It is the department’s responsibility to submit Banner requisitions for annual payments throughout the term of the lease.  As with other annual renewals, the requisition should be created by copying the prior year’s purchase order. Depending on funds used, a multi-year purchase order may be possible instead of submitting annual requisitions.

10. Lease Maturity: Departments typically need to make the Purchasing and Contract Management Office and the Vendor aware of which end of lease option they will be exercising 60 to 90 days prior to the end of the lease term.  If the Vendor is not provided with sufficient notice, the department may be liable for additional fees and/or a mandatory extension of the lease term for anywhere from one month to a full year.