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The Mandatory Nature of Every Tender to Have a Risk Matrix – Economic-Financial Rebalancing

March 18, 2021

By: Leonardo Neri

Concessions, as provided for in article 4 of Law 8987/1995 – Law of Concessions and Permits, are formalized by means of a contract, signed between the private party, winner of the bid, and the Public Administration, the objective of which is to provide a public service, remunerated for the exploitation of the service, but under contractual guarantee of an economic-financial balance.

The economic and financial balance of a contract is provided for in the Constitution – Article 37, item XXI – and has a legal nature of principle. Therefore, since it is considered a principle, it cannot be set aside by infra-constitutional norms, that is, it is a constitutionally protected right, arising from the principle of good faith and public interest.

This principle ensures that the conditions proposed by the winning bidder must be maintained during the execution of the contract and, despite the contracts signed with the Public Administration having particularities, such as, for example, the existence of exorbitant clauses and often making the legal relationship unbalanced, the private party has full guarantee of its patrimonial interests and, such prerogatives that protect the public interest, do not affect the economic-financial clauses of the contract.

Therefore, according to the Federal Constitution, the effective conditions of the proposal will be maintained, establishing the maintenance of the economic-financial balance of contracts from the acceptance of the proposal, enshrining the so-called “economic-financial equation”.

To maintain the “economic-financial equation”, the following may be used: readjustment of the contract price – review through the prediction of circumstances that would lead to imbalance on a daily basis – and restoring the contractual balance – when abnormal and unpredictable facts lead to the worsening of the individual’s situation.

The innovation with the new legal diploma adjusts a question often posed to the Judiciary: the public service provider, despite being aware of the risks involved in the execution, although they are uncertain, are predictable, although it is not possible to exhaust the predictability of the risks inherent in the contracting and execution of the contract. Therefore, some bidding modalities present the risk matrix in administrative contracts, an instrument that aims to manage risks, making them clearer, and distribute responsibility for losses when the risk becomes real, compromising the execution of the contract due to its increase in cost.

Thus, in view of the principle of economic-financial balance and the preparation of the risk matrix by the Public Administration, the novelty is that all bids will be carried out with the risk matrix, that is, the mandatory nature of the matrix will mitigate the discretion of the administration when analyzing requests for contractual rebalancing and the values will be adjusted to the extent provided for and, economic-financial rebalancing may only occur if, eventually, the increase in the cost of the contract exceeds that expected by the parties and/or outside the risk matrix, thus allowing the restoration of the contractual balance.

If you have any questions about the topics covered in this publication, please contact any of the lawyers listed below or your usual Mazzucco&Mello contact.

Leonardo Neri

+55 11 3090-7303

leonardo.neri@br-mm.com

This communication, which we believe may be of interest to our customers and friends of the company, is intended for general information only. It is not a complete analysis of the matters presented and should not be considered legal advice. In some jurisdictions, this may be considered lawyer advertising. Please see the company's privacy notice for more details.

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