Chapter II Public Construction Projects - State and Local

• Library: SC Construction Law Desk Book (SCBar) (2022 Ed.)

Chapter II Public Construction Projects - State and Local

Keith C. McCookBoyd B. (Nick) Nicholson, Jr.

"Government procurement and its guiding policies are unfamiliar territory to all but a few."¹

"Contractual relationships formed pursuant to the Procurement Code are highly regulated contracts."²

A. State Procurement³

1. Overview and Threshold Issues

Public construction projects involve most, if not all, of the law governing private construction projects.⁴ In addition, public construction projects involve unique issues of public contract law, procurement law, and fiscal law. In keeping with the purpose of this book, this chapter provides a limited outline and overview of issues that may be of particular interest to lawyers representing clients involved in a public construction project. The intent is to help lawyers spot otherwise unfamiliar issues and to provide a framework sufficient to facilitate additional research. With an eye toward future editions, please provide the authors with any suggestions you may have.

a. History of South Carolina's Consolidated Procurement Code

In 1979, the American Bar Association adopted the first model procurement law, the ABA's Model Procurement Code for State and Local Government ("Model Code"). On the forefront of procurement reform, the South Carolina General Assembly enacted a modified version of this model law in 1981,⁵ the South Carolina Consolidated Procurement Code ("Procurement Code" or "State Procurement Code"), codified in the South Carolina Code of Laws at Title 11, Chapter 35. As the name suggests, this comprehensive statutory scheme consolidated many of the various laws governing procurement by state government and applied them to almost every state-level executive or judicial agency. The Procurement Code has been amended numerous times since its initial enactment, but the fundamental outline has remained the same.

In 2000, the ABA amended the Model Code, largely to accommodate changes in the construction industry. South Carolina adopted these changes in 2008.⁶

b. Resources/Bibliography

The Procurement Code was modeled after the ABA Model Procurement Code for State and Local Governments.⁷ Similarly, the amendments adopted in 2008 were modeled after the ABA's revised version of its model code, the 2000 Model Procurement Code for State and Local Governments.⁸ Both versions of the Model Code included official comments, much like the Uniform Commercial Code. Unlike the UCC, South Carolina has not expressly adopted the Model Code's comments; however, they provide useful context for understanding the statutory scheme. The official comments are particularly useful with regard to the 2008 amendments, as the General Assembly identified the model comments as "persuasive authority for interpreting and construing the new code provisions created by this act."⁹

When the Procurement Code was enacted in 1981, it created a separate agency called the South Carolina Procurement Review Panel. In virtually every case decided since 1981, the Panel has published a formal, written opinion of its decisions. Those decisions are posted on the Internet at www.procurement.sc.gov. In addition, they are available on Westlaw.

Virtually all cases before the Panel are appeals from a written decision or determination issued by one of the State's three chief procurement officers. Neither the Panel nor the chief procurement officers regard these administrative orders as binding precedent; however, these orders can have persuasive value and, for issues that have not been addressed elsewhere, may be worth considering. Decisions of the State Engineer (chief procurement officer for construction) regarding subcontractor listing issues are the best example. Many of these decisions are posted on the Internet at www.procurement.sc.gov.

A bibliography of resources that may be of value in conducting additional research in the areas of construction law and public contract law is attached as Appendix A.

c. Application of Procurement Code to Construction

Determining whether the Procurement Code applies to a specific transaction involves a number of questions.¹⁰ Does the transaction involve procurement (an acquisition)? Does an exclusion or exemption apply? What type of entity is involved? What is being acquired, sold or discarded? Each of these questions is addressed below.

(1) Acquisitions

Section 11-35-40(2) provides that the Procurement Code "applies to every procurement . . . by this State under contract acting through a governmental body ... ." The term "contract" means "all types of state agreements, regardless of what they may be called, for the procurement . . . of supplies, services, information technology, or construction."¹¹ In pertinent part, the term "procurement" is defined as "buying, purchasing, renting, leasing, or otherwise acquiring any supplies, services, information technology, or construction."¹² The term "construction" is defined as "the process of building . . . any . . . public improvements of any kind to real property."¹³ Read together, and absent an exclusion or exemption, the Procurement Code applies to every acquisition of the process of building any public improvement to real property by a governmental body pursuant to an agreement.¹⁴

(2) Exclusions

Some transactions that otherwise involve an acquisition are excluded from the Procurement Code. The Code does not apply to gifts, to the issuance of grants, or to contracts between public procurement units, except as provided in Article 19 of the Code.¹⁵ A gift is a voluntary transfer of property without consideration.¹⁶ A grant is "the furnishing by the State . . . of assistance, whether financial or otherwise, to a person to support a program authorized by law," as distinguished from "an award, the primary purpose of which is to procure . . . construction."¹⁷ Contracts between public entities are subject to separate rules, as outlined in Article 19 of the Procurement Code.

In addition, the Procurement Code does not apply to the acquisition of an interest solely in real property, e.g., land, including any pre-existing (i.e., not built-to-suit) improvements and fixtures, or lease-hold estates, including any complementary subordinate services.¹⁸

(3) Exemptions

In addition to the exclusions, the Procurement Code grants certain exemptions from its rules. Some of these exemptions are comprehensive, exempting either an entity or a specific type of transaction from all aspects of Title 11, Chapter 35.¹⁹ Other exemptions provide only limited exceptions from the Code's purchasing procedures, the State's centralized procurement offices, or both.²⁰ In addition to those provided in Section 11-35-710, various other statutes create exemptions from the Code.²¹

(4) Governmental Bodies, Political Subdivisions and Foundations

The Procurement Code applies only to certain types of entities, and each type of entity is governed by a different set of rules. At the state level, entities generally fall into three defined categories: governmental bodies, covered foundations, and non-covered entities. In large measure, these categories are defined by the Procurement Code, but other laws come into play and must be consulted when determining an entity's relationship with the Procurement Code.²²

The term "governmental body" generally encompasses the executive and judicial branches of state government.

"Governmental Body" means 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. Governmental body excludes the General Assembly or its respective branches or its committees, Legislative Council, the Office of Legislative Printing, Information and Technology Systems, and all local political subdivisions such as counties, municipalities, school districts, or public service or special purpose districts or any entity created by act of the General Assembly for the purpose of erecting monuments or memorials or commissioning art that is being procured exclusively by private funds.

S.C. Code Ann. § 11-35-310(18). Absent some express exception, governmental bodies are subject to all aspects of the Procurement Code.

The term "political subdivision" generally encompasses local public entities. By definition, this term includes "all counties, municipalities, school districts, public service or special purpose districts."²³ Because political subdivisions are excluded from the definition of "governmental body," they are not covered by the Code generally. ²⁴

Covered foundations are foundations captured by the following section of the Code.

The acquisition of a facility or capital improvement by a foundation or eleemosynary organization on behalf of or for the use of any state agency or institution of higher learning which involves the use of public funds in the acquisition, financing, construction, or current or subsequent leasing of the facility or capital improvement is subject to the provisions of this code in the same manner as a governmental body. The definition and application of the terms "acquisition", "financing", "construction", and "leasing" are governed by generally accepted accounting principles.

S.C. Code Ann. § 11-35-40(4). As this section reflects, a foundation captured by this provision "is subject to the provisions of this code in the same manner as a governmental body." In other words, if the transaction falls within the ambit of this section, the transaction is then evaluated for application of the Procurement Code.

Non-covered entities are those public entities that are either excluded from the definitions above or exempted by some other rule. For example, the General Assembly is excluded from the definition of governmental body. The State Ports Authority, which otherwise qualifies as a governmental body, is also excluded from the Code's application.²⁵

For most public entities...