The COVID-19 pandemic rekindled the importance of governmental economic and social actions. Due to factors like severe currency depreciation, interruption of activities, shortage of inputs, and necessities of permanent support for the acquisition of resources to fight against the disease, public contracts undertook an even more crucial role.

However, contracting in the current scenario is not a simple task. So, to enable the conduction of bids and execution of public contracts, the Public Authorities shall create and activate some devices of exception, about which we make some comments hereinafter.

    1. Decrees of public calamity and emergency

The publication of normative rules that recognized and enacted a state of public calamity or emergency has established the state of extraordinary things, which justifies the adoption of exceptional measures for public contracting.

Both public calamity and emergency refer to unusual situations, causative of damages and losses that jeopardize the targeted public entity’s capacity of an answer. The state of emergency occurs when the affected entity may overcome the impacts through the reorganization of its own budgets. On the other hand, the state of public calamity relates to substantial effects, in which remediation requires the release of resources aside from the limits outlined in the Fiscal Liability Law (Supplementary Law n. 101/2000).

Main decrees of public calamity in force: (i) Legislative Decree n. 6/2020 (National); (ii) State Decree n. 46.984/2020 (Rio de Janeiro); (iii) Municipal Decree n. 47.355/2020 (Rio de Janeiro); (iv) State Decree n. 64.879/2020 (São Paulo); (v) Municipal Decree n. 59.291/2020 (São Paulo).

    1. Special Bids and Contracts

The Provisional Measure n. 926/2020 amended Law n. 13.929/2020 and exempted bid proceedings for acquisitions of assets, services (including engineering), and inputs needed for the fight against COVID-19. It is a temporary hypothesis of direct contracts, applicable just while the state of public health emergency lasts, according to decrees issued by competent authorities.

The Law n. 13.929/2020 also brings special rules valid for public bids that involve assets and services needed in the fight against COVID-19, just like:

        • bids through electronic or on-site auctions with procedural deadlines reduced in a half;
        • release of basic information about the acquisition on the official and specific website of the contracting entity (supplier’s name and CPF/CNPJ, amount and term of the contract, number of the administrative proceeding);
        • unique supplier of a particular asset or service may be contracted, even if declared as disreputable or suspended from the right of participating in bids and contracting with Public Authorities;
        • the Government may contract used products and equipment, provided that the supplier takes on the liability for their conditions of use and operation;
        • presumption of truthfulness about the occurrence of some facts (emergency; the necessity of quick response; risks to people, constructions, services, and public or private assets; limitation of the contract to the needed portion), which may only be questioned with reverse evidence;
        • exemption of preliminary reports for the acquisition of ordinary assets and services, as well as acceptance of simplified reference terms and basic projects in the other proceedings;
        • if there is a limited number of suppliers for the bid, the competent authority, through written justification, may exempt the delivery of documents attesting fiscal and labor regularity, as well as remove one or more requests for qualification (evidence related to Social Security and statement referring to non-exploitation of child workforce must not be discharged);
        • suppliers must accept additions and removals evaluated in up to 50% of the contract’s entire amount, unilaterally fixed by the Public Authority; and
        • contracts will have a maximum term of six months, with possibility of successive extensions while the emergency lasts.

On the other hand, there are assets and services that, although do not have a direct association with the fight against COVID-19, are needed due to the national calamity scenario. We understand that in these cases, as well as in cases of constructions and services that may be concluded within 180 consecutive days, the Public Authority may carry out direct contracts, through clear and express justification, based on the hypothesis of bid exemption described on article 24, IV, of Law n. 8.666/93.

As a rule, emergency contracts arising out of Law n. 8.666/93 are non-extendable. However, precedents of the Federal Court of Auditors (“TCU”) postponement, to the precise extent of essentiality, if there is proof about the necessity of more time to meet the emergency and its effects.

    1. Provisional Measure n. 961/2020

Following the adaptations to the exception regime instituted due to COVID-19, on 05.07.2020, the Federal Government enacted the Provisional Measure n. 961/2020, whose propositions may be adopted by the public authorities of all Powers and federative entities.

The measures apply only to bids and public contracts (including their extensions) executed as of 05.07.2020 up to 12.31.2020 (deadline of the public calamity, as outlined in Legislative Decree n. 6/2020).

The main innovation brought by the Provisional Measure is the possibility of Public Authorities making anticipated payments to suppliers, provided that:

        • the anticipation is foreseen in auction notice or term of direct procurement (exemption hypothesis);
        • the Authority requires the return of the entire amount in case of non-performance;
        • the anticipated payment represents the paramount condition for the obtainment of assets or services;
        • the option fosters material economy of resources for the public treasury; and
        • the contract is not destined to the provision of services under the workforce full dedication regime.

The Public Authority may protect itself against eventual risks of default, demanding from the suppliers that: (i) prove the performance of part of the contract as a condition to release the final of payment installment; (ii) grant guarantees corresponding to 30% of the contract’s entire amount; (iii) issue securities; (iv) allow the monitoring of the acquired assets by a representative of the public entity; and (v) send certifications of products and suppliers.

Finally, the Provisional Measure n. 961/2020 has also: (a) raised the caps for contracts through bid exemption, outlined in Article 24, caput, I and II, of Law n. 8.666/93 – up to R$ 100,000.00 for constructions and engineering services; R$ 50,000.00 for assets and other services -; as well as (b) expanded the incidence of the Differentiated Public Procurement Regime – “RDC” (Law n. 12.462/2011) to all kind of bids and public contracts.

  1. Rebalancing and Suspension of Contracts

Besides procedural adjustments to enable new hirings, COVID-19’s consequences also brought the necessity of evaluating the performance and continuity of public contracts that have already been signed.

Because of this, we have found a lot of debates about the economic-financial rebalancing, which is founded on article 65, caput, II, “d”, of Law n. 8.666/93.

According to the provision, public contracts may be altered, through an agreement between Public Authority and supplier, whenever that the original equilibrium of obligations gets jeopardized by extraordinary and non-contractual economic alea, deriving from one of the following types of events: (i) unforeseeable or foreseeable facts with inestimable consequences (unpredictability theory); (ii) force majeure; (iii) “prince’s fact”.

Due to the uncertainty about the duration of the pandemic, the restrictive measures, and the adverse effects caused on the global economy, there are strong arguments to include the situation in the definitions of the unpredictability theory and force majeure (article 393 of Brazilian Civil Code).

The rebalancing may also find legal support under the perspective of “prince’s fact” (defined as “one general action of Public Administration that reflects over the contract”), whose configuration would relate to the government decrees that enacted calamity/emergency states, as well as several restrictions.

Regardless of the argument chosen, the rebalancing only applies when the alleged events happen after the contract’s signature. If before, other legal techniques shall be used.

The rebalancing request shall not be abstract or generic, being indispensable for the supplier to evidence, through spreadsheets and documents, that the resonances of COVID-19 effectively prevent or delay the compliance of a particular contractual obligation. Indeed, not all contracts are directly affected by the pandemic and, among the reached ones, there are impacts of different levels.

Public Authority also holds the option of suspending, through written determination, the performance of any contract, according to article 78, XIV, of Law n. 8.666/93. As a general rule, there is a 120-day suspension deadline; however, the legislator has stipulated exception for public calamity situations (which enhances the role of decrees as tools to avoid massive contract terminations due to COVID-19).

    1. Singularities of other instruments

It is possible to review the prices registered on minutes of prices registration, based on the criteria set forth in article 65, caput, II, “d”, of Law n. 8.666/93, in case of further facts that raise the cost of services or assets offered by suppliers.

However, there are distinctive rules outlined in Decree n. 7.892/2013, among which we emphasize the obligation of the entity responsible for the management of minutes to open a negotiation stage with the other suppliers, before adjusting the prices registered by the victorious bidder. There is no direct transaction, involving the only contractor and Public Authority, as happens in public contracts. On minutes of price registration, the amendments may only occur after the other participants were heard.

There are controversies if the Public Authority is obliged to look for all participants that have disputed the bid or exclusively those bidders allocated on a reservation list. Suppliers that refuse to adjust their prices, as requested by the entity, shall be released from their commitment without penalties (as long as the truthfulness of their justifications is attested). When the market price surpasses the registered amount, the supplier shall communicate its impossibility of honoring the proposal before receiving a request of supply from the public entity. Otherwise, it will be subject to administrative penalties.

It is also publicly known that COVID-19 has caused the interruption of several services regulated through concession contracts, such as civil aviation, provision of electric energy, and water supply. In this scenario, article 38, §1º, II, of Law n. 8.987/95 protects operators from the risk of termination of contracts due to infringement of obligations (expiration), since they prove a practical impossibility of keeping their regular activities because of the pandemic (force majeure).

Concerning contracts of public-private partnerships (PPPs), under Article 5, III, of Law n. 11.079/2004, they must already contain a clause that provides the share of all venture risks between Public Authority and the private partner, including those arising out of force majeure, “prince’s fact”, and extraordinary economic alea. Thus, concerning PPPs, there is no space for rebalancing negotiations, once the risks of any event, even those unforeseeable and inestimable, are previously distributed among the parties at the moment of contract’s execution.

    1. How to deal with public contracts in this crisis?

Regardless of the solution sought by the supplier and the hiring Public Authority, it is essential that all manifestation is documented and duly formalized in an administrative proceeding.

As we live today in a context of exception, extraordinary measures may only be carried out if, on one side, the supplier demonstrates that COVID-19’s pandemic causes effective disruption in the contract and, on the other, the Public Authority expressly reveals the reasons that justify the adoption of its prerogatives.

Due to the complexities inherent to public contracts, especially in these moments of exception, it is recommended that suppliers rely on legal support from specialized professionals.

The teams of Fraga, Bekierman & Cristiano Advogados are available to answer any questions about the legislation mentioned above.