Leasing no disposal quick-fix

Research firm Gartner says several options are available to businesses for disposing of surplus or obsolete IT equipment. "For many, leasing is seen as the perfect solution," it adds.

In a report published late last year*, Gartner cautions end-user organisations that see leasing as the perfect asset disposal management strategy.

"As the mounds of e-waste grow, businesses are looking for creative ways to minimise the costs and risks associated with disposing of IT equipment. One alternative that always surfaces is the idea of leasing. In theory, leasing presents an appealing alternative to equipment disposal because, in a true lease arrangement, the business does not own the equipment. Rather, it only has the right to use the equipment for a certain period of time. At the end of the lease term, the lessee returns the equipment to the lessor. The belief is that if you do not own the asset, then you have no legal responsibility for it and will incur no cost for equipment disposal. However, this is only partially true," Gartner states.

In theory, leasing [IT equipment] presents an appealing alternative.

Gartner

"By definition," the report continues, "a lease is a contractual arrangement by which the owner of the asset (the lessor) grants the use of his or her property to another party (the lessee) under certain conditions and for a specified period of time. A lease is an unconditional, absolute agreement. However, it is important to make a distinction here: not all leases are true leases. Some are just another type of loan or financing agreement. Equipment leases are classified as 'operating' or 'capital' according to accounting rules established by the Financial Accounting Standards Board. An operating lease (also known as a 'true lease') is a funding mechanism whereby you pay for the use of the equipment, not the ownership. A capital lease (also known as a 'finance lease') is a funding mechanism whereby ownership usually (but not always) transfers to the lessee at the end of the lease term."

In this case, Gartner says, disposal issues remain. The firm strongly advises companies to work closely with accountants in this regard, and ensure they communicate clearly with lessors around the type of lease required.

The company cautions: "Before entering into a lease arrangement, understand what the real replacement cycle of the equipment will be. Businesses that are not committed to a pre-defined replacement cycle will, in most cases, be forced to renew the lease or purchase the units at the end of the lease term. This is particularly true as businesses look to extend the life cycles of their PCs and servers."

Further, the report adds: "One of the more costly and time-consuming aspects of equipment disposal is the sanitisation of the hard drives to remove all sensitive and proprietary data. Many businesses mistakenly believe the lessor will sanitise the drives in such a way that the data residing on those drives cannot be recovered. In most cases, that is incorrect. Unless you specify to the lessor your specific sanitisation requirements (and, in most cases, pay an additional fee), the lessor will only format the hard drive or do a one-pass overwrite."

Gartner thus recommends that companies "work with your lessor to determine how best to sanitise data before (or after) returning the equipment to it at the end of the lease. Some lessors will offer to sanitise the data at your site or theirs. Typically, there is a fee associated with this service.

"If you decide to use leasing as a disposal methodology," says Gartner, "then understand that successful lease programmes are tightly integrated and linked to a technology life cycle plan. Companies with good asset management programmes establish replacement criteria when a technology is being installed. This is an essential element when considering leasing. Companies that are attempting to use leasing as a disposal methodology need to ensure they have senior management commitment in the form of adequate personnel resources to implement the new, shorter technology life cycle. Often, at the end of the lease term, the biggest issue to replacing the leased equipment is to simply manage the technology refresh. IT procurement practices need to focus on the requirements of the business unit, as well as the end-users within the business unit."

* Report courtesy of Gartner. Information sourced from: Carefully Consider Leasing When Using It as an Equipment Disposal Methodology, Frances O'Brien, 23 October 2006.