As a rule of thumb, all contracts executed by the government or government-controlled entities must abide by public procurement regulation. Accordingly, the government can only contract engineering works, services, the provision of goods, the sale of its assets or the transfer to a private party of the right to provide public services after carrying on a competitive public bidding process with the purpose of choosing the most advantageous offer or proposal from among those presented by private interested parties.
In Brazil, Law No 14,333/2021 is currently the main legal framework for the procurement of government contracts. This statute provides general principles and rules on public procurement, steps and requirements for the contract award procedure, as well as guidelines governing the relationship between the government and private contracted parties. Law No 14,333/2021 was enacted in early 2021 and aimed to substitute Law No 8,666/1993 (the previous public procurement statute), which shall remain in force until April 2023. The government is currently allowed to choose whether it applies Law No 8,666/1993 or Law No 14,333/2021.
For the sake of straightforwardness, this analysis shall focus on Law No 14,333/2021, which will be referred to as the Brazilian Public Procurement Law (PPL). When deemed necessary to point out the main innovations brought by the PPL, both laws will be referred to using their number.
Depending on the scope of the public procurement process or the government contracting authority, other laws may apply, such as the following.
Pursuant to the Brazilian Federal Constitution, public procurement rules are mandatory for all entities controlled directly or indirectly by the government. In this sense, public agencies of any kind, government funds, public foundations and government-owned companies at all levels of the federation – federal, state and local – shall comply with the public procurement steps and requirements provided in the applicable legislation to engage in contracts with private parties for the acquisition of goods, works and services, and to proceed with the sale of assets.
As a rule of thumb, all contracts executed by the government or government-controlled entities must abide by the public procurement regulation. Accordingly, the government can only contract engineering works, services, the provision of goods or the sale of assets after carrying on a competitive public bidding process with the purpose of choosing the most advantageous offer or proposal from among those presented by private interested parties.
However, there are exceptions to this general rule. According to the PPL, the government is allowed to proceed with a direct hiring in two scenarios:
In both scenarios, the government is allowed to hire a third party to acquire goods and services directly. The direct hiring is a much more flexible process, in which the government is not obliged to observe all the steps provided in the PPL.
In this regard, it is important to mention that Law No 13,303/2016 introduced a new legal hypothesis according to which a bidding process is not required. Government-owned companies are allowed to pursue a direct hiring in the following scenarios:
Minimum Value Thresholds
As a rule, all contracts are submitted to the public procurement regulation. There are minimum value thresholds, but they are significantly lower than those fixed in other jurisdictions. The PPL provides that the government is not required to launch a competitive public bidding process for contracting engineering works or services with a total value of up to BRL100,000 and other services or purchases with a total value of up to BRL50,000. Law No 13,303/2016 provides the same minimum value thresholds for government-owned companies.
The previous procurement law (Law No 8,666/1993, which is still in force until April 2023) provides lower thresholds: BRL15,00 for engineering works or services and BRL8,000 for other services or purchases.
These are the typical scenarios in which the public procurement regulation is waived and the government and government-owned companies can proceed with a direct hiring.
A public tender process must serve as a tool for the government to select the most advantageous proposal to meet a certain public need. In this sense, the PPL ensures the equal treatment of all parties interested in participating in a public tender process, provided that they comply with the conditions and requirements for qualification set forth in the applicable public procurement regulation and those established by the contracting government authority in the public tender documents.
The PPL strictly prohibits government agents from admitting, planning, including or tolerating clauses or conditions in public tender documents that may impair, restrain or frustrate the competitive nature of the process. Regarding participation in a public tender process, the government cannot create different rules for bidders based on their nationality, economic condition, domicile or any other condition that is irrelevant for the proper execution of the object of the contract. In addition, the PPL clearly states that the government cannot establish any discriminatory treatment of a commercial, legal or labour nature among the bidders, nor give priority or privileges to Brazilian or foreign companies in view of the applicable currency, modality and locale for payment, except in specific situations involving financing from international agencies and multilateral entities.
Nonetheless, the PPL allows the government to apply a margin of preference for contracts relating to manufactured goods and national services that meet Brazilian technical standards, and to recycled, recyclable or biodegradable goods.
Conditions Provided in Tender Documents
Another relevant factor in the openness of the public procurement process is the conditions provided within the tender documents for the participation of foreign companies. Depending on the scope of the procurement process, the contracting authority may establish that foreign companies can only participate in the tender through a subsidiary that is duly incorporated in accordance with Brazilian law, in cases known as “domestic tenders”. On the other hand, when foreign bidders can participate directly in the tender, they are required to prepare a sworn translation into Portuguese of any document in a foreign language.
On top of that, Law No 8,666/1993 requires that, in the case of a consortium formed between Brazilian and foreign players, the leadership shall always be given to the Brazilian party. The new PPL does not include such requirement.
Differing from private contracts, in which the contracting parties have full autonomy to negotiate all clauses and conditions, those who attend a public procurement process must strictly abide by all terms of the tender documents, with no room for negotiation with the contracting authority. The PPL provides general rules on the obligations of the government, as well as those of the parties awarded a public contract.
Both laws give the government special powers, with the purpose of preserving the public interest underlying the public contracts. Among such powers, two are ordinarily of application to private contractors:
Termination of Public Contracts
As a rule of thumb, the termination of public contracts shall only be determined after an administrative procedure carried out by the government, ensuring the contractor the rights to defence. Once a public contract is unilaterally terminated without causes attributable to the contractor, the government would have to:
Furthermore, the PPL requires the private contractor to maintain all the qualification conditions required in the tender documents, for the whole term of the contract, and in compliance with the obligations undertaken therein.
The government awarding authority has to publish a formal notice containing the main features of the public tender process, such as:
The tender notice shall be published in an official gazette (either the federal or state gazette, depending on the level of the awarding authority) and in a newspaper with a wide audience.
Law No 13,303/2016 allows government-owned companies to adopt a slightly different and more flexible procedure for certain procurement processes in view of the particularities of the intended contract, whereby the contracting company sends a request for proposal (RFP) directly to a limited number of pre-selected players without the prior publication of a formal tender notice. In cases like this, only the result of the tender process and an extract of the contract are published in the official gazette.
Government awarding authorities can carry out preliminary market consultation before launching a contract award procedure. When the tender scope is of a simple nature, the consultation may consist of simple price research to formulate the price limit that would be paid by the government.
Conversely, when the tender scope is of a complex nature (ie, for engineering works or services, or for the concession of public services), the government awarding authority usually hires consultancy services from specialist companies to carry out comprehensive studies (eg, financial, technical, legal and environmental analysis) with the purpose of defining the basis for the tender process.
The PPL provides the following modalities of tender procedure for the awarding of contracts:
This is the most relevant and commonly used tender procedure modality, and encompasses the following phases:
The government awarding authority issues an administrative decision after the end of each phase, which can be appealed by all bidders. The awarding authority has the power to postpone the qualification phase until the end of the tender procedure, whereby it assesses the qualification documents of the winning bidder only.
This is used for engineering works, services and purchases in which the public administration carries out dialogues with previously selected bidders according to objective criteria in order to develop one or more alternatives capable of meeting their needs. The bidders should present a formal proposal, after they have been hired. The competitive dialogue focuses on bidding that relates to technological innovation or needs market solution, or is used when the public administration cannot find or choose the best solution.
This tender procedure is designed for the acquisition of common goods and services whose minimum quality standards are previously stipulated in the bid invitation. It cannot be applied for the specialised technical services of a predominantly intellectual nature, nor for engineering services. In this tender procedure, the bidders dispute the contract among themselves through successive bids, which occur during an auction section or virtually through a website provided for the government authority, with the winner being the one that offers the lowest price for the goods or services demanded by the government awarding authority.
Law No 8,666/1993 establishes the following two tender procedures that were not preserved in the new Law No 14,133/2021 regulation, which means that government awarding authorities will not be allowed to use them after April 2023.
The government awarding authority launches a competition that is open to all interested parties, intending to choose the best technical, scientific or artistic work suitable for a predefined purpose.
A typical tender procedure used by the government awarding authority for the sale of assets to the party who offers the highest bid that is equal to or higher than the appraisal value.
As referred to in 2.3 Tender Procedure for the Award of a Contract, the public procurement regulation establishes more than one tender procedure. The choice of which tender procedure shall be adopted for each case depends on the scope of the project and the estimated amount involved. The government awarding authority cannot choose the tender procedure at its discretion.
For instance, tenders aimed to contract common goods or services are subject to a simpler tender procedure, with no qualification phase and using lower prices as the evaluation criteria. Conversely, when contracting for a more complex project or when the tender refers to the concession of public services, the awarding authority shall use the open competitive procedure, which encompasses the phases mentioned in 2.3 Tender Procedure for the Award of a Contract.
In addition to the legal criteria already listed, Law No 8,666/1993 provides the following values for defining the applicable tender procedure.
The values for defining the applicable tender procedure were excluded from the New Public Procurement Law, meaning that the choice of process is now based on the object, as follows:
Law No 8,666/1993 provides for a minimum timeframe between the release of the tender notice and the tender procedure, which varies depending on the type of tender, as follows:
If there is any change in the public tender documents, the government awarding authority shall publish a new tender notice and observe the minimum timeframe between the publication and the tender procedure. In addition, for those tender procedures that involve a substantial amount, the government awarding authority shall promote a public hearing to receive contributions from the interested parties.
Law No 8,666/1993 establishes slightly different timeframes, such as:
The interested parties shall submit their proposal on the specific day provided in the tender invitation.
The legislation establishes the eligibility requirements to be met by the interested party. In any scenario, the interested party shall demonstrate that it:
Depending on the features of the tender, the awarding authority may establish financial requirements, such as minimum net equity or specific financial condition, and technical requirements, relating mostly to prior experience through attestation or the demonstration of having qualified employees in the workforce.
The public procurement legislation allows the government awarding authority to restrict the competition in specific and exceptional situations, such as in tenders aimed at small purchases, where the awarding authority may reduce the competition to three providers, who will be invited to the tender through a request for proposal.
Another situation where the awarding authority can restrict the competition is in the case of restricted procedures, whereby the tender is targeted at companies that are pre-registered in the government provider list. However, any company may request to be included in this list up to three days before the tender auction day. Once on the list, the interested party can take part in the tender.
The legislation sets forth the following evaluation criteria:
As a rule, the awarding authority tends to use the lowest price criteria to contract common goods and services.
The public tender documents must provide the criteria and other elements that would be used by the government awarding authority to select the winner of the contract award procedure. In this sense, any interested party knows what is necessary to take part in the competition and how the offers shall be evaluated, right from the beginning of the tender procedure.
The government awarding authority must select the bidders to participate in the contract award procedure according to the requirements and criteria provided for in the tender documents. Any exclusion of participants must be followed with a public statement issued by the government awarding authority with the reasons for the exclusion. In this scenario, the excluded party can request a reconsideration of such decision from the awarding authority, which may review the decision or confirm it. With the confirmation of the exclusion, the party cannot take part in the contract award procedure and can challenge the administrative decision in court.
The government awarding authority is not obliged to directly notify any of the interested parties about the contract award decision. All formal communications within the public tender procedure shall be made through publication in the official gazette or through the website of the awarding authority. In this sense, the party that did not win the tender shall be informed by the official statement made widely available by the awarding authority, which lists the criteria that were used to evaluate the offers and the identification of the winning bidder.
The Brazilian public procurement regulation does not provide for a specific “standstill period” between the notification of the contract award decision and the execution of the contract. In practice, the tender documents usually provide a term after the contract award decision in which the winner shall attend the call to execute the contract. The tender documents may provide precedent conditions to the execution of the contract that should be met by the winning bidder, such as the contracting of a performance bond, payment of the award price, and even the incorporation of a special purpose company (SPC), especially in the concession of public services to the private sector.
Any interested party can ask the government awarding authority to reconsider any decision issued during the tender procedure. There is no appeal to a higher authority or a different body: the awarding authority is responsible for reviewing its own decision. The decision on the reconsideration request is considered final at the administrative level.
However, the interested party may challenge any administrative decision in the Judiciary or before the Court of Accounts. Both courts have the power to issue injunctions determining the suspension of the whole tender procedure until the merits of the dispute have been analysed.
In Brazil, the Court of Accounts is the public entity responsible for auditing government tender procedures and contracts arising therefrom. Please note that the Court of Accounts does not monitor and/or conduct audits over the private contractor, but only regarding the execution of a contract entered into with a government entity under its jurisdiction. Each government level in Brazil is audited by a Court of Accounts: the federal government and all federal entities shall respond to the Federal Court of Accounts (Tribunal de Contas da União – TCU), while the state and local governments – as well as their entities – shall respond to the State Court of Accounts (Tribunal de Contas do Estado – TCE) of the respective state in which they are located. Only the Cities of São Paulo and Rio de Janeiro have a specific Local Court of Accounts (Tribunal de Contas dos Municípios – TCM). All the other cities in Brazil shall respond to the corresponding State Court of Accounts of the state where they are located.
The Courts of Accounts are independent government entities responsible for exercising the accounting, financial, budgetary, operational and equity control of the corresponding government. Despite their denomination, the Courts of Accounts are not part of the Judiciary Branch, but are in fact connected to the Legislative Branch of each level of government and assist the parliamentarians in controlling and evaluating public accounts and contracts from three perspectives:
If there is a breach of the procurement legislation, the interested party may claim proper remedies in court to declare the tender procedure null and void, or to remedy the breach of the procurement legislation (eg, declaration of annulment of the interested party due to wrongful exclusion from the contract award procedure). Remedies available in the Judiciary Branch include writ of mandamus, action for annulment, indemnification, injunctions and popular action.
The writ of mandamus (mandado de segurança) is the typical lawsuit for challenging any administrative act and decision. The plaintiff is required to prove its claim by means of documentary evidence. Pursuant to Law No 12,016/2009, the writ must be filed within 120 days of the date of the unlawful administrative decision/act.
Claims for annulment and indemnification may be filed by the bidders for any purpose. In terms of standing, the applicant needs to prove its participation in the tender procedure and the type of breach incurred by the government awarding authority.
Injunctions can only be obtained in court if plaintiffs establish the following elements:
The popular action is an appropriate remedy to void administrative acts or contracts causing damage to public assets (federal, state or local). The plaintiff thereby defends not its own right, but certain collective rights associated with a public interest. Any citizen (ie, a person who is entitled to vote) may file a popular action to protect (besides the public asset itself) the administrative morality, the environment, and the historical and cultural heritage.
The Judiciary Branch and the Court of Accounts may order the suspension of the contract award procedure if there is a breach of the procurement legislation. The suspension will last until the awarding authority remedies the irregularity identified or until a final decision is taken by the courts.
The awarding authority issues a decision on the following under the contract award procedure:
Any interested party may challenge the awarding authority’s decisions, even when such a decision does not refer to that specific party. In this sense, one participant may challenge the awarding authority’s decisions regarding the qualification classification of other bidders. Any citizen may challenge the awarding authority’s decisions to the Judiciary Branch or the Court of Accounts.
The awarding authority’s decision may be challenged under the contract award procedure within five working days of its release. Under the Judiciary Branch, the time limits depend on the remedy used by the interested party but it is reasonable to work with an average time limit of five years. After this time limit, even if an irregularity is identified, the Judiciary Branch tends to preserve the contract and convict the persons involved in the wrongdoing; the Court of Accounts tends to take a similar approach.
Pursuant to Law No 8,666/1993, the government awarding authority has five business days to respond to claims/appeals within a public tender procedure. The bidders are allowed to contest the following two important decisions issued by the government awarding authority during the public tender procedure:
The PPL provides that the bidders have three business days to present their claim/appeal, and that the government awarding authority that issued the decision has the same three business days to respond; in the case of non-reconsideration, the claim or appeal would be sent to the superior authority, which has ten business days to decide. Brazilian law does not provide for a specific timeframe for administrative proceedings before the Court of Accounts. The length of judicial challenges of a government’s decision may vary depending on the complexity of the dispute, the authority responsible for judging the claim and the place of the dispute, among other factors.
There is no official information on the average number of procurement claims filed per year in the public bidding process. Ordinarily, government authorities do not have this kind of statistical control. Nonetheless, experience in dealing with public procurement shows that it is more common than not for bidders to try to challenge the awarding government’s decision with the purpose of reverting an unfavourable result. Administrative challenges are usually based on:
No fees are required from a party in challenging an awarding authority's decision. Pursuant to the PPL and Law No 9,784/1999, any bidder has the right to challenge administrative decisions within a public bidding process without the assistance of a lawyer (although the participation of lawyers at this stage is a common market practice).
Conversely, the judicial challenge of an awarding authority’s decision requires a licensed lawyer and the payment of the applicable fees to the court, which may vary depending on the amount in dispute and the state in which the lawsuit will be filed.
The PPL provides general rules on how public contracts can be modified after being awarded to the contracted party. Amendments are permissible, with proper justification, in the following cases:
It is also worth mentioning that public contracts can only be amended up to the total term of 60 months, including the original term.
Although the rule applicable to the government in terms of public procurement is to contract third parties by means of a competitive public bidding process, the legislation allows contract to be awarded directly. Pursuant to the PPL, the government can proceed with a direct hiring in two situations:
In both scenarios (waiver or unfeasibility of a public bidding process), the government is allowed to directly hire a third party to acquire goods and services. The direct hiring is a much more flexible process, as the government is not obliged to observe all the steps of a competitive public bidding process.
Furthermore, Law No 13,303/2016 introduced new rules pursuant to which government-owned companies are allowed to move forward with a direct hiring, as follows:
The Brazilian Supreme Court ratified the right of concessionaires to be compensated by the government if a concession is taken over. On 5 March 2021, the Supreme Court judged a case involving LAMSA, the operator of a local road system in the City of Rio de Janeiro, which was compelled by the local government to hand over its concession before the contractual term without any compensation (Process No 0104111-48.2020.1.00.0000, Injunction within Constitutional Claim No 43,697/2021).
Pursuant to the Brazilian Federal Constitution, all levels of government have the power to create legislation on public procurement matters. The Brazilian National Congress has power to create new general rules on public procurement for the federal level, which are applicable to the state and local governments. State and local governments can also create their own public procurement regulation, provided that the general rules contained in the federal legislation are duly respected.
Bills under Consideration
The Brazilian National Congress is discussing a new statute to regulate the concession of public utilities. According to public information, the bill is in an advanced phase of discussion and Congress is working to approve it by the end of 2022.