Public Procurement and Government Contracts 2019 Comparisons

Last Updated May 10, 2019

Law and Practice

Authors



TozziniFreire Advogados has distinguished itself since 1976 as a premier, full-service firm by consistently providing legal services to domestic and international companies in a wide variety of business sectors. It has played a major role in many of the most significant transactions in the Brazilian market, becoming one of the largest and most prestigious firms in Latin America. The firm’s growth has been driven by its dedication to delivering tailor-made results that contribute to its clients’ business strategy. Another major reason for its consistent success – and a great point of pride for everyone at TozziniFreire – is its proven record as Brazil’s leading innovator when it comes to evaluating what it does and how it can do it better, improving its assistance to clients, developing and expanding its expertise, and becoming more efficient and cost-effective in the way it delivers services. The firm’s key practice areas in relation to public procurement are government contracts and projects, administrative law, infrastructure and privatisations.

The main legal framework for public procurement in Brazil is Federal Law No 8,666/1993 (the Public Procurement Act, or PPA), which establishes general procurement rules applicable to federal, state and municipal entities.

Other specific laws applicable to public procurement are:

  • Federal Act No 10,520/2002 – reverse auction for acquisition of ordinary/standardised goods and services;
  • Federal Decree No 7,892/2013 – price list system;
  • Federal Law No 12,462/2011 – integrated and alternative procurement proceeding, known as the Differentiated Regime of Public Procurement (RDC), applicable to specific construction services related to urban mobility and public security projects, etc; and
  • Federal Law No 13,303/2016 (the State Owned and Mixed Capital Companies Act), regulated by Federal Decree No 8,945/2016 – set guidelines for Brazilian state-owned and mixed-capital companies, as well as their subsidiaries, to set up their own procurement regulation.

Besides federal rules, states and municipalities may also issue their own public procurement rules, as long as they abide by the general rules established by federal laws.

All government bodies, special government funds, autonomous government entities, public foundations and other entities controlled directly or indirectly by the federal, state, federal district and municipal-level governments are subject to Brazilian public procurement legal rules.

All contracts executed by Brazilian public entities have to comply with the procurement regulation, which covers not only the public procurement proceeding rules (and respective waiver/procurement unenforceability cases), but also the government contract terms and conditions, procurement-associated violations and crimes, and respective penalties.

The applicable laws provide for several situations of waiver of the public procurement process and unfeasible competition. There are a number of cases of waiver, ranging from low-cost products/services to protection of national security. Acquisitions from sole source supplier or specialising services are examples of unenforceability of the public procurement process.

As per minimum-value thresholds, the PPA provides that the public procurement process is not required for engineering works and services with a total cost of up to BRL33,000, and other services and purchases with a total cost of up to BRL17,600.

In the case of purchase, works and services hired by a public consortium or autarchies or foundations qualified as executive agencies, the limits above are doubled.

With regard to Brazilian state-owned, mixed-capital companies and their subsidiaries (subject to Law No 13,303/2016), the public procurement process is not required for engineering works and services with a total cost of up to BRL100,000.00, and other services and purchases with a total cost of up to BRL50,000.

The Public Procurement Act assures equal treatment to companies interested in participating in a public procurement process, regardless of their nationality. This law prohibits different treatment of commercial, legal, labour and social security issues, or those of any other nature, between national and foreign companies.

The PPA allows, however, margins of preference for manufactured products and national services complying with Brazilian technical standards, and additional margins of preference for manufactured products and services resulting from technological development and innovation in the country.

Depending on the scope of the public procurement, only foreign companies functioning in Brazil can participate. In these cases, the public procurement process is called a 'domestic bid' and a foreign company will only be able to participate if it sets up (or has already set up) a registered company in Brazil. In other cases, the decision of whether a public procurement is open to foreign companies without operation in Brazil and local companies is up to the public entity carrying out the procurement.

Also, if a Brazilian and a foreign entity are participating as members of the same consortium in a public procurement proceeding, the leader of the consortium must be the Brazilian company.

The main feature of public contracts, in comparison to private contracts, is that they are prepared by the public contracting entities and, as a rule, private parties just adhere to their highly regulated terms and conditions, with little or no room for negotiation.

The following principles govern public procurement proceedings and contracts: equitable treatment to all bidders, selection of the most advantageous proposal, promotion of sustainable national development, legality, impersonality, morality, equality, transparency, administrative probity, enforceability of the request for proposals and objective judgement of the proposals.

Considering that public procurement in Brazil is a formal and strict proceeding, there are several obligations that must be met by the bidders. Among the obligations undertaken by bidders are ones to abide by the terms and conditions of the future contract, to comply with all the qualification requirements indicated in the tender documents and maintain these conditions during the contract performance (legal, tax and labour good standing, and technical and financial requirements). By participating in a public procurement proceeding, bidders agree to all the terms and conditions set forth in the tender documents, which describe all the rights, liabilities and obligations of each party.

Public entities must publish the public notice of the public procurement process (i) in the corresponding Official Gazette (federal, state or municipal depending on the contracting entity jurisdiction); in the case of federal public entities, the public notice is published in the Federal Official Gazette, electronically available at http://www.in.gov.br/web/guest/inicio; and (ii) in a daily newspaper of large circulation in the state and in the municipality/region where the services will be provided, if any.

Public notices are also usually published on official procurement websites (ie, www.comprasnet.gov.br), whenever available, or the official website of the procuring entities.

There are no legal requirements for the information to be disclosed. However, the following information is usually disclosed:

  • the name of the contracting party;
  • the scope of the contract;
  • the estimated amount of the future contract;
  • the legal grounds;
  • the place where interested parties may obtain a full copy of the request for proposals and annexes (including the draft contract); and
  • the deadline to submit the proposals.

It is permissible and common that an awarding authority carries out a preliminary market consultation with at least three potential candidates for the future public procurement proceeding before launching the contract award procedure. However, a formal public consultation period is only mandatory for public procurement proceedings with an estimated cost higher than BRL33 million.

The type of public procurement proceeding to be adopted by the contracting entity depends on the purpose, scope and value of the procurement. The proceedings provided for in Brazilian law are:

  • competitive biddings;
  • price quotations;
  • invitations;
  • contests;
  • auctions; and
  • reverse auctions (regular or electronic).

As a rule, negotiations are not possible under the PPA. Upon the publication of the public notice, all bidders have to abide by all its terms and conditions, including the contract draft, which is an annex of the public notice. In a reverse auction, however, there is a possibility of negotiation of the price proposal with the winning bidder.

Under the State Owned and Mixed Capital Companies Act, there is also a negotiation phase in which the contracting authority must negotiate more advantageous conditions with the bidder first classified in the judgment phase. If the price of the first bidder remains above the estimated budget after the negotiation, the other bidders will be called to negotiate, according to the order initially established.

The PPA provides for the following procedures that depend on the purpose, scope and value of the procurement:

For engineering works and services:

  • invitation letter – tenders up to BRL330,000;
  • price quotations – tenders up to BRL3,300,000; and
  • competitive bidding – tenders higher than BRL3,300,000.

For non-engineering works and services:

  • invitation letter – tenders up to BRL176,000;
  • price quotations – tenders up to BRL1,430,000;
  • competitive bidding – tenders higher than BRL1,430,000.

Competitive bidding is applicable, regardless of the price, in the purchase or sale of real estate, in the concessions of right of use of government real estate and in international bidding processes; also allowed in the latter are (i) price quotations if the entity maintains an international enrolment of suppliers and as long as it complied with the limits above, and (ii) invitation, if there is no supplier in the country. 

Whenever the invitation is applicable, the contracting authority may use price quotations and, in any case, competitive bidding.

Other types may apply, such as:

  • a contest is applicable for selecting among any interested parties a technical, scientific or artistic work in exchange for prizes or remuneration to the winners;
  • an auction is the procurement applicable for the contracting entity to sell different types of goods; and
  • reverse auctions are used for the acquisition of ordinary goods and services by the public entity.

The applicable legal framework for public procurement imposes some obligations on the contracting authority as to the timing for publication of documents. For instance, the administration must observe a minimum period between the publication of the notice of a bid/request for proposals and the date of the bidding, which varies according to the type of tender:

  • 45 days or more for competitive biddings;
  • 15 days for requests for quotations;
  • five days for invitations; or
  • eight days for auctions and electronic auctions.

A summary of the public contract resulting from the public procurement process must also be published in the Official Gazette until the fifth business day of the month following the contract execution date. If the public procurement was based on a waiver or non-requirement of the bidding process, the term for publication of the summary of the agreement is five days. The publication of the summary of contract in the Official Gazette is a prerequisite for the effectiveness of government contracts.

The time limits depend on the type of procedure. The minimum period between the publication of the request for proposals and the date of the proposal submission is:

  • 45 days for competitive biddings;
  • 15 days for requests for quotations;
  • five days for invitations; or
  • eight days for auctions and electronic auctions.

For qualifying in a public procurement process, the bidders must submit documentation regarding legal, technical and economic and financial qualification, as well as fiscal and labour good standing. Sections 27 to 33 of the PPA establish the minimum and maximum requirements but the contracting authority must define in the request for proposals the appropriate requirements for the scope of the public procurement.

The PPA prohibits conditions that restrain competitiveness and create preferences or distinctions based on circumstances that are impertinent or irrelevant to the scope of the public contract.

As a general rule, it is not possible to limit the number of bidders in a public procurement process under the PPA.

However, in the specific case of an invitation to bid, the law limits the minimum number of bidders to three, but it does not establish a maximum limit.

The PPA provides for the following criteria that may be adopted by the contracting authority to evaluate the bidders and must be indicated in the request for proposals:

  • lowest price;
  • best technique;
  • best technique and price; or
  • highest offer (applicable to sale of assets and rights-of-use concessions).

The PPA requires the contracting authority to define objective criteria for the selection of the winning bidder.

The evaluation criteria must be provided for in the request for proposals.

The PPA sets forth that in the evaluation of the proposals, the contracting entity must consider the objective criteria defined in the request for proposals and that the use of confidential, subjective or reserved elements that may compromise the principle of equality among bidders is prohibited.

The PPA also establishes that the bidding committee must evaluate the proposals in accordance with the types of bidding procedures, the criteria previously defined in the request for proposals and the factors exclusively referred therein, in order to allow the bidders and controlling entities to assess it.

All the decisions issued by the public administration in Brazil must be duly motivated. For instance, in the standard public procurement process provided for in the PPA, the qualification of the bidders is evaluated in the first phase of the proceeding and the economic proposals (of the bidders classified in the first phase) are only opened after that. In this case, after evaluating the qualification documents, the bidding committee discloses its decision. Bidders then have the five working-day term counted as of the notification of the decision or issuance of the minutes to file appeals against that decision.

The opening of the envelopes containing the qualification documents and the proposals must be made in a previously scheduled public session, in which the bidding committee must prepare meeting minutes and collect the signature of all the bidders in attendance.

As explained above, the bidding committee must prepare meeting minutes registering the events and participants of the public session in which the bidders’ proposals are opened and collect the signature of all the bidders attending that public session. After selecting the first classified proposal, the bidding committee must also issue acts of award of the bidding scope and of its approval.

Bidders may file appeals against the contracting authority’s decision regarding the proposals evaluation within five working days counted as of the notification of the decision or issuance of the minutes.

The 'standstill period' between the contract award decision and the execution of the public contract must be defined by the contracting entity on a case-by-case basis, with clear rules included in the request for proposals.

There are three different review mechanisms:

  • Administrative review by the contracting entity – administrative appeals must be submitted to the authority that issued the appealed decision (first-tier administrative review). The authority can review the decision or, if maintained, forward it for review by the higher authority (second-tier administrative review). In the case of a blacklisting penalty, interested parties and contractors may request reconsideration to the state ministry or to the municipality and state secretaries, as the case may be.
  • Administrative review by the Courts of Audits – the Courts of Audits are independent controlling entities of federal, state or municipal levels, with authority to review public expenses. As a result of that authority, these courts are entitled to review the public procurement proceedings and public contracts, as well as administrative resolutions and decisions issued in connection to them, directly or upon representation of interested parties.
  • Judicial review – administrative decisions may also be judicially challenged by means of different types of lawsuits.

There are several remedies that can be granted by the entities in charge of monitoring and/or ruling the legality of the public procurement proceeding. However, the applicable laws do not provide for an exhaustive list of possible remedies for breach of the procurement laws. Examples of remedies are fines, prohibition to contract with the public administration for a certain period, injunctions and declaration of the public procurement proceeding as being null and void.

Administrative and judicial courts may order the suspension of the public procurement proceeding until a measure is adopted by the contracting authority or until a final decision is taken by the court.

In addition, administrative challenges to decisions qualifying or disqualifying bidders and evaluating proposals result in the suspension of the procedure until a decision is issued by the administrative authority. In the case of challenges against other decisions, the administrative authority will decide whether to suspend the procedure.

The PPA provides that any citizen can file a challenge related to the tender documents if any breach of the law is identified. The complaint must be filed up to five business days prior to the date scheduled for opening of the qualification documents of the bidders.

As per the awarding authority’s decisions, the individuals/companies with standing to challenge them depends on the content of the appealed decision and the means by which the decision will be challenged (please refer to the three review mechanisms indicated in 4.1 Responsibility for Review of Awarding Authority's Decisions).

For instance, if the circumstance of the complaint addresses a matter that involves only one of the bidders (disqualification, for example), only the interested bidder can file the complaint.

Complaints can also be filed with grounds based on Federal Law No 9,784/1999 (the Federal Administrative Proceeding Act), applicable to public procurement proceedings on a subsidiary basis. That law entitles the following parties to file administrative complaints:

  • any holders of rights and interests that are parties of an administrative proceeding;
  • holders of rights or interests indirectly affected by the challenged decision;
  • organisations and associations defending collective rights and interests; and
  • citizens or associations.

In regard to lawsuits, individuals or companies with standing to sue also depend on the type of the lawsuit. In the case of a 'popular lawsuit', for example, any citizen can initiate the judicial proceeding to request the nullity of acts harming the public administration, as provided for in Federal Law No 4,717/1965.

Time limits for challenging an awarding authority’s decision will also vary according to the type of challenge.

Below are some of the time limits provided for in the law:

  • administrative challenges to the request for proposals – must be filed up to five working days prior to the date scheduled for opening of the bidders’ qualification documents;
  • administrative appeals against the awarding authority’s decisions – five working days counted as of the notification of the decision or issuance of the minutes (or two working days in the 'invitations for bid' type of proceeding);
  • a writ of mandamus, applicable in cases of clear violation of rights that can be proved only by documentary evidence – up to 120 days after the date on which a party discovered the breach of the right; and
  • a lawsuit to request the annulment of an administrative act or contract – five years counted as from the issuance of the act or execution of the contract.

Brazilian law does not provide for a fixed term for the duration of administrative or judicial proceedings.

An administrative proceeding usually lasts one year; judicial proceedings usually take longer, and may last up to ten years.

This firm does not have access to the number of procurement claims per year but it is common to have some level of litigation in public procurement proceedings. In the administrative sphere, bidders frequently file administrative appeals with the contracting authorities when they consider that they have been harmed by a decision. Judicial claims are less frequent, but also common, mainly when there are relevant public interest issues and/or huge amounts involved in the public procurement.

Administrative challenges do not require the payment of any fees.

Judicial challenges involve the payment of fees that vary mainly according to the amount in dispute, in addition to the payment of the attorneys’ fees (since lawsuits require a licensed attorney).

General rules on modifications to the contract during its performance are defined in the PPA, according to which, public contracts may be amended up to the total term of 60 months, including the original term. In terms of scope, contract amendments have to be limited to the equivalent of 25% of the original contract value.

Brazilian laws provide for several situations in which the public procurement process is not required or is not feasible, because of the lack of competitiveness. There are a number of cases of waiver, ranging from low-cost products/services to protection of national security. Acquisitions from sole source supplier or specialising services are examples of unenforceability of the public procurement process.

For the particular cases and further information, see 1.3 Type of Contracts Subject to Procurement Regulation.

There are many bills under analysis in the Brazilian Congress regarding changes in the public procurement rules.

However, Bill No 6814/2017, which proposes some major changes in the PPA, is one of the main bills pending with the House of Representatives that discuss amendments to the PPA.

TozziniFreire Advogados

Rua Borges Lagoa 1328
São Paulo, SP - Brasil
CEP 04038-904

+55 11 5086 5000

+55 11 5086 5555

mail@tozzinifreire.com.br tozzinifreire.com.br
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Law and Practice

Authors



TozziniFreire Advogados has distinguished itself since 1976 as a premier, full-service firm by consistently providing legal services to domestic and international companies in a wide variety of business sectors. It has played a major role in many of the most significant transactions in the Brazilian market, becoming one of the largest and most prestigious firms in Latin America. The firm’s growth has been driven by its dedication to delivering tailor-made results that contribute to its clients’ business strategy. Another major reason for its consistent success – and a great point of pride for everyone at TozziniFreire – is its proven record as Brazil’s leading innovator when it comes to evaluating what it does and how it can do it better, improving its assistance to clients, developing and expanding its expertise, and becoming more efficient and cost-effective in the way it delivers services. The firm’s key practice areas in relation to public procurement are government contracts and projects, administrative law, infrastructure and privatisations.

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