Public Procurement in Brazil: Challenges and Opportunities

1. Public Procurement in Brazil Challenges and Oportunities Alexandre Motta

2. Public Procurement in Brazil: Challenges and Opportunies

3. Public Procurement in Brazil: Challenges and Opportunies

4. The brazilian total government purchases were about € 171.7 billion in 2012 (something around 10% of the GDP) Procurement Process – An Overview

5. The Brazilian procurement process is initially defined by Law No. 8666/1993, and more recently by Law No. 10520/2000 • The Article 3 of Law No. 8666/93 makes clear that the bidding has two basic objectives: • Ensure the equality among the bidders • Select the most advantageous proposal to the government • The acquisition is carried out through public bidding, operated by a bidding committee or by a auctioneer Procurement Process – An Overview

6. Brazilian law has five procurement methods: Convite (Invitation), Tomada de Precos (Price Taking), Concorrência (Competition), Concurso (Contest) and Pregão (Reverse Auction) • Procurement methods and their values (€): Procurement Process – An Overview

7. Usually an Invitation can last between 30 and 45 days, a Price Taking, something between 60 and 90 days and a Competition, between 90 and 150 days • Selection criteria: almost always is the lowest price. But there are other two possibilities: 1) best technique; and 2) technique and price • The disclosure of the call act (a notice or an Invitation) is the starting point of the public dimension of procurement. This dimension goes until the provision of the good, the execution of the work or the services Procurement Process – An Overview

8. The next step is the competition moment, when the envelopes containing the price proposals are opened • The winner will be the bidder whose proposal complies with all requirements of the notice and has the lowest proposed price Procurement Process – An Overview

9. Public Procurement in Brazil: Challenges and Opportunies

10. Incentive for Micro and Small Enterprises – Complementary Law No 123/2006 provides: • Exclusive Bids (the procurement of up to € 29,410 are only to the segment of micro and small enterprises) • Subcontracting Micro and Small Enterprises • Enabling differentiated • Preemptive Rights • In 2012, this segment accounted for € 6.063 billion of real federal government spending. This amount of money is about 15 times than in the year 2002 Small Size Enterprises

11. Public Procurement in Brazil: Challenges and Opportunies

12. Procurement policy that takes into account sustainability criteria, ie criteria based on economic and social development and environmental conservation • Law No. 12349/2010 modified Article 3 of Law No. 8666/1993, determining the guarantee of sustainable national development, as one of three pillars of the Brazilian public procurement process • Instruction No. 1/2010 (SLTI) defines environmental sustainability criteria in the procurement of goods, services or works contract Sustainable Procurement

13. Decree No. 7746/2012 establishes criteria, practices and guidelines to promote sustainable national development in contracts undertaken by the federal government • Article 4 - Sustainability guidelines, among others: • I ) less impact on natural resources such as flora, fauna, air, soil and water • II ) local origin preference for materials, technologies and raw materials • III ) more efficient use of natural resources like water and energy • IV ) greater employment generation, preferably with local labor … Sustainable Procurement

14. Article 4 - Sustainabilityguidelines, among others (cont.): • V ) longer life and lower maintenance cost for goods and works • VI ) using innovations that reduce the pressure on natural resources • VII ) environmentally regular source of natural resources used in the goods and services • In 2012, the federal government spent € 15.7 million acquiring products ecologically, socially and economically responsible. Regarding 2010, the acquisition of these products grew 236% Sustainable Procurement

15. Procurement Special Regime

16. The Procurement Special Regime (RDC) was established by Law No. 12462/2011 and regulated by Decree No. 7581/2011, and initially applies only to some specific contracts: • Olympic and Paralympic Games in 2016 • Confederations Cup - Fifa 2013 • World Cup - Fifa 2014 • infrastructure works and contracting services to the World Cup airports • actions of the Growth Acceleration Program (PAC). Procurement Special Regime

17. Law No. 12722/2012 extended the use of the RDC for procurement and contracts necessary to carry out works and engineering services to the public school systems • Last December, Law No. 12745/2012 included procurement and contracts necessary to carry out works and engineering services to the unified health system in the RDC Procurement Special Regime

18. Some guidelines: • The objective is to obtain the biggest advantage for the government, considering direct and indirect costs and benefits, of economic or social nature, including those relating to the maintenance, the economic rate of depreciation and other factors of equal importance • It's possible to split the purchase in lots, aiming at broad participation of bidders, without loss of economy of scale • Exchanging the order between the bidder qualification phase and the analysis of the best proposal Procurement Special Regime

19. Bids should be held preferably in electronic form • The bidders could be organized as a consortium • Presentation of the proposal: • Open: bidders shall submit their bids through public bidding with successive increase or decrease, as the judging criteria adopted • Closed: the proposals submitted by the bidders will be confidential until the designated date and time to be announced Procurement Special Regime

20. Judging criteria: • Lower price or higher discount • Technique and price • Best technique or artistic content • Highest bid, or • Greater economic return • In procedures with greater economic return, used exclusively for the pursuit of efficiency, the proposals will be considered in order to select the one that will provide the greatest savings for the government as a result of the contract implementation Procurement Special Regime

21. Preliminary results: • National Department of Transport Infrastructure (DNIT) - Before the RDC, biddings lasted, on average, 285 days. Currently the average time dropped to 79 days • Brazilian Airport Infrastructure Company (Infraero) - Initially the biddings lasted on average 120 days. Today, with the DRC, the same process can last about 69 days Procurement Special Regime

22. Public Procurement in Brazil: Challenges and Opportunies

23. Law No. 12349/2010 modified Article 3 of Law No. 8666/1993, establishing the concept of margin of preference (normal and extra) • contracts for the implementation, maintenance and improvement of information technology and strategic communication systems • National products and services arising from the development of technological innovation achieved in the country, can be established extra margin of preference • 25% Maximum Margin of Preference

24. Decree No. 7546/2011 establishes criteria, practices and guidelines to implement margin of preference in contracts undertaken by the federal government • Creation of the Inter-ministerial Commission for Public Procurement: • Normalize (normal and extra margin) • Compensation measures • Analyze studies • Assess economic impacts Margin of Preference

25. The composition of preference margins will be based on studies reviewed periodically within a period not exceeding five years, identifying, among others: • The potential for generating employment and income in the country • The multiplier effect on the collection of federal, state and local taxes • The potential for technological innovation and development conducted in the Country • The additional cost of products and services and • In its review, the retrospective analysis of results Margin of Preference

26. Exemples of margins of preference: • clothing, footwear and similar products - Decree No. 7756, margin of preference of 20% to domestic products over imported items • Backhoes and bulldozers - Decree No. 7709/2012, fixing margins of 10% and 18% • Drugs and medicines - Decree No. 7713/2012, with margins of 20% for drugs, 25% for biological products, and 8% for "active pharmaceutical ingredients" with immediately national manufacturing capacity Margin of Preference

27. Useful websites (ifyouspeaksPortuguese): • BrazilianPublicProcurement (introductoryinformation/in English) - http://www.brasil.gov.br/para/invest/contracts-and-acquisitions/bidding/br_model1?set_language=en • MarginofPreference - http://www.desenvolvimento.gov.br/sitio/interna/interna.php?area=2&menu=3399 • BrazilianPublicProcurement System (Comprasnet) - http://www.comprasnet.gov.br • BrazilianPublicProcurement (introductoryinformation) - http://www.governoeletronico.gov.br/acoes-e-projetos/compras-eletronicas Public Procurement in Brazil: Challenges and Opportunies

28. Thankyou! Alexandre Motta alexandre.motta@fazenda.gov.br alexandre.motta2@gmail.com https://www.facebook.com/alexandre.motta2 http://www.linkedin.com/in/alexandremotta2 Public Procurement in Brazil Challenges and Oportunities