The International Comparative Legal Guide To: Public Procurement 2013

1 RELEVANT LEGISLATION

1.1 What is the relevant legislation and in outline what does each piece of legislation cover?

In Brazil, agreements entered into by Public Administration entities are, as a rule, regulated by Federal Law 8,666/93 ("Public Procurement Law" or "PPL"). Said law regulates both the public procurement proceedings themselves and the agreements for the acquisition of goods and services by the Public Administration. It also regulates the proceeding for the sale of publicly-owned goods and establishes certain crimes and administrative penalties.

A Special Regime for Public Procurements ("RDC") was established by Federal Law 12,462/2011, with the purpose of speeding up the public procurements necessary for the upcoming sporting events in Brazil. The RDC is applicable exclusively to procurements for: (i) the 2016 Olympic and Paralympics Games; (ii) the 2013 FIFA Confederations Cup; (iii) the 2014 FIFA World Cup; and (iv) the construction of infrastructure and provision of services at airports located within 350 kilometers of the cities that will host the World Cup.

In addition, there are rules regarding public procurement proceedings in Federal Law 8,987/95, which regulates permissions and concessions for the rendering of public services, and Federal Law 10,079/04, which sets forth general rules concerning private public partnerships.

1.2 Are there other areas of national law, such as government transparency rules, that are relevant to public procurement?

Federal Law 8,429/92, which provides for the acts and conducts defined as administrative improbity acts (atos de improbidade administrativa), as well as Federal Supplemental Law 101/2002, which provides for accountability rules applicable to public budgets, are also relevant for public procurement proceedings.

The administrative improbity act is defined as illegal behaviour of public agents that results in unjust enrichment or undue advantage, to themselves or to a third party, which causes damage to a public asset or violates the principles of the Public Administration. Although initially the penalties are applied to public agents, they may be extended to third parties that collaborated or induced the practice of an administrative improbity act.

Federal Supplemental Law 101/2002 provides for the procedures to be taken by the government contracting entity with regards to budget allocation, before starting a public procurement proceeding.

1.3 How does the regime relate to supra-national regimes including the GPA, EU rules and other international agreements?

As mentioned in question 1.1, agreements entered into by the Public Administration must comply with the PPL and all other applicable national laws. However, the rules set forth in international agreements, protocols, covenants or treaties approved by the Brazilian National Congress are also applied to the performance of construction works, rendering of services or acquisition of goods funded by resources from financing or donations made by international cooperation agencies or multilateral financial organisations to which Brazil is a party. The preference margin mentioned in question 1.4 can be totally or partially extended to products and services deriving from Member States of Mercosur.

1.4 What are the basic underlying principles of the regime (e.g. value for money, equal treatment, transparency) and are these principles relevant to the interpretation of the legislation?

All acts performed by public entities must be in compliance with the principles set forth by article 37 of the Brazilian Federal Constitution. These principles are: legality; impersonality; morality; publicity; and efficiency. Regarding the specific case of agreements, since the main purpose of public procurement proceedings is to assure the compliance of the principle of equality and select the most advantageous tender made to the Public Administration, in both technical and economic aspects, article 3 of the PPL, which sets forth that principles of equality, honesty, abidance by the bid document, sustainable national development, objective judgment and other related principles, such as the lowest-price principle, must also be considered. These principles are of the utmost importance when interpreting the rules of the PPL.

The PPL was changed by Federal Law 12,349/2010 to establish a preference margin to Brazilian products and services in governmental acquisitions, as a means to boost the country's economic development. The preference margin created by Federal Law 12,349/2010 cannot exceed 25% of the price of similar foreign services and products, and must be established by the Federal Government in relation to different classes of products and services based on previous studies specified by law.

A Presidential Decree (Decree 7,546/2011) has recently been enacted to create the Interministry Commission for Acquisitions ("CI-CP"). The CI-CP received the attribution of proposing and monitoring the application of the preference margin for national manufactured products and services, as well as the commercial, industrial and technological compensation measures, among other competences.

Since it could be argued that the preference margin rule is not compatible with the principle of equality among bidders, this may result in challenges to its application in the future.

1.5 Are there special rules in relation to defence procurement or any other area?

Yes. Brazilian Congress has recently enacted Federal Law 12,598, dated as of March 22, 2012, which provides for special rules on the procurement, product development, as well as incentives for the Brazilian defence sector. This law has also created a title to be granted to any legal entity qualifying to become a Strategic Defence Company - EDD. To be qualified as an EDD, the company must have the purpose of developing activities related to the defence sector. The EDD's possible foreign shareholders or group of foreign shareholders cannot hold in each general meeting more than 2/3 of voting rights. The EDDs are entitled to obtain the tax incentives created by Federal Law 12,598/2012. The PPL is still applicable on a subsidiary basis to public procurement proceedings carried out by the governmental agencies belonging to the defence sector, as well as fully applicable for the agreements resulting from these proceedings. The PPL provides exceptions to the obligation of performing a public procurement proceeding and, therefore, admits the direct contracting for the acquisition of goods and services in cases of: (i) war; (ii) severe public disorder; (iii) national security risks in cases established by a Presidential decree based on the opinion of the National Defense Council, which is the consultant organ of the President regarding national sovereignty and protection of legal democratic State matters; (iv) the purchase or hiring of services for supplying of ships and vessels, aircraft or troops and their movement, when the fulfillment of legal formalities compromises strategic success of the operation; and (v) the purchase of material necessary to maintain the pattern required by the logistic support structure of naval, air and land transport. As a rule, governmental agreements shall be in force for a 12-month term, but the PPL entitles the armed forces to execute agreements with a 120-month term in some cases of direct procurement.

2 APPLICATION OF THE LAW TO ENTITIES AND CONTRACTS

2.1 Which public entities are covered by the law (as purchasers)?

The PPL and other laws mentioned in question 1.1 apply to all the bodies and entities of the direct and indirect Public Administration of Federal Government, States, the Federal District and Municipalities. Direct Public Administration comprises State Secretariats, Ministries and other governmental bodies without legal personality subordinated to the Executive Branch Chief. Indirect Public Administration comprises autonomous governmental agencies, regulatory agencies, public foundations, public consortia, public companies and mixed-capital companies.

Even though public companies and mixed-capital companies are also subject to private legal regimes, they are directly or indirectly controlled by governmental entities (Federal Government, States, Federal District and Municipalities) and, thus, considered as public entities.

Nevertheless, article 173 of the Brazilian Federal Constitution allows public companies and mixed-capital companies that develop economic...