B. Local Procurement

• Library: SC Construction Law Desk Book (SCBar) (2013 Ed.)

B. Local Procurement

1. The Interplay Between Local Government and the State Procurement Code

In 1981, the South Carolina General Assembly adopted the "State Procurement Code."³⁷⁵ One of the underlying purposes and policies of the State Procurement Code was "to require the adoption of competitive procurement laws and practices by units of state and local governments."³⁷⁶ The State Procurement Code imposes two very different requirements on state and local government to accomplish this policy objective.

For state government, the State Procurement Code "applies to every procurement or expenditure of funds by this State under contract acting through a governmental body as herein defined irrespective of the source of the funds .. ,."³⁷⁷ The State Procurement Code defines "governmental body" as "a state government department, commission, council, board, bureau, committee, institution, college, university, technical school, agency, government corporation, or other establishment or official of the executive or judicial branch."³⁷⁸ The term "state" found in this definition and elsewhere in the State Procurement Code means "state government."³⁷⁹ The definition of "governmental body" expressly excludes "local political subdivisions,"³⁸⁰ which the State Procurement Code defines as "all counties, municipalities, school districts, public service or special purpose districts."³⁸¹

The provisions of the State Procurement Code, therefore, do not apply to local government, except that the State Procurement Code does apply to school districts whose "budget of total expenditures, including debt service, exceeds seventy-five million dollars annually."³⁸² In the alternative, these large school districts may have their own procurement code, but this code must be substantially similar to the provisions of the State Procurement Code as determined by the Office of General Services of the State Budget and Control Board.³⁸³ While local political subdivisions are not subject to the State Procurement Code,³⁸⁴ they are required to "adopt ordinances or procedures embodying sound principles of appropriately competitive procurement."³⁸⁵

A comparison of three State Procurement Code sections in particular is instructive. First, Section 11-35-40(2) sets forth the general application of the Code, providing that it "applies to every procurement or expenditure of funds by this State under contract acting through a governmental body as herein defined irrespective of the source of the funds...." Thus, the General Assembly expressly made the State Procurement Code binding on the State when acting through a "governmental body." In defining the term "governmental body," however, the General Assembly expressly excluded "all local political subdivisions."³⁸⁶ By conscious decision of the legislature, therefore, local governments are not subject to the State Procurement Code. Second, S.C. Code Ann. § 11-35-70 creates a second category of the manner in which the General Assembly applies the State Procurement Code. That Section, which applies to local school districts, provides in part that any school district whose budget exceeds seventy-five million dollars annually "is subject to" the State Procurement Code, but that "if a district has its own procurement code which is, in the written opinion of the Office of General Services of the State Budget and Control Board, substantially similar to the provisions of the South Carolina Consolidated Procurement Code, the district is exempt from the provisions of the [State]Procurement Code."³⁸⁷ Third, there is § 11-35-50, which applies to local government. According to the public procurement scheme established by the General Assembly, local governments are not subject to the State Procurement Code and are not required to have procurement ordinances "substantially similar" to the State Code. Rather, local governments need only adopt procedures "embodying principles of appropriately competitive procurement."³⁸⁸ Thus, the General Assembly created three categories of governmental bodies relative to public procurement:

1. State governmental bodies, who must comply with the State Procurement Code;³⁸⁹
2. Large school districts, who must either follow the State Procurement Code or enact provisions "substantially similar" to it;³⁹⁰ and
3. Local governments (including smaller school districts not captured by § 11-35-70), who are not bound by the State Code, and need not have ordinances "substantially similar" to the State Code, but who must adopt Procedures embodying sound principles of appropriately competitive procurement.³⁹¹

2. When Does a Local Government Procurement Code Conflict with the State Procurement Code?

While the State Procurement Code allows large school districts to develop their own procurement procedures, they must be "substantially similar" to the State Code.³⁹² In Charleston County School District v. Leatherman, the South Carolina Court of Appeals illustrated how the courts interpret the term "substantially similar."³⁹³ In this case, the Office of General Services had rejected the Charleston County School District's proposed procurement code finding that it was not "substantially similar" to the State Procurement Code because the Charleston County School District's proposed code had a small purchase limit of $1,000.00, whereas the small purchase limit found in the regulations for the State Procurement Code was $500.00.³⁹⁴ The Court of Appeals found the following undisputed facts important:

[T]he record indicates the District makes 16,000 purchases a year of which 84% are under $500.00. Approximately 2,200 purchases are between $500.00 and $1,000.00 and approximately 300 purchases are above $1,000.00. Under the current procedure, 98% of the purchases take place without bidding because they fall under the $1,000.00 level. Two persons operate the District's procurement office and both are certified specialists in procurement. The District offered no evidence that adoption of a $500.00 limit on small purchases would be an onerous burden on present personnel. No evidence was presented that it would require more personnel or that the $500.00 limit would result in lower efficiency and greater costs for purchases.³⁹⁵

Thus, the Court concluded that under these facts, allowing the District to use its $1,000.00 small purchase limit "would permit approximately 98% of the purchases of the District to escape the competitive procurement system. Further, the District has presented no evidence of prejudice to it by application of the limit." Thus, the Court of Appeals affirmed the Procurement Review Panel's and Circuit Court's upholding of the Budget and Control Board's denial of the District's Procurement Code.³⁹⁶

Unlike large school districts, the State Procurement Code gives no indication that a local government's procurement policy must be substantially similar, or even similar, to the State Procurement Code. The legislature could have imposed the same requirement upon local government as it did with large school districts or state agencies, but it chose not to do so. Instead, and consistent with Home Rule,³⁹⁷ the General Assembly chose to give local government broad discretion in deciding which type of procurement ordinances to pass, with the only directive being that local government must adopt ordinances or procedures that embody principles of procurement that are "appropriately competitive."³⁹⁸

In 1982, shortly after passage of the State Procurement Code, the Budget and Control Board formed a Local Procurement Task Force (the "Task Force") pursuant to the mandate found in Section 11-35-50, whose mission was to "draft model ordinances, regulations, and manuals for consideration by the political subdivisions."³⁹⁹ The cover letter that the Task Force prepared to accompany the State Model Local Procurement Code is instructive on what local governments were required to do with this Model Code. In short, the Task Force believed that the Model Code was in no way binding on local governments, but was merely a guide. It stated:

Having completed their work, the Task Force now respectfully submits to you the enclosed model procurement ordinance. This ordinance is a recommended model and in no way is to be construed as a document which must be mandatorily adopted by any political subdivision. The intent of the Task Force was to create guidelines which are subject to whatever changes the particular entity deems appropriate or necessary. There is no requirement that the political subdivision would even have to consider this particular model. It is to be used for assistance and information only.⁴⁰⁰

After passage of the State Procurement Code, the Attorney General's Office was asked to opine whether or not the State Procurement Code required local governments to employ sealed bidding (or low bid) procurement methods. Under the State Procurement Code at that time, as now, sealed bidding was the presumptive method of procurement unless an exception applied.⁴⁰¹ On August 3, 1982, the Honorable Karen Henderson, then the Deputy Attorney General, opined that local governments were not required to use sealed bids. She stated as follows:

In response to your request for an opinion from this Office as to whether or not a municipality in South Carolina must allow competitive bidding, the only state law presently requiring the practice, §§ 11-35-1510, et seq. and 11-35-3010, et seq, ... specifically excludes municipalities from the definition of "governmental bodies" which must provide for competitive bidding. Section 11-35-310(18) .... If a municipality does not use State funds and if no municipal ordinance requires it, then, in my opinion, competitive bidding is not required. Please note, however, that § 11-35-50 ... requires all political subdivisions of the State to adopt "ordinances or procedures embodying sound principles of appropriately competitive procurement .. .."⁴⁰²

While a local government's procurement ordinance does not...