The Government Procurement Review: Brazil

Introduction

The procedure Brazilian public authorities must observe while purchasing goods and services is mainly governed by the Brazilian Constitution and by Federal Statute 8,666 of 1993 (Federal Statute 8,666).

The Brazilian Constitution sets out the framework of government procurement, providing that all public entities, as a rule, must acquire goods and services by means of a public bid proceeding that ensures equal conditions for all bidders.2 The Constitution also vests the Federal Union with the power to pass general rules about public bidding. Individual states and municipalities may also pass their own regulations, so long as they do not conflict with federal law.3

Federal Statute 8,666 lays down the general rules about public bids and contracts. According to its Article 3, bidding procedures have three main objectives: (1) to guarantee isonomic treatment of the interested parties; (2) to select the proposal most advantageous to the public administration; and (3) to promote sustainable national developments.

Bidding procedures must, furthermore, observe the following basic principles:

  1. legality: the interested parties must be equally subject to all rules, procedures and terms applicable to bidding proceedings;
  2. impersonality: favouritism of a personal nature is disallowed;
  3. morality: the interested parties must follow ethical good-faith and fairness standards throughout the course of the procedure;
  4. equality of conditions: the public administration is barred from stipulating requisites that may compromise the competitive nature of the procedure, especially if they are impertinent or irrelevant to the contract;
  5. publicity: all actions pertaining to the procedure must be made public and accessible;
  6. administrative probity: imposing administrative, civil and criminal repressive sanctions on all actions capable of generating damage to the treasury, or causing unjust enrichment of any of the participants or of the public agent;
  7. adherence to the bid announcement notice: meaning that the rules laid down in the announcement notice bind not only the bidding parties, but also the public administration; and
  8. objective assessment of the proposals: the proposals must be assessed according to precise criteria set out previously in the bid announcement notice.

Year in review

The main legal development in 2020 was the enactment of Federal Statute 13,979/2020, which had a direct impact on public procurement. The Statute established emergency measures for the public administration, with the purpose of containing the covid-19 pandemic.

One of the most significant provisions set out by the Statute waived the need for a bidding procedure for procurement of goods, services and resources targeted at fighting the pandemic. This waiver is temporary and will last only for the duration of 'the public health emergency of international importance, arising from the coronavirus'.4

Notable case law included a decision rendered by the Brazilian Supreme Court relating to public procurement in the Direct Action for the Declaration of Unconstitutionality No. 6241. By means of this precedent, the Court recognised the constitutionality of Federal Statute 9,491/1997, also called the National Privatisation Programme (PND), one of the most polemical aspects of which made it unnecessary for the legislative branch to have to issue specific authorisation to privatise state-owned companies.

According to the Brazilian Supreme Court, Federal Statute 9,491/1997 is not unconstitutional and the head of the executive branch may order the privatisation of state-owned companies solely on the basis of the generic legislative authorisation provided by the PND. However, the Statute does not exempt the public administration from complying with other obligations, such as providing the reasoning for the privatisation order and having to conduct a bidding procedure prior to selling the company.

Scope of procurement regulation

i Regulated authorities

According to Brazilian law, all public entities must go through bidding procedures to procure goods and services. Brazil is a federative republic composed of 26 states, one federal district, and 5,565 municipalities. All three levels of government (federal, state and municipal) can create new legal entities, in the form of public foundations, regulatory agencies, state-owned companies and mixed-capital companies, all with administrative and financial autonomy.

Each one of these units can define its own budget and proceed with the acquisition of the goods and services necessary to achieve its ends. They are all, as a rule, subject to the rules of public procurement. Although Federal Statute 8,666 contains the main guidelines for public procurement, the states and municipalities may also pass their own rules, so long as they do not conflict with federal rules.

ii Regulated contracts

Pursuant to Federal Statute 8,666, the acquisition of construction works, leases, goods and services, and the disposal of assets, concessions and permissions by the public administration must be preceded by a bidding procedure, using processes that guarantee equal conditions for the interested parties.

However, there are exceptions to the public administration's obligation to conduct a bidding procedure.

Public entities may directly procure goods produced and services rendered by other organisations or entities that are part of the public administration, without bidding procedures. In special situations, this may also be the case for assets produced and services rendered by public services concessionaires, or by non-profit associations owned by the physically disabled.

The public administration may also procure directly low-value goods and services. Currently, Federal Decree 9,412 of 2018 lays down limits of 33,000 reais for construction and engineering services and 17,600 reais for other goods and services.

Bidding procedures may also be dispensable: (1) if there is no competition in the market (e.g., when procuring exclusive products from highly specialised professionals); (2) in emergency situations (e.g., in cases of major disasters, grave disturbances of public order, national defence or war); or (3) to intervene in the economy, regulating prices or normalising the supply of goods and resources.

Special contractual forms

Federal Statute 8,666 has been criticised for its excessive formalism and the ample range of grounds available to interested parties on which to challenge awards, which increases litigiousness, tardiness and the costs of bidding procedures. Several special statutes have been enacted in attempts to remedy these problems, simplifying or adapting procedures to better serve some types of procurement.

In 2002, the National Congress passed Federal Statute 10,520, which allows procurement of 'ordinary' assets and services (those whose quality standards can be objectively defined), by means of reverse auctions. In this method of bidding, the procedure is simplified, and the suppliers may offer their tenders in public sessions, whether conducted physically or electronically.

Because of the urgency to complete infrastructure construction work to host the 2014 World Cup and the 2016 Olympic Games in Rio de Janeiro, the National Congress passed Federal Statute 12,462 of 2011, which created the 'differentiated government procurement regime' (RDC) with the purpose of making bidding procedures less bureaucratic. Initially, the RDC was to be applied solely to the procurement of construction work and services necessary for sporting events, and was to expire in 2016. However, the law was repeatedly amended to apply the RDC to engineering work related to public healthcare, construction and reform of criminal facilities, urban mobility and logistics infrastructure and entities dedicated to the sciences, technology and innovation.

On the other hand, there are special contracts that follow different bidding procedures. For ordinary public service concessions, under which customers pay the administration directly to render services, the bidding procedure and the procurement options are set out in Federal Statute 8,987 of 1995. For public service concessions paid for partially or wholly by the state (also called public–private partnerships under Brazilian law), the bidding procedure is regulated by Federal Statute 11,079 of 2004.

Procurement of publicity services rendered by advertising agencies is governed by Federal Statute 12,232 of 2010. Contracts involving defence goods and services follow a special procedure, with the purpose of protecting national interests, as provided by Federal Statute 112,589 of 2012. Furthermore, purchases undertaken by public and mixed-capital companies follow a simplified procedure, laid down by Federal Statute 13,303 of 2016 (Federal Statute 13,303).

i Framework agreements and central purchasing

The Brazilian public administration traditionally procures goods and services in a decentralised manner. In 2014, nonetheless, the federal government created the Central Purchasing and Procurement Department for the acquisition of standardised items ordinarily used by the public administration's agencies and entities. Centralised procurement, however, is not customary and has been used especially for the purchase of airline tickets, procuring travel agencies, and telephony and IT services.

ii Joint ventures

Public and mixed-capital companies are also subject to government procurement rules and regulations. According to Brazilian law, a public company is defined as a company whose share capital is fully owned by the Federal Union, by the state or by the municipalities (the capital share is exclusively public).

A mixed-capital company is a corporation in which the majority of the voting shares belong to the Federal Union, the states, the Federal District or the municipalities, but with the admission also of private shareholding interests (public and private capital share).

According to Federal Statute 13,303, public and mixed-capital companies shall preferentially adopt the reverse auction procedure to procure ordinary goods and services. Bidding procedures are unnecessary when the value of the procurement is less than 100,000 reais for engineering work and services or 50,000 reais for all other purchases and services.

Private companies with minority shares owned by the state do not have to go through bidding procedures to procure goods and services, but neither may they be hired directly by public entities. Even if such a company intends to render services to the public entity that holds an interest in it, the bidding procedure is still mandatory.5

The bidding process

i Notice

The bidding announcement notice is the most essential instrument of a bidding procedure. It lays down: (1) the object of the procurement; (2) the time frame and the conditions for execution of the contract; (3) the sanctions applicable in cases of breach; (4) information about the basic project; (5) the conditions for participation; (6) the way the proposals shall be presented; (7) the criteria for assessment of the proposals; (8) the price admissibility criteria; (9) the criteria for adjustment of prices; (10) payment conditions; and (11) the rules and instructions for challenging awards. The announcement notice constitutes the law applicable to the procedure and must be strictly complied with by the administration and the interested parties.

According to Federal Statute 8,666, announcements containing the summaries of public notices, as a rule, must be published in advance in the Official Gazette and in a newspaper of wide circulation in the place where the bidding procedure will take place. The published announcement must indicate the place where the interested parties can read and obtain the full text of the public notice and all information about the bid.

As from 2011, pursuant to Federal Statute 12,527 (the Information Access Statute), the dissemination of public bidding notices through the internet became mandatory, with the purpose of ensuring greater publicity and promoting competition in the procedure.

ii Procedures

Federal Statute 8,666 sets out five models for public bidding, each subject to its own procedure: invitation to bid; price quotation; competitive bidding; auction and bidding contest. Special laws also allow for different models of bid contests: reverse auctions, as provided by Federal Statute 10,520 of 2002 (Federal Statute 10,520); and the RDC, regulated by Federal Statute 12,462.

Invitation to bid

Invitation to bid is the model used for low-value acquisitions, which currently comprise goods and services worth up to 176,000 reais, or construction work and engineering services worth up to 330,000 reais. Under this model, goods and services suppliers are chosen and directly invited by the administration to present their proposals. To guarantee the principle of isonomy, or equality before the law, the invitation must be addressed to at least three suppliers. Furthermore, the administration must publish a copy of the invitation in the public body's bulletin board, to allow other interested parties to file their proposals if they wish to. It is not necessary to publish the announcement notice in the Official Gazette or in newspapers with a large circulation.

Price quotation

Price quotation is the bidding model used for procurement of goods and services worth up to 1.43 million reais, or construction work and engineering services worth up to 3.3 million reais. Once the announcement notice has been published in the Official Gazette and in a large-circulation newspaper, suppliers previously 'enrolled' with the public entity, or who meet all the conditions required for enrolment, may take part in the bidding procedure. (This enrolment consists of a pre-examination of the company's legal, technical and economic qualifications.)

Competitive bidding

Competitive bidding is the procedure that allows the largest number of participants and is mandatory when procuring goods and services worth over 1.43 million reais or construction work and engineering services worth over 3.3 million reais. It is also mandatory, whatever the amount involved, for: (1) purchase or disposal of real estate; (2) granting of in rem rights; and (3) for international bidding. Exceptionally, international tenders can also use the price quotation procedure, when the public entity has an international enrolment list of suppliers, or tender by invitation, when there is no supplier of the goods or services within the country.

The competitive bidding procedure includes a qualification phase, which precedes the assessment of the proposals and consists in verifying the legal, technical and economic aptitude of the interested parties. Following that, the administration will open the qualified suppliers' proposals, which are presented in sealed envelopes. The method of the contest is thus sealed, as all proposals remain secret until the day of the award decision. The proposals are classified according to the criteria set out in the public notice and the award goes to the best proposal.

Auction

Auctions are used exclusively to sell assets that are unserviceable for the administration or to sell apprehended or pledged goods. In an auction, anyone may bid and the award winner is the one who offers the highest amount, so long as it is equal or superior to its evaluation by the administration.

Bidding contest

Bidding contests are used to choose technical, scientific or artistic services, awarding prizes or paying remuneration to the winners, according to the criteria set out in the public announcement notice, published in the Official Gazette with a minimum 45-day advance announcement.

Reverse auction

The reverse auction procedure is provided for in Federal Statute 10,520. It allows the public administration to acquire goods and services by means of a bidding contest in which the suppliers offer their proposals in a public session, which can take place physically or electronically. A reverse auction is not subject to any amount limitation and may replace the invitation, price quotation or competitive bidding procedure, so long as it is used to acquire goods and services used 'ordinarily', namely those whose quality standards can be defined objectively.

Once a reverse auction session starts, the auctioneer discloses the proposals filed by the interested parties. Both the supplier with the lowest offer and the suppliers with prices of up to 10 per cent above this offer may proceed with further successive verbal bids, until a winner is declared. The contest method is thus open, as the interested parties are aware of their competitors' offers and may present new offers by means of new public bids.

The validation of the technical and legal qualification of the suppliers only takes place at the end and is applicable only to the winner. In the event that the winner is deemed unqualified, the second-place contestant will be subject to validation of its technical and legal qualification, and so on until a winner is awarded the tender. The reverse auction is currently the most used method of bidding for public contracts, because of the transparency and simplicity of the procedure.

RDC

The RDC, as provided by Federal Statute 12,462, was originally conceived to expedite procedures for infrastructure work and services relating to the 2014 World Cup and the 2016 Olympic Games in Rio de Janeiro. Notwithstanding this, and because the regime was well received, the law was amended and the RDC started being applied for other infrastructure works, unrelated to sports events.

Under the RDC regime, bidding preferentially takes place electronically. The contest may be open (while the parties present public offers and bids) or sealed (by means of confidential offers), as set out in the corresponding public announcement notice. As in the reverse auction method, the validation of legal and technical qualifications will only take place at the end of the procedure and is only applied to the award winner.

Other distinguishing aspects of the RDC regime are that (1) the public administration may choose to indicate the brand or model of a product to be procured, so long as this choice is duly justified, and (2) the remuneration for this procurement may vary, according to the supplier's performance, based on goals and time frames set out in advance in the corresponding public announcement notice.

Eligibility

i Qualification to bid

The administration must require that the parties interested in a bidding proceeding present documents showing they are capable and competent to follow through with the intended contract. If the interested party does not meet the requirements set out in the public notice, it will not be declared the winner, even if it makes the best offer. Brazilian public authorities are customarily inflexible in assessing qualification documents and, consequently, a formal defect may lead to disqualification of a bidding party.

According to Federal Statute 8,666, the documentation necessary to qualify an interested party relates to the suppliers' legal, technical and economic aptitudes. The administration may require, for example: (1) copies of the company's commercial registration and articles of incorporation; (2) documents that corroborate the election of its officers; (3) proof of registration within the applicable professional class association, if necessary; (4) the decree of authorisation to operate in Brazil, when the party is a foreign company; (5) acquittances for labour and tax obligations; (6) proof of the technical qualification of the professionals in charge; (7) financial statements and balance sheets for the most recent fiscal year; and (8) certificates of good-standing for bankruptcy and judicial rehabilitation.

The supplier may also be disqualified for disreputable conduct. Certain unlawful actions in Brazil are punishable by temporary prohibition of the offending party from entering into agreements with the public administration. That can be the case, for instance, if a party previously breached an agreement entered into with the administration,6 or in the event of administrative misconduct.7

According to Federal Statute 13,303, public and mixed-capital companies may create a list of pre-screened suppliers, which will be automatically qualified to execute agreements with the public administration. They may also restrict the participation of pre-qualified suppliers in bidding procedures.

ii Conflicts of interest

Federal Statute 8,666 prevents government officials who are members of the procuring public administration from participating in a bidding procedure, on the understanding that their participation could compromise the procedure's equality before the law. This prohibition is amply borne out by precedents of the Federal Court of Accounts (TCU), in the sense that companies whose shareholders or officers have family ties to court officials involved in the bidding procedure may be prevented from participating.8

As a rule, bidding procedures presuppose the existence of project-design planning and project-execution planning, and those responsible for planning at this fundamental level are usually forbidden from bidding because they could, in theory, develop the projects in such a way as to hinder access by other bid contestants. However, there are exceptions: the RDC permits 'integrated hiring', allowing one supplier to carry out all stages of a project, from the drafting of the basic project plan through to the execution of the construction work.

iii Foreign suppliers

Any person or company who meets the requirements set out in the public announcement notice may participate in the bidding procedure. Thus, in principle, it is illegal to veto the participation of foreigners, or to lay down discriminating requirements that may hinder their participation in the procedure. However, to be part of the bidding proceeding, a foreign company must meet the requirements stipulated in Brazilian civil law and, additionally, may be subject to differentiated restrictions and conditions, as required by national interests.

For companies set up outside Brazil, which operate within the borders of the country, it is necessary to present the authorising decree required by Article 1,134 of the Brazilian Civil Code (a foreign company may not operate in Brazil, even by means of subordinated establishments, without the authorisation of the Brazilian Executive Branch).

Foreign companies that do not operate within the country must present, whenever possible, documents equivalent to those issued by Brazilian authorities, authenticated by the applicable consulate and translated into Portuguese by a sworn translator. These companies must also have a legal representative in the country, with express powers to be served with process and to answer administratively and judicially on the company's behalf.

Some activities, nevertheless, are exclusively reserved for Brazilians or companies set up in Brazil, such as broadcasting activities.9 Others, as is the case for defence products, services and systems, impose a different treatment for foreigners.10

Award

The granting of awards in bidding procedures is an objective process and the public administration must analyse proposals in strict observance of the criteria set out in the applicable announcement notice.

i Evaluating tenders

Pursuant to Federal Statute 8,666 the criteria for determining the most advantageous proposal may be based on three elements: (1) the lowest price; (2) the best technical execution or method, where the most important factor is the quality of the goods or services; or (3) a combination of the aforementioned criteria.

For purchases made under the RDC, the adjudicating criteria may be: (1) the lowest price or the largest discount; (2) the best method and price; (3) the best method or artistic content; (4) the highest offer price; or (5) the greatest economic return.

Pursuant to Federal Statute 13,303, public and mixed-capital companies may adopt the following award criteria: (1) the lowest price; (2) the largest discount; (3) the best combination of price and technique; (4) the best technique; (5) the best artistic content; (6) the highest offer price; (7) the greatest economic return; and (8) the best distribution or delivery of the goods sold.

ii National interest and public policy considerations

There are circumstances that permit relaxation of the duty to observe the principle of isonomy in public tenders. The criteria for relaxing formal assessment constraints in public tender awards give preference to goods and services produced: (1) in Brazil; (2) by Brazilian companies; (3) by companies that invest in technology research and development in the country; (4) by companies that meet quota requirements in hiring disabled personnel or employees rehabilitated by the social security system, and that comply with the accessibility rules laid down by law; (5) by micro-enterprises and small businesses, as defined in Complementary Statute 123 of 2016; and (6) by private individuals or families who are rural producers.

The administration may also establish a margin of preference for goods and services that meet Brazilian technical regulations and for companies that prove compliance with the quota reservation for disabled people or those rehabilitated by the social security system. However, the preference margin may not exceed 25 per cent of the price of foreign goods and services.

Information flow

Bidding procedures are guided by the publicity principle, to guarantee the participation of society and ensure supervision of the controlling organisations. There is no secret bidding procedure in Brazilian law. The only secrecy the system allows regards the content of the proposals in the case of bidding conducted by the sealed method – and that only remains secret until the bid envelopes are opened.

Federal Statute 8,666 guarantees access to the procedure in all its stages and for any party. Furthermore, the Information Access Statute compels public entities to disclose collective interest information, especially information regarding bidding procedures and including the announcement notice, the awards and the agreements executed.

Challenging awards

Decisions made by the authorities in charge of bidding procedures may be challenged, both administratively and judicially. The broad range of appeal options undoubtedly contributes to the tardiness of bidding procedures in the country.

In Brazil, where litigation levels are high, it is not uncommon for the bidding procedure to end up being challenged by the bid contestants, the controlling bodies, the Public Prosecutor's Office, or the TCU or the regional audit courts (administrative courts responsible for accounting, financial, budgetary and asset supervision of public administration entities), or even by common citizens.

Administrative challenges, as a rule, are cost-free and do not require the participation of an attorney. They may be decided over the course of a few weeks or months, depending on the complexity of the matter. Court challenges, on the other hand, depend on payment of costs (based on the amount under discussion) and require the participation of an attorney. They may be decided over the course of a few months or a number years, depending on the complexity of the case.

i Procedures

The administration's actions may be challenged internally (by means of an appeal to the administration itself), or externally (by means of lawsuits or representations before an audit court).

Internal control

The bidding announcement notice may be challenged administratively by a bidder or by any citizen. The purpose of such a challenge would be to make the administration aware of legal defects or inconsistencies in the requirements stipulated by the bidding notice, to enable the administration to remedy them. All other phases of the bidding procedure, such as the qualification, non-qualification, adjudication and classification of the proposals may be challenged by interested parties by means of an appeal at the applicable hierarchical level, to be filed within five business days. The filing of the appeal must be communicated to the other participants, who can file their responses within five business days.

External control

Details of any damage, or threat of damage, to the interests of the participating parties may be submitted for consideration by the courts, which will analyse the legality of the administrative action and its compliance with bidding notice regulations. In addition, because of its institutional purpose, the Court of Auditors may supervise the legality and cost-effectiveness of the procedure, by means of representations by any of the interested parties.

ii Grounds for challenge

The actions by the administration and by private parties may be administratively or judicially challenged by the interested parties, based on the law, or on the regulations of the bidding notice. The Public Prosecutor's Office can also file a lawsuit defending the principles that govern public law, or in the event of administrative misconduct.

Furthermore, according to Brazilian law, any citizen is permitted to request the judicial annulment of a bidding procedure that may be potentially harmful to the Public Treasury, by means of a 'popular lawsuit' (a type of lawsuit whereby any citizen may require the annulment of administrative actions harmful to public property).

iii Remedies

Brazilian courts may impose a variety of measures to prevent or correct illegality or misconduct in a bidding procedure.They may, for example, suspend the proceeding, allow the participation of a bidder unfairly excluded from participating, declare the nullity of the bidding notice or of the agreement and, additionally, impose on the party responsible for causing losses to a third party a penalty in the form of a damages payment.

If administrative misconduct is established (such as kickback payments, personal favouritism or undue waiver of bidding in a procurement) the public entity or the Public Prosecutor's Office may request the courts to impose civil and administrative penalties on the offending parties, such as payment of damages, fines or temporary suspension of the right to enter into contracts with the public administration.

Outlook

Currently, the government procurement regime in Brazil is complex, because of the broad range of exceptions and specific regulations. It can also be time-consuming, considering how simple it is to appeal and given Brazil's litigious culture.

Nevertheless, in December of 2020, Congress passed Bill No. 4,253/2020, setting out new rules for public procurement. The Bill, however, is still pending approval by the executive branch and has yet to become law. In the event that it is approved, the new statute will gather together in a single normative document all regulations applicable to the different types of tenders, revoking Federal Statute 8,666/1993 and the statutes governing special bidding procedures.11

The Bill's main changes are: (1) abolition of bidding by invitation and price quotation; (2) creation of a competitive dialogue procedure, similar to the one adopted by the European Union; (3) inversion of the assessment of proposals and bidder qualification phases, for all types of tenders; (4) creation of an online National Public Procurement Portal, to ensure transparency in all contracts executed with the public administration; (5) increasing obligations regarding public procurement planning, such as the need for long-term planning; (6) creation of pre-qualified supplier lists, which must be permanently open; (7) execution of contracts must be monitored by an officer appointed specifically for this duty; (8) option for parties to contracts to use alternative dispute resolution mechanisms, such as arbitration and dispute boards; and (9) simplification of administrative appeals.

Finally, we note that the Bill provides for a two-year transition period, during which the old and new legal regimes for public procurement will co-exist. Throughout this period, the public administration may opt between the two, and this choice must be indicated in tender notices. Furthermore, agreements executed before the new statute is enacted will continue to be governed by the present law.

Footnotes

1 Teresa Arruda Alvim is the founding partner and David Pereira Cardoso is a partner at Arruda Alvim, Aragão, Lins & Sato Advogados.

2 Article 37, XXI.

3 Article 22, XXVII.

4 Article 4, Paragraph 1, Federal Statute 13,979/2020.

5 Federal Court of Auditors, Lawsuit No. 003.330/2015-0, 11 May 2016.

6 Article 87 of Federal Statute 8,666.

7 Article 12 of Federal Statute 8,429 of 1992.

8 Lawsuit No. 018.102/2005-1, 18 June 2008.

9 Article 222 of the Brazilian Federal Constitution.

10 Federal Statute 12,598/2012.

11 Statutes 10,520/2002 and 12,462/2011.

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