M. J. Alves e Burle

New Rules and parameters for public tenders and public-private partnership (PPP) contracts

by M.J. Alves e Burle Advocacy Brasil

The Brazilian House of Representatives has formed a Special Committee to vote on Senate Bill 472/2012 with the purpose of establishing new rules and parameters for public tenders and public-private partnership (PPP) contracts.

PPP contracts are legal instruments signed between government and companies to set the framework for managing works, services and general activities of public interest. The private partner is responsible for financing, investing and exploiting the service. Current Law 11.079/2004 imposes strict thresholds for such agreements, such as: (i) R$ 10 million minimum contract value; (ii) 5 year minimum period; and (iii) very specific purpose.

Bill 472 was submitted to the Federal Senate in 2012 with the intention of expanding the use of PPP contracts by the government by means of establishing different threshold values depending on whether the contract is to be signed by the federal government (20 million reais), states (10 million reais) or municipalities (5 million reais). The idea is to benefit small municipalities with low revenue and a fragile structure to carry out contracts in short periods. As a consequence, it also tends to benefit small to mid-size companies which engage with small governmental entities.

This is the kind of cost-free relevant regulatory change that may boost the economy in a particular difficult time as nowadays with all limitations that the coronavirus has brought to the world scenario.

The bill was approved by the Senate in its original version, showing that congressmen support it.

In the House of Representatives, an interdisciplinary committee was formed. It held public hearings and in November 2019 shared an extensive parliamentary report with a formal opinion on Senate Bill 472/2012 and other bills that deal with concessions and partnerships of the government in infrastructure.

The current text eliminates unnecessary bureaucracy, establishes legal certainty, reduces the government’s role in public contracts and creates mechanisms to attract investors.

Furthermore, the text presents new rules to discuss the economic balance of public-private contracts, a theme that always causes many controversies in Brazilian courts and public bodies.

Regarding the procedures for signing the contract, the bill changes the evaluation criteria of bids from interested companies, such as a greater number of contractual obligations, less financing by the Government and shorter term of service provision. At this point, it is not possible to foresee the level of private sector’s interest with these new criteria, which may represent an obstacle to the approval of the bill.

In this scenario, it is possible to perceive, on the one hand, that there is some goodwill from the House of Representatives to take the opportunity to resolve historical issues in government procurement. On the other hand, difficulties of negotiation may arise between public and private actors, exactly because of the complexity of the changes considered.

Therefore, in our opinion, a great convergence of political and market situations will be needed to ensure the approval of a long-time needed new legal framework for public-private partnerships.

Contribution to Brasil-U.S. Business Council