The Government Procurement Review: Brazil

Introduction

The procedure that Brazilian public authorities must observe while purchasing goods and services is mainly governed by the Brazilian Constitution and by federal statutes.

The Constitution sets forth 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 to all bidders (Article 37, XXI). The Constitution also affords the federal union the power to pass general rules about public bidding. Individual states and municipalities may also pass their own regulations, provided that they do not conflict with federal law (Article 22, XXVII).

There are currently two federal statutes that set out the general rules applicable to bid proceedings and administrative contracts: Federal Statute 8,666 of 21 June 1993 (the 1993 Statute) and Federal Statute 14,133 of 1 April 2021, recently edited (the 2021 Statute).

The 2021 Statute sets forth that, for a term of two years, the public administration may choose whether to procure based on the 1993 Statute or the new law. Thus, until April 2023, public procurement in Brazil shall be regulated by two different regimes depending on the public administration's choice.

In this chapter, we will analyse the 2021 Statute. For information on the 1993 Statute, please refer to the ninth edition of The Government Procurement Review.

The 2021 Statute sets forth general rules on bid proceedings and administrative contracts. According to Article 11, bid proceedings have four main objectives: to guarantee isonomic treatment to the interested parties; to select the proposal most advantageous to the public administration; to avoid overpriced hiring or hiring with unfeasible prices and overbilling in the execution of contracts; and to promote innovation and sustainable national development. Bidding proceedings must, furthermore, observe the following basic principles:

  1. legality, under which the interested parties must be equally subject to all rules, procedures and terms applicable to bidding proceedings;
  2. impersonality, under which favouring of a personal nature is disallowed;
  3. morality, under which the interested parties must follow ethical good faith and fairness standards throughout the course of the procedure;
  4. equality, under which the public administration is barred from setting forth requisites that may compromise the competitive nature of the procedure, especially if they are impertinent or irrelevant to the contract;
  5. publicity, under which all actions pertaining to the procedure must be made public and accessible;
  6. planning, which implies that the public authority must conduct all contracting aligned with the defined plan for the entity under its responsibility;
  7. duty segregation, which bars the same public agent from operating multiple duties in the same bid proceeding to mitigate risks, mistakes and fraud;
  8. motivation, which imposes on the public agent responsible for conducting the bid proceedings the obligation to base its decisions on legal grounds that must be expressly declared in the decision;
  9. administrative probity, which imposes administrative, civil and criminal repressive sanctions to all actions capable of generating damages to the treasury, or causing unjust enrichment to any of the players or to the public agent;
  10. attachment to the bid announcement, which means that the rules laid down in the public announcement notice bind not only the bidding parties, but also the public administration; and
  11. objective analysis of the proposals, under which the proposals must be analysed based on precise criteria set forth prior by the bid announcement notice.

Year in review

The year 2021 brought important changes in the regulation of public procurement in Brazil through the passing of the 2021 Statute. This law laid a new framework for bid proceedings and administrative contracts, substituting the 1993 Statute and other sparse law that addressed public contracts.

As mentioned, the 2021 Statute sets forth a transition period of two years. Public agents may, therefore, choose between using the old or the new statute until April 2023 for public contracts.

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, the 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. These entities each have administrative and financial autonomy and can define their own budgets. They can also proceed with the acquisition of whichever goods and services necessary to achieve their goals.

They are, as a rule, subject to the rules of public procurement. Although the 2021 Statute contains the main guidelines for public procurement, the states and municipalities may also pass their own rules, provided that they do not conflict with federal rules. This demands extra care in the analysis of the applicable law to those interested in providing goods and services to the Brazilian administration.

ii Regulated contracts

Pursuant to the 2021 Statute, the acquisition of construction works, leases, goods and services – as well as the disposal of assets, concessions and permissions – by the public administration must necessarily be preceded by a bidding proceeding through processes that guarantee equality of conditions to the interested parties. However, there are exceptions to the public administration's obligation to promote a bidding procedure.

Public entities may directly procure assets produced and services rendered by other organisations or entities that are part of the public administration, regardless of 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.

Public entities may also directly procure low-value goods and services. The price limits for this are established by decree, currently Federal Decree 10,922 of 2021, which sets out the limits of 100,000 reais for construction and engineering services as well as automotive vehicles services, and 50,000 reais for other assets and services.

Bidding proceedings may also be dispensable:

  1. if there is no competition in the market, such as for procuring exclusive products of highly specialised professionals;
  2. in emergency situations such as, for example, in cases of public calamity, grave disturbance of the order, national defence or war; or
  3. to intervene in the economy, to regulate prices or to normalise the supply of goods and assets.

The 2021 Statute also dismisses bidding for contracts with institutions that perform activities with social, environmental and innovation purposes, such as:

  1. services for collecting, processing and commercialising urban recyclable or reusable solid residues, performed by associations or cooperative entities formed exclusively by low-income individuals;
  2. contracts with national institutions that perform activities related to technological and scientific development, and that stimulate innovation; and
  3. contracts with institutions dedicated to the social recovery of imprisoned individuals.

Special contractual forms

The 2021 Statute attempted to simplify the rules and unify public contract procedures. However, some types of contracts still follow a differentiated procedure.

For ordinary public service concessions, under which customers pay the administration directly to render services, the bidding procedure and the possibilities to procure are set forth by Federal Statute 8,987 of 1995. For public service concessions paid, 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 12,598 of 2012. Furthermore, purchases undertaken by public and mixed-capital companies follow a simplified procedure, set out by Federal Statute 13,303 of 2016 (the 2016 Statute).

i Framework agreements and central purchasing

Further to the common bidding procedure, the 2021 Statute also sets forth some procedures (listed in the 2021 Statute as 'auxiliary proceedings') that resemble the framework agreements used in other countries.

The two main auxiliary proceedings are the accreditation proceeding and the price registration system, provided by Articles 79 and 82 of the 2021 Statute, respectively.

The accreditation proceeding allows the public administration to contract with all interested parties, according to the terms and conditions set forth prior by public notice. Use of accreditation is allowed in three situations: when it is viable and advantageous for the public administration to contract with all interested parties simultaneously under standard conditions; when the object of the contract is rendered on behalf of a third party; and when the amount of the intended asset fluctuates, precluding a common bidding.

The price registration system is a procedure in which the party selected by means of a bid will only be effectively contracted if the public administration, during the term set for the public notice, shows interest in the definitive execution of the contract. In this system, unlike the accreditation proceeding, there is actual competition among the bidding parties, who are chosen according to the lowest price or the highest discount.

The 2021 Statute also showed a tendency towards the centralisation of public procurement. It created the Public Procurement National Portal, which, in addition to centralising public information relating to biddings throughout the country, allows the most varied public entities to contract through the portal. It also started requiring the federal union, the states and the municipalities to create purchasing hubs for large-scale acquisitions, including the creation of partnerships among smaller municipalities (i.e., with up to 10,000 inhabitants).

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 most of the voting shares belong to the federal union, the states, the Federal District or the municipalities, with the admission, however, of private shareholding interest (public and private capital share).

According to the 2016 Statute, public and mixed-capital companies shall preferentially adopt the reverse auction procedure to procure ordinary goods and services. Bidding procedures are unnecessary when the procured amount 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 they may not be directly hired by public entities either. Even if such companies intend to render services to the public entity that holds interest in it, the bidding procedure is still mandatory (Federal Court of Auditors, Lawsuit No. 003.330/2015-0, 11 May 2016).

The bidding process

i Notice

The bidding announcement notice is the most essential instrument of a bidding procedure in Brazilian public procurement. It lays down:

  1. the object of the procurement;
  2. the time frame and the conditions to execute the contract;
  3. the sanctions applicable in cases of breach;
  4. information about the basic project;
  5. conditions to participate;
  6. the way the proposals shall be presented;
  7. the criteria to analyse the proposals;
  8. the price admissibility criteria;
  9. the criteria for adjustment of prices;
  10. payment conditions; and
  11. the rules and instructions to challenge awards.

The announcement notice is the law applicable to the procedure and must be strictly complied with by the administration and by the interested parties.

The 2021 Statute requires that a preparation phase take place before the disclosure of the announcement notice. This phase may include the performance of a preliminary technical study to allow the evaluation of the economic and technical feasibility of the contract, a call for a public hearing to collect suggestions and remarks about the object of the contract from interested parties, and the definition of the risk matrix of the contract.

The announcement notice must be disclosed prior on the Public Procurement National Portal through the official communication channels of each federal entity and through a daily newspaper with wide circulation. The documents attached to the announcement notice must also be available on the Public Procurement National Portal.

ii Procedures

The 2021 Statute sets forth five models for public bidding: reverse auction; competitive bidding; contest; auction; and competitive dialogue. The reverse auction and the competitive bidding models follow the standard procedure, while the other models follow different procedures.

Standard procedure

With the purpose of simplifying public procurement rules, the 2021 Statute unified the competitive bidding and reverse auction proceedings, which, according to the prior law, used to follow different procedures.

The reverse auction is used to acquire common goods and services, the quality standards of which can objectively be defined. The contracting of construction and engineering or specialised technical services follow, as a rule, the competitive bidding model. This difference is not relevant nowadays, because both follow the standard procedure.

The standard procedure set forth by Article 17 of the 2021 Statute is divided into seven phases:

  1. preparatory, with the drafting of a preliminary technical study;
  2. disclosure of the announcement notice, with the specifications of the object of the bid;
  3. filing of proposals or bids by the interested parties, or both, depending on the dispute model adopted;
  4. a decision on the proposals, according to the criteria set forth by the announcement notice;
  5. qualification, with the evaluation of the documents that show legal, technical, fiscal, labour, social and economic aptitude by the bidding party to comply with the contract;
  6. appeals, with the option that the interested parties may rise against the decisions made by the agent responsible for the bidding procedure; and
  7. ratification, awarding the object on behalf of the winning bidder.

The announcement notice must contain the dispute model chosen by the public administration. In the open dispute model, the bidders shall file their proposals by means of public and successive bids. In the closed model, the proposals will be filed at once and shall remain secret up to the date and time set for their disclosure. There are limitations for the choice of model applicable to the dispute. The closed model cannot be used when the criteria to judge the proposals is based on the lower price or highest discount. The open model, on the other hand, cannot be used when the deciding criterion is based on technique and price.

As a rule, the qualification phase will always take place after the decision on the proposals, except if the announcement notice determines otherwise, in which case it must point out the grounds for the inversion of phases and the benefits arising therefrom.

Special procedures

Contests are bidding procedures used to choose technical, scientific or artistic work, with the provision of awards or remuneration for the winning bidders. The announcement notice must contain the qualification required from the participating parties, the directives and form of presentation of the work, and the conditions for performance and the award or remuneration to be granted to the winner. In the event of contests destined for the elaboration of projects, the winner must grant to the public administration the rights to the project and authorise its execution.

The auction is the bidding model used to sell real estate, assets that are useless for the public administration, or products that have been seized or pledged. The criterion for decision is the highest bid and the auction may be conducted by an official auctioneer.

Competitive dialogue is a new procedure brought by the 2021 Statute and is destined to allow the public administration to search the market for suggestions and solutions to better and more precisely define the object of the contract that will tend to its needs. This model, inspired by European law, may only be used in cases of technological or technical innovation, impossibility, by the public administration, to have its needs met without adapting the solutions available in the market and impossibility, by the public administration, to define the technical specifications with precision.

The competitive dialogue consists of three stages. The first is a pre-selective phase, in which the public administration admits all interested parties who fill the requisites set forth by the announcement notice. The second is a dialogue phase, in which the public administration will discuss with all interested parties, simultaneously and separately, the proposals and solutions that each party presents. The third is a competition phase, in which the public administration discloses a new announcement notice with the specific description of the solution that tends to its needs (defined in accordance with the suggestions given by the interested parties in the dialogue phase). At the end, the public administration will choose the proposal that is most advantageous according to the criteria defined by the announcement notice disclosed after the dialogue phase.

iii Amending bids

As a rule, bidders may not alter their tenders once they have been submitted. The exception to this rule occurs when the public administration chooses to negotiate more favorable conditions that benefit the administration itself, as per Article 61 of the 2021 Statute. This negotiation, therefore, may only result in a proposal of a lesser value than the one originally submitted by the bidder, never higher.

Eligibility

i Qualification to bid

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

According to the 2021 Statute, the documentation necessary to qualify an interested party relates to the suppliers' legal, technical, fiscal, social, labour 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 the company's officers;
  3. proof of registration within the applicable professional class association, if necessary;
  4. the authorising decree to operate in Brazil when the party is a foreign company;
  5. acquittance with labour and tax obligations;
  6. proof of technical qualification of the professionals in charge;
  7. financial statements and balance sheets of the last fiscal year; and
  8. bankruptcy and judicial rehabilitation good standing certificates.

The supplier may also be disqualified due to its disreputability. There are illegal actions in Brazil that are punishable by the party's temporary prohibition from entering into agreements with the public administration. That can be the case, for instance, if a party breached a prior agreement entered into with the administration (Article 155 of the 2021 Statute) or when there has been administrative misconduct (Article 12 of Federal Statute 8,429 of 1992).

According to the 2016 Statute, 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. Thus, parties interested in contracting with public companies and mixed-capital companies must register in advance.

ii Conflicts of interest

Those who have potential conflicts of interest, or those whose disreputability have been declared by the public administration, are prevented from participating in public procurement. The 2021 Statute prevents the participation of the author of the basic or executive project; those who cannot contract with the public administration due to sanctions imposed on them; anyone who has a technical, commercial, economic, financial, labour or civil bond with the leader of the entity contracting, or with a public agent who develops any role in the contracting; and companies who are controlling, controlled or connected competing among each other.

However, exceptions apply. In integrated or semi-integrated contracting, relating to construction or engineering services, one single supplier can provide the services for all the phases of the project, from the elaboration of the basic project up to the execution of the construction.

iii Foreign suppliers

For international biddings (i.e., those processed in Brazilian territory that admit the participation of foreign bidders), the announcement notice may not set forth requisites for qualification or criterion for decisions that constitute access barriers against foreign bidders. An exception can occur regarding preferential margins expressly allowed by law.

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

The technical qualification of the bidder may be shown through certificates or documents issued by foreign entities, provided that they are filed in Portuguese and the issuing entity is not considered disreputable.

Some activities, nevertheless, are exclusively reserved for Brazilian citizens or companies set up in Brazil, as is the case for broadcasting activities (Article 222 of the Constitution). Others, such as defence products, services and systems, impose a different treatment for foreigners (Federal Statute 12,598 of 2012).

Award

Award granting in bidding procedures is objective and the public administration must analyse the proposals in exclusive obedience with the criteria set forth by the applicable announcement notice to allow its assessment by the bidders and by the controlling agencies.

i Evaluating tenders

The award criteria for the choice of the most advantageous proposal may be any of the following six types: the lowest price; the highest discount; the best technique or artistic content; technique and price; the highest bid (auction); and the highest economic return.

The lowest price criterion is used in most bidding procedures, especially for purchases made under the reverse auction model.

The best technique and the technique and price criteria are used mostly for contracting services. The evaluation of the technical capacity of the interested party is performed by:

  1. checking the qualifications and the experience of the bidder, by means of certificates and documents relating to services rendered previously;
  2. attributing grades to requirements of a qualitative nature, by a commission set forth for such purposes, according to the guidelines and limits determined by the public announcement notice; and
  3. attributing performance grades to the bidders in prior contracts with the public administration.

The criteria of the highest discount and the highest economic return are new, introduced by the 2021 Statute. In the first case, the best proposal is identified due to the highest discount offered by the bidders on the global reference price set forth by the public administration. In the second case, the highest economic return for the public administration will be considered, while the remuneration of the service renderer is set in a percentage that is proportionate to the economy effectively obtained in the execution of the contract. This criterion may only be applied in efficiency contracts, in which the public administration seeks to select a partner to render services that diminish the current expenses of the contracting agency.

ii National interest and public policy considerations

There are situations in which the duty towards isonomy is mitigated. As criteria to untie the adjudication of an award, preference will be given to the goods and services producedby Brazilian companies; by companies who invest in technology research and development within the country; by companies that can prove the practice of mitigating the emission of polluting gases, as set forth by Federal Statute 12,187 of 2009; and by microenterprises and small businesses, as defined according to the criteria of Complementary Statute 123 of 2016.

The public administration may also establish a preferential margin for national products and services that comply with the Brazilian technical rules, and for recycled or biodegradable assets. However, under Article 26 of the 2021 Statute, the preferential margin may not exceed 10 per cent of the price of the products to which preference is not granted. This margin may extend to up to 20 per cent in the event that the manufactured goods and national services result from the development of technological innovation in the country.

Information flow

Bidding procedures are guided by the publicity principle to guarantee the participation of society and the supervision of controlling agencies. With the creation of the Public Procurement National Portal, the 2021 Statute facilitated the access to information relating to bidding procedures, such as public announcement notices and projects.

Brazilian law does not have any provisions to allow secret bidding. There may be, however, an obligation to keep secrecy regarding the content of the proposal when the dispute is conducted through the closed model. This obligation extends up to the date on which the envelopes are opened. Budgeting certain contracts may also be secretive, as set forth by Article 24 of the 2021 Statute. In these cases, even if the public announcement notice does not display the budget, it shall contain all further necessary information for the elaboration of the proposal by the interested parties.

Challenging awards

Decisions made by the authorities in charge of bidding procedures may be challenged both administratively and judicially. The broad alternatives to appeal undoubtedly contribute 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 be challenged by the contestants, by the controlling bodies, by the Public Prosecutor's Office or by the Court of Auditors (administrative courts responsible for accounting, financial, budgetary and assets supervision of the administration entities), or even by common citizens.

Administrative challenges, as a rule, are cost-free and do not depend on 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 demand the participation of an attorney. They may be decided over the course of a few months or years, depending on the complexity of the case.

To encourage the decrease of litigiousness in public procurement, Article 151 of the 2021 Statute included the possibility for administrative contracts to find alternative ways of resolving disputes that arise from the contracting, such as arbitration and dispute boards.

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 the Court of Audits).

Internal control

The bidding announcement notice may be challenged administratively by the bidder or by any citizen. The challenge's purpose is to show the administration that there are legal defects or inconsistencies in the requirements made by the bidding notice to enable the administration to remedy them. The challenge must be presented up to three business days before the opening of the bidding procedure. All other phases of the bidding procedure – such as the qualification, non-qualification, awards and classification of the proposals – may be challenged by the interested parties by means of a hierarchic appeal, to be filed within three business days. The filing of the appeal must be communicated to the other participants, who can file their answers within three business days.

External control

Any damage, or threat of a damage, to the interest of the participating parties may be taken to the appreciation of the courts, which will analyse the legality of the administrative action and compliance with the bidding notice regulations. In addition, the Court of Auditors, due to its institutional purpose, may supervise the legality and the 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 judicially request the annulment of a bidding procedure that may be potentially harmful to the Public Treasury in the form of a popular lawsuit, which is a type of lawsuit in which any citizen may require the annulment of administrative actions that may be harmful to public property.

iii Remedies

Brazilian courts may impose a variety of measures to forbid or correct illegality or vices in a bidding procedure. The courts 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 the payment of a penalty for damages on the party responsible for causing losses to a third party.

If administrative misconduct is configured (such as kickback payments, personal favouring or undue waiver to bid in a procurement) the public entity or the Public Prosecutor's Office may request that the courts apply civil and administrative penalties to the responsible parties, such as payment for damages, fines or the temporary suspension of the right to enter into agreements with the public administration.

Outlook

With the recent passing of the 2021 Statute, the coming years will be characterised by the interpretation, consolidation and adaptation of the new public procurement regime in Brazil.

Furthermore, in 2020 and 2021, Brazil filed before the World Trade Organization a proposal to join the Government Purchase Agreement (GPA), which may represent an even more significant opening of the Brazilian market of public procurement to foreign interested parties. Nevertheless, according to information provided by the Brazilian government, the negotiations for a definitive adhesion of Brazil may last for a few more years.2 In the event that Brazil is admitted, the GPA shall only be valid after being approved by Congress.

Footnotes

1 David Pereira Cardoso is a partner and Bruno Henrique Kons Franco is an attorney at Arruda Alvim, Aragão, Lins & Sato Advogados.

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