1 RELEVANT LEGISLATION
1.1 What is the relevant legislation and in outline what does each piece of legislation cover?
In Brazil, agreements entered into by Public Administration entities are, as a rule, regulated by Federal Law 8,666/93 ("Public Procurement Law" or "PPL"). Said law regulates both the public procurement proceedings themselves and the agreements for the acquisition of goods and services by the Public Administration. It also regulates the proceeding for the sale of publicly-owned goods and establishes certain crimes and administrative penalties.
A Special Regime for Public Procurements ("RDC") was established by Federal Law 12,462/2011, with the purpose of speeding up the public procurements necessary for the upcoming sporting events in Brazil. The RDC is applicable exclusively to procurements for: (i) the 2016 Olympic and Paralympics Games; (ii) the 2013 FIFA Confederations Cup; (iii) the 2014 FIFA World Cup; and (iv) the construction of infrastructure and provision of services at airports located within 350 kilometers of the cities that will host the World Cup.
In addition, there are rules regarding public procurement proceedings in Federal Law 8,987/95, which regulates permissions and concessions for the rendering of public services, and Federal Law 10,079/04, which sets forth general rules concerning private public partnerships.
1.2 Are there other areas of national law, such as government transparency rules, that are relevant to public procurement?
Federal Law 8,429/92, which provides for the acts and conducts defined as administrative improbity acts (atos de improbidade administrativa), as well as Federal Supplemental Law 101/2002, which provides for accountability rules applicable to public budgets, are also relevant for public procurement proceedings.
The administrative improbity act is defined as illegal behaviour of public agents that results in unjust enrichment or undue advantage, to themselves or to a third party, which causes damage to a public asset or violates the principles of the Public Administration. Although initially the penalties are applied to public agents, they may be extended to third parties that collaborated or induced the practice of an administrative improbity act.
Federal Supplemental Law 101/2002 provides for the procedures to be taken by the government contracting entity with regards to budget allocation, before starting a public procurement proceeding.
1.3 How does the regime relate to supra-national regimes including the GPA, EU rules and other international agreements?
As mentioned in question 1.1, agreements entered into by the Public Administration must comply with the PPL and all other applicable national laws. However, the rules set forth in international agreements, protocols, covenants or treaties approved by the Brazilian National Congress are also applied to the performance of construction works, rendering of services or acquisition of goods funded by resources from financing or donations made by international cooperation agencies or multilateral financial organisations to which Brazil is a party. The preference margin mentioned in question 1.4 can be totally or partially extended to products and services deriving from Member States of Mercosur.
1.4 What are the basic underlying principles of the regime (e.g. value for money, equal treatment, transparency) and are these principles relevant to the interpretation of the legislation?
All acts performed by public entities must be in compliance with the principles set forth by article 37 of the Brazilian Federal Constitution. These principles are: legality; impersonality; morality; publicity; and efficiency. Regarding the specific case of agreements, since the main purpose of public procurement proceedings is to assure the compliance of the principle of equality and select the most advantageous tender made to the Public Administration, in both technical and economic aspects, article 3 of the PPL, which sets forth that principles of equality, honesty, abidance by the bid document, sustainable national development, objective judgment and other related principles, such as the lowest-price principle, must also be considered. These principles are of the utmost importance when interpreting the rules of the PPL.
The PPL was changed by Federal Law 12,349/2010 to establish a preference margin to Brazilian products and services in governmental acquisitions, as a means to boost the country's economic development. The preference margin created by Federal Law 12,349/2010 cannot exceed 25% of the price of similar foreign services and products, and must be established by the Federal Government in relation to different classes of products and services based on previous studies specified by law.
A Presidential Decree (Decree 7,546/2011) has recently been enacted to create the Interministry Commission for Acquisitions ("CI-CP"). The CI-CP received the attribution of proposing and monitoring the application of the preference margin for national manufactured products and services, as well as the commercial, industrial and technological compensation measures, among other competences.
Since it could be argued that the preference margin rule is not compatible with the principle of equality among bidders, this may result in challenges to its application in the future.
1.5 Are there special rules in relation to defence procurement or any other area?
Yes. Brazilian Congress has recently enacted Federal Law 12,598, dated as of March 22, 2012, which provides for special rules on the procurement, product development, as well as incentives for the Brazilian defence sector. This law has also created a title to be granted to any legal entity qualifying to become a Strategic Defence Company – EDD. To be qualified as an EDD, the company must have the purpose of developing activities related to the defence sector. The EDD's possible foreign shareholders or group of foreign shareholders cannot hold in each general meeting more than 2/3 of voting rights. The EDDs are entitled to obtain the tax incentives created by Federal Law 12,598/2012. The PPL is still applicable on a subsidiary basis to public procurement proceedings carried out by the governmental agencies belonging to the defence sector, as well as fully applicable for the agreements resulting from these proceedings. The PPL provides exceptions to the obligation of performing a public procurement proceeding and, therefore, admits the direct contracting for the acquisition of goods and services in cases of: (i) war; (ii) severe public disorder; (iii) national security risks in cases established by a Presidential decree based on the opinion of the National Defense Council, which is the consultant organ of the President regarding national sovereignty and protection of legal democratic State matters; (iv) the purchase or hiring of services for supplying of ships and vessels, aircraft or troops and their movement, when the fulfillment of legal formalities compromises strategic success of the operation; and (v) the purchase of material necessary to maintain the pattern required by the logistic support structure of naval, air and land transport. As a rule, governmental agreements shall be in force for a 12-month term, but the PPL entitles the armed forces to execute agreements with a 120-month term in some cases of direct procurement.
2 APPLICATION OF THE LAW TO ENTITIES AND CONTRACTS
2.1 Which public entities are covered by the law (as purchasers)?
The PPL and other laws mentioned in question 1.1 apply to all the bodies and entities of the direct and indirect Public Administration of Federal Government, States, the Federal District and Municipalities. Direct Public Administration comprises State Secretariats, Ministries and other governmental bodies without legal personality subordinated to the Executive Branch Chief. Indirect Public Administration comprises autonomous governmental agencies, regulatory agencies, public foundations, public consortia, public companies and mixed-capital companies.
Even though public companies and mixed-capital companies are also subject to private legal regimes, they are directly or indirectly controlled by governmental entities (Federal Government, States, Federal District and Municipalities) and, thus, considered as public entities.
Nevertheless, article 173 of the Brazilian Federal Constitution allows public companies and mixed-capital companies that develop economic activities to have their public procurement proceedings regulated by a specific law. However, since this law is yet to be enacted by the Brazilian National Congress, said entities are still subjected to the PPL. An exception is made for Petroleo Brasileiro S.A. - PETROBRAS, whose public procurement proceedings are regulated by Presidential Decree 2,745/98.
Rules set forth by the PPL are also applied to Judiciary and Legislative bodies in relation to agreements for the purchase of goods and services, which are considered agreements of a government nature. Furthermore, States, the Federal District and Municipalities may also enact their own laws and rules on public procurement proceedings, as long as they do not conflict with or modify the content of the PPL.
2.2 Which private entities are covered by the law (as purchasers)?
Private companies are only required to follow the PPL when supplying goods or rendering services to public entities.
2.3 Which types of contracts are covered?
The PPL regulates the execution of government agreements for the purchase of goods or the rendering of services to Public Administration entities, as well as agreements for the sale of publicly-owned goods and assets.
2.4 Are there financial thresholds for determining individual contract coverage?
No. However, before starting public procurement proceedings the relevant contracting entity shall assess whether the public disbursements under the contract are in compliance with their budget allocation established in the Budget Law, which is approved by the Brazilian Congress on an annual basis. Should the public disbursements surpass the fiscal year (January, 1 through December, 31) they shall also be in compliance with the Multi-year Government Plan, which is valid for a four-year term.
The PPL provides for threshold values to define the types of public procurement proceedings that should be followed by the contracting entities and also the circumstances in which the procedure is dismissed, as further detailed in question 3.1 and question 4.1.
The PPL also establishes time limits for the term of government agreements. As a rule, the term of these agreements is limited to the existence of budget resources within the Brazilian Government's financial year. Exceptions to this rule include agreements for the rendering of services with ongoing execution, construction works, projects included in the Multi-year Government Plan, among others cases.
2.5 Are there aggregation and/or anti-avoidance rules?
Yes. There are different types of public procurement proceedings described in the PPL and Federal Law 10,520/2002, from which the Public Administration must choose according to the contracting purpose and value, as detailed further in question 3.1. In this regard, the Public Administration must organise its agreements in order to avoid illegalities when choosing the type of public procurement proceeding, which can cause said proceeding and the subsequent administrative agreement to be declared null and void.
2.6 Are there special rules for concession contracts and, if so, how are such contracts defined?
Yes. General rules for public service concessions are set forth in article 175 of the Brazilian Federal Constitution, as well as in Federal Law 8,987/95, which regulates the system of public service concessions and permissions, and Federal Law 9,074/95 that also sets forth rules about granting concessions and permits. These general rules are regulated by supplementary laws for different sectors of infrastructure. For instance, Federal Law 11,445/2007 establishes relevant definitions and rules regarding the basic sanitation sector (water distribution and sewage) and also provides specific rules about the concession of such services.
3 AWARD PROCEDURES
3.1 What types of award procedures are available? Please specify the main stages of each procedure and whether there is a free choice amongst them.
The PPL and Federal Law 10,520/2002 set forth the following types of public procurement proceedings:
Competitive Bidding (Concorrência): to be applied when the Public Administration is procuring works and engineering services whose value exceeds R$ 1,500,000.00 (equivalent to approximately US$ 810,000.00) and for other services whose value exceeds R$ 650,000.00 (equivalent to approximately US$ 350,000.00, where R$ 1.85 = US$ 1.00).
Request for Quotation (Tomada de Preços): to be applied when the Public Administration is procuring works and engineering services whose value is equal to or less than R$ 1,500,000.00 (equivalent to approximately US$ 810,000.00) and for other services whose value is equal to or less than R$ 650,000.00 (equivalent to approximately US$ 350,000.00).
Invitation to Bid (Convite): to be applied when the Public Administration is procuring works and engineering services whose value is equal to or less than R$ 150,000.00 (equivalent to approximately US$ 81,000.00) and for other services whose value is equal to or less than R$ 80,000.00 (equivalent to approximately US$ 43,000.00).
Contest Bidding (Concurso): to be applied when the Public Administration is procuring technical, scientific or artistic work, upon granting a prize or remuneration to the winners.
Auction (Leilão): to be applied when the Public Administration wishes to sell useless public goods or legally-seized or confiscated goods, as well as publicly-owned real estate.
Live Auction (Pregão): suitable whenever the Public Administration is procuring common goods and services that can be detailed based on usual market specifications. In general, such type of public procurement proceeding is not applied when the Public Administration procures works and engineering services, since they are complex services and cannot be specified through usual market definitions.
Besides these types of public procurement proceedings set forth in PPL and Federal Law 10,520/2002, Federal Law 12,642/2011 established the RDC, which is a special regime for public procurement with more flexible rules than those set forth in the PPL. The RDC was enacted in an attempt to expedite the public procurements necessary for the upcoming sporting events Brazil will host, as mentioned in question 1.1.
As a rule, the public procurement proceeding is split in different phases, which take place in accordance with the following order: (i) qualification; (ii) analysis of technical proposals; (iii) analysis of price proposals; and (iv) homologation and awarding of the contract. Public consultation and public hearings of the drafts of bid documents are also required before the commencement of the bidding process depending on the nature of the procurement scope and the amounts involved.
Technical proposals are usually required for more complex procurements and not applicable for the procurement of goods and services of low complexity. Public procurement proceedings carried out through Live Actions do not have this phase.
The order of the phases for qualification and analysis of proposals are inverted in Live Auction proceedings, as well as in the bidding processes carried out in accordance with the RDC rules. These phases can also be inverted in public procurement proceedings for concessions and private-public partnership projects. In these cases, the price proposals are analysed by the Bidding Committee firstly. The Bidding Committee checks only the technical proposals, when applicable, and qualification documents of the bidder that submitted the best price proposal.
The aforementioned types of public procurement proceedings and the circumstances in which they must be adopted by the Public Administration are expressly provided by law. Competitive Bidding, Request for Quotation and Invitation to Bid must be necessarily applied to agreements regarding civil works, engineering services and other complex works, and the choice between them shall be made based on the work's value. On the other hand, the choice between Contest Bidding, Auction and Live Auction results solely from the nature of the relevant object, regardless of value. The RDC is applicable exclusively to procurements related to the 2013 FIFA Confederations Cup, the 2014 FIFA World Cup and the 2016 Olympic Games, as mentioned in question 1.1.
The choice between different types of public procurement proceeding does not lie at the sole discretion of the Public Administration and will vary according to the complexity and value of the agreement, which requires a case-by-case analysis. The more complex the object of the agreement, the more complex the procedure that must be carried out by the Public Administration.
3.2 What are the minimum timescales?
The government contracting entities are subject to minimum timescales for publishing the request for tenders, which vary in accordance with the type of public procurement proceeding. In a competitive bidding, the request for tenders shall be published at least 45 days before the date scheduled for tender submission. The more complex the procured scope and the higher the amounts involved, the longer the periods granted to bidders for the preparation of tenders.
However, upon the tender submission, there are no legal timescales established for the conclusion of the bidding process. The government contracting authorities take their time to analyse tenders.
3.3 What are the rules on excluding/short-listing tenderers?
Article 3 of the PPL requires the Public Administration to perform a public procurement proceeding before entering into agreements, to ensure compliance with the principle of equality and to sort the most advantageous tender. In this regard, said rule expressly prohibits the admission, inclusion or provision in the bid document of rules that compromise, restrain or hinder the competitive aspect of the proceeding. Preference of bidders due to their nationality, head office or domicile location, as well as any other irrelevant circumstances with regard to the assets or services to be acquired, are expressly forbidden.
If applicable to a particular proceeding, however, the preference margin granted to Brazilian products and services shall be taken into account (please see question 1.4).
A principle to be observed is that of the widest participation of interested parties in the proceeding. The inclusion in the bid document of clauses or rules that restrain the participation of interested parties is only accepted when such restriction is pertinent and suitable to the object of the public procurement proceeding.
According to article 27 of the PPL, the qualification of interested parties in the proceeding shall be made through documents evidencing their legal standing, technical qualification, economic and financial qualification, as well as fiscal and labour regularity. The labour regularity must show that the bidder has no debt before the Labor Courts, in accordance with the changes made by Federal Law 12,440/2011 to the PPL. In addition, documents proving that the interested parties do not employ workers younger than 18 years old in night shifts and dangerous or hazardous activities, as well as workers younger than 16 years old in any position, except for apprentices, are also required.
3.4 What are the rules on evaluation of tenders?
The judgment of tenders shall be straight and objective, based on criteria established in the bid document, as well as the following: lowest price; best technique; best technique and best price; or higher tender in case of Auction.
For the procedures carried out in accordance with the RDC rules, the judgment of tenders can also be processed by the criteria of the highest discount or highest economic return for the government contracting entity.
If applicable to a particular proceeding, the preference margin granted to Brazilian products and services shall also be taken into account (please see question 1.4).
3.5 What are the rules on awarding the contract?
Once the public procurement proceeding is performed, after the judgment of the tenders, the object of the proceeding shall be awarded to the winner of the competition, i.e., the bidder that presented the best tender to the Public Administration and also complied with all the qualifying requirements. The winner acquires the right to enter into a government agreement with the Public Administration, and any changes in the qualifying order of the bidders are expressly forbidden.
3.6 What are the rules on debriefing unsuccessful bidders?
The judgment of tenders must be objective, based on the judgment criteria established in the request for tenders and the law. The Bidding Committee cannot decide on the winning bidder or on debriefing bidders at its sole discretion or based on criteria different from those established in the request for tenders.
The debriefing of bidders also causes the return of the bid bond, whenever it is required for bidders' qualification.
3.7 What methods are available for joint procurements?
Article 33 of the PPL allows the Public Administration to accept the participation of interested parties organised as a consortium in the public procurement proceeding. It is a mere option that may be granted or not by the Public Administration, according to the complexity of the agreement's object.
3.8 What are the rules on alternative bids?
Besides the proceedings detailed in question 3.1, there is also a system called Price Registration (Registro de Preços), which is not a type of public procurement proceeding, but an acquisition system suitable for procuring goods and services that are constantly demanded by public entities, such as office supplies and medicines. The Price Registration system was created by the PPL in 1993. Its utilisation has increased in recent years. It allows several public entities to carry out a collective bidding process with the purpose of listing different suppliers and their corresponding price offers. Differently from a public procurement proceeding in which the winning bidder is granted the right to enter into an agreement with the relevant public entity, in the Price Registration system, the offers are listed and remain binding for one year, during which period the suppliers may be called to execute administrative agreements according to the convenience and needs of the Public Administration.
4 EXCLUSIONS AND EXEMPTIONS (INCLUDING INHOUSE ARRANGEMENTS)
4.1 What are the principal exclusions/exemptions and who determines their application?
There are two main exceptions to the constitutional obligation imposed on public entities to perform public procurement proceedings before entering into agreements: (i) circumstances authorising dismissal of the proceeding; and (ii) circumstances in which the proceeding is not required.
The only circumstances authorising dismissal of public procurement proceedings are listed in articles 17 to 24 of the PPL, which refer to situations where a bidding process would be possible, but is dismissed by law for public interest reasons.
Cases in which bidding processes are not required are provided by article 25 of the PPPL, and refer to the unique characteristics of the object or the proceeding, as well as the exclusive nature of a supplier or the notorious expertise of a service provider making the competition among bidders unfeasible.
4.2 How does the law apply to "in-house" arrangements, including contracts awarded within a single entity, within groups and between public bodies?
According to article 116 of the PPL, its rules are applied whenever they are applicable to conventions, agreements, arrangements and memoranda of understandings entered into by governmental entities with third parties, among the three branches (Executive, Legislative and Judiciary) or among organs and governmental entities within the same sphere of the Public Administration.
5 REMEDIES AND ENFORCEMENT
5.1 Does the legislation provide for remedies/enforcement measures and if so what is the general outline of this?
Yes. Article 41 of the PPL grants to bidders and third parties the right to challenge the bid document, whenever the Public Administration commits irregularities when applying the rules of the PPL to the bid document.
Furthermore, article 109 of the PPL entitles bidders to file an administrative appeal against administrative acts that have: (i) qualified or disqualified a bidder; (ii) judged the proposal; (iii) declared the public procurement procedure null and void; (iv) terminated the agreement by sole decision of the Public Administration; and (v) imposed the administrative penalties of warning, temporary suspension from taking part in public procurement proceedings and fines. The aforementioned article also allows interested parties and contractors to file a complaint against a decision rendered by the Public Administration, when no other appeal is available besides requesting reconsideration of such decision to State Ministry or to Municipality and State Secretaries, in cases the Public Administration declares the private party to lack good standing to enter into agreements with governmental entities.
The Public Administration may also revoke public procurement proceedings due to public interest reasons, duly justified and resulting from major adverse events. Private parties are allowed to withdraw from the public procurement proceeding, as long as they do so before the qualifying phase of the proceeding.
During the execution of the administrative agreement, partial or complete default by the private party may cause the imposition of fines, warnings, temporary suspension from taking part in public procurement proceedings (for no longer than two years), besides the statement of lack of good standing to enter into agreements with the Public Administration, until the private party's discharge. In any case, the imposition of penalties by the Public Administration shall be preceded by an administrative process, in which the legal defence of the private party is guaranteed.
Administrative sanctions can be imposed in addition to any relevant criminal responsibility, since the PPL also establishes certain crimes that are applicable in relation to public procurement proceedings and during the execution of administrative agreements.
5.2 Can remedies/enforcement be sought in other types of proceedings or applications outside the legislation?
Yes. In addition to the specific remedies provided in the PPL, the parties are always entitled to seek any rights they might have by resorting to the Judiciary as generally ensured by the Federal Constitution and the rules governing judicial proceedings.
Also, it has been generally accepted that governmental entities may be submitted to arbitration in Brazil. In the past, this was considered a controversial topic, based on the rationale that public interest (considered a non-disposable right) was at stake. Brazil today draws a clear distinction between when a State is acting in its economic capacity (ius gestonis) or in its sovereign capacity (ius imperium). In the first case, which involves mere instrumental or economic activities, and where the State's activities are of a private nature, the State may be subject to arbitration.
Currently, there are various scattered provisions under Brazilian law which authorise the use of arbitration in disputes involving the State: Article 23 for the Public Services and Concessions Law (Federal Law 8,987/95); Article 43, X of the Petroleum Law (Federal Law 9,478/97); Article 93, XV of the Telecommunications Law (Federal Law 9,427/97); Article 35, XVI of the Transportation Law; and Article 11, III of the Public-Private Partnership Law (Federal Law 11,079/2004). There is no express provision in the PPL. On the other hand, such law does not prohibit the use of arbitration, but only establishes certain mandatory rules such as ones concerning the competent venue where the dispute resolution should take place (where the administrative entity is located) and applicable language (Portuguese).
5.3 Before which body or bodies can remedies/enforcement be sought?
Administrative appeals detailed in question 5.1 above shall be filed with the body or entity of the Public Administration that has performed the public procurement proceeding or entered into the administrative agreement with the private party. The only exception to this rule is the reconsideration request, which shall be filed with the State Ministry or State and Municipality Secretaries, as the case may be.
In addition, interested parties and third parties may file a complaint addressed to the applicable Audit Courts, which are administrative Courts responsible for controlling acts performed by governmental entities involved in public procurement proceedings and administrative agreements.
5.4 What are the limitation periods for applying for remedies/enforcement?
With regards to the challenge of bid documents, previously detailed in question 5.1 above, the deadline for third parties is 5 (five) business days before the date scheduled to the opening of proposals. However, interested parties have a term of only 3 (three) business days before the date scheduled for the opening of proposals.
For administrative appeals and complaints described in question 5.1 above, the deadline is 5 (five) business days, counted from the act notice or transcription of the minute of the session performed by the Bidding Commission. The deadline for the reconsideration request, also detailed in question 5.1 above, is 10 (ten) days counted from the act notice.
The imposition of administrative sanctions may occur both during the public procurement proceeding and during the execution of the agreement. The statute of limitations for the imposition of administrative penalties is generally 5 (five) years.
One could also file a writ of mandamus to prevent general violations of private parties' rights in case such abuse derives from an illegal act performed by a public authority. This kind of proceeding has a 120-day statute of repose.
Finally, general lawsuits seeking instant relief or claiming damages are also possible. Those ordinary lawsuits are subject to different statutes of limitations, depending on the nature of the claim and cause of action.
5.5 What remedies are available after contract signature?
Once the administrative agreement is executed, the Public Administration can terminate it at its sole decision or create unilateral changes to the agreement. In cases of termination derived from the Public Administration's decision (i) the agreement's object shall be immediately assumed by the Public Administration, (ii) the site shall be occupied and the equipment, materials and employees used in the execution of the object shall return to the Public Administration, and (iii) any amounts due to the private party up to the amount of Public Administration losses caused by the private party can be withheld. If the termination was not related to a default by the private party, it will have the right to be compensated from any losses it may have suffered. The private party may also seek the early termination of the agreement by mutual consent, or through a judicial decision.
5.6 What is the likely timescale if an application for remedies/enforcement is made?
It is hard to estimate the timescale if an application for remedies/enforcement as described in question 5.5 is made. There are no time limits provided by law and the workflow of each court highly affects the timing of the process. However, there is an exception in cases of challenging the bid document, which, according to article 41 of the PPL, must be judged within 3 (three) days counted from the date the appeal was filed.
5.7 Is there a culture of enforcement either by public or private bodies?
A stronger culture of enforcement has started to develop in the last 15 years following privatisation efforts and the opening of different economic sectors to private players, including foreign investments.
5.8 What are the leading examples of cases in which remedies/enforcement measures have been obtained?
There are no specific leading cases that could be appointed as the most significant in terms of remedies or enforcement, as most cases deal with particular circumstances of a given procurement proceeding or administrative contract.
5.9 What mitigation measures, if any, are available to contracting authorities?
The governmental contracting agencies have been sending the bid documents for the prior analysis of the Courts of Audits. Due to the fact that any party can challenge the request for tenders before the competent Court of Audits, and also that these Courts can request the bid documents from the contracting entity for prior analysis until one business day before the date schedule for tender submission, the governmental entities have adopted these procedures in an attempt to avoid the suspension of the bidding process.
6 CHANGES DURING A PROCEDURE AND AFTER A PROCEDURE
6.1 Does the legislation govern changes to contract specifications, changes to the timetable, changes to contract conditions (including extensions) pre-contract signature? If not, what are the underlying principles governing these issues?
Yes. Article 65 of the PPL establishes that the contractor is required to accept, in the same conditions set forth in the agreement, increases or decreases on the contracting made by the Public Administration, up to a limit of 25% (twenty five percent) of the initial value, with monetary correction, a limit which can be raised to 50% (fifty percent) in cases of remodeling of building or equipment.
6.2 To what extent are changes permitted post-contract signature?
Please refer to question 6.1.
7 PRIVATISATIONS AND PPPS
7.1 Are there special rules in relation to privatisations and what are the principal issues that arise in relation to them?
Yes. The privatisation of: companies directly or indirectly controlled by the Federal Government, States, the Federal District and Municipalities; public services that are subjected to concessions, permissions and authorisations; of public financial institutions; and also public assets, need to be previously authorised by law. Federal Law 9,491/97 regulates these matters on a federal level. States, the Federal District and Municipalities enact their own laws to regulate privatisation of their holdings and assets.
7.2 Are there special rules in relation to PPPs and what are the principal issues that arise in relation to them?
Yes. Private Public Partnerships – PPPs were created by Federal Law 11,079/2004. PPPs were introduced in Brazil as concession agreements of two different types: sponsored concession; and administrative concession, pursuant to article 2 of said law.
The sponsored concession is the ordinary concession of public services and public works regulated by Federal Law 8,987/95 in cases in which there are government subsidies plus tariffs charged for consumers. The administrative concession also has government subsidies granted by the Public Administration to the private party. However, it is more similar to an administrative agreement than to a concession agreement. Its purpose is the rendering of services, but with more flexible characteristics than those included in the PPL. In fact, PPPs in Brazil follow the ordinary types of concession agreements and service agreements with some different aspects, especially the possibility of granting governmental subsidies to a private party.
In PPP agreements, the Public Administration creates guarantees to assure: the payment of the government subsidy to the private party; the agreements' value shall be at least R$ 20,000,000.00 (equivalent to approximately US$ 10,800,000.00); and the performance period of at least 5 years. A PPP agreement cannot be entered into with the sole purpose of executing public works, supply of workers, or installation and supply of equipment.
Recently, the PPP law has been amended by President Dilma Roussseff through Provisional Measure 575, dated as of August 7, 2012 ("MP 275"), which changed the rules applicable to the pecuniary compensation paid by the Federal Government in connection with the PPP contracts, defined under MP 575 as "capital contribution". MP 575 is yet to be converted into a law by the Brazilian Congress.
The capital contributions by the Federal Government, as set forth in the contracts and authorised by the specific law, are not taxable for purposes of Corporate Income Tax ("IRPJ"), Social Contribution on Net Income ("CSLL"), Social Integration Program ("PIS") and Social Contribution on Revenues ("COFINS"), provided that the funds are allocated to the construction or acquisition of reversible assets.
The construction or acquisition costs of reversal assets corresponding to the capital contributions received and not taxed are not subject to deduction/credit. Therefore, such costs must be added to the actual income and CSLL calculation basis to the extent they are realised through depreciation, amortisation, offset or extinction of concessions. For purposes of PIS/COFINS, such costs do not generate credits and deductions from the calculation basis.
MP 575 also increased the percentage of the Federal Government's net revenues allocated to pecuniary obligations under the PPP contracts. The former wording of the PPP Law did not allow the Federal Government to grant guarantees or perform voluntary transfers to the States, Federal District and Municipalities should the sum of the expenses related to the current PPP contracts exceed the limit of 3% (three percent) of net revenues for the year, or should the annual expenses under such contracts over the next 10 (ten) years also exceed the limit of 3% (three percent) of the current projected net revenues for the respective subsequent years. Under MP 575, these limits were extended to 5% (five percent) of net current revenues.
8 THE FUTURE
8.1 Are there any proposals to change the law and if so what is the timescale for these and what is their likely impact?
Bill of Law 6,826/2010 provides for rules to avoid corruption acts, fraud in public procurement proceedings and government agreements, among other anti-corruption policies. If this bill is approved by the Brazilian Congress, the future law will impose several administrative penalties for companies and their representatives who practice corruption acts in the course of a bidding process. These penalties will involve the prohibition to participate in public procurement proceedings, to receive government incentives, besides the applicable civil and criminal liabilities. Currently, the Bill of Law is being analysed by the House of Representatives. It is yet to be analysed by the Brazilian Senate.
The authors of this chapter would like to acknowledge the assistance of their colleague Carolina Caiado in the preparation of this chapter.
Originally published in the 2013 edition of The International Comparative Legal Guide To: Public Procurement by Global Legal Group Ltd., London, www.iclg.co.uk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.