Wheeling and dealing
Government agencies purchase an estimated 95 percent of their hard assets directly through local manufacturers and distributors. But, with ever tightening capital budgets and public scrutiny of government spending, cities and counties are searching for alternatives to traditional buying to save money. Fortunately, an ever-increasing number of options are available to local governments to obtain equipment, including purchasing through statewide contracts or multi-state cooperatives, pay-for-use leasing and short-term rental programs.
Statewide contracts give all government agencies in a state direct access to state-approved equipment manufacturers and state-negotiated pricing. The contracts simplify the search for a manufacturer and provide low prices because of high-volume discounts.
Many states sign multiple-award contracts, which identify several pre-approved equipment manufacturers from which municipalities can purchase equipment. Local governments then have a choice of manufacturers from which to buy products based on their specific needs and budget restraints. In addition, agencies can easily compare products and receive discounted prices.
Similar to statewide contracts, multi-state cooperatives pre-approve manufacturers and negotiate high-volume price discounts. But, rather than restricting those prices to municipalities within only one state as in statewide contracts, the prices are available to cities and counties in all states that are a part of the cooperative. Cooperatives may focus on one type of product or several, depending on the needs of the states in the group. The Western States Contracting Alliance, for example, includes 15 states and helps them obtain a variety of money-saving products.
Typically, when local governments purchase or lease public works equipment, they receive the entire machine and all its parts. The price for the equipment remains the same whether that machine will be used once per day, once per week or once per month. Any routine maintenance or repair service performed on the equipment is considered an additional cost, billed separately. However under a pay-for-use leasing agreement, municipalities only pay for each use, not for idle down time or when equipment is out of service. Pay-for-use agreements also include parts, service and maintenance. For the duration of the contract — typically 36 months — the monthly fee remains the same, and the manufacturer still owns the equipment. All in all, pay-for-use agreements offer municipalities complete control over their costs and cash flow.
Short-term rentals are like “renting to own,” allowing government agencies to bridge a gap between budget cycles or to delay purchases until a return on investment on equipment can be proven. Typically, terms are nine, 12 or 18 months, and agencies must fulfill one, two or three months of payments respectively before equipment can be returned without penalty. Should a jurisdiction choose to purchase the equipment after the rental term, a portion of the rental payments counts toward the purchase price.
Local governments interested in fulfilling their maintenance equipment needs while being mindful of their budgets have several alternatives to consider that can satisfy budget officials and taxpayers.
The author is a product manager of financial services for Minneapolis-based Tennant.