Federal budget challenges
Department of Defense representatives, for example, have described project needs for IT that far outstrip their budgets, leading to requests for help from private industry. The federal government annually procures more than $200 billion in capital products and supporting services, yet private capital through financing comprises only .5% of the procurements – significantly less than commercial and municipal sectors in the United States.
Multiyear payments can help
One innovative way to address federal agency procurement needs is to leverage the benefits of multiyear payments. This private capital option enables agencies to obtain the essential IT hardware and software they need to gain bargaining power and efficiency.
A multiyear payment option also enables federal agencies to:
- Obtain what they need today at today's cost in today's dollars - even when the agency or lab doesn't have full budget allocation – and obtain the maximum amount possible
- Use annual operating expense or capital expense budget allocations as debt service, which allows for "over time" expensing and solves the issue of "what we need versus how much we have"
- Example: The agency can obtain $1 million of equipment today with only $200,000 budgeted and available by using that amount as a base year payment and annually, for each option year payment over the next for years, obtain an additional $200,000 per year
- Push monies from constricted budgets to priorities, which enhances planning for future asset refreshes
- Obtain greater discounts from IT vendors by accelerating up-front purchases, which utilizes federal agency expenditures more effectively and improves operating efficiency
- Guard against current and future IT obsolescence
It's important to note that the government can't guarantee multiyear payments and can only acquire on a Base + Option basis. This means it is the financing organization's responsibility to determine that the agency's acquisition is essential as they assume the termination risk.
To learn more from Key Government Finance's federal financing experts, visit: