Leopoldo Pagotto
FreitasLeite, São Paulo
​​​​​​​pagotto@freitasleite.com.br

Introduction

On 1 April 2021, Brazil passed its New Public Procurement Law (Law No 14,133/2021), revoking Law No 8,666/1993 after almost 28 years in force. The new law aims to simplify the government procurement and contracting system, improving efficiency and reducing bureaucracy. Indirectly, such changes may have an impact on situations which may lead to corruption but it is too early to say whether the new piece of legislation will create more or less trouble in the fight against a corrupt business environment.

The New Public Procurement Law

There are definitely positive aspects surrounding the new legislation. In fact, the New Public Procurement Law created several rules that impact on the compliance framework in Brazil and reflected the growing concern with environmental, social and governance (ESG) topics.

The highlights are listed below:

Mandatory compliance programme

Public procurements request for proposals (RFPs) related to major constructions, services and supplies (ie, contracts with estimated value exceeding BRL 200m) must require the ‘mandatory implementation of a compliance program by the winning bidder, within a period of 6 (six) months, counted from the signing of the contract, as established in the regulation that will provide instructions on which measures must be adopted, how to proof the existence of a compliance program and the penalties for its non-compliance.’ (Article 25, paragraph 4).

The legislation was silent about which authority will set the much needed guidelines, and which topics would be addressed in those guidelines – the scenario raises doubts regarding the effectiveness of the enforcement, evaluation and evidence of the implementation or the previous existence of a compliance programme, at least in the short-term. To have a better idea of the impact of such rule, in 2020 only 17 contracts exceeding BRL 200m were signed with the Federal Public Administration (source: Federal Transparency Portal). On the other hand, several states and municipalities already have specific rules on compliance programmes, which will require an effort to harmonise and apply laws with different levels of requirements.

Compliance and ESG as tiebreaker criteria

The New Public Procurement Law innovated by introducing compliance and ESG, establishing them as one of the possible tiebreakers as follows: (i) ‘development by the bidder of a compliance program, according to authorities guidelines’; and (ii) ‘development by the bidder of gender equality actions between men and women in the work environment pursuant to applicable legislation’ (Article 60, item I).

Compliance and ESG due diligence of third parties

Companies that have been convicted in court five years before the public procurement RFP for: (i) exploiting child labour; (ii) submitting workers to conditions analogous to slavery; or (iii) hiring teenagers in cases prohibited by labour law cannot be hired (Article 14, item VI). Thus, the New Public Procurement Law incentivises those companies that invest on full-scale compliance programmes, which include practices for preventing corruption, promoting diversity and respecting human rights and labour legislation.

Mitigation factors in case of sanctions

The implementation or improvement of a compliance programme is a factor to be taken into consideration when determining the sanctions arising from administrative infractions provided in the New Public Procurement Law (Article 156, Paragraph 1, item V).

Compliance as a requirement for rehabilitation of sanctioned companies

Another novelty is the possibility of rehabilitating sanctioned companies by the authority that imposed the penalty (Article 163). When the sanction is applied due to: (1) false declaration or documentation; (2) fraudulent bidding; (3) malpractice; or (4) corrupt practices, the implementation or improvement of a compliance programme will be mandatory for the bidder as a condition of rehabilitation.

Compliance programmes

Considering the relevance of compliance programmes in the New Public Procurement Law, companies that intend to enter into contracts with the Brazilian government should consider structuring a compliance programme. Among the measures to be adopted, the following can be listed:

• carry out a compliance risk assessment in the organisation to identify vulnerabilities and topics to be improved;
• elaboration of reports describing the current status of the compliance programme and elaboration of evidence regarding the procedures currently in place (eg, photos of compliance workshops, record over internal policy updates, monitoring of whistleblowers complaints);
• obtaining compliance programmes certifications;
• conduct specific training for those employees who deal with public authorities and public procurement procedures; and
• implementing or improving the compliance programme with a focus on due diligence of third parties who interact with the public administration.

Although already in force, the New Public Procurement Law will coexist with the previous legislation (Law No 8,666/1993 and other related rules) during a period of two years (Article 193, item II). During this period, the Public Administration may choose between the two regulations. The Articles pertaining to public procurement crimes of the previous legislations were immediately revoked.