Put Christian Fernandes Rosa and Beatriz Wehby – 21/05/2020

In early May, the Presidency of the Republic published Provisional Measure No. 961/2020, which authorizes advance payments in public tenders and contracts and increases the amounts for which bidding can be waived. In addition, it refers to the Differentiated Public Procurement Regime (“RDC”), expanding the possibilities for using this regime during the state of emergency.

The RDC was created by Law No. 12,462/2011, in response to the need for investments to host the World Cup and the Olympic Games in 2014 and 2016, respectively. At the time, the short time available to public entities to improve the infrastructure needed to host both events required a new contracting regime between the public sector and the private sector. With a very restricted initial scope, only for works and services related to the games, the regime is considered differentiated, as it did not need to follow the dictates of Law No. 8,666/93, which is a general rule for public tenders and contracts, which applies to all contracts entered into between private agents and any Brazilian political entities, at a national level.

Provisional Measure No. 961 extends the application of the Special Procurement Regime to any object, so that the public administration entity involved may use the RDC beyond the previously provided hypotheses. Law No. 12,462/2011, of the RDC, which initially had the object linked to the bidding processes necessary for holding the Olympics and the World Cup, had its object expanded in 2012 to include PAC works and SUS works and services. Works related to public safety were admitted under the regime in 2015. And contracts with agencies linked to science and technology were included in 2016.

Now, the use of the differentiated regime is authorized for works, services, purchases, sales and leases of any nature.

The caveat, however, is that the innovations presented will only be admitted during the state of public calamity, a period in which the capacity of municipalities and states to act is compromised, so that the Federal Government is obliged to determine support measures.

Regarding the exemption from bidding, Law No. 8,666 of 1993 provides in items I and II of article 24 which are the possible hypotheses. Provisional Measure No. 961 increases the limits provided for both engineering works and services of up to R$ 100,000.00 (one hundred thousand reais) and for services and purchases of up to R$ 50,000.00 (fifty thousand reais).

In this regard, it is important to emphasize that, even if bidding is dispensable, such contracts must be duly motivated, that is, preceded by market research and with due justifications – the Public Administration must be transparent in its decisions.

The Provisional Measure also introduces significant changes regarding the possibility of advance payment in public tenders and contracts by providing for two hypotheses for its occurrence. In the first, advance payment must represent an indispensable condition for obtaining a certain good or ensuring the provision of a service. In the second, payment must provide savings in administrative resources.

As is known, advance payments in public contracts were prohibited, except exceptionally and according to specific requirements, in public-private partnership contracts. However, it is clear that the Government gives potential suppliers a high perception of risk regarding delays or non-fulfillment of their payment obligations. Therefore, in a time of uncertainty, contracting with the Public Administration may increase this risk assessment, raising prices. The Provisional Measure thus promotes a stimulus to contracting with public entities, given the low cash flow of companies.

The only exception made by the MP is the prohibition of advance payment by the Administration in the event of provision of services in which there is an exclusive dedication of labor.

If you decide to apply this advantage, with justification, the advance payment must be explicitly stated in the notice or in a formal direct award instrument, as well as requiring the full return of the advance amount in the event of non-execution of the object.

Furthermore, to reduce the risk of contractual default by the private partner, the Administration may use proof of execution or the initial stage of the object by the contracted private initiative to advance the remaining value, as well as the provision of a guarantee of up to 30% of the value of the object.

The Public Law & Compliance team at Mazzucco & Mello Advogados has extensive experience in public-private contracts and is available to provide any clarification regarding the new measures.