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Brazil

Last Verified on Thursday 9th March 2017

    Applicability of international treaties and conventions

  • Local preferences; tax and tax penalties

    • Brazil

      Yes. Federal Law 8,666/1993 (the Public Procurement Law or PPL), which is the general rule on public procurement proceedings in Brazil, sets forth a general local preference rule for goods produced and services performed domestically. The categories of products and services that can benefit from the local preference rule are defined by the federal government on a case-by-case basis, which should apply for a maximum period of five years per product. The percentages range up to a maximum of 25 per cent of the product price, which means that public entities are allowed to purchase local products and services that cost up to 25 per cent more if they comply with the local preference requirements.

      Specific local preference rules may be applicable on a case-by-case basis. The most famous example concerns Petrobras, which has created a special rule applicable to its suppliers.

      The Public Procurement Law was changed by Federal Law 12,349/2010 to establish a preference margin for 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 per cent 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.

      Presidential Decree 7,546/2011 created 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 commercial, industrial and technological compensation measures, among other powers. 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.

      In addition, there is a local preference for Brazilian small companies, which receive favourable treatment in comparison with other companies according to Complementary Law 123/2006.

      Last verified on Thursday 9th March 2017

    • Brazil

      The PPL sets forth the possibility of opening a public procurement proceeding restricted to domestic companies or an international procurement public procurement, open to both domestic and foreign companies. The decision is up to the public entity carrying out the procurement. If the procurement is a domestic bid, a foreign company will only be able to participate if it sets up (or has already set up) a registered company in Brazil.

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

      Last verified on Thursday 9th March 2017

    • Brazil

      The Public Procurement Law sets forth that, in international competitive bidding processes, adjustments must be made to conform to monetary policy, foreign commerce and the requirements of the competent government entity. According to article 42 of the PPL, all the conditions given to Brazilian bidders will be equally given to foreign bidders. 

      Foreign bidders can be allowed to quote values in foreign currency and, in that case, Brazilian bidders can quote in foreign currency as well. If the winning bid was made in foreign currency and the winning bidder is foreign, it will be paid in foreign currency. However, if the bid was made in foreign currency and the winning bidder is Brazilian, it will be paid in Brazilian currency and the applicable exchange rate shall be the rate of the business day preceding the effective payment day. 

      Regarding the analysis of bids, foreign bidders’ proposals shall include taxes, which do not apply to Brazilian bidders.

      Last verified on Thursday 9th March 2017

  • Procurement procedure

    • Brazil

      Yes. In Brazil, contracts entered into by public administration entities are governed by several laws and specific rules related to public procurement. The Public Procurement Law is the general rule for public procurement proceedings for the acquisition of goods and services by the public administration. The governing law of the bidding process or public procurement proceeding will be defined on a case-by-case basis, determined by the procurement authority and taking into consideration the scope of the bid.

      The existing rules include: 
      •    the PPL; 
      •    the Reverse Auction Law (Federal Law 10,520/2002); 
      •    the Public Services and Concessions Law (Federal Law 8,987/1995); 
      •    the Differentiated Regime of Public Procurement – the RDC Law (Federal Law 12,462/2011); and 
      •    the Public-Private Partnership Law (Federal Law 11,079/2004).

      Recently, PPL and RDC Law have been amended due to the enactment of Federal Law No. 13,243/2016. Such law is a result of Constitutional Amendment 85/15, which established the so called Legal Framework for Science, Technology and Innovation in Brazil. Federal Law No. 13,243/2016 aims at reducing bureaucracy and facilitating scientific and technological research activities. This law included section XX in article 6o of PPL, setting forth the definition of research and development products (P&D products). It also adds several hypotheses of waiver of bidding process for this sector, among other amendments.

      Another innovation introduced by Federal Law No. 13,243/16 was the expansion of the applicability of the Differentiated Regime of Public Procurement – RDC Law to actions in public entities and other governmental bodies dedicated to science, technology and innovation. It is important to highlight that the choice of RDC Regime must be expressly provided in the Public Notice.

      With regards specifically to the RDC Law, it is important to mention that such rule is applicable in only a few hypothesis of bidding processes. The main goal of the RDC Law is to accelerate the public procurement proceeding, by reducing bureaucracy and formal requirements. Enacted in 2011, the RDC Law was initially applicable to public biddings and contracts related to Olympic and Para-Olympic Games of 2016 and 2014 FIFA World Cup. In 2012, the scope of the law was extended to infrastructure civil works and services for regional airports. Recently, the scope of RDC was further expanded to also cover works and engineering services for prisons, public security policies and works and engineering services to improve urban mobility and expand logistics infrastructure. The effects of the recent amendment to the RDC scope have been challenged in the courts and are currently under discussion in the Brazilian Supreme Court (STF). (Writ of Mandamus No 33.889 is pending a final decision in the STF.)

      There are also specific rules applicable to Brazilian state-owned companies, mixed-capital companies and their subsidiaries, provided for in the recently enacted Federal Law No. 13,303/2016 and Federal Decree No. 8,945/2016. In addition, such entities may have their own regulation on the matter.

      Finally, there are public procurement rules applicable to sectors such as defence, energy, oil and gas. 

      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.

      Last verified on Thursday 9th March 2017

    • Brazil

      The Brazilian Federal Constitution has a general rule on transparency in public procurement proceedings. The PPL provides the general principles of public procurements, which are legality, impersonality, morality, publicity and efficiency.

      Federal Law 8,429/92 (the Administrative Improbity Law), which provides for the acts and conducts defined as administrative improbity, as well as Federal Supplemental Law 101/2002, which provides for accountability rules applicable to public budgets, are also relevant to promote transparency, fairness and objectivity in public procurement proceedings. 

      An act of administrative improbity is defined as the illegal behaviour of a public agent that results in unjust enrichment or undue advantage, to him or herself 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 act of administrative improbity.

      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.

      Last verified on Thursday 9th March 2017

    • Brazil

      Yes. The PPL allows, but does not require, the procurement authority to request a bid bond limited to up to 1 per cent of the estimated amount of the procurement.

      Additionally, the PPL allows the procurement authority to request a performance bond that should not exceed 5 per cent of the contract value and will be updated on the same conditions of the contract. This percentage limit does not apply on works, services and large procurements with high technical complexity, in which case the performance bond can be raised to 10 per cent of the contract value. 

      The request of such guarantees will depend on the decision procurement authority or public administration in each particular case, which will consider the nature of the purpose of the bid as well as the scope of the public contract. The types of bonds set forth in the PPL that are applicable to the cases mentioned above are: 

      •    deposit in currency or in public debt bonds; 
      •    guarantee insurance; and 
      •    bank security. 

      The requirement of such bonds in a public procurement proceeding may result in more expenses for the bidder that decides to participate in such proceeding, as well as a higher cost for the winning bidder during the performance of the contract.

      Last verified on Thursday 9th March 2017

    • Brazil

      Yes. There are several laws that regulate the matter and provide civil or criminal penalties for wrongful conduct in public procurement proceedings.
      Among others, the following laws provide the acts and the penalties that should apply to officials: 

      •    the Administrative Improbity Law (Federal Law 8,429/1992); 
      •    the Public Procurement Law; and 
      •    the Brazilian Anticorruption Law (Federal Law 12,846/2013).

      Such rules seek to ensure the legality and legal security of procurement proceedings.

      Last verified on Thursday 9th March 2017

    • Brazil

      The official records of the bidding process are available to the public in general as well as to the bidders. The official records are usually kept with the bidding committee, which will certify all acts taken during the proceeding and file all documents regarding the procurement.

      Article 38 of the PPL sets forth that the bidding procedure shall commence with the opening of an administrative procedure, duly recorded, docketed and numbered, containing the corresponding authorisation, the brief description of its purposes and the origin of the financial resources for the relevant project.

      An electronic reverse auction, in which the procedure is carried out via an electronic system (eg, Comprasnet), also has all acts duly registered and certified through official paper records by the bidding committee.

      Last verified on Thursday 9th March 2017

  • Anti-corruption

    • Brazil

      The battle against corruption in Brazil has played an important role, mainly in relation to public procurement proceedings and the award of public contracts.

      Corruption acts that are linked to public entities may be considered as illegal acts and may be subject to administrative, civil and criminal penalties.

      The penalties are set forth in several laws, such as the Administrative Improbity Law, the Public Procurement Law and the Anticorruption Law, among others.

      According to the Federal Law 12,846/2013 (Brazilian Anticorruption Law), any legal entity (especially companies and corporations established in Brazil) that carries out harmful acts against any national government (federal, state, municipal or of the Federal District), as well as foreign governments, may be held liable under the administrative and civil standpoints. The Anticorruption Law also sets forth that civil and administrative liability shall apply to companies engaging in acts of corruption of public officials in Brazil and abroad, as well as in illegal conduct in connection with governmental bids and governmental contracts.

      Last verified on Thursday 9th March 2017

    • Brazil

      Anticorruption laws have overriding influence in public procurements in Brazil. As mentioned in question 19, there are several provisions applicable to bidders that may result not only in administrative, but also in criminal and civil penalties.

      The following examples illustrate the nature as well as the types of penalties applicable to corrupt acts: 

      • The Anticorruption Law provides that a bidder involved in any harmful act may be subject to fines ranging from 0.1 per cent to 20 per cent of the gross revenue earned during the fiscal year prior to the filing of the administrative proceedings, excluding taxes, which shall never be lower than the advantage obtained.
      • The PPL, which provides that a bidder involved in any illegal or harmful acts connected to the public procurement proceeding may be subject to criminal penalties, such as detention.

      If an unwary bidder faces any irregularity during the bidding process, he or she will be entitled to file an administrative or judicial appeal against the illegality or irregularity, as mentioned in question 21.

      Last verified on Thursday 9th March 2017

  • Challenging awards

    • Brazil

      Article 41 of the PPL grants 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. Moreover, article 109 of the PPL entitles bidders to file an administrative appeal against administrative acts that have: 

      •    qualified or disqualified a bidder; 
      •    judged the proposal; 
      •    declared the public procurement procedure null and void; 
      •    terminated the agreement by the sole decision of the public administration; or
      •    imposed the administrative penalties of a warning, a temporary impediment to participate in public procurement proceedings or a fine.

      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. Interested parties and contractors may also request reconsideration of such decision to the state ministry or to the municipality and state secretaries, in cases where the public administration declares that the private party lacks good standing to enter into agreements with governmental entities.

      The administrative appeals described 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, the 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.

      Public procurement proceedings may also be judicially challenged. Different kinds of lawsuits and requests may be filed according to the particularities and stage of each case. For example, it is possible to file a writ of mandamus, the scope of which is to declare that a given decision granted by the authority was illegal and could damage the bidder. The writ of mandamus can only be filed if there is an unquestionable right and no further evidence will be necessary during the proceeding.

      An annulment lawsuit should be filed if there were irregularities in the public administration award or administrative proceeding. If the award or the proceeding was illegal, the bidder should file a declaratory lawsuit to declare it null and void. Parties may also file a lawsuit requesting indemnification for damages.

      Finally, in any judicial strategy the bidder may request injunctions to cease the effects of the award of the public contract, or to obtain any other urgent measures in order to avoid damages. To obtain an injunction, the bidder should demonstrate that there is a risk of ineffectiveness if the proceeding is delayed and that its right is likely to be recognised by the end of the proceeding.

      Last verified on Thursday 9th March 2017

    • Brazil

      The potential grounds of both judicial and administrative appeals are usually that: 

      •    irregularities occurred during the procedure; 
      •    illegalities were observed during the public procurement proceeding meaning it violates the PPL; 
      •    errors or faults occurred in the public procurement proceeding; 
      •    errors or faults were made by the public administration during the analysis of the documentation submitted by the bidder; 
      •    errors of faults were made by the bidding commission during the judgment phase; or
      •    there was a violation of the principles set forth in the PPL or article 37 of the Brazilian Federal Constitution.

      Last verified on Thursday 9th March 2017

    • Brazil

      In practice, challenging awards is very common and occurs frequently, mainly in the administrative sphere. Both administrative and judicial courts are receptive to such challenges due to the fact that the PPL provides for the right of bidders to file lawsuits and administrative appeals, and Article 5, XXXIX(a) of the Brazilian Federal Constitution regulates the ‘right of petition’, which entitles any person to file a petition with the relevant government authorities to request protection of any individual or collective right. Also based on this right, anyone is entitled to notify the bidding committee or the procuring agency in the case of illegalities in the public procurement proceeding.

      Last verified on Thursday 9th March 2017

  • Contract terms

    • Brazil

      Yes. Public contracts in Brazil have very specific characteristics that differ from commercial contracts. 

      The PPL provides all the clauses that the public contracts should have. There is little space for negotiation within the public contracts; such contracts are very similar to adhesion contracts, which cannot be freely negotiated by the public administration and the private party.
      The Brazilian legal system of public law has some peculiarities with regards to contracts to which the public administration is a party. In Brazil, the public law system is characterised by principles and rules applicable to the public administration’s activities and to the supremacy of non-disposable fundamental rights. 

      In this sense, considering that the public law system applies to contracts that involve the public administration, the contracting parties’ freedom of choice and equality are reduced. Thus, once a public contract is executed, the public administration may, for instance, terminate it at its sole decision or unilaterally amend it. This is why public contracts are similar to adhesion contracts.

      Note that the public administration is required to provide the grounds that motivated its decision in the case of termination of the public contract by its sole decision. Thus, if the public administration decides to amend or terminate a public contract at its sole discretion, it should be based on a public interest reason (ie, not on the public administration’s own interests).

      Last verified on Thursday 9th March 2017

    • Brazil

      Public contracts have different standards to private or commercial contracts. As mentioned in question 25, there is little space for negotiation within public contracts. The contract’s terms are determined by the public notice and the draft of the contract presented to the private party during the bidding process. Both the public administration and the private party are bound by the terms of the bid, as well as by the terms of the public contract. The situations that trigger any modifications to the contract during the performance are defined in the PPL.

      Public contracts are subject to ‘exorbitant clauses’ (meaning that the clauses do not need to be provided in the contract due to the fact that they are mandatory and thus should apply automatically). Conversely, in the case of private or commercial contracts, any and all changes in the contracts’ conditions should be expressly agreed by the parties. Considering the foregoing prerogative of the public administration, public contracts may represent a costly investment for the bidder, but not necessarily a risk in themselves.

      Last verified on Thursday 9th March 2017

    • Brazil

      Yes. In Brazil, the contracts entered into by and between public authorities are governed by specific and more stringent rules than those applied for contracts entered into by and between private parties. As previously mentioned, public contracts are very similar to adhesion contracts, which prevent the contracting authority and the private contractor from freely negotiating the conditions, even those regarding the parties’ liabilities for damages that may arise from the performance of the agreements.

      Regarding such damages, a distinction is made between direct and indirect damages, which is a rather complex matter under Brazilian law and doctrine. In Brazil, indirect damages (consequential damages) are basically the loss of profit or revenue, which may be recovered if it is determined that such damages were reasonably foreseeable at the time of the contract. The PPL has no provisions regarding the loss of profit or revenue.

      Notwithstanding the above, some scholars’ interpretation is that the public authority may claim loss of profits if the contract is terminated early because of a failure of the private party. The connection between the private party’s failure and the loss of profits shall be duly evidenced. This understanding is based on the fact that the private law also governs public contracts, on a subsidiary basis, as set forth in article 54 of the PPL. On the other hand, direct damages are provided for under article 70 of the PPL.

      Finally, as to the private contractor’s liability for damages caused to the contracting public authority, the PPL does not establish any sort of limitation, although it requires that the damages are the result of a faulty or fraudulent action of the private contractor and that there is a causal connection to the action of the private contractor. Therefore, the private party will be liable towards the public contracting party for the amount of damage effectively caused by the private party’s fault or fraud, duly evidenced in the course of an administrative or judicial proceeding, as the case may be. Hence, there is a possibility that this amount will surpass the total amount of the contract. Any clause limiting liability under the contract might be deemed null and void by the entities tasked with inspecting the public agreements, such as the Brazilian Court of Audit and the Public Prosecution Office. As for the private contractor’s liability for damages caused to third parties, the Brazilian Federal Constitution does not establish any sort of limitation either. In addition, this liability is strict, meaning that faulty or fraudulent action of the private contractor is not relevant.

      Last verified on Thursday 9th March 2017

    • Brazil

      The most important challenges for companies that seek to contract with public entities in Brazil, in our view, arise from the complexity of the numerous rules governing the huge variety of bidding procedures, such as: 

      •    the PPL; 
      •    the Reverse Auction Law (Federal Law 10,520/2002); 
      •    the Public Services and Concessions Law (Federal Law 8,987/1995); 
      •    the Differentiated Regime of Public Procurement – the RDC Law (Federal Law 12,462/2011); and
      •    the Public-Private Partnership Law (Federal Law 11,079/2004).

      There are also specific rules applicable to different sectors, such as defence, energy, oil and gas. More recently, Federal Law No. 13,303/2016 and Federal Decree No. 8,945/2016 were enacted to govern the public procurement carried out by Brazilian public companies, mixed-capital companies and their subsidiaries, which became subject to different rules from that applicable to the Direct Public Administration. 

      Furthermore, public procurement proceedings in Brazil are usually very formal procedures, which require careful attention by companies seeking to contract with public entities.

      Another challenge of public contracts is the absence of negotiation between the parties. As already mentioned, this is due to the principle that parties should be bound to the bid invitation, making these contracts very similar to adhesion contracts.

      In terms of public procurement proceeding, one of the major challenges for the participation of foreign companies used to be the need for legalisation of foreign documents.

      However, the enactment of Federal Decree No 8,660/2016 excluded the requirement for legalisation of foreign public documents, in determining the application in Brazil of the Convention on the Legalization Requirement Elimination for Foreign Public Documents, signed in Haia in 1961. The provisions of such decree have been valid in Brazil since 14 August 2016.

      Last verified on Thursday 9th March 2017

  • Governing law for public contracts

    • Brazil

      In Brazil, contracts entered into by public administration entities are governed by several laws and specific rules related to public procurement matters. The choice of the applicable rule will depend on the scope of the service or work as well as on the public entity involved.

      However, the PPL regulates a hypothesis in which the local public procurement proceeding can be replaced by the procurement guidelines drafted by international organisations. This exception does not apply to public contracts but just to the public procurement proceeding itself. For instance, if the Brazilian embassy in a foreign country carries out a public procurement proceeding, such public proceeding shall be governed by the relevant local law on procurements. In this situation, only the Brazilian principles applicable to procurements will be observed and the public contract itself will be governed by the Brazilian public procurement laws.

      Last verified on Thursday 9th March 2017

    • Brazil

      Since Law No. 13,303, dated 30 June 2016 was enacted, state-owned and mixed-capital companies as well as their subsidiaries became subject to specific rules that may be different from PPL’s rules.

      Such companies must carry out a public bidding process before executing agreements with third parties whenever these agreements have some of the following purposes: rendering of services to these government-controlled companies, including engineering and advertisement services, acquisition, lease and sale of assets and works to be integrated into their assets.

      The public procurement proceeding is dismissed for direct commercialisation, provision or performance of products, services or works specifically related to their corporate purposes; and in cases in which the choice of the partner is related to its particular characteristics, linked to defined and specific business opportunities, as long as the non-feasibility of a public procurement proceeding is justified. Law No. 13,303/2016 also establishes specific situations in which the bidding process may be waived or is non-applicable, similar to the provisions of the PPL.

      State-owned companies and mixed-capital companies existing at the time of the publication of Law No. 13,303/2016 must take the necessary adaptations to the provisions of the new law within 24 months. In the meantime, they continue to be governed by the previous law.

      Last verified on Thursday 9th March 2017

    • Brazil

      Disputes involving the performance of public contracts are not subject to the same court’s jurisdiction as commercial contracts. Such disputes are ruled by specialised courts.

      Besides the remedies provided in the PPL, the parties are always entitled to seek any rights they might have by resorting to the judiciary. However, judicial appeals are under the jurisdiction of the Public Treasury Courts, which are special courts with powers to appreciate and judge matters involving the Treasury (public funds) and public rights. The disputes will only be subject to the ‘ordinary courts’ if the state or municipality involved does not have such special court.

      Currently, arbitration in public contracts has been accepted by public authorities. However, arbitration procedures will depend on the nature and scope of the public contract and must be provided by law.

      There are various scattered provisions under Brazilian law that authorise the use of arbitration in disputes involving the state: 

      •    article 23 of 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). 

      The PPL has no provision concerning this matter.

      Note that arbitration is not allowed in all regulations that apply to public procurement proceedings in Brazil. Also, arbitration will not take place when there are non-disposable rights involved.

      Last verified on Thursday 9th March 2017

  • Role of the lawyer in procurement procedures

    • Brazil

      Yes. In international public procurement proceedings, generally the bidders retain local lawyers to assist them.

      Since public procurement proceedings in Brazil are governed by several laws and specific rules and have plenty of specifications, it is common that international bidders request the assistance of local lawyers with deep knowledge of public sector-related matters.
      The use of non-legal consultants (paralegals) is common only for the acquisition of specific documents and certificates normally required in the bidding process. 

      Last verified on Thursday 9th March 2017

    • Brazil

      As previously discussed, there is little space for the parties to negotiate public contracts. Even during the public consultations or public hearings phase, which takes place before the public procurement proceeding, the chances of negotiation by and between the public administration and the private party are very low. Thus, the lawyers’ role in these phases is usually restricted to the analysis of the formal structure of the public contract and assistance to prepare contributions, if applicable.

      Lawyers are more involved in the management of the public contracts after the public proceeding is finished. This means that, during the performance of the public contract, the lawyer may be more effective assisting the contractor with, for instance, the analysis of possible amendments to the public contract, studying the hypothesis of the economic–financial rebalance, and analysing issues involving the performance of the public contract related to the payment owed by the public administration.

      Last verified on Thursday 9th March 2017

    • Brazil

      The transparency of the process is ensured through the identification by a lawyer of irregularities or illegalities. For this reason, lawyers usually assist the clients in submitting administrative appeals.

      Once the lawyer verifies the lack of transparency in the proceeding, he or she is able to declare the violation of PPL principles, such as legality, impersonality, morality, publicity and efficiency, and guarantee that the proceeding will abide by PPL and Federal Constitution rules.

      As mentioned in question 18, the official records of the bidding process are available to the public in general as well as to all bidders. The official records are usually kept with the bidding committee, in order to certify all acts taken during the proceeding and to file all documents regarding the procurement.

      Last verified on Thursday 9th March 2017

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