Doing Business in Brazil

6. Bidding process and administrative contracts


6.1. Introduction

Bidding process is the procedure provided in 1998 Constitution of the Federative Republic of Brazil, which ensures competition isonomy among agents intended to contract works and services with the Public Administration and disposal and purchase of public assets. Therefore, there is a formal administrative procedure, prior to contracting, conducted by a specific administrative department that reflects a duty of the public administration in accordance with the Federal Constitution, article 37, item XXI in order to better meet the public interest1.

It is within federal jurisdiction to legislate on general rules on bidding process and Public Administration contracting, as provided in Federal Constitution, article 22, item XXVII.
This same procedure is also used for granting and concession of public utilities, pursuant to Federal Constitution, article 175, caption.

All bidding processes have two phases: one internal and another external. The internal phase starts up when the need of an asset or service is declared and terminates upon publication of the invitation to bid. The external phase for public knowledge starts up upon publication of the invitation to bid and terminates on the occasion of the administrative contract execution.

This paper is intended to present brief consideration with respect to bidding processes and administrative contracts, comprising the major information in connection with such topics, specially the external phase.

6.2. Regulations and Principles

Federal law # 8,666 as of June 21, 1993 governs the bidding process, as well as the administrative contracts. Law # 10,520 as of July 18, 2002, governs the bidding process called reverse auction.

Law # 8,666/93 afforded objectivity and publicity to procedure, moreover adding the major principles that govern the Public Administration to the bidding process as follows:

– Lawfulness: This principle establishes the Public Administration obligation to act pursuant to the law within the legal limits set forth. Thus, contrary to the individual who is free to contract until it is void by law, the Public Administration may only act within the extent permitted by law.

– Impersonality: Such principle determines that Public Administration decisions are made on the grounds of objective criteria, exempt from any personality. The intent is to ensure the best contracting conditions to the Public Administration, regardless any personal benefit.

– Morality and Administrative Probity: This principle is intended to prevent that the public administrator surmounts the public interest to the benefit of any personal interest or other, provided that the essential objective of any bidding process is to satisfy the public interest or need.

– Equality: According to the equality principle it is mandatory that the public administrator grants the same treatment to bidders, who shall compete under the same conditions.

– Publicity: In view of the interest under the Public Administration protection, it is natural that it is obliged to make its actions public. Therefore, it is expected that the administrator makes public to the people in accordance with the principle of publicity.

– Commitment to the Invitation to Bid: Such principle is restricted to the bidding ambit. In accordance with this principle, the administration and the bidder are obliged to comply with the terms of the invitation to bid. All current rules applicable to the bidding process, except for those provided in law, shall be included to the invitation to bid.

– Economy and Efficiency: As a rule, the principle of economy translates the unavailability of public assets. Moreover, economy is also an efficiency duty, to the extent that it implies the selection of the best decision in the management of public resources.

– Competitiveness: It is necessary to check the possibility of having more than one interested party to meet the Public Administration requirements. The competition is the determining factor of the purchasing procedure and the more suppliers interested in participating of the event the easier shall be to select the best contractor.

– Proposals Objective Assessment: When selecting the most advantageous proposal, the Administration shall abide by criteria set forth in the invitation to bid.

– Proportionality: The balance that should prevail in the promotion of two or more relevant objectives, which shall not be privileged separately. The Public Administration shall impose restrictions and sanctions to the extent strictly required to comply with the public interest.

Jurisprudence adds two more principles to the latest bidding process modality, the reverse auction:

– Speech: The principle allows the proponents oral expression or electronic communication in public sessions.

– Informality: The reverse auction, mostly the electronic reverse auction, admits that modern technology is used, tending to be less formal; however it does not mean that the procedure is totally informal.

6.3. Bidding Process Modalities and Types

The modalities2 are forms determined for carrying out the bidding processes. The general classification rule regards the involved values. The highest the amount the more complex is the procedure. The sole exception is the reverse auction, which is not restricted to contracting value, but to bid object.

The bidding modalities are:

– Public tender: It is the modality that any individual may participate provided that the minimum requirements set forth in the invitation to bid are met. However, the broad participation does not lessen its complexity. It is applicable to engineering works and services contracts that exceed R$3,300,000.00 and other purchases and disposals of real estate property, concessions of use and services rendering that exceed R$ 1,430,000.00 – contracts of large amount.

The public tender is also used for international bidding processes, when the organ or entity has not international supplier’s cadastre. In case it has such cadastre the most appropriate shall be the price survey.

– Price survey: It is the bidding modality amongst applicants duly registered or those meeting the required cadastre conditions and, therefore, is quite similar to the public tender. The modality limits are the engineering works and services contracts up to R$3,300,000.00 and purchases and services rendering not exceeding R$1,430,000.00.

– Invitation to tender: It is the simplest modality, intended to small amount contracting, consisting of written request sent to at least three interested parties within the industry of the bidding object. Such interested parties may be registered or not and are selected by the administrative organ and amounting to total three invitees. However, it does not exclude the manifestation of interest of other registered parties in the industry of the bidding object. The invitation to tender comprises civil works and engineering contracts up to R$330,000.00 and other services and purchase contracts up to R$176,000.00, and bidder is invited by letter.

– Contest bidding: It is the procedure that seeks to select technical, scientific or artistic works. It is the payment made through incentives and compensation to winning bidders. It is a special modality, quite distinct from the others, and it is intended to select the best work, but dismisses the bid specific formalities.

– Auction: It is intended to dispose of assets that are not being used by Public Administration, assets legally seized or pledged and assets obtained by virtue of legal proceedings or payment in kind. The assets to be sold in auction shall be previously assessed so that the minimum price may be added to the invitation to bid, which shall be the basis for tenders’ assessment. No prior qualification of bidders is required during the auction in case of sales made cash or short term payment.

– Reverse Auction: Modality provided in Law 10,520/2002 and intended to acquire “regular” services and goods, that is, whose standards and specifications are regularly used in the market and may be easily found and supplied by various companies. The performance and quality standards are objectively defined in the invitation to bid, through regular market specifications. This modality afforded greater efficiency and agility to the bidding process, extending the competition in view of possible oral bids and direct negotiation of the common crier.

It should be stressed that all bidding modalities shall be conducted by a bidding committee, whether permanent or special, except for the auction which is carried out by an official auctioneer or officer appointed and the reverse auctions that is conducted by a common crier. That is, every bidding process shall have a Public Administration entity responsible for it. Every entity appoints an internal organ to conduct the bidding process, which shall be also called assessing organ. Under the assumption that any appeal is filed, the superior instance (superior organ) shall finally settle it administratively.

There also are different bidding types, pursuant to criteria adopted to determine how the proposals assessment shall be made by the Public Administration, as follows:

– Lower price: to be used when the selection criteria of the most advantageous proposal for the Administration determine that the winning bidder shall be the one submitting the proposal complaint with invitation to bid specifications and tenders the lower price. the classification of qualified bidders shall be in the ascending order of prices. It is the only bidding type adopted under the reverse auction modality.

– Best technique: to be used for contracting of predominately intellectual services, specially the preparation of designs, calculations, supervision, oversight and management and consulting engineering in general, and in particular, the preparation of preliminary technical studies, basic and executive designs, information systems equipment and services rendering. The proposals assessment procedure shall be clearly explained in the invitation to bid, which shall set forth the maximum price that the Public Administration intends to pay.

– Technique and price: to be used for contracting of predominantly intellectual services, as indicated above, which technique is essential, allied to the lower price determining factor. The same procedures established for the best technique type shall be adopted, however the bidders’ classification shall be made on the grounds of weighed average of technical proposals valuation and price pursuant to weighs to be established in the invitation to bid.

– Higher bid or offer: to be solely used for cases of disposal of assets or concession of security interest of use.

The proposals assessment is the tenders comparison, classification and selection of winning bidder to whom the object of the binding process shall be awarded.

The criteria to define the bidding process are modality and assessment criteria (type).

The proposals that fail to meet the requirements set forth in the invitation to bid shall be disqualified.

Summary chart of modalities and criteria to define the bidding process:

Listing of articles of Law # 866/93 concerning the major stages of the external phase of all bidding processes:

PublicityArticle 21
Legal qualification, regular tax standing, technical and economic qualificationArticle 27 to 31
Judgment criteriaArticle 45
Homologating and AwardArticle 43, VI
Summons to winning bidder to execute the contractArticle 64, paragraph two

6.4. Bid dismissal and unenforceability

The bidding duty provided in the Federal Constitution is a general rule for contracting with the Public Administration. Notwithstanding, Law 8,666/93 provides on the exception to such legal duty to allow Public Authorities to direct contract without any bidding process. Such cases refer to dismissal and unenforceability of the bidding process.

In general, the public tender should be applicable to dismissal cases. However, the public tender may be suppressed, at the administrator’s criteria, in order to better meet the public interest. Situations which admit the bidding dismissal are foreseen in Law 8,666/93, article 24 (not listed herein considered the extent) and the Public Administration may not dismiss the bidding process, at its convenience, any of such assumptions.

Regarding the unenforceability, the duty to hold the bidding process is not incident and is suppressed at the Administration convenience, as it occurs for the dismissal cases. Unenforceability occurs when it is impossible to carry out a bidding process under the terms of Law 8,666/93, article 25. Please check:

I – acquisition of materials, equipment or goods that might be supplied by producer, company or exclusive business representative, void the preference of brand, being required the evidence of exclusiveness through certificate provided by the board of trade at the location where the bid is being held or at the place of work or service, by Union, Employer Federation or Confederation or further by equivalent entities.

II – contracting of unique technical services listed under Law 8,666/93, article 13, from professionals or companies known for their expertise, void the unenforceability for advertising and dissemination services.

III – contracting of professional of any artistic sector, directly or an exclusive agent provided that renown by the specialized critics and public opinion.

6.5. Bidding process phases

The bidding process is a unified procedure divided into two different phases for organization purposes. The internal phase, as provided in Law 8,666/93, article 38, starts up with the administrative process opening and ends up upon disclosure or publication of the invitation to bid. After that, then, the external phase is started up, which is made known to the public, closing with the contracting.

We will approach the external phase in detail as bidders are more interested. It comprises subphases, having more or less complexity, depending on the selected modality.

The public tender is the most complex modality, comprising the following sub-phases:

  • Invitation to bid publication – article 21 of Law 8,666/93
    • Qualification (legal qualification, regular tax standing, technical and economic qualification) – articles 27 to 31 of Law 8,666/93
    • Proposals opening and classification – article 45 and following of Law 8,666/93
    • Homologating – article 43, VI of Law 8,666/93
    • Winning bidder award and contract execution – article 43, VI and article 64, paragraph 2 of Law 8,666/93

As from the bidding process subphases made known to the public (external phase), the invitation to bid is then disclosed and published. Afterwards, during qualification, it is assessed the proponent capacity to enter into any contract with the Public Administration, that is, “candidates” are checked and demonstrate their regular tax standing, technical and legal qualification, economic and financial capacity and compliance with the constitutional provision that prohibits dangerous and hazardous night shift work for minors of age and no contracting of minors older than fourteen and under sixteen, except when contracted as apprentice. Based on such information, the Public Administration discloses the compliant bidders. After proposals qualification, they shall be classified and the winning bidder and assessment criteria shall be made known.

Homologating is when the higher authority to the assessment organ confirms the selected proposal. Finally, the winning bidder is awarded and enters into the contract with the Public Administration.

All such acts, in view of the breach of rights or unlawfulness, shall be subject the Public Administration to questioning. Every bidder may file an administrative appeal, with suspension effect or not depending on the case, according to Law 8,666/93, article 109, against decisions providing on: (i) bidder qualification or disqualification; (ii) proposals assessment; (iii) bidding process annulment or revocation; (iv) dismissal of official registration application, change or canceling of the same; and (v) Public Administration unilateral terminates the administrative contract. As well as any other decision that may cause damages to bidders may be opposed through representation.

6.6. Administrative Contracts

Differently from private contracts, the administrative contract is the obligatory document that Public Administration, under such capacity, enters into with the individual or other administration entities to attain the public interest objectives. The peculiarity of such contract is the fact that the Administration, compliant with the legal limits, sets forth the terms of contracting. The individual shall solely meet the imposed conditions in case it is interested in contracting.

Thus, entering into a contract with the Public Administration leaves no room for negotiation of contractual terms or the legal business. On account of protecting the public interest, the Administration is entitled to certain prerogatives legally guaranteed.

As a rule, the administrative contract succeeds the bidding process, that is, it takes place after the assessment of competitors and submitted conditions, and then the contract is entered into with the winning bidder.

An administrative contract draft is integral part of the invitation to bid, which allows bidders to become aware of its terns even before taking part of the bid.

6.7. Public Utilities Authorization, Granting and Permission

The three rules basically comprise the ways that Public Administration may grant to third parties to accomplish activities under its control and/or execution.

– Authorization: Authorization is the frailest modality of all. Due to its nature, the authorization is a discretionary and precarious act, subject to being revoked by the Administration, regardless the fair motive. A bidding process is not required. We have the following example: license to carry a gun (authorization to carry a gun) and authorization to be a cab driver.

– Concession: It is subject to the bidding process regardless the contract value. Through the concession the administration delegates the remunerated execution and exploitation of public service or work or public interest, or assigns the use of public assets to contractor to exploit or use for the period and under regular and contractual conditions. I shall not be subject to revocation without indemnification.

– Permission: It is also subject to the bidding process. It is applicable to the delegation of certain public services. However, contrary to concession, permission is precarious and subject to being revoked by administration, at any time, not entitled to any indemnification.

We call attention to the fact that Law # 8,987 as of 1995 (“Law of Concessions”), governing public utilities concession and permission, since its enactment foresees the possible insertion of rules to amicably settle any dispute to administrative contracts.

Despite the discussion regarding the possibility to add an arbitration clause to administrative contracts by virtue of the principle of unavailability of public assets, in 2005, it was finally decided upon enactment of Law # 11,196, which included article 23-A to said Law of Concessions, with the following wording:

“Article 23-A. The concession contract may provide on the use of private mechanisms to settle disputes arising out of or in connection with the contract, including arbitration, to be carried out in Brazil in the Portuguese language, under the terms of Law # 9,307 as of September 23, 1996.” (emphasis ours)

Therefore, as for public utilities concessions and permissions, the administrative contracts may provide on the amicable settlement of disputes and/or arbitration.

6.8. Tips to take part of public tenders

Any interested party in entering into a contract with the Public Administration in Brazil, whether national or foreign, should pay close attention to the invitation to bid provisions, get prepared in advance in order to keep public registration and enrollment updated and train agents to represent it and get familiarized with terms and requirements commonly stipulated.

Another important tip is to obtain periodical certificates of good legal and tax standing, issued by public agencies within its jurisdiction.

In view of questions relating to invitation to bid interpretation or contingent omission, it is possible and advisable, as well that the interested parties question, under the terms of the invitation to bid regarding the communication means, before filing the documents, so that any matter may be cleared up. A frequent question is the possible consortium participation in bidding processes, which may be allowed or not depending on the case.

6.9. Closing

It is hereby presented the general comments on the rules set forth by the Brazilian statutory law, which govern Public Authorities and private parties contracting and their relationship.

It should strictly consider the compliance with the law and the administrative contracts that have been entered into, being the Audit Court in charge of checking irregularities that may be denounced by any citizen or interested party.

(1) Pursuant to definition given by José dos Santos Carvalho Filho: “the binding administrative procedure through which Public Administration entities and those through controlled select the best offer amongst the various interested parties with two purposes – entering into a contract or obtaining the best technical, artistic or scientific work” in CARVALHO FILHO, José dos Santos – “Manual de Direito Administrativo” Ed. Lúmen Júris, Rio de Janeiro, 2009, p.226.

(2) The bidding modalities are provided in Law 8,666/1993, article 22.

Authors: Ana Tereza Marques Parente, Vanessa Cristina Santiago and Marília de Aguiar Monteiro. Updated by Enzo Garcia.

Gaia, Silva, Gaede & Associados

Rua da Quitanda, 126
01012-010 São Paulo – SP
Phone: +55 (11) 3797 7400
Fax: +55 (11) 3101 2226
E-mail: [email protected]