MINISTRY OF PLANNING

PUBLIC BIDSAND

ADMINISTRATIVE CONTRACTS

Beijing, April 2005

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A. PUBLIC BIDS AND ADMINISTRATIVE CONTRACTS

B. DISTINCT ADMINISTRATIVE CONTRACTS

Traditional contracts (Federal Act 8.666/93)

Concessions (Federal Acts 8987/95 and 9.074/95)

Public-private partnerships (Federal Act 11.079/04)

C. BIDING PROCEEDING

Traditional bids (Federal Act 8.666/93)Concession bids (Federal Acts 8987/95 and 9.074/95)Public-private partnership bids (Federal Act 11.079/04)

Contents

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Necessity and Objectives of Bidding Procedures

NecessityBrazilian law requires sealed bid (art. 37, XXI, and 175 of the Brazilian Constitution)

Cannot employ competitive negotiation

ObjectivesGuarantee equal treatment to all bidders

Choose the best offer to the Government, through:

Promotion of competition among all bidders

Forbiddance of any clause that could restrict competition

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Cases subject to public bidding

Basically all Government contracts are preceded by a public bid

Public works (especially building and construction)

Services

Purchases of goods

Transfers of ownerships (including real estate)

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One basic bidding system and three different contracts

There is basically one bidding system One established by Federal Act 8666/93

Very formal procedure Requires compliance with all the bid procedure rules, deadlines and formal requirements

Divided in two main phases (affirmative finding of responsibility and bid)

Awarding criteria is best price, best technical proposal or a combination between these two criteria

Small variations are found in Concessions Law and PPP Law

Three different contracts Public Works and Services contracts

Concession contract

Public-private partnership contract

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A. PUBLIC BIDS AND ADMINISTRATIVE CONTRACTS

B. DISTINCT ADMINISTRATIVE CONTRACTS

Traditional contracts (Federal Act 8.666/93)

Concessions (Federal Acts 8987/95 and 9.074/95)

Public-private partnerships (Federal Act 11.079/04)

C. BIDING PROCEEDING

Traditional bids (Federal Act 8.666/93)Concession bids (Federal Acts 8987/95 and 9.074/95)Public-private partnership bids (Federal Act 11.079/04)

Contents

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Which kind of contract should be executed?

The choice among them is related to economical aspects of the enterprise

Who makes the investment to implement the project?

• The Government – public works, service or PPP

• The Private Partner – concession or PPP

Is it possible to charge the users for the service?

• No – public work, service or PPP

• Yes – concession or PPP

Who will directly operate the service?

• The Government – public works or service

• The Private Partner – concession or PPP

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Revenue generation capacity of the project

PPP Contract

s11.079/04

Concessions

8.987/959.074/95 PPP

Contracts 11.079/04

and

Contracting of Public Works

8.666/93

Financially self-sustaining

projects

Projects that require full public funding

Projects that require partial public funding

Reven

ue g

ener

atio

n

capa

city

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Tradittional Government contracts Main Features of Public Works contracts

The Government designs and finance the project• Often employs the turn-key regime

The private partner constructs

The Government may pay against the prove of construction of parts of the works

The Government may require guarantees and insurances from the private partner

The Government bears the risk of acts of god, and other events beyond the control of the parties

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Traditional Government Contracts Main Features of Service Contracts

The Government defines the quality and quantity of service

The Private Partner is responsible to operate the service

The Government pays for the quantity/quality of the service rendered

Short term contracts (maximum of 5 years) • not enough to amortize high investments in infrastructure

The Government bears the risk of acts of god, and other events beyond the control of the parties

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Concessions contracts Main Features

Involves design, construction, finance, operation and transfer of an asset

Generally requires relevant investment by the private partner in an infrastructure

Amortization and remuneration of the investment is through the operation of the service

Admits long term contracts (more than 5 years)

Payments made by users (public charges, tools etc.)

Execution and enforcement of contract are usually submitted to Regulatory Agencies

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PPP = 2 new types of concession

Sponsored Concession Service is rendered to the users

Public charge + government subsidy

Administrative Concession Services are rendered directly or indirectly to the Government

Only government payment

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PPP contracts

Differences from Concessions

Involves Government payments

• Full Government payment

• Additionally to user charges

• Payment is due only after service rendering or disponibility and related to levels of performance

Government payments may be guaranteed by insurance or private trust fund

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PPP contracts

Differences from Concessions

Possibility to share risks regarding events beyond the control of the parties

Possibility to use arbitration

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PPP contracts Similarities with Concessions

Involves design, construction, finance, operation and transfer of an asset

Generally requires relevant investment by the private partner in an infrastructure

Amortization and remuneration of the investment is through the operation of the service

Admits long term contracts (more than 5 years)

May involve user charges

Execution and enforcement of contract will often be submitted to Regulatory Agencies

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A. PUBLIC BIDS AND ADMINISTRATIVE CONTRACTS

B. DISTINCT ADMINISTRATIVE CONTRACTS

Traditional contracts (Federal Act 8.666/93)

Concessions (Federal Acts 8987/95 and 9.074/95)

Public-private partnerships (Federal Act 11.079/04)

C. BIDING PROCEEDING

Traditional bids (Federal Act 8.666/93)Concession bids (Federal Acts 8987/95 and 9.074/95)Public-private partnership bids (Federal Act 11.079/04)

Contents

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Traditional Bid Proceeding

High-value contracts of public works or services must employ the “competition” procedure, which encompasses two main stages:

Affirmative finding of responsibility requires

Prove of existence and regularity of its representation

Prove of technical and economic soundness

Prove that has paid taxes

Selection of bidders

IFB is the main document in each bid procedure - governs the BID

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Traditional Bid Proceeding

Criteria employed to select bidders best price

best technique

combination between price and technical soundness

Attributes appealing rights to bidders to question the contract officers’ decisions on

The terms of IFB (Invitation for Bid)

Affirmative finding of responsibility

Selection of bidders

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What is different in concession bids?

NO MAJOR DIFFERENCES BETWEEN TRADITIONAL BIDS AND CONCESSION BIDS

Prequalification procedures are often employed“More demanding” form of affirmative finding of responsibility

May require prove of previous experience in designing, constructing, financing and operating similar projects

The “best price” criterion is understood as :Highest payment for contract awarding

Lowest public charge

May require the inception of a SPC before contract awarding

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What is different in PPP bids?

SIMILAR TO REGULAR CONCESSIONS (PPP ARE TYPES OF CONCESSIONS), having the following differences:

The “best price” criterion is understood as :lower subsidy (Gov establishes the public charge in IFB)

lower public charge (Gov establishes subsidy value in IFB)

Requires the inception of a SPC before contract awarding

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What is different in PPP bids?

Possibility to postpone the affirmative finding of responsibility to a moment after deciding which is the best bid

Possibility to correct formal or non-substantial mistakes made by bidders

Possibility to open an English auction if there is a difference of price of less than 20% between the best sealed bid and the others