It is of common knowledge that Brazil faces increasing needs for investments in its infrastructure sector, in order to create proper conditions to support the economic boom and the so called transition from a developing country to a developed one. Such investments are primarily carried out by the Government; therefore participating in the infrastructure sector in Brazil means the establishment of a contractual relationship between private parties and the Brazilian Government.
In this scenario, any company (domestic or foreign) that intends to invest in the Brazilian infrastructure should be aware of (i) the usual proceeds that the Government must observe before contracting infrastructure works and (ii) the sort of discussions and challenges they should expect during each phase of such proceeds.
In this sense, the purpose of this article is to provide all the interested companies with an overview of the main aspects of the Tender Process in Brazil2. For purposes of facilitating the understating we divided it into five topics.
(A) Preliminary Phase
This stage refers to the preparation of the public tender. In order to launch a public tender for the operation and exploitation of a public service in Brazil, the Government is required to prepare feasibility studies on the at least the following topics: (i) financial and economic aspects, in which the revenues and expenses for the project shall be assessed to verify its sustainability and its impact in the public budget, (ii) technical aspects, (iii) environmental aspects, meaning the issuance of the preliminary license or the terms of reference for the preliminary license by the competent authorities, and (iv) legal aspects, in order to provide legal basis for tender.
The Government may prepare the above mentioned studies (i) by itself, (ii) by a consultant specifically hired for such purpose, or (iii) it may receive and validate studies carried out by private interested parties. The last option, involving a private party to carry out the studies and a simple validation from the government is known as Manifestation of Interest
Process (Processo de Manifestação de Interesse or “PMI”). The legal basis for this kind of preliminary studies is provided by Article 21, of Law 8.987/95 (“Concession Law”) – meaning that it applies only to projects that involve concessions of public services or concessions of public works.
Nevertheless the Government has to observe mandatory procedures in order to advance to phase I. In such regard, whenever the projected value for the concession agreement reaches an amount higher than R$150,000,000.00 (one hundred and fifty million reais) a public hearing shall be set up by the Government. In the public hearing the interested parties shall have access to the information regarding the tender and shall have the right to demonstrate their opinions. The public hearing shall occur 15 (fifteen) business days prior to the launching of the Request for Proposal (“RFP”, that includes the Tender Document – Edital - and the Concession Agreement).
Also, whenever the contractual arrangement is a PPP, the Government shall publish the draft of the RFP for a public consultation that shall take at least 30 (thirty) days.
For ease of reference, the legal basis that describes the present phase area, among others already mentioned above, Article 10, of Law 11.079/04 (“PPP Law”), and article 39, of Law 8.666/93 (“Public Biddings Law”).
(B) Phase I
Phase I comprises the steps from the launching of the RFP to the date set for the auction itself. The entire period takes at least 30 (thirty) days. The RFP shall specify all required documents for qualification, including whether the parties may participate in a consortium format. Also, the RFP shall indicate whether a technical proposal is required and its weight in comparison to the required financial proposal.
In this sense, during such phase the interested parties shall: (i) review the RFP and prepare the documents required for qualification, (ii) enter into corporate arrangements with other parties (e.g Memoranda of Understandings), in order to organize themselves as a Consortium, if necessary and interesting to the parties, (iii) prepare the financial, economic proposal, and the technical proposal, if required.
The parties have the right to prepare questions and to have the questions answered by the Government. Although Brazilian Laws do not specify a specific deadline for addressing
questions, the RFP usually sets a date that varies from 10 (ten) to 5 (five) days before the date set for the Auction.
On the other hand, the Public Biddings Law provides that any citizen and any bidder shall have the right to appeal from illegal provisions in the RFP. The first shall present his appeal up to 5 (five) business days before the date set for the auction meanwhile the bidder shall present his appeal up to 2 (two) business days before the date set for the auction. The presentation of appeals neither precludes the bidders to participate in the auction nor stops the regular course of tender process, unless the Government decides to accept the appeal.
For ease of reference, the legal basis that describes the present phase area, among others, Article 40, Sections I to XVII, and 41, Paragraph 1st, of the Public Biddings Law, and Article 19, sections I to IV, of the Concessions Law.
(C) Phase II
Phase II comprises the moment in which the bidders submit both qualification documents and proposals (economic and/or technical) for the awarding of the contract to the winner bidder. There are two possible procedural arrangements for this phase: (i) regular course and (ii) reverse course.
In the regular course, the Government opens the qualification documents of all bidders and qualifies or disqualifies all or some of the bidders. Then the Government gives the opportunity to the bidders to analyze and identify flaws in the documents presented by their competitors. The identified flaws will give reason to appeals to be presented in 5 (five) business days. The bidders attacked by their competitors may counter-appeal in 5 (five) business days. Then, the Government decides on the appeals. Only the qualified bidders will have their financial and technical proposals opened. As one may notice, the regular course brings to the tender process a wide open field to litigation. Such litigation may even shift from the field of the tender process (administrative process) to the judiciary, since in Brazil, by a constitutional principle, all decisions may be reviewed by the courts.
In the reverse course, the Government firstly opens the financial
proposals. Then the bidders are >
that, the Government shall decide whether the bidder best >
For ease of reference, the legal basis that describes the present phase
area, among others, Article 13, of PPP Law, Article 43, of Law Public Biddings
Law, and Article 18-A, Sections I to IV, of the Concessions Law.
(D) Phase III
After the final awarding of the contract, the awarded bidder usually has around 30 (thirty) to 45 (forty five) days to incorporate a Special Purpose Company (“SPC”) and to present guarantees and insurances in order to finally execute the Contract3. Therefore, phase III contains a great number of legal steps that the awarded bidder shall comply with to be ready to the execution of the Contract.
In case the awarded bidder is organized under a consortium format, we can anticipate discussions not only in connection with the drafting of the By Laws and the Articles of Incorporation of the SPC but also shareholders agreement to sort obligations and liabilities among the shareholders of the SPC. Also, the contracting of insurances and guarantees (e.g. performance bond) may give reason to the draft of legal documents, such as counter-guarantees agreements.
It is worth notice that usually RFPs require a minimum capital stock to be paid in by the SPC before the execution of the Contract.
In this phase, discussions on the financing terms shall take place during this phase. In this sense, the corporate documents shall be designed envisioning the future loan agreements to be executed by and between the SPC and the Lenders.
For ease of reference, the legal basis that describes the present phase area, among others, Article 9, of the PPP Law, Article 19, paragraph 1st, and Article 20, of the Concessions Law.
(E) Phase IV
Phase IV refers to the proper execution of the Contract and the performance of the services. The discussions on level of services and performance shall give the line of the relationship with the Government. Possible claims of economic equilibrium shall also take place during this phase.
(F) Conclusion
After going through the main aspects of the process for contracting infrastructure works by the Government in Brazil, it is important to keep in mind that in all phases the law guarantees publicity and many chances of participation for all interested parties. In this sense, any investor currently pursuing opportunities in the infrastructure sector in Brazil should look for means of getting aware of public tenders. Also, investors should try to achieve a better understanding of all rights and risks involving Government contracts and most of them are related to the mandatory tender process involved.
1 Senior Associate at Machado Meyer’s Infrastructure Department.
2 Please note that we it is not our intention to cover all regulations and peculiarities applied to the infinite industries that comprise the infrastructure sector in Brazil. The main topics of this article are based on Laws that regulate concessions of public services and concessions of public works.
3 Please note that the need for the incorporation of a SPC varies according to the purpose of the Government Contract. For simple public works (without the provision of services within the contract) the Government seeks to contract with the bidders themselves (not a specific vehicle).
(Brasil – U.S. Business Council - www.brazilcouncil.org - Newsletter - Export Green Newsletter 11 - June, 2012)
(Notícia na Íntegra)
