The current Pennsylvania budget impasse is now entering its fifth month. How does the impasse and the lack of a state budget affect vendors and contractors holding contracts with the Commonwealth of Pennsylvania and its departments, boards and agencies?
According to the FAQ webpage of the Office of the Budget, the following questions and answers address payments to vendors and contractors and future contracts:
Question 9: Will Commonwealth agencies process invoices from vendors?
Answer: Yes. Vendors with state contracts who continue to provide goods and services to commonwealth agencies can submit invoices and Commonwealth agencies will process all invoices received. All invoices held during the budget impasse will be sent promptly to the State Treasury for processing after the FY15-16 budget is enacted.
Question 10: How will the budget impasse affect existing contracts?
Answer: Most state contracts include language addressing this situation, which states that the commonwealth’s obligation to make payments shall be subject to the availability and appropriation of funds and that contractors may not stop work or refuse to make delivery because of non-payment. If the Commonwealth’s untimely payment results in a default situation, the contractor may pursue the remedies set forth in the contract.
Question 11: Can Commonwealth agencies enter into new contracts for 2015-16?
Answer: Agencies may enter into new contracts for FY 2015-16. The contracts will clearly state that payment is subject to appropriation.
The takeaway here is that vendors and contractors doing business with a public entity like the Commonwealth of Pennsylvania should never forget that public contracts are unlike private contracts in many ways, not the least of which is that the payment obligations of the public entity are nearly always subject to legislative appropriation of the funds necessary for payment. So, while payment may be delayed due to non-appropriation, the obligation to perform the work covered by the contract continues even in the face of non-payment.