Public procurement in Brazil: overview

A Q&A guide to public procurement law in Brazil.

The country-specific Q&A gives a high level overview of applicable legislation, scope of rules, procurement procedures and enforcement, recent trends and proposals for reform. In particular, it examines entities and contracts covered, concessions, privatisations and PPPs, contract award criteria, alternative bids, and changes to an existing contract.

To compare answers across multiple jurisdictions visit the Public Procurement Country Q&A tool and EU Public Procurement Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to public procurement. For a full list of jurisdictional Public Procurement Q&As visit www.practicallaw.com/publicprocurement-mjg.

Henrique Frizzo and Pedro Oliveira, Trench, Rossi e Watanabe Advogados
Contents

Legislative framework

1. What is the principal legislation that regulates public procurement? What regulatory authorities are responsible for public procurement enforcement?

Regulatory framework

Applicable legislation. Section XXI, Article 37 of the Federal Constitution provides public procurement procedures for procurement of constructions, engineering works, services, purchases and sales by the government. Detailed regulation is found in Federal Law 8,666/93 (Public Procurement Law).

The Public Procurement Law regulates public procurement procedures and contracts entered into by the government (administrative contracts) in the scope of the Federal, State and Municipal administrations. In theory, the Public Procurement Law was meant to provide general guidelines on these subjects and be complemented by State or Municipal legislation based on local circumstances. However, the Public Procurement Law is so detailed that it leaves little margin for the States and Municipalities to further legislate. Therefore, this article is solely based on the Federal Public Procurement Law, with exceptions expressly indicated.

Additional rules on public procurement include:

  • Law 9,472/97. This provides for the organisation of the National Communications Agency (Agência Nacional de Telecomunicações) (ANATEL) and authorises the agency to create its own public procurement norms.

  • Law 9,478/97. This instituted the National Oil Agency (ANP) and authorises the agency to create its own public procurement norms. It authorises Petrobras (the Brazilian oil company) to comply with a simplified tender procedure (regulated by Decree 2,745/98).

  • Law 8,987/95. This provides for concessions and permission to render public services.

  • Law 9,961/00. This instituted the National Supplementary Health Agency (ANS) and authorises the agency to create its own public procurement norms.

  • Law 10,520/02. This provides for a specific public procurement modality, the Reverse Auction (Pregão).

  • Law 11,079/04. This provides for the public-private partnership.

  • Decree 7,174/2010. This regulates the purchase of IT goods and services.

  • Law 12,462/11. This provides for a different public procurement procedure for procurements related to the:

    • Olympic and Paralympic Games to be hosted in Brazil in 2016;

    • infrastructure and services for airports located within 350 km of the host cities of the Olympic and Paralympic Games;

    • National Development Program (Programa de Aceleração do Crescimento) (PAC), a governmental program created to stimulate national development through infrastructure works;

    • construction and engineer services within the public health system;

    • criminal and social recuperation facilities.

    This Law also encompassed the FIFA World Cup and Confederations Cup, hosted in Brazil.

  • Law 12,598/12. This provides special norms for the purchase and development of defence systems.

Supra-national agreements. The benefits provided to local companies in public procurement procedures are extended to members of the Common Market of the South, Mercosur (that is, Argentina, Brazil, Paraguay and Uruguay) (Law 8.666/93).

Essentially, the only benefit is the concession of a preference margin to locally manufactured products or services that comply with Brazilian technical standards. The margin is applied over the final offer, at a maximum rate of 25%. Therefore, an offer of a Brazilian product or service may be awarded even if it is not the best price. These locally manufactured products or services are also considered to be products originating from members of Mercosur.

Public procurement regulations from multi-lateral development or financial organisations can be used, provided that it does not conflict with the principles of the Public Procurement Law (Public Procurement Law).

Regulatory authorities

The regulatory authorities are divided into:

  • Internal control entities. These are special commissions nominated within each administrative body to supervise the legality of that body's activities, including the respective public procurement procedure and resulting contracts.

  • External control entities. The main entities responsible for supervising public procurement are:

    • Public Prosecutor's Office (at state and federal levels). This can investigate and adopt judicial measures in the case of unlawful acts related to public procurement procedures;

    • Courts of Accounts (at federal, state and a few municipal levels). These are responsible for supervising public expenditure, including the legality of the respective contracts and public procurement procedures. They also judge representations filed by third parties regarding irregularities in public procurement procedures.

 
2. What are the overriding principles of the legislation listed in Question 1?

Public tenders must comply with the following principles:

  • Legality.

  • Impersonality.

  • Morality.

  • Equality.

  • Publicity.

  • Administrative probity.

  • The binding nature of the request for proposals (RFP).

  • Objective judgment.

Other principles include equality before the law, choosing the best proposal for the administration, and promotion of national sustainable development.

Regulation of specific industries

3. Are any industries subject to specific regulation?

Petrobras (the Brazilian oil company) is subject to a simplified bidding procedure regulated by Decree 2,745/98.

IT goods, services and defence systems are subject to specific rules, in addition to the Public Procurement Law.

The National Communications Agency (Agência Nacional de Telecomunicações) (ANATEL), the National Oil Agency (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis) (ANP) and the National Supplemental Health Agency (Agência Nacional de Saúde Suplementar) (ANS) have their own public procurement regulations for all administrative contracts entered into, except for engineering services. However, these are still also subject to the Public Procurement Law's principles and general guidelines. These regulations are similar to the Public Procurement Law.

 

Recent trends

4. What are the recent trends in the public procurement sector?

Recent trends in the public procurement sector are:

  • Use of the Electronic Reverse Auction (Pregão Eletrônico) as the procedure for simpler procurements. The regular Reverse Auction (Pregão Presencial) is also often used in the same circumstances.

  • Use of the preference margins for local goods and services, and the requirement of offset obligations in request for proposals (RFP) to promote technological innovation. Recent amendments to the Public Procurement Law were made to allow these requirements in the procurement procedures.

  • Use of a different procedure under Law 12,462/11 for certain situations:

    • for the Olympic and Paralympic Games to be hosted in Brazil;

    • for contracting infrastructure works and services for airports located within 350 km of the host cities of the Olympic and Paralympic Games;

    • for the National Development Program (Programa de Aceleração do Crescimento) (PAC);

    • for the construction and engineering services within the public health system;

    • for criminal and social recuperation facilities.

    The government is testing this new procedure, which includes the inversion of the tender phases, the contracting of turnkey projects and variable remuneration, for a future update of the Public Procurement Law.

  • Increase in the level of control over public procurement procedures, especially in relation to corruption and competition issues. Law 12,846/2013 (Brazilian Clean Companies Act) has an entire section addressing corrupt and fraudulent acts related to public procurements.

 

Scope of rules

Entities covered

5. Which entities must comply with the procurement rules? Are there any exemptions?

Entities covered

Procurement rules apply to the entities provided for in paragraph 1, Article 1 of the Public Procurement Law:

  • All governmental departments, agencies and bodies of the three powers (judiciary, legislative and executive branches).

  • Special funds.

  • Public foundations.

  • Government owned and controlled companies.

  • All entities controlled directly or indirectly by the federal government, state, municipalities and the federal district.

"Support Entities" are created to provide support to public entities, particularly universities, hospitals and research and development centres. These Support Entities are private entities usually created by people that work in the supported entity, with the purpose of facilitating funds management and avoiding more rigid public regulations.

Currently, the Court of Accounts is of the understanding that Support Entities are not entirely subject to the Public Procurement Law. However, they must follow its principles and comply with minimum price quotation requirements when using public funds. However, this matter is not settled and there are Support Entities that use their private status to avoid the application of the Public Procurement Law.

Exemptions

Private social organisations that receive public funding are not entirely subject to the Public Procurement Law. However, control entities (see Question 1, Regulatory authorities) have established that at least the procurement and public principles must be observed, particularly the principles of morality, impersonality and the efficient expenditure of public funds.

Government owned or controlled companies are only partially subject to the Public Procurement Law. This is a construction of the jurisprudence and court precedents, which exclude agreements related to companies' core activities (commercial agreements) from the scope of the public procurement laws. The aim is to give those companies flexibility to act as a market player.

Contracts covered

6. What contracts do procurement rules cover? Are there any exemptions?

Contracts covered

Procurement rules apply to all purchases of goods, engineering works and services procured by governmental entities. Sale of public goods and leases of public assets must also comply with the Public Procurement Law.

Exemptions

Articles 24 and 25 of the Public Procurement Law provide for cases that are exempted from the public tender procedure.

Tenders can be waived in cases where its performance is inconvenient (Article 24, Public Procurement Law). These cases include acquisitions of small amounts, emergency situations, and cases in which national security is at stake.

If competition is impossible, such as in single source supplies or where it is impossible to fix objective criteria to classify the bidder, there is an exemption from the requirement to perform a public tender (Article 25, Public Procurement Law). The list of these situations is not-exhaustive, but includes the procurement of technical services (listed in Article 13 of the Public Procurement Law) with companies that have reputable expertise, and retaining professionals for artistic performances where the professional is well regarded by critics or the public opinion.

A formal procedure must be prepared to support the tender exemption, that is, the public entity must formalise in an internal procedure justifications for:

  • Exempting the public tender procedure.

  • Choosing a specific contractor.

  • The price charged by the contractor.

  • Other justifications that might be needed on a case by case basis.

The exemption procedure must also be approved by the superior authority of the public entity. For example, the acquisition of patented drugs or the performance of urgent work (such as rebuilding a bridge that collapsed).

 
7. Are there specific thresholds to determine if a contract is subject to the public procurement regime? Are there any aggregation/anti-avoidance rules?

Thresholds

Article 24 of the Public Procurement Law provides a financial threshold to determine if a contract is subject to the public procurement regime. The public procurement procedure can be waived if the amount involved in the contract is up to:

  • BRL15,000 for the contracting of construction works and engineering services.

  • BRL8,000 for the contracting of other goods and services or sale of goods.

These thresholds are doubled if the regulated entity is a public consortium, a government-owned company or a regulatory agency.

Aggregation/anti-avoidance rules

The total thresholds apply to the aggregated amount of the purchase. It is prohibited to split the purchase orders to avoid the thresholds.

Concessions

8. Does the procurement regime apply to concession contracts? If not, how is the award of concession contracts regulated?

The public procurement regime is mandatory for concessions of public services (Federal Constitution). Federal Law 8,987/95 (Concession Law) provides for some peculiarities in the tender procedures (for example, only the "competition" modality (see below) is permitted), but relies mostly on the Public Procurement Law's provisions.

The competition modality is the more complete and formal procedure concerning public tenders. In summary, it comprises:

  • The publication of the request for proposal (RFP), allowing any interested company to participate.

  • A qualifying phase, where qualifying documents of all participants are analysed.

  • The bid phase, where price proposals are opened and ordered.

As concessions often involve high amounts, it is usual to begin the tender procedure with a public hearing (which is mandatory in tenders with an estimated amount higher than BRL150 million).

Public concessions are defined as administrative contracts in which the government delegates to a private party, chosen through a public tender procedure, the performance of a public service during a fixed period of time.

Privatisations and PPPs

9. Are privatisations and PPPs subject to the procurement regime? If not, what are the relevant legal rules?

Privatisations

Privatisations are subject to the public procurement rules, where applicable. The following are subject to public procurement procedures:

  • Sale of government owned companies' quotas or public property.

  • The delegation to a private party of a public service that was previously rendered by the governmental entity.

The exception is the use of an initial public offering (IPO) as a means of privatisation. In that case the procedure will follow specific IPO rules instead of a public procurement procedure.

PPPs

The public procurement procedure for the contracting of a public private partnership (PPP) is regulated by the Public Procurement Law, with Law 11,079/04 providing the specifics of the procedure. Public procurement procedures for the contracting of a PPP must follow the "competition" modality (see Question 8).

A PPP is defined as the delegation of the rendering of a public service, involving the joint investment of the public partner in the payment of the private party. Therefore, PPPs are the model of choice for the delegation of public services involving tariffs that are not sufficient to remunerate the private party for the investments.

Shared services and "in-house" arrangements

10. Do shared services projects and "in-house" arrangements trigger the application of the public procurement requirements? Are there any exemptions?

Shared services and in-house arrangements can only be exempted from the public procurement procedures if the contracted entity both (Article 24, Public Procurement Law):

  • Is a government owned entity created solely for the provision of goods/rendering of services to the public administration.

  • Was created before 22 June 1993.

In addition, the contracted entity's purpose must be the performance of a public service.

 

Procurement procedures

11. What procedures do regulated entities use when carrying out procurements? Can regulated entities freely choose between the procedures? When is it appropriate to use each procedure?

Available procedures

Article 22 of the Public Procurement Law provides for three main public procurement procedures:

  • Competition.

  • Price survey.

  • Invitation to tender.

The Public Procurement Law also provides for the public contest (which is used for technical, artistic or scientific work) and the public auction of government assets (which should not be confused with the reverse auction provided for in Law 10,520/02 (see below)).

Further, Law 10,520/02 provides for the reverse auction (Pregão). This is used for the acquisition of common goods and services, which are those whose performance and quality can be objectively defined (according to market standards) in the request for proposal (RFP). This procedure can also be performed electronically.

Freedom of choice

The choice of which procedure to use depends on the estimated amount involved and the object procured.

For the procedures provided for in Law 8,666/93, the financial thresholds are (from the simplest to the more complex procedures):

  • Works and engineering services:

    • invitation to tender: up to BRL150,000;

    • price survey: up to BRL1.5 million;

    • competition: more than BRL1.5 million.

  • Other goods and services:

    • invitation to tender: up to BRL80,000;

    • price survey: up to BRL650,000;

    • competition: more than BRL650,000.

Simpler procedures cannot be used within higher thresholds. Inversely, more complex procedures can be used within lower thresholds (that is, the price survey can be used in tenders for the contracting of works and engineering services involving amounts up BRL150,000, and the competition procedure can always be used regardless of the amounts involved).

Law 10,520/02 does not provide a financial threshold for the reverse auction procedure. It can only be used for the acquisition of common goods and services (defined as those whose performance and quality can be objectively defined in the bid call document according to market standards).

Suitability

Usually, the public procurement procedure chosen is the simplest allowed, depending on the amounts involved.

Further, the current practice is to use the reverse auction modality whenever possible because:

  • Shorter time limits lead to a faster conclusion of the procedure (see Question 12).

  • Only the company that presented the best bid has its qualifying documents analysed, leading to a faster procedure.

  • The possibility to present successive bids leads to a better final price for the administration.

  • The possibility of performing an electronic reverse auction leads to a simpler procedure and lower costs.

Because of this, the government has at times enlarged the interpretation of Law 10,520/02 and conducted reverse auctions in procurements for complex procurements, which was challenged by control entities.

Key features

12. What are the key features of each procedure? What are the applicable time limits?

Invitation to tender

Key features. The regulated entity chooses a minimum of three competitors and invites them to participate in the tender. The request for proposals (RFP) must be advertised (not necessarily in the press, but in a public place). Any company that is registered with the regulated entity can participate as well as the invited competitors, provided due notification is given to the regulated entity at least 24 hours before the presentation of proposals.

Time limits. The invitation must be issued at least five business days before the day scheduled for the presentation of the proposals.

Price survey

Key features. The price survey is a public tender procedure in which the competitors must be previously registered with the regulated entity. Non-registered companies must present their qualification documents at least three days before the presentation of the proposals. The RFP must be advertised in the official press and in a newspaper of general circulation in the state and municipality in which the contract will be performed.

Time limits. The RFP must be announced at least 30 days before the day scheduled for the beginning of the tender, if the awarding criteria are "best technique" or "best technique and price" (see Question 15). For other awarding criteria, the RFP must be advertised 15 days before the day scheduled for the beginning of the tender.

Competition

Key features. The competition procedure is a public tender procedure in which all interested companies can participate by meeting the qualification criteria on the first day of the procedure. The RFP must be advertised in the official press and in a newspaper of general circulation in the state and municipality in which the contract will be performed.

Time limits. The RFP must be advertised at least 45 days before the day scheduled for the beginning of the tender if either the:

  • Awarding criteria is "best technique" or "best technique and price" (see Question 15).

  • Contract to be executed contemplates full construction services (including all related services and installations).

In other cases, the RFP must be advertised at least 15 days before the day scheduled for the beginning of the tender.

Reverse auction

Key features. The reverse auction is a public procurement procedure in which a competitive phase with alternative bids occurs before the analysis of the qualification documents. In this sense, the bidder that proposed the better price, plus the competitors that presented a price within 10% of the best price, can submit alternative and successive bids until the lower price is reached. If there are fewer than three competitors that qualify for the alternative bids phase, the next best proposals (up to a maximum of three) are invited to participate.

Time limits. The RFP must be advertised at least eight business days before the day scheduled for the beginning of the tender. The advertisement must be placed in the official press an on the internet for tenders with an estimated amount of up to BRL160,000. For tenders between BRL160,000 and BRL650,000, the RFP must in addition be advertised in a newspaper of local circulation. For tenders above BRL650,000, the RFP must be advertised in a big newspaper of regional or national circulation.

Electronic reverse auction

Key features. This is the same as the reverse auction procedure, but participation occurs through an electronic system.

Time limits. The RFP must be advertised at least eight business days before the day scheduled for the beginning of the tender. The advertisement must be placed in the official press and on the internet, for tenders up to BRL650,000. For tenders between BRL650,000 and BRL1.3 million, the RFP must in addition be advertised in a newspaper of local circulation. For tenders above BRL1,300,000, the RFP must be advertised in a newspaper of regional or national circulation.

Technical specifications

13. Are there any requirements concerning technical specifications of tenders?

The technical specifications must restrict the number of participants to the tender. The specifications must allow the full and correct evaluation of the works, services or goods that are being put to tender.

Alternative bids

14. Are there specific rules in relation to alternative bids?

Alternative bids are not acceptable (except for during the bid phase of the reverse auction). The requirements of the request for proposals (RFP) legally determine the procedure. Any bid submitted in disagreement with these requirements will lead to disqualification of the bidder.

Contract award criteria

15. What are the requirements relating to contract award criteria?

The award criteria are set by the regulated entity and the potential participants are informed of the criteria in the RFP.

There are three types of rules on which an award can be based:

  • Best price. The contract is awarded to the company that offers the best price and complies with the minimal requirements provided in the RFP.

  • Best technique. The contract is granted to the company that offers the best technical solution.

  • Best price cumulated with the best technique. The best composition of price and technique, based on scores given by the public administration.

Changes to an existing contract

16. Does an extension or amendment of an existing contract require a new procurement procedure?

Extension of contract

An extension of an existing contract does not require a new public procurement procedure. However, the total term of the administrative contract is limited to the term of the respective budget of the regulated entities, except for the following:

  • Contracts for continued services can only be effective for a maximum of 60 months, after which a new public procurement procedure should be carried out to contract the company that will continue the services.

  • The contracts for the leasing of equipment and the use of software are limited to a 48 month term.

  • In general, contracts that involve national security, the purchase of standard material for the Brazilian Armed Forces and national defence can be effective for up to 120 months.

  • Innovation Law (Law 10,973/04) contracts (for research and development (R&D)) can also be effective for up to 120 months. These include:

    • contracts related to contracting of private companies to perform R&D services;

    • contracts related to the using of the premises of public research entities for R&D activities.

The PPP contract is subject to a maximum term of 35 years.

Amendment of contract

The amendment of an administrative contract does not require a new public procurement procedure. However, scope increases or suppressions are limited to 25% in the initial amount of the contract, or up to 50% if the contract is related to reform of a building or equipment.

 

Enforcement

17. Who can bring a claim for non-compliance with procurement legislation? What are the available review procedures? Are there any associated statutes of limitation?

Right to bring a claim

The person competent to bring a claim depends on the claim, and can be the following:

  • A competitor.

  • The Public Prosecutor's Office.

  • The Courts of Accounts.

  • Any Brazilian citizen.

Enforcement procedures

Competitors, the Public Prosecutor's Office and Brazilian citizens can file lawsuits to annul public procurement procedures and the respective contracts, using different types of lawsuit. Court procedures are lengthy and it can take about five to eight years to reach a final decision.

The Courts of Accounts (entities of the legislative branches responsible for supervision of public expenditures) can also begin public procurement investigation procedures. These courts can start a procedure as a result of an accounts audit or on request of a competitor or any Brazilian citizen. The proceedings are faster and can take about one to four years to reach a final decision.

In general, the measures are aimed at annulling the illegal acts or removing the irregularities. The courts tend to avoid annulling contracts already performed. In these cases, other sanctions are usually applied to the parties involved, such as fines and prohibition from participating in public procurement procedures and executing contracts with the government.

Finally, the participants in a public tender can appeal to the bidding commission (that is, the commission inside each public entity responsible for the tender procedure) to request the annulment of either:

  • A certain act.

  • The execution of the contract.

Urgent measures such as injunctions can be requested from the courts or accounts court. If granted, the injunctions usually suspend the performance of the public tender until a final decision.

Statutes of limitation

The statute of limitation for annulling an administrative act or contract with a judicial measure is five years from the issuance of the act or execution of the contract. The recovery of damages by the public treasury is subject to an indefinite statute of limitation.

 

Reform

18. Are there any proposals for reform of the procurement legislation? If so, when are they likely to be implemented?

There are several Bills in the Brazilian congress that provide for modifications of or even replacements for the Public Procurement Law. There is expected to be a complete reform of the legislation in about three years.

 

Online resources

Federal government legislation website

W www4.planalto.gov.br/legislacao

Description. This website is maintained by the federal government and contains all federal legislation in Portuguese. Although the wording provided for in the website does not substitute the wording provided for in the official press for legal purposes, the website is very accurate and up to date.

Federal Supreme Court website

Wwww2.stf.jus.br/portalStfInternacional/cms/verConteudo.php?sigla=portalStfSobreCorte_en_us&idConteudo=120010

Description. This website is maintained by the Federal Supreme Court and contains an English version of the Federal Constitution, up to amendment 66/2010 (there are currently 82 amendments).



Contributor profiles

Henrique Krüger Frizzo, Partner

Trench, Rossi e Watanabe Advogados

T +55 11 3048 6905
F +55 5506 3455
E henrique.frizzo@trenchrossi.com
W www.trenchrossiewatanabe.com.br

Professional qualifications. Brazilian Bar Association, São Paulo Chapter, 2004

Areas of practice. Administrative law; energy; mining; petrochemicals and infrastructure; pharmaceuticals; food and cosmetics.

Languages. Portuguese, English, German

Pedro Luiz S Oliveira, Associate

Trench, Rossi e Watanabe Advogados

T +55 11 3048 6965
F +55 5506 3455
E pedro.oliveira@trenchrossi.com
W www.trenchrossiewatanabe.com.br

Professional qualifications. Brazilian Bar Association, São Paulo Chapter, 2012

Areas of practice. Administrative law; energy; mining; petrochemicals and infrastructure; pharmaceuticals; food and cosmetics.

Languages. Portuguese, English


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