howto government contracts

7/31/2019 Howto Government Contracts

1/17


2/17

Hw d governmental contracts i Bzi laW

ai chb c Bzi amcHam

Ii ai Dp

Bzi, 2010

ACKNOWL

EDGMENTS

Lima & Curvello Rocha Lawyers is a law irm headquartered in Brasilia, the capital city o

Brazil, and specialized in providing legal advice on national and international govern-

ment procurement procedures and government contracts in Brazil, in addition to carrying

out strategic planning and representing Brazilian and oreign companies in the country.

Our team o lawyers has extensive experience in government entities, the Superior

Courts, and Government Accounting Courts, and is ully prepared to provide you with

all the necessary guidance to take part in procurement procedures carried out by Brazil-

ian government entities.

We hope that our contribution to the AMCHAMs How To series is able to illustratesome o the market opportunities and provide you with a strategic view o the market o

government contracts in Brazil, in addition to demonstrating how the irm is able and

available to assist oreign companies in the country.

Jonas Lima,PartnerLima & Curvello Rocha Lawyers

Delza Curvello Rocha,Partner -Lima & Curvello Rocha Lawyers

Gabriel Rico, Executive Director AMCHAM Brazil

The American Chamber o Commerce or Brazil, being the largest Amcham outside the

United States is constantly serving its members by building bridges or Brazilian businesses

worldwide. Our oreign investment attraction eorts have also been a key leading point or

Amcham. The How To Series is part o this initiative; with the support o some o our corpo-

rate members we are putting together strategic inormation on the most various aspects o

doing business in Brazil. Over the last year the Brazilian economy has clearly demonstrated

an outstanding economic perormance. The countrys business environment as well as or-

eign investment numbers are also very positive. The International Monetary Fund estimates

that crisis apart; the Brazilian economy should grow on a 3.5% basis. It is now more than

ever, a strategic time or businesses opportunities in Brazil, we welcome you and hope that

the inormation you are about to read serves you best.


3/17

Hw d governmental contracts i Bzi laW

CONTENTS

BRAZIL: A COUNTRY OF OPPORTUNITIES ....................................................................6

RULES AND REGULATIONS ON GOVERNMENT CONTRACTS IN BRAZIL ....................9

NATIONAL BIDDING X INTERNATIONAL BIDDING ....................................................12

PRICE REGISTRATION SYSTEM ......................................................................................13

DIRECT PURCHASES AND HIRES ..................................................................................14

SPECIAL ATTENTION TO IMPORTS ...............................................................................15

FOREIGN COMPANIES AND INTERNATIONAL GOVERNMENT PROCUREMENT ........16

QUALIFICATION............................................................................................................17

PROPOSALS...................................................................................................................20

ADMINISTRATIVE SANCTIONS .....................................................................................21

INTERNATIONAL PROCUREMENT PROCEDURES WITH FOREIGN RULES ..................21

REVOCATION AND ANNULMENT OF THE BIDDING ..................................................22

OVERSIGHT ROLES .......................................................................................................22

GOVERNMENT CONTRACTS ........................................................................................25

ABOUT OUR SPONSOR................................................................................................30

td by tdJui lw, lu & cuu


4/17

6 Hw d governmental contracts i Bzi 7laW

BRAZIL: A COUNTRY OF OPPORTUNITIES

large construction and public works in inrastructure

or logistics, roads, urban transportation, telephone ser-

vices, sewage and water supply, and power supply;

advertising services; supply o air tickets; in addition to

equipment and works or large government-owned

companies, such as Petrobras.

Moreover, when the Government is the importing party,

specic tax exemptions apply, which may result in sav-

ings o up to 40% in terms o pricing in some cases.

Among other examples o the gures involved in public

procurement procedures, one can mention the Health

Ministry, which alone is responsible or over 58% o all

imports to the Brazilian Federal District although most

products are then distributed across the Country to

several States.

Ports

Approximately 80% o Brazilian imports and exports

go through the ports, which currently require a large

amount o investments, considering the change in the

export routes, regional developments, and the size o

the countrys coast. To date, the ederal governments

investments orecast (according to the PAC) totals ap-

proximately USD 4 billion, and requires private public

partnerships to meet the USD 18 billion needed in re-

sources or the sector.

Brazil has a large and growing market or government

procurement and government contracts. This market

accounts or USD 160 billion a year considering busi-

nesses carried out with all the spheres o government.

Thereore, this gure includes domestic and interna-

tional bidding processes in over 20,000 government

entities, agencies, and government-owned companies.

Currently, Brazil is oering unprecedented opportuni-

ties or oreign companies to engage in government

procurement procedures.

According to statutory provisions, companies not based

in the Brazil are also allowed to take part in government

procurement carried out in the country. However, it is

the eld o international public procurement, in other

words, procuring aimed at companies based abroad,

where the most interesting opportunities can be ound.

And, in this particular, case the notices o procurement

are especially drated to invite oreign bidders.

The Market Today

The most signicant sources o government contracts

today are: medical and hospital products and equip-

ment; drugs and medication; pharmaceutical products

and equipment; research oundations; special equip-

ment and vehicles or public saety, law enorcement,

re departments, ports, and airports; IT equipment;

Airports

INFRAERO, the government-owned company that

manages Brazilian airport operations, is expected to in-

vest more than USD 3 billion between 2010 and 2014

in order to increase and renovate several airports. As a

result, the passenger and cargo capacity o the Brasliaairport, or instance, will increase two-old and three-

old, respectively. As a result, there will be an increas-

ing volume o government procurement procedures.

Land Transportation

Brazil is undergoing a revolution in terms o land trans-

portation among and within cities. This is illustrated by

the recent notices o government procurement proce-

dures or the city o Rio de Janeiro, with investments to-

taling USD 1.02 billion, and or the competitive bidding

process or the high-speed train between Rio and So

Paulo, with investments estimated at USD 18.8 billion.

Growth Acceleration Program (PAC 1)

Investments orecast or inrastructure projects under

the PAC are constantly updated. During the rst stage

o the PAC, between 2007 and 2010, they were esti-

mated at USD 337.95 billion. Currently, most o the

projects have been implemented (approximately 60%)

and 40% o the projects have been concluded. PAC 1

also included projects in roadways, logistics, and en-

ergy, and social and urban investments.

Growth Acceleration Program (PAC 2)

Launched in 2010, investments orecast or the second

stage o the PAC total USD 544 billion or the period

between 2011 and 2014. In the post-2014 period, ad-ditional investments o USD 358 billion have been

orecast. Thus, total investments should achieve over

USD 900 billion.

Investments in cities, water and sewage, paving and

suracing, urban mobility, and prevention works in

risk areas, total USD 31 billion or the 2011-2014

period. Building new schools, sports acilities, com-

munity police stations, and healthcare units will re-

ceive USD 13 billion. Low-income housing mortgage

plans shall receive investments o USD 158 billion.

For universalizing access to water and power supply,

USD 17.3 billion have been allocated. For transpor-

tation, roadways, railways, ports, waterways, airports,

and equipment or smaller roadways investments will

total USD 59.3 billion by 2014 and, ater that year,

additional USD 2.5 billion have been orecast. Fi-

nally, in terms o generation and transmission o elec-

tricity, oil (including the Pre-Salt layer), and natural

gas, naval industry, and mineral research, the invest-

ments orecast amounts to USD 262.2 billion and,

ater 2014, are estimated in USD 356.1 billion.


5/17


2014 FIFA World Cupand 2016 Olympics

The budget or the 2014 FIFA World Cup, one o the

biggest sporting events in the world, has been esti-

mated in USD 56.8 billion, and or the 2016 Olym-

pic Games, taking place in Rio de Janeiro, USD 19.3

billion in investments have been orecast.

Furthermore, Brazil is hosting the Conederations

Cup in 2013, the Para-Olympic Games in 2016, and

the Games o Peace, all o which will present in-

creased business opportunities between Brazilian

and oreign companies. It is also worth mentioning

that because o these events, Brazil has already es-

tablished various tax incentive programs at the ed-

eral, state, and municipal levels, in addition to spe-

cial nancing conditions.

Oil and Gas

Taking part in competitive bidding processes and sign-

ing contracts with Petrobas, the most well-known Bra-

zilian company, which is controlled by the Federal

Government, can mean good business opportunities,

seeing that the company has announced investments

totaling USD 224 billion between 2010 and 2014.

Moreover, or the uture exploration and development

o the Pre-Salt layer a number o companies may come

together or compete or certain business activities with

Petrobras. It is worth mentioning that total long-term

investments may reach USD 600 billion, 28% o

which, by mid-2010, had already undergone procure-

ment procedures.

Energy Supply

Brazil has an enormous demand or energy supply.

For the coming years construction works will be car-

ried out or 54 hydroelectric plants, 71 wind energy

plants, and three power plants, and 22,765 km in

transmission systems.

Broadband

Aimed at increasing internet broadband access three-

old by 2014, the Brazilian Federal Government will

invest in the ormer Telebras (mixed-capital compa-

ny) USD 1.83 billion to oster competition and pro-

mote market growth. As a result, there will be much

opportunity or service providers taking part in gov-

ernment procurement procedures in the sector.

National Defense Strategy

Due to this program, which among other goals aims at

renovating the national deense industry, through ac-

quiring products and equipment, technology transer,

and capacity building procurement and contracts in

the eld are dierentiated and, thereore, chiefy re-

terprises, which are avored by Law 123/2006 (simi-

lar to the American Small Business Act). Under this

system, although small or medium enterprises are

not allowed to join with large companies in order to

take part in the procurement process, there is no le-

gal provision prohibiting a small Brazilian enterprise

selling oreign products rom taking part in the pro-curement process in its own name.

* th fu b-id h b xpd i

UsD bd h xh 1UsD = Brl1.76.

quire that oreign companies be engaged in order to

ulll the specic goals or technology transer and

technology-related partnerships.

Small and Medium Enterprises (SMEs)

Today, in Brazil, ordinary contracts with public enti-

ties (everyday needs), which represent more than hal

o all government procurement procedures carried

out, are being won by small and medium-sized en-

RULES AND REGULATIONS ON GOVERNMENT CONTRACTS IN BRAZIL

In Brazil, there are many ederal, state and local laws

governing government procurement procedures and

contracts. These laws usually address the ollowing

aspects:

I - Procuring entity;

II - Scope o procurement; and

III - Procurement method.

Procuring Entities

In regard to this rst aspect, it is worth noting that the

main norms governing government procurement pro-

cedures in Brazil stem rom article, 22, XXVII o the

Brazilian Constitution, pursuant to which the Union isthe sole entity with authority to issue legislation estab-

lishing general rules or all methods o procurement

and contracting processes involving direct and indi-

rect government entities, including oundations and

autarchies under Federal, State, Federal District, and

Municipal governments. This authority is exercised

based on the principles set orth in article 37, XXI o


6/17


The Government Procurement Act also governs direct-

government agencies, special unds, autarchies, gov-

ernment oundations, government-owned companies,

mixed-capital companies, and any and all entities di-

rectly or indirectly controlled by the Union (Federal

Government), States, Federal District, Municipalities.

The Act also establishes under article 118 that: The

States, the Federal District, Municipalities and the in-

direct-government entities shall adapt their procure-

ment and contract rules to the provisions o this Act.

It is also important to stress that article 119 o the Gov-

ernment Procurement Act provides that mixed-capital

corporations, government-owned companies, govern-

ment oundations, and entities directly or indirectly

controlled by the Union and by the other spheres o

government will issue their own regulations.

This is the reason why government-owned compa-

nies and mixed-capital corporations have their own

specic norms, as is the case o the Petrobras Simpli-fedProcurementProcessRules, a requirement under

article 67 o Law 9 478/97 (the Oil and Gas Act), ap-

proved by Decree 2 745/98.

Scope of Procurement

There is a second category o laws, which is made up

o legislation addressing the scope o procurement

the Constitution; and according to the provisions un-

der article 173, paragraph 1, subsection III, in the case

o government-owned companies and mixed-capital

companies.

In turn, article 37, heading and subsection XXI o the

Brazilian Constitution establishes that direct and in-

direct government entities under any o the Branches

o Power within the Union, States, Federal District,

and Municipalities, shall be governed by the princi-

ples o legality, impersonality, morality, transparency,

and eciency, and exception made to specic cases

set out in statute, government works, services, pur-

chases, and disposals, shall be contracted according

to government procurement procedures ostering

equal treatment to competitors, and establishing

terms o payment based on the terms and conditions

o the proposal, as provided by law, which [procure-

ment procedures] shall only require technical exper-

tise and economic qualications essential to secure

the accomplishment o the obligations.

The above-mentioned provision was regulated by Law

8.666 o 1993 (Government Procurement Act), which

sets orth the general rules o government procure-

ment and government contracts concerning works,

services including advertising, sales, purchases, and

leases involving the Union (Federal Government),

States, Federal District, and Municipalities.

procedures, and they usually apply to more complex

procurement procedures, such as the ones adopted

to select and hire advertising agencies, which in this

case are governed by Law 12 232/2010.

Another example o special government procurement

procedures is the case o highly-regulated sectors. Law

9 472/1997 (Telecom Act), or instance, applies to any

and all procurement procedures carried out by the

National Telecommunications Agency (ANATEL).

It is also worth stressing that in the event the scope o

the procurement process or public service conces-

sions at the ederal level the applicable statute is Law

8.987/95. Concession periods vary. For instance, high-

way concession terms may be 20 years long, depend-

ing on the case.

When the scope o procurement is a public-private

partnership (PPP), Law 11 079/2004 applies. This law

was enacted to provide an alternative or government

debt and lack o government resources or imple-menting public interest projects. Thereore, it estab-

lishes general terms and conditions or procuring and

entering into PPS at the Federal, State, Federal Dis-

trict, and Municipal levels. The scope o the rst PPP

in Brazil was or the concession o Line 4 o the So

Paulo Subway System.

Lastly, or certain situations many other norms may ap-

ply. For instance, medication procurement procedures

must comply with ANVISA (National Health Surveil-

lance Agency) regulations; and procurement proce-

dures or outsourcing in general or or outsourcing IT

services must comply with the regulations issued by

the Ministry o Planning, Budget and Management.

When the resources originate rom nancing and do-

nations rom abroad, the norms o the international

cooperation agency apply, in addition to the general

norms in the Brazilian legislation concerning the

principles governing public activities, such as article

37 o the Brazilian Constitution and article 3 o Law

8666 (which also sets out principles).

Procurement Methods

The third and last aspect that procurement legislation

usually addresses is the procurement method to be

adopted. It should be highlighted that Law 8666/93 (the

Government Procurement Act), only sets orth the so-

called traditional procurement methods: competitive

bidding, price survey, invitation, contest, and auction.

Competitive bidding can be briefy dened as the

procurement method adopted or making purchases

or contracting services over BRL 650,000.00; and

contracting public works or engineering services

over BRL 1,500,000.00.


7/17


NATIONAL BIDDING X INTERNATIONAL BIDDING

PRICE REGISTRATION SYSTEM

entic or artistic work; and auction is held to sell mov-

able property, which are no longer used by the procur-

ing public entity, or goods lawully oreited or seized;

and/or to sell real estate or purposes o land titling.

Lastly, in addition to the procurement methods de-

ned under the Brazilian Government Procurement

Act (Law 8666), Federal Law 10520/2002 establishes

the reverse auctionmethod, which is adopted when

the public entity is procuring common goods and

services, regardless o price. Common goods and ser-

vices are dened as those whose perormance and

quality standards are capable o being objectively

dened by the procurement notice, based on com-

monly available market specications.

Price survey is the method adopted or making pur-

chases or contracting services rom BRL 80,000.00 to

BRL 650,000.00; and or contracting public works or

engineering services rom BRL150,000.00 to BRL

1,500,000.00.

Invitation is a procurement method limited to short-

listed companies and applied to acquiring goods and

services rom BRL 8,000.00 to BRL 80,000.00; and

or contracting public works or engineering services

rom BRL 15.000,00 to BRL 150,000.00.

In addition to the procurement methods described

above, which are categorized according to the costs

involved, there are two other methods: contest and

auction. Contest is organized to select technical, sci-

An international bidding is required when, due to do-

mestic market limitations or conditions, the procuring

government entity needs to open and expressly an-

nounce its procuring eorts both inside and outside

Brazil so oreign tenderers are able to participate. In

addition, the announcement is especially prepared or

the participation o oreign tenderers.

On many occasions, international procurement e-

orts are the only means to attain certain goals o

Government and, on the other hand, they also poten-

tially avoid a considerable amount o direct hires

based on cases in which procurement procedures are

not mandatory or can be waived.

In short, there are many situations in which interna-

tional procurement eorts bring more advantages

than procurement carried out locally.

There is no ban on oreign companies taking part in

national bidding. However, in practice, this may some-

times prove to be impractical or unavorable to both

the procuring entity and to the oreign company, de-

pending on the scope o the bidding and the general

terms o agreement.

Nevertheless, it should be stressed that article 37, sub-

section XXI, o the Brazilian Constitution establishes

as a general rule that procurement procedures must

ensure equal treatment to all bidders and tenderers,

and the heading o article o Law 8 666/93, establishes

equal and air treatment as basic principles in govern-

ment procurement, and paragraph 1, subsection II, o

the same provision expressly prohibits Brazilian and

oreign companies be treated dierently.

The price registration system (xed pricing), is a tool

or optimizing government purchases o goods and

services, which was conceived to save government

money and promote eciency, in addition to over-

coming problems deriving rom variation in demand

and budget limitations.

In this system, according to statutory provisions, the

rst step is to carry out procurement procedures, u su-

ally through competitive biddings or reverse auctions

(see article 3 o Decree 3931/2001), during which

bidders agree to supply goods and services under to

certain terms and conditions which are recorded in

the minutes o the procedure, and are valid or up to

a maximum 12-month period, including any exten-

sions o term which may eventually be granted.

There is no obligation on the part o the procuring

entity to contract any supply o goods and services.

Moreover, there may be no actual demand or need

on the part o the procuring entity or any or all o

amount o goods and services priced under the scope

o the procurement procedures.

It is worth noting that xed pricing can also be car-

ried out at the same time by several procuring gov-

ernment entities. In this case, the names o these enti-

ties will appear in the procurement notice. By doing


8/17


DIRECT PURCHASES AND HIRESSPECIAL ATTENTION TO IMPORTS

procedures that have already taken place and would

potentially meet the entities needs (without having to

carry out the same procedure again).

this, Government is able to obtain economy o scale.

And, lastly, there is also the possibility o other gov-

ernment entities benetting rom, or catching a ride

with or acceding (technical term) to, xed pricing

is the case, or example, when a government entity

has to acquire certain medical equipment which is

only available rom one single manuacturer or dis-

tributor. In this case, opening procurement procedures

would be pointless and could even delay the render-

ing o certain public interest services. The situations

article 25 provides or are non-exhaustive. The main

text o the article suces to justiy there being an in-

surmountable obstacle to the carrying out o bidding.

In Brazil, article 37, XXI o the Constitution provides

the general rule that government entities comply with

procuring methods in order to make purchases or

hire services, exception made to the situations ex-

pressly mentioned under statute. Law 8666/1993

(Government Procurement Act), came to regulate the

constitutional provision and, thereore, established

three situations in which government entities may

carry out direct purchases and hires without having

to adopt general procurement procedures.

The rst situation is when, according to article 17 o

the Government Procurement Act, the bidding is

waived. In this case, the waiver o bidding operates

automatically as a result o the statutory provision ac-

cording to which Government Authorities may di-

rectly dispose o government assets due to public

interest (justied accordingly) and based on previ-

ously carried out appraisal o market value. This takes

place in the case o government entities selling real

estate (or the purposes o land titling) or stock (which

can be traded pursuant to special legislation), among

other situations.

The second case is when the bidding is dispensable,

under article 24 o the Procurement Act, even when

there could have been a price competition due to a

competitive market. The law establishes certain situa-

tions where the bidding it is not mandatory. Examples

o this situation are: small purchases, works or services

(any purchase or hire that does not exceed 10% o the

aggregate amount o the invitation procurement

method) or purchases carried out in the event o emer-

gencies, public calamities, among other situations.

Finally, the third case o direct contracting is when the

bidding is not required pursuant to the terms o arti-

cle 25 o the Procurement Act. In this case, procure-

ment procedures cannot and shall not be carried out

because competitive bidding cannot be achieved. This

Decree 6759/2009 (Customs Regulation), in article 550,

establishes that imported goods are, according to spe-

cic statutory provisions, subject to licensing procedures

through SISCOMEX (the Integrated System o Foreign

Trade). In the event imported goods are subject to the

control o other government entities, the latter will also

express their approval through SISCOMEX.

Ordinance 25/2008, which regulates oreign trade

operations, provides under article 6, that government

entities required to act as approving authorities in

oreign trade situations must be SISCOMEX accred-

ited in order to give their approval in connection to

the products under their jurisdiction.

Currently, there are 16 (sixteen) approving entities

that are SISCOMEX accredited. In some cases, there

may be the need or the approval o more than one o

them or the same situation or a certain product to

be imported to Brazil.


9/17


FOREIGN COMPANIES AND INTERNATIONALGOVERNMENT PROCUREMENT

QUALIFICATION

sortia can take part in the procurement procedures

depends on assessing the advantages in terms o costs

and increased competitiveness.

In the event o consortium among Brazilian and or-

eign companies, a B razilian company shall necessar-ily be the leader o the enterprise.

There are similar provisions under articles 16 and 17 o

Annex I to Decree 3555/2000 (Reverse Auction Regu-

lation), and articles 15 and 16 o Decree 5450/2005

(Electronic Reverse Auction Regulation), respectively,

which address the participation o oreign companies

and consortium.

Lastly, the broad denition o joint venture means

that oreign companies can also acquire, in whole or

in part, shares o capital or equity interest in Brazilian

companies participating in procurement procedures.

This is one way o investing in companies which al-

ready have the necessary conditions to and know-

how on taking part in Brazilian government procur-

ing. This kind o association among Brazilian and

oreign companies could also include opening a new

company or subsidiary in Brazil only or the purposes

o taking part in government procurement.

Foreign companies not based in Brazil are allowed to

take part in international government procurement

procedures alone and in their own name. However,

bidders must provide a proxy in the country to re-

ceive communications and summons, and eventually

answer court or administrative proceedings.

Foreign bidders can also take part in government pro-

curing together with Brazilian bidders through joint

ventures.

An example o the rst case is a oreign company taking

part in procurement procedures through an agent in the

country, as provided by article 710 o the Civil Code.

The kind o legal bond resulting rom this relationship is

weaker than one created by a consortium among bid-

ders, because in the latter situation, article 33, subsec-

tion V, o the Government Procurement Act provides

that there will be joint and several liability among the

parties to the joint venture both during the procuremen t

stage and the perormance o the agreement.

An example o the second case is article 33 o the

Government Procurement Act, which authorizes the

consortium. Thereore, the decision whether consor-

tia shall be admitted in the procuring procedures is

made by the procuring entity at the time o drating

the notice o procurement. Deciding whether con-

The aim o the qualication stage is to veriy whether

potential bidders ulll the necessary criteria to take

part in the procurement procedures.

Both Brazilian and oreign bidders must comply with

the requirements under articles 28 to 31 o the Pro-

curement Act.

Firstly, article 28 provides that, during the qualica-

tion process, potential bidders must provide the ol-

lowing supporting documents when applicable:

I Personal identifcation document;

II Trade registration, or one-person busi-

nesses;

III Duly registered articles o incorporation,

articles o association, partnership agreement,

articles o organization or bylaws, and, in the

case o business partnerships and corpora-

tions the documents supporting the election

o management;

IV Proo o registration o the articles o

partnership, in the case o civil partnerships,

with inormation on current management;

V Decree authorizing the oreign company

or oreign partnership to do business in Bra-

zil, an registration or operation license issued

by the competent authority, when the scope

o the operations o said company or partner-

ship so requires.

Article 29 provides that concerning their tax standing,

potential bidders must submit, when applicable:

I Proo o enrollment at the National Taxpay-

ers Registry o the Ministry o Finance (CPF/

CNPJ);

II Proo o enrollment at the state or munici-

pal taxpayers registry, i any, concerning the

bidders place o business/residence or main

ofces, bidders industry, and/or scope o bid-

ders articles o organization/association;

III Proo o good standing with the Federal,

State and Municipal Revenue Services at the

place o business/residence or main ofces o

the bidder, or other similar document required

by law;

IV Proo o good standing with the Brazilian

Social Security System (INSS) and with the

Workers Compensation Fund (FGTS).


10/17



11/17


PROPOSALS ADMINISTRATIVE SANCTIONS

INTERNATIONAL PROCUREMENT PROCEDURES WITH FOREIGN RULES

It must be stressed that, when the Government is the

importer (when the winning bidder is a oreign com-

pany), at the time o payment o the invoices the

products are exempt rom import taxes.

Another requirement o the notice o procurement is

that all bids and proposals must be submitted in Bra-

zilian Portuguese.

The Government Procurement Act also requires bid-

ders to provide a bid bond under article 31, subsection

III, in the modalities o article 56 o the same law.

Lastly, oreign bidders must be aware that their pro-

posals and estimates made in connection with inter-

national procurement processes carried out by Bra-

zilian government entities must speciy all the correct

price o their imported goods, including customs du-

ties, costs o loading, unloading, carrying, and insur-

ance to place o destination.

Article 42 o the Government Procurement Act sets out

the general rules concerning proposals made during

international procurement processes, and provides that

in international competitive bidding, the invitation to

bid must be adapted to directives o monetary policies

and oreign trade and meet the requirements o the

competent authorities. The latter phrase illustrates theimportance o Brazilian inspection entities in regard to

certain oreign documents which have no similarity.

The prices in international government procurement

can be expressed in BRL or in oreign currencies.

However, when oreign bidders are allowed to pro-

vide prices in oreign currencies, Brazilian bidders

can also do the same.

Payments to Brazilian bidders shall be made in BRL,

based on the exchange rate o the day immediately

beore the date o payment.

Payment guarantees given to Brazilian and Foreign

bidders shall be the same.

For the purposes o bid assessment, the amount o the

taxes levied on sales made by Brazilian bidders shall

also be added to the bids submitted by oreign bid-

ders. Thereore, procurement rules aim at bringing

parity among bids made Brazilians and oreigners, and

at respecting equal treatment provided or under arti-

cle 3 o the Government Procurement Act.

According to the Brazilian legal system, administrative

sanctions may be applied to potential bidders and not

only to contracted parties. Although article 87 o the

Government Procurement Act establishes that the

sanctions are applicable to bidders which were hired

or contracted, Brazilian case law understands that any

bidder may be punished administratively as a result oillegal conduct during the bidding process, such as,

the case o a bidder submitting ake supporting docu-

ments during the qualication stage.

Receiving a warning, suering a ne, or being given

a suspension rom taking part in government pro-

curement procedures and contracting with the gov-

ernment or a period o up to 2 (two) years, are sanc-

tions which can be imposed by the procuring

government entity. On the other hand, the declara-

tion o ineligibility to take part in bidding or contract-

ing with the government is a sanction which can only

be given by a Ministry o State, a State Secretary, or a

Municipal Secretary, depending on the case.

The choice o sanction depends on the seriousness o

the oense committed by the legal entity during the

procurement procedures or during the perormance

o the agreement. The sanctioned party shall have the

right to due process and to le an administrative ap-

peal against the sanction.

The Brazilian Government needs the infow o or-

eign resources to implement large projects in many

areas, such as inrastructure or sanitation and trans-

portation, environmental protection, public saety,

among others. These resources are usually grants or

loans made by international nancial institutions,

such as the Inter-American Development Bank (IDB),

which have their own rules or carrying out projects

and procurement procedures.

The understanding in Brazil is that these institutions pol-

icies are to be complied with, according to article 42,

paragraph 5 o the Government Procurement Act; how-

ever, Brazilian statutory provisions, constitutional prin-

ciples and a number o specic provisions o the Gov-

ernment Procurement Act such as the one providing

bids be assessed objectively and according to preestab-

lished criteria under the notice o procurement, and the

one granting the right to le administrative appeals.



12/17


REVOCATION AND ANNULMENT OF THE BIDDING

OVERSIGHT ROLES

to support such revocation. The same article also es-

tablishes that government procurement processes can

be annulled due to lack o compliance with legal pro-

visions, by operation o law, or by third-party requests

based on a written and well-grounded opinion.

Article 49 o the Government Procurement Act sets

orth that the government entity with authority to give

approval to procurement procedures can only revoke

them or reasons o public interest resulting rom su-

pervening events, considered relevant and sucient

annulment o procurement procedures; denial o request

or bidder registration; unilateral termination o agree-

ments; administrative sanctions (warnings, suspensions,

or other penalties).

Additionally, at the Federal Executive level, corruption

practices and crimes against the treasury can be re-

ported to the Oce o the Comptroller General (CGU),

pursuant to article 17 o Law 10683/2003, which is an

oce that assists the President. There are similar o-

ces at State, Federal District, and Local levels.

Outside Oversight or Control byGovernment Accounting Courts

Article 71 o the C onstitution establishes that the Bra-

zilian Congress shall be responsible or outside over-

sight through the Federal Government Accounting

Court (TCU), which have authority to oversee and su-

pervise procurement procedures.

The decisions o Federal Government AccountingCourt are administrative in nature, since the TCU

does not belong to the Judiciary Branch. However,

the decisions are binding and can only be challenged

administratively within the TCU. Nevertheless, as a

last resort, a legal suit may be led at the Brazilian

Supreme Court (however, statistically, this has only

taken place in a very small number o cases).

Accounting Courts at State, Federal District and Lo-

cal levels have similar roles to the TCU.

Article 113 o the Government Procurement Act ex-

pressly provides that the control o expenses resulting

rom contracts and other instruments governed by the

Act shall be carried out by the Accounting Courts, in ad-

dition to the inside oversight mechanisms o control.

Any bidder, individual, or legal entity can le com-

plaints to the Accounting Courts and to inside over-

sight entities against violations in applying the Law.

Control by Anti-Trust andAnti-Cartel Authorities

In the event o practices harmul to a competitive

market are ound during international competitive

biddings, such as predatory pricing or cartelization

to x prices or exclusion o competitors, Law 8884/94

applies. This Law contains provisions to prevent and

deter crimes against the economy and the market.

Preliminary investigations or other proceedings brought

by the Secretariat or Economic Law (SDE) o the Min-

istry o Justice are not brought against the government

procuring entity, but against the companies taking part

in the bid and engaging in anti-competition practices.

The order in this case shall be given by the Brazilian

Council or Economic Deense (CADE).

In the Brazilian legal system, there are several protec-

tion mechanisms to secure the rights o entities, both

in administrative and court proceedings. But having

certain rights does not suce; one must know how to

protect them.

Inside Oversight or Controlby the Procuring Entity

Article 41, paragraph 1 o the Government Procure-

ment Act establishes that any citizen shall have the

right to challenge the invitation to bid up to ve (5)working days beore the date xed or the opening o

envelopes or the qualication. On the other hand,

paragraph 2 provides that bidders have a preemptive

period o two business days beore the opening o the

envelopes during the qualication stage o a com-

petitive bidding procedure to challenge the respec-

tive notice o procurement.

In the event o reverse auctions, it is worthy o note

that Decree 3555/2000, article 12 o Annex I, pro-

vides that up to two days beore the date o submis-

sion o bids, any individual can le requests or inor-

mation or challenge the de invitation to bid o a

reverse auction. In the case o electronic reverse auc-

tions, article 19 o Decree 5450/2005 establishes

that requests or inormation concerning the bidding

procedures should be sent to the auctioneer, up to

three days beore the date o the public session, elec-

tronically to the e-mail address inormed in the no-tice o procurement.

The right to le administrative appeals against the ac-

tions taken during the procurement process is enshrined

in article 109. The appeal deadline is ve (5) business

days ater bidder notication or ater the minutes are

published. Appeals can be led against bidder qualica-

tion or disqualication; bid assessment; revocation or



13/17

GOVERNMENT CONTRACTS

sectors. As in the case o the entities with authority to

oversee competitive bidding procedures, the actions

o regulators are aimed at bidders and n ot at govern-

ment authorities.

Control by the Courts

According to article 5, subsection XXXV, o the Brazil-

ian Constitution, the law shall not exclude any injury

or threat to a right rom being submitted to the Judicial

Branch. However, one needs to choose the appropri-

ate strategy and know which legal suit to le depend-

ing on the situation.

In the eld o government procurement and govern-

ment contracts, the most common legal action eld

with the courts is the petition or writ o mandamus

enshrined in article 5, subsection LXIX, o the Consti-

tution and regulated by Law 12016/2009. This writ is

granted to protect the so-called undisputable rights

(rights upon which there is no shadow o doubt)

when the party in violation is a government entity or

legal entity acting in violation o the law or in abuse

o authority. This legal action is speedier than any

other, and the court has the authority to grant a pre-

liminary injunction suspending all administrative ac-

tions in the course o the procurement process.

Another alternative, or cases involving more complex

Control by Regulators

Article 175 o the Brazilian Constitution provides that

the Government is responsible or providing public

utility services, through procurement procedures to

award concessions or permissions. As a result o ar-

ticle 175, there are a number o regulators in Brazil.

Among them are:

I - The Amazon Development Agency;

II - The National Waters Agency (ANA);

III - The National Electric Power Agency (ANEEL);

IV - The National Petroleum Agency (ANP);

V - The National Agency o Supplemental

Health (ANS);

VI - The National Telecommunications Agency

(ANATEL);

VII - The National Land Transportation Agency

(ANTT); and

VIII - The National Health Surveillance Agency

(ANVISA).

Regulators may take action concerning international

procurement procedures carried out in their specic

matters o law, which depend o discovery procedures

or expert opinions, or instance, bidders may le regu-

lar-track lawsuits (ordinary proceedings) based on arti-

cle 282 o the Code o Civil Procedure. The complaint

may contain a request or provisional remedy to prevent

the nal court decision rom becoming ineective.

In addition to the two above-mentioned actions, there

are two others, which are also among the most com-

mon lawsuits involving government procuring, that

can be led by third-parties.

The rst one is the public civil action based on article

129, subsection III o the Constitution and on Law

7347/85. The goal o this class action is to protect so-

ciety and the public interest. Thereore, a private busi-

ness can report illegal practices taking place during or

in connection with government procurement proce-

dures in order or the Public Ministry le the class ac-

tion lawsuit.

Secondly, according to article 5, subsection LXXIII o the

Constitution and Law 4717/65, any citizen (only indi-

viduals) may le a peoples legal action against any vio-

lation or injury to government assets or entity held, in

whole or in part, by the Government. This lawsuit aims

at ghting violations and injury to the public interest.

Government contracts entered into by government

entities in Brazil are subject to Public Law. Thereore,

they are regulated by Law 8666/1993 [the Govern-

ment Procurement Act] and by p rinciples o Admin-

istrative Law, such as the ones listed under article 37

o the Brazilian Constitution.

Characteristics of

Government ContractsGovernment contracts have the ollowing character-

istics:

I The Government entity party to the agree-

ment holds a privileged position in regard to

the other contracting parties;



14/17

VIII The Government entity may unilaterally

amend contractual provisions, as is the case

o reducing or increasing the number o units

o products purchased (maximum 25% varia-

tion), or amount o services (maximum 25%

variation), or engineering works contracted

(up to 50%);

IX The parties may agree to amend the agree-

ment when, or instance, they intend to change

the payment schedule;

X The Government entity may terminate the

agreement due to public interest, non-peror-

mance o contractual obligation on the part o

the other party, unauthorized assignment o

agreement, among others;

XI Contractors may terminate the agree-

ment in the event o delay in payment o in-

voices by government entities o more than

90 (ninety) days.

Term of Agreement and Extensionof Term of Agreement

Article 57 o the Government Procurement Act estab-

lishes that the term o agreements entered into with

the government shall be limited to the period o the

budget allocated (this has been interpreted as a peri-

II The public goals prevail, although the par-

ties contracting with the government are enti-

tled to receive just payment;

III To be deemed valid, contracts must com-

ply with the orm prescribed in law;

IV Procurement processes must be compliedwith, and procurement methods must be im-

plemented, except when the law provides oth-

erwise;

V Government contracts are standard orm

agreements, thereore the terms and condi-

tions are written by the Government entity,

thereore, terms and conditions can only be

challenged by the parties to the agreement or

by third-parties in the courts (judicial or ad-

ministrative);

VI The agreement is intuitu personae, that is,

it is signed based on the technical qualifca-

tions o the contracting party proved during

the procurement process;

VII Government contracts contain special

provisions, which are not common in agree-

ments in general, such as the duty o oversight,

requirements o guarantees, and the possibility

o administrative sanctions being applied;

od o 12 consecutive months), exception made to:

I Project contemplated in the Pluriannual

Plan, which may have their term extended pur-

suant to the interest o the Government and as

long as this possibility has been written in the

notice o procurement;

II Services provided on a continuous basis,

which may have their period o services re-

newed or equal and consecutive period aimed

at obtaining more avorable prices and condi-

tions, but limited to a 60-month period;

III Equipment lease and using sotware, cases

in which the term o agreement may be re-

newed to a maximum 48-month period ater

the date o execution o the agreement.

Essential Terms and

Conditions of ContractArticle 55 o the Government Procurement Act pro-

vide that the ollowing are considered mandatory

contractual provisions in every agreement entered

into with a Government entity:

I Scope o the agreement and description o

special eature;

II Perormance schedule or supply schedule;

III Price and conditions o payment, pricing

criteria; deadlines, and requency o price ad-

justments, criteria or monetary adjustments

between date o perormance and date o

payment;

IV Schedule containing the starting dates o

stages o perormance, deadlines, delivery

dates, inspection period, date o fnal delivery,

as applicable;

V Origin o government resources which

will meet the price o the agreement, with in-

ormation on the government program and

economic category;

VI Guarantee o perormance, when required;

VII Rights and duties o the parties, sanctions

applied, and the amount o the penalties;

VIII Cause o termination;

IX Acknowledgement o the rights o the

Government entity, in case o termination

caused by non-perormance o the agreement

by contractor;

X Terms and conditions o importing goods;



15/17

In the case o engineering works and large-scale sup-

plies involving highly complex technical services

and signicant nancial risks, established in expert

opinions approved by the competent authority, the

party may be required to provide guarantee o up to

10% o the total price o the agreement.

Pursuant to article 56 o the Government Procurement

law, at the discretion o the competent authority, a

guarantee may be required in the notice o procure-

ment and the bidder may oer one o the ollowing

types o guaranty:

I Certifcate o money deposit or govern-

ment titles;

II Bid bonds; and

III Bank guaranty.

Right to Economic and Financial

Balance of the ContractArticle 37, XXI o the Constitution establishes, among

other things, that in the course o government con-

tracts the terms and conditions contained in the bid

submitted during the procurement procedures shall

be preserved.

In addition, article 57, paragraph 1 o the Govern-

the date and the exchange rate applicable, i

appropriate;

XI Binding eect o the notice o procure-

ment or to the document waiving or dismiss-

ing said notice to the proposal o the winning

bidder;

XII Legislation applied to perormance o

the agreement and especially to the cases

when the law is silent;

XIII The duty o the party contracting with

Government to preserve, maintain and keep,

throughout the entire perormance o the

agreement, its obligations, all the conditions

o qualifcation and eligibility required during

the procurement procedures.

Guarantees

When engaging in government procurement proce-

dures, according to article 31, subsection III o the

Procurement Act, the law requires a standard guaran-

tee totaling 1% o the estimated price o the scope o

the procurement.

However, when actually entering into an agreement

with the Government, the required guarantee may

escalate to 5% o the total agreement price.

ment Procurement Act provides that the Government

has the right to economic and nancial equilibrium

in government contracts in the event o one o the

ollowing situations which must be documented in

the proceedings:

I Changes to the original project or to proj-

ect specifcations by the Government entity;

II Supervening or unoreseeable events be-

yond the parties reasonable control, which

signifcantly alters the conditions o peror-

mance o the agreement;

III Suspension o the agreement or changes

in the working schedule resulting rom the re-

quest o the Government Entity or due to

public interest;

IV Increase in the amounts purchased, re-

specting the maximum limits provided or in

statute;

V Impossibility o perorming the agreement

due to an action or situation caused by a third-

party, but acknowledged by the Government

entity pursuant to a document produced at

the time o said action or situation;

VI Omission or delay caused by the Govern-

ment, including in regard to payment sched-

ule, which may result in interruption o or de-

lay in perormance, notwithstanding any legal

sanctions that may apply to the persons re-

sponsible or said interruption or delay.



16/17

ABOUT OUR SPONSOR

and cargo transportation services, travel services, event

organization, capacity building, and others.

In all our cases, our lawyers address all the necessary

legal guidance concerning qualiying or government

procurement procedures, submitting proposals, pre-

venting risk, in addition to providing the necessary

legal representation or the clients and their businesspartners, on administrative, civil and criminal issues.

In summary, our rm is open to oreign companies

needing legal guidance on how to operate wisely

and saely in the government procurement market

in Brazil.

Bi

SAUS Quadra 4, Lotes 9 e 10Ed. Victoria Oce Tower, Salas 803/804 Asa SulCEP 70070-938Braslia - DF - Brazil

Telephone: +55 61 3223-0015

Email: @iuh.

Website: www.iuh.

Lima & Curvello Rocha, LLP is a law rm headquar-

tered in Brasilia, the capital city o Brazil, and spe-

cialized in providing legal advice on national and

international bidding and government contracts in

Brazil, in addition to carrying out strategic planning

and representing Brazilian and oreign companies.

Their lawyers have extensive experience in Public

Law, in representing clients beore Brazilian Superior

Courts and Government Accounting Courts.

In the eld o Administrative Law and in connection

to government procurement procedures and govern-

ment contracts, the legal team draws upon deep ex-

perience to guide clients about all the issues on con-

sortium and other joint venture among Brazilian and

oreign companies.

Lima & Curvello Rocha provide legal services across

several areas o business, among which: government

procurement procedures or the supply o hospital

products and equipment, medication, catering, servic-es, and engineering works (including inrastructure or

logistics at ports and airports and other constructions),

communications, media, clipping, advertising, graphic

printing, inormation technology (hardware, sotware,

storage, and networks), call center, telecommunica-

tions, sale o real state, security equipment, uniorms,

and weapons, outsourcing services, car rental, people


17/17

howto government contracts

Documents