As a result of the corruption scandals involving public and mixed-capital companies, such as Petróleo Brasileiro S.A. – Petrobras (“Petrobras”), Law No. 13.303 – “Public Companies Law” was enacted on June 2016, being applicable for all of the Brazilian public-capital/ mixed-capital companies.

The Public Companies Law provides not only specific mechanisms related to transparence, governance, compliance and inspection, applicable to the management practices and operations of public and mixed-capital companies, but also sets forth rules related to the processes of bidding and contracting to be observed by such entities.

According to this new Law, public and mixed-capital companies will have a term of 24 (twenty four) months to revise/adapt their internal procedures and practices, so as to comply with the new rules and instruments introduced by said piece of legislation.

When it comes specifically to the effects of the rules established by the Public Companies Law to Petrobras, it shall be highlighted that it has expressly revoked the so-called Petrobras’ simplified bidding procedures, as regulated by Decree 2.745/1998.

Notwithstanding the foregoing, at some moment within the 24 (twenty four) month-deadline, counted from the enactment of the Public Companies Law, Petrobras will be required to implement and execute new regulations for its Bidding Procedures, based on the rules and provisions of the Public Companies Law.

In any event, we anticipate several important changes that shall be effected by Petrobras in its Bidding Procedures regulations, being some of the most relevant ones described below:

(i) Bidding Methods:

Differently from what was provided under Decree No. 2.745/1998, which included five (5) different methods of bidding procedures, the Public Companies Law simply makes reference to the rules applicable to tailor-made model tenders (“licitações”), including an exception to such rule for tenders to be held for the acquisition of common goods and services, when it shall be preferentially applied the “auction” method (“pregão”).

(ii) Bidding Phases:

Differently from Decree No. 2.745/1998, which determined that the bidding habilitation phase should occur before the tender offers, the Public Companies Law determines that, as a rule, the habilitation phase will take place only after the judgment, analysis and negotiation of proposals, being possible to invert phases if so-determined under the tender notice, though.

(iii) Dispute Methods:

Under Decree No. 2.745/1998 the interested bidders tendered closed/ sealed envelopes with their proposals. In a different manner, the Public Companies Law introduces the possibility of implementation of both the open bids/ “lances” and the closed tender, as dispute methods.

(iv) Homologation of the Results:

Departing from the provisions of Decree No. 2.745/1998, which guaranteed to Petrobras the right to cancel the bid for any reason, before the approval and execution of the relevant agreement, the Public Companies Law ensures to the winner the right to have the agreement executed in case the bidding result is homologated. This new provision shall be praised by the industry.

(v) Agreements’ characteristics:

As set forth in Decree No. 2.745/1998, the Public Companies Law also provides guidance for the agreements to be entered into by public and mixed-capital companies, upon the conclusion of the pertinent bidding procedures. However, there are some innovations in the new Law, such as:

(a) contractor may choose the nature of guarantee to be offered among the options provided by such Law;

(b) limitation of the agreement’s term for 5 years (maximum), except for cases when the object of the agreement and project that it was inserted in has been included under the public or capital-mixed company’s business and investment plan;

(c) inclusion of  a clause regarding contractor’s obligation to repair, correct, remove, rebuild or replace, at its expenses, partially or totally, the agreement’s object if verified any defect, deficiency or errors in the object’s execution, being contractor also strictly liable (i.e. regardless fault) for any damages caused to third parties and/ or to the public or mixed-capital company itself, and without limitation.

In light of the above  we expect that the rules and procedures for biddings and contracting involving Petrobras will be subject to changes within 24 months counted from July 1st, 2016 -- in which date the Public Companies Law was enacted.