I am delighted to welcome a guest contribution from Maria Tereza Fonseca Dias who is Associate Professor at UFMG School of Law (Brazil) and a practising lawyer in Belo Horizonte in Brazil. She is a researcher at CNPq and CAPES on Public procurement. She is also a Visiting Scholar at King’s College London and I'm very glad to have made her acquaintance when she assisted in our public procurement seminars on the Masters course this year. Her piece fits very closely into my hope for this blog that we can place UK and EU procurement law in a wider global context, both by comparing developments in other systems and also seeing how the global procurement law community seeks to meet our key common challenges.
We have looked previously and in many recent seminars at the EU and UK procurement law measures reacting to Covid-19. These have generally been soft law measures working within existing frameworks. Some European states have taken more radical legislative approaches. Some of these are reviewed in this document http://www.sigmaweb.org/publications/Public-procurement-COVID-19-crisis-SIGMA-April-2020.pdf but as it is already two months' old my guess is that this is due for a radical update already.
In this context it is interesting to see how Brazil has taken what would appear to be a more radical approach to its procurement legislation in making it fit for the crisis. It will be interesting to see how this develops. As my own knowledge Brazilian procurement law is, as yet, much much less than Professor Dias' knowledge of EU and UK law, the rest of this blog is definitely all hers!
The Brazilian system draws from different influences. The history of Portuguese colonisation establishes the Brazilian legal system as one based on the civil law, whose essential source is the primary legislation (statute law). The use of judicial precedent as a source of law is relatively limited.
The influence of the American legal tradition, has brought Brazil a written and analytical constitution, promulgated in 1988. The country has adopted the republican form of government (with periodic elections) which includes a three-level federalism distributed between the Union, the States, and the Municipalities. With this institutional design, the country has 26 states, 5.570 municipalities and 1 Federal District – all of them with legislative, financial, and administrative autonomy.
According to OECD data, the Brazilian Government’s purchasing corresponds to 8.2% of GDP (including expenses at all levels). Purchases by state-owned entities, such as Petrobras, take this percentage to more than 16% of Brazil’s GDP.
If the three levels of government were to legislate separately on public procurement, control and management on public spending would be chaotic. Accordingly, the 1988 Brazilian Constitution (article 22, item XXVII) provides that the Union (Federal Government) must establish “general rules” with national effects. Subnational entities (States and Municipalities) have legislative competence only to complement this legislation. This constitutional rule, therefore, aims to limit the legislative competence of states and municipalities and to standardize bidding and contracting procedures across the country.
The 1988 Brazilian Constitution (article 37, item XXI) sets out fundamental principles of public procurement, such as: the use of public bidding proceedings to contract public works, services, purchases and disposals; equal conditions to all bidders; open competition; mandatory payment and the maintaining of the effective conditions of the bid, in the execution of the contract.
The Brazilian parliament, based on these constitutional guidelines, enacted several “general bidding statutes”. The most important ones are 1993 General bidding and contract Act (Act no. 8.666), 2000 Reverse Auction Act (Act no. 10.520) and 2011 Differential Public Procurement Regime (RDC) (Act no. 12.462). This last measure was initially created to modernize the public works contracting system for the 2014 FIFA World Cup and 2016 Rio Olympics.
The Brazilian parliament has been working to consolidate and improve this legislation having regard to various instruments of public procurement in the European Union, such as the electronic catalogues, competitive dialogue, others.
Brazil quickly became a key centre of the spread of COVID-19 in the world, with a high number of infected people and deaths. To better understand how the country reached this stage, we refer to the discussion entitled “How COVID-19 rocked Brazil”, recently held by the School of Global Affairs and the Brazil Institute at King’s College London[1].
From February until now (03.02.2020 to 06.06.2020) the Brazilian State enacted 355 legal measures related to the COVID-19 pandemic – inclunding Constitutional Amendments, statutes, Provisional Measures[2], decrees and ordinances. Their subject include actions on public health, labor, private contracts, taxation, essential activities and services, borders, operation of public administration and various other matters.[3]
Concerning public procurement, new acts were enacted to deal with the pandemic. Specific mention can be made to the 2020 Coronavirus Act (Act no. 13,979), which provides measures to deal with the public health emergency related to the coronavirus outbreak; the Provisional Measure (MP) no. 926, which its purpose is the acquisition of goods, services and inputs to deal with the coronavirus; the Provisional Measure no. 951, which regards new rules on public procurement, bidding sanctions and digital certification; and the Provisional Measure no. 961, which authorizes advance payments in bids and public contracts.
The Act no. 13.979, first enacted law in such matter, describes the following temporary changes in the public procurement system:
- It allows public authorities to register prices or purchase goods, services and supplies destined to deal with the pandemic without the need to prepare a bidding process. In practice, it expands the possibility of a single-source procurement or direct award.
- However, it establishes limits in this discretion, such as: a) it must be during an emergency situation; b) the public authority has to be responsible to control the emergency; c) the safety of people, works, services, equipment and other goods (public or private) must be at risk; d) the contract must be limited to the emergency service.
- Exceptionally, it authorizes the participation of economic operators which were previously suspended from participation in procurement procedures if they are the only suppliers of the goods or services to be purchased.
- It simplifies the procurement documents, including: the description of the object; technical information (procedure the defines the estimated value of procurement) and the exemption of submission of documents during the qualification phase.
- This simplification also affects the phases of the procedure, namely the preliminary studies; the period of publication of notice; the reduction of appeal procedures; the exclusion of the public hearing phase. Moreover, the Risk Management will only be required during contract execution and not in procedure.
- Bids based on the price registration system (SRP) will be considered federal purchases, subject to prior indication of demand by States and Municipalities.
- There is the possibility of extending contract terms. As a rule, the term will be six months, but they may be extended for successive periods, while the need to confront COVID-19 continues.
- The percentage of the value of contract which enables the unilateral change order was increased from 25 to 50% in the case of works, services or purchases. Thus, the contracting authorities may establish that economic operators are obliged to accept, under the same contractual conditions, deletions or additions to the subject of the contract, up to 50% of the updated contract value.
- Transparency: all essential information related to the contracts signed to deal with the pandemic should be immediately available on a specific official website.
Further the Provisional Measure no. 961 enacted the following rules in the context of public procurement during the pandemic: a) Advanced payment; b) increased the no-bid contracts limits; c) expanded the use of the Differentiated Public Procurement Regime - RDC.
Advanced payment in bids and administrative contracts may be possible when: a) it is an indispensable condition for obtaining the good or ensuring the provision of the service; or b) provide significant savings in resources. In addition, the clause of advanced payments must be written in the notice or in contract and must also establish the full return of the amount in case of non-performance of contract. The legislation prohibits, however, advance payment by the Administration in the event of providing services with a regime of exclusive dedication of labor.
Furthermore, the threshold amount to no-bid contracts has increased. For engineering works and services, the threshold went from £ 2300 to £ 15,400. For other services, purchases and disposals, it went from £ 1,200 to £ 7,700. However, contracting can be done without the due procedure only if they do not refer to installments of the same work or service, or, still, for works and services of the same nature and in the same place, which can be done jointly and concomitantly. This also can be applied to installments of the same service, purchase or sale that can be performed at once.
Moreover, the new Provisional Mesure no. 961 establishes in its that article 1, Paragraph 2, items I to V, that to reduce the risk of contractual default, the authority may include the following clauses in the contracts:
I – proof of the partial or the initial stage of the execution of the contract by the economic operator in order to receive the advanced payment of the remaining amount;
II - the provision of a security of up to 30% of the value of the object, as regulated in the 1993 General bidding and contract Act (Law no 8.666);
III - the bond issue by the contractor;
IV – the accompaniment of the goods, at any time during transportation, by a representative of the Contracting Authority; and
V - the requirement for certification of the product or supplier.
Finally, the law allowed the use of the Differentiated Public Procurement Regime – RDC (described in Act no. 12.462) as the procedure of contracting any works, services, purchases, disposals and leases during the pandemic. Currently, the RDC has specific hypotheses of application, which have been extended to include hiring during the pandemic.
The denomination ‘"RDC " was a contrast with the classic model of the 1993 General Bidding Act (Act no. 8.666). The innovations in this regime are: a) a fast-track procedure during the selection of the proposals before analyzing the qualifications (legal, economic and technical) of the bidders; b) a confidential budget, in order to achieve better proposals; c) new criteria for judging the proposals that may impact the contracting awards, such as the "best artistic content" and the "greatest economic return", and, d) integrated contracts that aim to optimise the services of the same contractor for functions including the elaboration and development of the basic and executive projects, the execution of engineering works and services, assembly, the performance of tests, the pre-operation and all other necessary operations for the delivery of the object of the procurement. The General Bidding Act forbids contracts of the engineering and construction project by the same economic operator.
Despite the fact that an act that aims to consolidate, harmonise and improve the national public procurement system is already in progress in Parliament, Brazilian public procurement rules focus on the submission of documents and the procedural control (not on the results) of the acquisitions. Even though it is already very much an electronic system, it is still excessively formalistic and bureaucratic model. The current Brazilian public procurement system is much more focused on trying to contain fraud than on obtaining the best value for money.
As structural changes have not yet been implemented, the promulgation of special rules to combat the pandemic was expected – as it has occurred worldwide. As described, many legal reforms simplify the bidding process and give authorities greater autonomy. Perhaps these changes may serve as a test for the future improvement on Brazilian legal system for public contracts and permanently remove the misuse of the res publica that still exists among us.
As always - thoughts and questions welcome!
[1] https://www.kcl.ac.uk/global-affairs/podcast-and-essays
[2] In Brazilian Constitution, Temporary Measures (Medidas Provisórias) can be enacted exclusively by the President in cases of relevance and urgency. They are equal to the law, in their binding force and must be immediately submitted to the Parliament who must then give priority to their voting within 120 days from submission, subject to expiration. The legal acts formalised during this period of time shall have their legal effects preserved according to the text of Temporary Measures, or as regulated by legislative decree; (European Comission - Public Procurement Initiative (PPI) - Final Country Report - BRAZIL -2018)
[3] Source: http://www.planalto.gov.br/CCIVIL_03/Portaria/quadro_portaria.htm
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