2.B2.0 Importance of properly classifying purchases
The ability to properly classify purchases enables correct execution of procurements.
A buyer must:
Apply the appropriate laws, regulations, policies, and procedures (e.g., selection of the correct solicitation type, identification of the correct advertising threshold)
Determine if department has the appropriate purchasing authority to conduct procurement or if DGS/PD or Department of Technology is required to conduct the procurement.
Secure additional approvals and/or waivers if required.
Inaccurate classification of a purchase may result in:
Program or project delay
Waste of time and effort, ultimately wasting taxpayer money
2.B2.1 Acquisition Types and Methods (added 4/17)(rev 7/17)
The first step in classifying a purchase is to identify the acquisition type which is a general description of what is being purchased. Buyers must identify one of the following acquisition types for each acquisition:
Policy in this topic area (Topic 2) explains how to determine the appropriate acquisition type.
**“Encumbrance Only” is an acquisition type available for use by accounting personnel only for the purposes of encumbering funds for transactions that do not require a contract (aka “agreement” or ”purchase order”) such as the following:
Grants (only grants that meet criteria specified in SCM Volume 1, Section 4.06)
For procurement transactions such as conducting acquisitions, executing any contract (aka “agreement” or “purchase order”), and Cal-Card transactions; state agencies are PROHIBITED from using the “Encumbrance Only” acquisition type. Compliance with SCM policy is required to maintain purchasing authority granted by the DGS/PD; the use of the “Encumbrance Only” acquisition type incorrectly will result in non-compliant transactions which may jeopardize purchasing authority granted by the DGS/PD.
Acquisition types are general categories of “WHAT” is being purchased whereas acquisition methods identify “HOW” the purchase is being made.
Once the buyer has identified the acquisition type, the next step is to identify the acquisition method to be used to purchase the goods or services.
A variety of acquisition methods are available; all of which are identified in the “Acquisition Methods” list linked in the resources section at the end of this chapter. Policy contained in subsequent chapters of this manual and in Volume 1 of the State Contracting Manual (SCM), explain how to conduct acquisitions and execute contracts (aka “agreements” or “purchase orders”) utilizing acquisition methods noted.
2.B2.2 Determine the main purpose Non-IT vs. IT
To determine whether a contract is for IT or non-IT, the buyer must consider the predominant purpose or value of the purchase and whether IT skills and knowledge are involved as the primary purpose of the contract or whether such knowledge or skills are used to further an overarching purpose.
Many items depend on IT to operate, yet they may not be classified as IT.
Example 1: Ten personal computer (PC) keyboards are purchased for replacement stock to issue when an existing keyboard fails. The purchase of PC keyboards is classified as IT. A PC processes data electronically and the keyboard is a critical component to the operation of the PC. Consequently, the purchase is made under the IT purchasing authority.
Example 2: A department purchases a vehicle for enforcement use. The vehicle has been fitted with an electronic mapping system and telecommunications equipment. The purchase is made under the non-IT purchasing authority after securing required approvals from DGS Office of Fleet and Asset Management. The features of the car are secondary to the purpose of the vehicle, which is a means of transportation.
2.B2.3 Distinguishing goods from services (rev 4/18)
When determining if an acquisition is for goods or services, the following concepts should be considered:
Does the contract have as its sole or main purpose the acquisition of tangible items, such as equipment, parts, supplies or other merchandise?
What is the main value of the contract – the good or the service? If the main value is a good with minimal or no services, it is handled as a good.
If the main value is the service, the transaction should be treated as a service contract.
Non-IT services included with the purchase of non-IT goods may not exceed $10,000.00 and must be directly related to the purchase of the goods, such as set up or installation. Non-IT services such as maintenance is not allowed and must be procured separately under the SCM, Vol. 1 unless available on a leveraged procurement (LPA) contract.
Large-scale system integration projects are classified as IT services,
2.B2.4 Example of goods vs. services
Example #1:
A business solution is required that uses specialized software. Currently a commercial-off-the-shelf (COTS) product is not available to meet the department’s need. The department’s business needs can be met by developing a customized software application. The main purpose of the purchase is the technical expertise that creates a software product to satisfy the department’s business problem. The request would be treated as an IT service.
Example #2:
A manager has requested new furniture for the office. The buyer needs to purchase the new furniture and acquire the services necessary to position that furniture in the office. The main value is the furniture. The request would be treated as a non-IT goods contract.
2.B2.5 Help for classifying purchases
Departments that need assistance to determine the classification of a purchase after reviewing the available resources should first consult with their department’s Purchasing Authority Contact (PAC). The following may also be contacted for applicable situations:
Purchases conducted under delegated purchasing authority: PAMS@dgs.ca.gov
Purchases conducted by DGS/PD: DGS/PD/One Time Acquisitions
Purchases made as part of a reportable IT project: The California Department of Technology (CDT)
2.B2.6 Final Authority
The ultimate decision for the classification of acquisitions resides with DGS Deputy Director, Procurement Division.
