The Pennsylvania Procurement Code – Business as Usual?

By Rick Grimaldi

State government is a major consumer in Pennsylvania, purchasing approximately $2.5 billion dollars in goods and services, and another $2 to $3 billion in non-construction related fixed assets. If you do business with the Commonwealth - or if you want to do business with the Commonwealth - you have to know the ins and outs.

The purchasing practices and procedures used by the Commonwealth evolved as a patchwork of legislation and regulation over a period of 60 years, building on the legal foundation established by the Administrative Code of 1929. In 1998, Governor Tom Ridge signed into law the “Commonwealth Procurement Code”. The Code was designed to modernize and streamline Pennsylvania’s purchasing practices and make procurement in the Commonwealth more economic, efficient, and effective for those contractors and vendors who want to conduct business with the Commonwealth. The law was supposed to provide much needed latitude and flexibility, and make the Commonwealth’s purchasing practices more consistent with those of the private sector.

Generally, the Code applies to the expenditure of all Commonwealth funds, except investments and the issuance of grants. To understand the Procurement Code (and, in fact, to do any business with the Commonwealth), you should ask, “What is the Commonwealth purchasing?” and “What Commonwealth entity is doing the purchasing?”.

What is the Commonwealth Purchasing?

All purchases by the Commonwealth fall into three broad categories: supplies, services and construction. The procedures for purchasing each of these items, are, at times, interrelated. Yet there can be significant distinctions in how to proceed with obtaining a contract depending on what, exactly, the Commonwealth is purchasing. For example, the Code defines “supplies” as, any property, including, but not limited to, equipment, materials, printing, insurance and leases of and installment purchases of tangible and intangible personal property. Specifically excluded are purchases of real property, leases of real property or alcoholic beverages purchased for resale by the Liquor Control Board.

“Services” on the other hand are defined in the Code as the “furnishing of labor, time or effort by a contractor not delivering of a specific end product...” The term also includes the routine maintenance of existing structures, buildings or real property, and utility services such as electricity, telephone, water and sewage services.

The Procurement Code does not codify all the laws regarding construction by the Commonwealth. Instead, providers engaging in construction projects (defined by the Code as the “process of building, altering, repairing, improving or demolishing any public structure or building or any other public improvements of any kind to any public real property”) must still comply with the Prevailing Wage Act, the Separations Act, and the Steel Procurement Act.

What Agency is Doing The Purchasing?

By streamlining the process for procurement, the Procurement Code recognizes three classifications of Commonwealth entities: executive agencies, independent agencies, and state affiliated entities (SAE’s). The easiest classification to discern is the designation of executive agencies. The term “executive agencies” is defined as the “Governor and the departments, boards, commissions, authorities and other offices and agencies of the Commonwealth.” The Departments of General Services, Public Welfare, Labor and Industry and Environmental Protection are all executive agencies. “Independent agencies” are “boards, commissions and other agencies and offices of the Commonwealth which are not subject to the policy supervision and control of the Governor”. Examples include the Office of Attorney General, the Office of the Auditor General, the Public Utilities Commission and the Liquor Control Board. State affiliated entities (SAE’s) are broadly defined as “Commonwealth authorities or entities,” including, the Turnpike Commission, the State System of Higher Education and the Pennsylvania Municipal Retirement System.

One major change from the “pre-Code” days is the mandate that the Department of General Services formulate procurement policy for all executive and independent agencies. Prior to the enactment of the Code, the Office of the Budget was responsible for establishing policy for contracts and services. However, in practice, the Department of General Services has now delegated much of this authority to the various agencies themselves.

Therefore, while the Commonwealth has created a uniform procurement system, substantial responsibility for the procurement of services remains with individual state agencies. SAE’s, for example, are authorized to formulate their own regulations and policies governing the procurement, management, control and disposal of supplies, services and construction. They are also authorized to do their own purchasing, but must follow procedures outlined in the Code whenever they make such purchases. Executive agencies retain the authority to procure a supply or service on a no-bid basis for “low dollar” or “low risk” purchases.

Prior to the passage of the Procurement Code, there were a multitude of statutes, rules, regulations, manuals, handbooks and guidelines on the subject of Commonwealth purchasing. A private sector provider or vendor would need to know all of the different procedures or rules governing the same types of contracts with different Commonwealth entities. The Code eliminates much of this confusion by establishing a uniform set of rules which have, among other things, increased contracting opportunities for many Pennsylvania businesses. However, because the Code has also given various Commonwealth agencies more authority in the procurement and purchase process, the process of providing services or selling to state government can still be complicated and often frustrating. Companies desiring to sell to the Commonwealth of Pennsylvania must still know the agency or the type of agency with which they wish to conduct business, and understand the nuances present in the Procurement Code. This will certainly enable a business to better navigate the labyrinth of agencies that make up state government and ensure successful and profitable results.

Rick Grimaldi is counsel in the Labor and Employment Law Group. He can be reached at 215-864-6350 or grimaldir@whiteandwilliams.com.