Publications

Category: Infrastructure and energy

The recent disclosure of the Revive Program by the National Bank for Economic and Social Development (BNDES) is a good opportunity to revisit Law No. 14,011/20, which is highly important for the management of the Federal Government's real estate assets and which, promulgated almost a year ago, received little fanfare, despite its remarkable short-term results.

This law introduced, fundamentally, three axes of innovations to the framework of Law No. 9,636/98, today the main piece of legislation dedicated to the topic of federal real estate:

• facilitation for the removal of the annual rent (consolidation of useful and direct areas) of Federal Government buildings submitted to the emphyteutic rent system;
• The provision of an exemption from bidding for the hiring of BNDES to carry out studies and execute plans for the privatization of real estate assets of the Federal Government (which may involve any modalities of privatization admitted by law, such as the sale, exchange, assignment, granting of real right of use or even the creation of real estate investment funds); and
• The possibility of submitting, by any interested party, a proposal for the acquisition of Federal real estate (provided that they are not registered in an emphyteutic rent system or occupied), by means of a specific request to the Bureau of Federal Government Assets (SPU) – thus settling old debates as to the feasibility of boosting the process of disposal of public property on the initiative of the individual interested in its use.

Specifically as to the presentation of offers by interested parties, if the property does not have a valid appraisal, the applicant may provide, at his own expense, an evaluation prepared by an appraiser or specialized firm. Even if the SPU is not obliged to conduct or complete the bidding procedures for the sale of the property subject to the proposal, if the appraisal is duly approved and supports the holding of an effective bidding process, the individual who paid it may acquire the property on an equal basis with the winner of the bidding process – or be reimbursed for the cost of the appraisal if it decides not to exercise its right of preference.

The new legislation aimed to boost and expedite the divestiture of Federal real estate, in order to ensure greater liquidity to its assets and streamline the use of these assets as a public management strategy.

Measurements come at a convenient time. It is estimated that the Federal Government owns more than 750,000 properties – many of which are the result of executions of federal tax debts and seizure and confiscation of assets acquired with funds from criminal practices. Contingent size invariably constitutes a significant burden on the Federal Budget, demanding expenses with the maintenance, supervision, and safety of real estate – although they do not necessarily serve any specific purpose for the government or the public interest more broadly.

Legislative changes already have positive results. While, throughout 2020, about 60 Federal properties have been sold, since the enactment of Law No. 14,011/20, 192 properties have already been the subject of this new type of direct purchase proposal and should go to auction soon.

In this trend, BNDES is preparing to take an active role in increasing the efficiency of the management of the Federal Government's real estate assets. A few months ago, the bank announced the execution of a technical cooperation agreement with the Brazilian Air Force (FAB), with the objective of planning real estate structuring projects that can not only rationalize the real estate expenses of the Air Force Command, but also generate complementary revenues for the FAB, bringing about greater efficiency and economics to the administration of its assets.

The Revive Program, recently published, is a part of this movement. An initiative of the Ministry of Tourism in partnership with the Ministry of Economy of Portugal, the program developed by BNDES is intended for the recovery of federal historical heritage with the support of the private sector. For its viability, the bank intends to structure plans for the concession of cultural goods. A similar action has already transferred, in Lusitanian lands, approximately two dozen properties to private management, allowing the mobilization of at least 150 million euros in investments in the buildings granted. It is a stimulus, undoubtedly, that is very significant for the preservation of historical and cultural heritage, as well as for the tourism economy.

It is expected that, in the course of the current trend, Law No. 14,011/20 and the resulting series of initiatives will reduce the gigantic portfolio currently managed by the SPU, unlock the enormous socioeconomic and cultural potential contained in the real estate heritage of the federal government, and concretely enable the use of highly attractive properties and land for the use of new developments in the country, in the real estate, tourism, and even infrastructure areas – such as the construction of port terminals or other facilities with a multimodal logistics vocation – serving as a valuable tool to attract investments and boost national development.

Category: Litigation

Contracts^[1] of various natures have been broken in Brazil due to the covid-19 pandemic. The defaults, when not solvable amicably by mutual concessions, have been submitted to the judiciary (or an arbitral tribunal, where applicable) to be litigated and resolved there.

In early February of 2020, Federal Law No. 13,979/20 established measures to address the public health emergency resulting from the coronavirus outbreak. Similarly, state and municipal governments have issued decrees to reduce the transmission of the new coronavirus, which was approved in a decision by the Supreme Court (STF)^[2] where their competence over public health was upheld.

The government of the state of São Paulo, for example, issued Decree No. 64,881/20, which ordered suspension of in-person service to the public in commercial establishments and service providers, especially nightclubs, shopping malls, galleries, and similar establishments, gyms and fitness clubs, in addition to on-site consumption in bars, restaurants, bakeries, and supermarkets (Article 2). The bans followed the same path in the state of Rio de Janeiro. With Decree No. 46,973/20, the state government imposed suspension of various activities, including the operation of shopping malls, shopping centers, and similar establishments (Article 4, XIV).

Other rules were also issued in the states of São Paulo and Rio de Janeiro disciping measures to prevent covid-19 and deferred the deadlines originally set for suspension of non-essential business activities.^[3] The enactment of these normative acts, although essential for the preservation of human health, caused, and have been causing, deleterious effects on the economy. Entrepreneurs in  activities considered non-essential were prevented from carrying out their activities and earning income. And this issue, as in a cascading effect, led to default on a series of labor, tax, and contractual obligations, among others.

With regard to contractual obligations, in cases where there was the mutual will of the parties and reciprocal desire to preserve the contractual relationship in place (attribute of the social function of the contract),^[4] contractual amendments were entered into in order to redo and/or relax specific obligations whose compliance proved unfeasible, at first, in the face of the severe economic crisis caused by the pandemic.

However, there have been situations where renegotiation of obligations was not possible. In these cases, the economic impact often led to the closure of commercial activities. As a consequence, contractual default and related penalties are being brought to court.

There were also situations in which the parties used the judiciary to seek judicial protection that would allow them to reduce or re-negotiate certain obligations, at least while social isolation policies were in force and, above all, the closure of commerce ordered by the Government. This practice took place on a considerable scale in rental relations.

In order to maintain the contractual relationship with significant changes in the obligations established, tenants of business establishments joined the Judiciary seeking suspension and/or renegotiation of rent. Lawsuits with this claim, based on what objective contractual good faith (Civil Code, Article 422) and the social function of the contract provide for, address, in common, that the suspension or, at the limit, the reduction of rent is admissible to realign the economic and financial balance (Civil Code, Articles 478 to 480).

The case law has addressed, on a case-by-case, the state intervention and the gradation in which it should take place, when and if applicable, for the readjustment of the economic and financial balance of lease agreements. According to the case law, it is necessary, among other factors, to analyze whether the financial difficulty of the lessee to bear its  obligations has been unequivocally demonstrated, that is, whether covid-19 (and the resulting administrative acts) caused, in fact, significant shocks in the economic situation. That, moreover, is the factor of analysis without which there is no claim to review rents. After all, contractual clauses must be complied with (principle of pacta sunt servanda).

When encountering one of these scenarios, the Court of Appeals  of São Paulo ordered temporary reduction of the rental amount, at  50% of the original value, in the period between March and December of 2020.^[5] The Court of Appeals of Rio de Janeiro has also already ruled to this same effect, highlighting that the "discount in the value of rental during the stoppage of activities is being given to ensure the viability of the enterprise in this specific interregnum, and not to create a new debt required in the troubled scenario of loosening that begins or in the future post-pandemic period".^[6]

The TJSP,^[7][8] in specific situations, has found that there may even be the temporary exemption from the payment of rent, as in the cases of rental of commercial establishments located in shopping malls, during the period in which commerce had to remain closed and bearing monthly expenses (promotion and advertising budget, employees, condominium fees, security, franchisors, taxes, suppliers, etc.) by force of determination of the Public Power.

In these cases, however, given the particularity of rent contracts in shopping malls, which hold "an intrinsic and very intense need for intersubjective cooperation",^[9] although even temporary suspension of rents has been accepted, the case law of the TJSP has preserved the obligation of the lessee to pay the condominium expenses, since , "in addition to being expenses common to all shopkeepers of the mall, they are intended for the maintenance of the place and the payment of employees".^[10]

The advent of the pandemic and the resulting administrative acts – those that ordered closure of of commercial establishments considered "non-essential services" – led to a significant increase in lawsuits in which tenants seek exemption from or renegotiation of rent, even for a temporary period.

The judiciary, in turn, has addressed these cases specifically and and on a case-by-case basis. Thus far, there is no consensus as to the assumptions that the exemption or reduction of the lease should take place and at what percentage. However, the case-by-case analysis is based on consolidation of the understanding that, in certain situations, the pandemic justifies state intervention to ensure financial balance in commercial leases.

^[1] In the exact words of Maria Helena Diniz, the "contract constitutes a kind of legal deal, of a bilateral or multilateral nature, depending, for its formation, on the meeting of the will of the parties, because it is a regulating act of particular interests, recognized by the legal system, which gives it creative force" (In fashion Brazilian Civil Law Course, Volume 3: Theory of Contractual and Extracontractual Obligations. 20th ed. São Paulo: Saraiva, 2004, p. 23).

^[2] STF, ADI no. 6.341/DF, en banc, opinion drafted by Justice Marco Aurélio.

^[3] The decrees, in general, stipulated as essential activities: supermarkets, pharmacies and health services (hospitals, clinics, laboratories, and similar establishments).

^[4] In the words of Carlos Roberto Gonçalves, "the attendance to the social function can be focused on two aspects: one individual, relative to contractual parties, who use the contract to satisfy their own interests, and another, public, which is the interest of the collective in the contract. To this extent, the social function of the contract will only be fulfilled when its purpose – distribution of wealth – is achieved fairly, that is, when the contract represents a source of social balance" (In fashion Brazilian Civil Law, Volume 3: Contracts and Unilateral Acts. 9th ed. São Paulo: Saraiva, 2012, p. 26).

^[5] TJSP; Internal Civil Injury 2191227-50.2020.8.26.0000; Rel. des. Walter Exner; 36th Chamber of Private Law; DJ: 10/29/2020

^[6] TJRJ; Instrument Injury No. 0053875-79.2020.8.19.0000; Rel. des. Nilza Bitar; 24th Civil Chamber; DJ: 16.09.2020

^[7] TJSP; AI no. 2118168-29.2020.8.26.0000, 32nd Chamber of Private Law, rel. des. Luis Fernando Nishi, j. 15.07.2020, DJe 15.07.2020.

^[8] TJSP; AI no. 2104141-41.2020.8.26.0000, 32nd Chamber of Private Law, rel. des. Kioitsi Chicuta, j. 25.06.2020, DJe 25.06.2020.

^[9] MARTINS-COSTA, Judith. "The contractual relationship of shopping center". Lawyer's Magazine, year XXXII, vol. 116, Jul. 2012, p. 110. Available in: https://aplicacao.aasp.org.br/aasp/servicos/revista_advogado/paginaveis/116/2/index.html

^[10] TJSP – AI nº 2125636-44.2020.8.26.0000, 33rd Chamber of Private Law, rel. des. Mario A. Silveira, DJ 01.07.2020.

Category: Tax

The Ministry of Economy presented last friday (25) a proposal of tax reform, including certain rules regarding the taxation of individuals, legal entities and financial investments. We highlight above the main points of the Bill of Law presented to the Chamber of Deputies:

1. Corporate taxation

Dividends

• Taxation of dividends at 20% rate, as general rule. 30% rate imposed to beneficiaries that are resident or domiciled in low tax jurisdictions (“LTJ”) or subject to privileged tax regime (“PTR”).

• Creation of a credit mechanism for avoiding tax cascading.

• New hypothesis of the application of Disguised Distribution of Profit (“DDL”) rules.

• Profits and dividends distributed to small business are exempt up to BRL 20 k each month.

Corporate Income Tax (“IRPJ”)

• Reduction of the corporate rate from 15% to 12.5% in 2022 and to 10% as of 2023.

• Maintenance of the additional IRPJ rate of 10% applicable to profits exceeding BRL 20 K each month.

• Social Contribution on Net Profits (“CSLL”) 9% rate which is also imposed on profits would not be changed. Thus, the corporate rate would be reduced from 34% to 29% as of 2023.

• End of the annual regime for the assessment of the real profits, maintaining only the quarterly regime. In this regime, it will be possible to offset 100% of the net operational losses (“NOLs”) from one quarter in the following three quarters.

• Obligation to access IRPJ and CSLL under the real profit regime for the following business activities: (i) credit securitization; (ii) more than 50% of the revenues are derived from remuneration of royalties or management, rent or buy and sale of own real estate properties; or (iii) exploitation of property rights, copyrights, picture rights, trademarks or voice rights. This new rule would not be applicable to companies that distribute, license or assign the right of using software and real estate development.

• Entities opting for the presumed profit regime would no longer be waived from bookkeeping.

• IRPJ and CSLL taxable basis would be equated.

Interest on Net Equity (“JCP”)

• JCP would no longer be deductible in the assessment of IRPJ and CSLL under the real profit regime.

Goodwill

• End of the regime that allows the deductibility of the goodwill for tax purposes for acquisitions occurred after 12/31/2021 and merger and spin-off events occurred after 12/31/2022.

Acquisition of additional investment in controlled company

• New rule that allows the recognition of the value exceeding the net equity value in the accounting value of the investment. Imposition of restrictions similar to the ones attributed to the goodwill.

Deductibility of intangible assets

• Establishment of the minimum term of 20 years, which is not applicable to the cases with the term is determined by the legislation or the agreement (these ones prevail over the 20-year term, regardless of the fact they are higher or lower).

Foreign exchange variations of investments held abroad

• Foreign exchange gains and losses underlying foreign investments will not be considered as part of the cost of acquisition for the purpose of assessment of capital gains or losses upon disposition.

Share-payment

• Restriction to the deductibility of payments based on shares which have officers and managers as beneficiaries.

Capital reductions of Brazilian companies and capital increases made in legal entities and other legal entities held abroad

• Obligation to adopt market parameters in said transactions and taxation of the respective capital gain.

Special participation company (“SCP”)

• SCP would be obliged to adopt the same taxation regime of the ostensive partner.

Indirect disposition taxation

• Creation of rules imposing income tax on the capital gains assessed in indirect sales of a Brazilian equity investment.

2. Transactions in the financial and capital markets

Investments in securities

• Extinction of the Income Tax regressive rates, which are applicable to fixed income or variable rate transactions. Creation of a fixed Income Tax rate of 15% applicable regardless of the transaction term or kind of operation (including day trade and negotiation of investment fund quotas in the stock exchange).

• End of the Withholding Income Tax (“IRRF”) imposed at the sale of shares at 0.005% rate (general rule) or 1% rate (day trade transactions).

Investment in open-end investment funds

• Extinction of the WHT anticipation of May (the so-called “come-cotas”). Creation of a fixed rate of 15% imposed in November or in the date of redemption, if it occurs before November.

• In relation to the Mutual Funds which invest in the entry market and comply with certain governance rules set forth by Section 18 of Law no. 13.043/2014, the rule exempting individual investors would only be applicable up to 12/31/2023 and as of 01/01/2024, the rules of open-end funds would be the ones applicable.

Investment in close-end investment funds

• Introduction of the same treatment of open-end funds: 15% rate, imposed as WHT anticipations – “come-cotas” in November or upon income distributions, amortization or redemption of quotas, if these events occurred before November.

Investment in Real Estate Funds (“FII”)

• End of the exemption applicable to individuals in relation to FII quotas negotiated in the stock exchange.

• Reduction from 20% to 15% of the Income Tax rate imposed on income distributions, amortization and disposition of quotas.

3. Individual’s taxation

Readjustment of the progressive Income Tax table

• The proposal includes the increase of the exemption range of up to BRL 1.9 k to up to BRL 2.5 k and the readjustment of the taxation ranges:

Restriction of the deduction of expenses by means of the simplified regime

• The simplified regime applicable for deductions would be available only to the individuals that receive up to BRL 40 k each year. The deduction of expenses under the “complete tax return” would be maintained.

Anti-deferral rules

• Automatic taxation of the profits accrued by legal entities located in LTJ or benefiting from PTRs controlled by Brazilian individuals.

Savings account

• Maintenance of the exemption of the income derived by individuals.

Revaluation of real estate properties

Possibility of updating the acquisition cost of the real estate properties located in Brazil, with the taxation of the respective capital gain at a 5% rate.

Restriction of the deduction of expenses by means of the simplified regime

• The simplified regime applicable for deductions would be available only to the individuals that receive up to BRL 40 k each year. The deduction of expenses under the “complete tax return” would be maintained.

Anti-deferral rules

• Automatic taxation of the profits accrued by legal entities located in LTJ or benefiting from PTRs controlled by Brazilian individuals.

Savings account

• Maintenance of the exemption of the income derived by individuals.

Revaluation of real estate properties

• Possibility of updating the acquisition cost of the real estate properties located in Brazil, with the taxation of the respective capital gain at a 5% rate.

Category: Capital markets

The Investment Fund in Agroindustrial Production Chains (Fiagro), created in the first quarter of this year through Law No. 14,130/21, is an investment instrument focused on financing agribusiness production chains. Its creation, driven by the sector, followed a rapid process of the bill in the National Congress and allows the transition of the financing model of Brazilian agribusiness, today based mainly on government subsidies, to a model that increasingly includes private credit.

Faced with the high indebtedness of the federal government, fiscal restrictions and major socioeconomic issues to be faced, there are indications of an increasing shortage of public resources for the sector in the coming years, which had already been perceived and eventually drove the creation of the fund. It opens up the possibility for private investors to make a strategic and valuable contribution to the country's productive sector.

In the face of several climate changes in various agricultural regions and population growth on a global scale, Brazil has remained one of the main suppliers of agricultural commodities in the world, thanks to the increasing efficiency of Brazilian agribusiness, which increasingly relies on technology as an ally. The expectation is that the sector will continue to grow, but its development, which involves continuous investment in modernization, requires funding.

Fiagro allows investments in the following listed assets, directly related to agribusiness financing:

• properties, which may be leased or disposed of by the fund;

• participation in companies that explore activities that are part of the agro-industrial production chain;

• financial assets, credit securities or securities issued by individuals and legal entities that are part of the agro-industrial production chain (including the Rural Product Note (CPR), the Agribusiness Credit Rights Certificate (CDCA), the Agribusiness Letter of Credit (LCA), the Agricultural Deposit Certificate (CDA), the Warrant Agricultural (WA), the Rural Real Estate Note (CIR);

• agribusiness credit rights and securitization securities issued with ballast in agribusiness credit rights, including Agribusiness Receivables Cerificates (CRAs) and quotas of Investment Funds in Credit Rights (FIDCs) – standardized and non-standard – that apply more than 50% of their equity in said agribusiness credit rights;

• real estate credit rights related to rural real estate and securitization securities issued with ballast in these credit rights, including CRAs and quotas of FIDCs – standardized and non-standard – that apply more than 50% of their assets in said real estate credit rights; and

• investment fund quotas that apply more than 50% of their equity to the assets listed in the assets listed above.

However, as Law No. 14,130/21 was partially sanctioned, with a veto of important provisions that conferred fiscal attractiveness to the fund, the use of the instrument in question was called into question in the last two months. There was great expectation in the market, especially among entrepreneurs and agribusiness investors, about the overthrow or not of vetoes in the National Congress, on which the economic viability of the instrument depended as a true alternative to attract private investment.

On June 1, however, the vetoes were all overturned by the National Congress, and Fiagro became in fact an excellent alternative for the agribusiness sector, with real fiscal attractiveness for investors, namely:

• Withholding Income Tax exemption for incomes earned by Fiagro whose quotas are traded on a stock exchange or over-the-counter market and are distributed to individuals, provided that the following requirements are met. As in the Real Estate Investment Fund - FII, in order to obtain this benefit, Fiagro must have at least 50 quota holders, and the individual enjoying the benefit may not have (i) quotas representing 10% or more of all quotas issued by Fiagro or (ii) quotas entitled to receive income greater than 10% of the total income earned by Fiagro;

• deferral for payment of income tax arising from the capital gain on quotas paid with rural property by natural or legal person to (i) the date of sale of these quotas or (ii) the date of redemption of these quotas, in the case of liquidation of the fund. The payment of such deferred tax shall be proportional to the amount of quotas sold. This provision is a great stimulus for the payment of FIAGRO quotas with rural properties, allowing the structuring of FIAGRO by rural owners in a less costly way, once there will be no need for payment by the quotaholder of the capital gain at the time of the payment of the quotas with the rural property (but only at the time of sale or redemption of the quotas), which makes the structure more affordable;

• the investment, through the Fiagro structure, in Agricultural Deposit Certificate (CDA), Warrant Agricultural (WA), Credit Rights Certificate (CDCA), Agribusiness Letter of Credit (LCA), Agribusiness Receivables Certificates (CRA) and Rural Product Note (CPR) becomes attractive, since it will be up to the same Withholding Income Tax exemption applicable to the individual. The Withholding Income Tax incentive is quite similar to that granted to the Real Estate Investment Fund to invest in securities related to real estate financing, which, at that time, led to the broad adoption of Real Estate Investment Funds structures.

additionally it is also worth remembering that the taxation of Fiagro's earnings and income may be postponed to the time of amortization, redemption or disposal of its quotas, since, unlike the Real Estate Investment Fund, Fiagro is not obliged to distribute to its quota holders a minimum of 95% of the profits earned, calculated according to the cash regime, based on balance sheet or semiannual balance sheet.

Because they are securities, Fiagro's quotas attract the regime of Law No. 6,385/76 and the competence of the Brazilian Securities and Exchange Commission (CVM) to regulate the form of constitution, operation and administration of the fund. It is expected that, soon, the CVM will edit a regulation on Fiagro, which should comply with the guidelines of Law No. 14.130/21. The expectation is that this will give way to the creation of several funds of such type.

With the initiative, agribusiness now has an important private financing instrument to enhance its growth at a time of strong fiscal constraints, while the capital market now has a new and attractive financial product.

For more information on the characteristics of Fiagro, please visit our article Fiagro: new alternative of private financing for Brazilian agribusiness.

Category: Litigation

After more than two decades of consideration, Brazil finally has a new bidding law. Published on April 1, 2021, Law No. 14,133 incorporates a series of successful and unsuccessful experiences verified during the almost three decades of validity of Law No. 8,666/1993, in addition to demands from public managers and those who make contracts with the Public Administration.

Although it cannot be said that the new law completely abandoned the maximalism that marks Law No. 8,666/1993, the new law tried to create mechanisms that enable the public manager to carry out not only simple contracts, such as the provision of care services, but also more complex services, such as telecommunications, information technology, etc.

One of the most celebrated innovations is competitive dialogue, bidding modality for contracting works, services, and purchases, applicable in contracts that involve cumulatively:

• technical or technological innovation;
• lack of solutions available on the market;
• inability of the administration to precisely define the technical specifications of the object to be contracted; or
• the need to define technical means and alternatives to the solutions already defined and the legal and financial structure of the contract.

Inspired by European legislation, competitive dialogue takes place in two phases:

• dialogue between bidders who meet minimum criteria determined by the Administration and
• competition from the specification of the solution that meets the needs of the Administration according to the objective criteria published in the notice and that will be used for the selection of the proposal.

It will be up to the Management to define the winning proposal according to criteria disclosed at the beginning of the competitive phase, ensuring the most advantageous contracting.

The new bidding modality innovates by promoting a greater interaction between the Administration and bidders in the definition of the object to be contracted and aims to break the traditional way of public procurement.

The old bidding law, passed in 1993, brought strict procurement procedures to meet the principles of legality and impersonality. Thus, it attributed to the bidders a passive role throughout the procedure since they should manifest and submit proposals in strictly accordance with the law and the tender notice.

The Law on Public Service Concessions (Law No. 8,987/1995) and the Public Companies Law (Law No. 13,303/2016) already increased the dialogue and cooperation between the Administration and private companies, by introducing the expression of interest procedure (PMI) and the possibility of strategic partnerships between state and private companies respectively.

The rupture of the traditional paradigms of public procurement by these instruments and the introduction of the modality of competitive dialogue brings important points of reflection about its operationalization. The application of a procedure similar to competitive dialogue in the member countries of the European Union points to an accumulation of experiences and diagnoses that deserve to be carefully analyzed by the Brazilian public manager.

A survey of members of the European PPP Expertise Centre^[1] points to the significant use of the competitive dialogue in complex public procurement, such as public-private partnerships. Aware of the limits of this first essay on the subject, we bring briefly the main positive and negative elements pointed out by this research.

The interviewees indicated that the competitive dialogue increased the communication between the Administration and the proponents, which allows to define more precisely the needs of the Administration and present a more appropriate design and innovative solutions. They also mention greater competitive tension during the dialogue period, which enables management to obtain a better cost-benefit ratio and agree on all vital commercial issues as long as there is competition between bidders. Moreover, there seems to be a general perception that the competitive dialogue does not expose the Administration to a greater risk of legal challenges than alternative procurement procedures.

On the other hand, the respondents also expressed many concerns regarding the new procedure, especially regarding the complexity, the cost and time of acquisition. The process is considered costly in terms of resources and time, and most managers who are interviewed admit that their staff are not well prepared to conduct such complex processes, so they would rely heavily on external consultants. Moreover, according to the managers interviewed, the modality does not present flexibility and/or clarity and cannot fit different circumstances.

The European experience shows that the adoption of an innovative instrument in the field of public procurement requires an experimental period by Brazilian public managers and, mainly, supervision by internal and external control bodies, which commonly base their audits on the more traditional criteria of public procurement (lower price or better technique and price).

It is interesting to note that the study itself highlights that the competitive dialogue procedure is not widely used by the European community, only the United Kingdom, France and Ireland use the procedure on a sufficient scale to carry out a reliable study.

The study also identified that competitors sometimes retain most competitive and innovative solutions until the last stage of the procedure to avoid risks and leak these solutions to their competitors. This tends to make the procedure more time consuming and less effective, by not encouraging dialogue and cooperative construction of the best solution for public administration.

In addition to the practical issues related to the European experience, some theoretical problematizations were also brought in Brazilian essays on the subject.

In recent text published on the site jota, Edcarlos Alves^[2] points out the lack of capacity of the public manager to make the choice of the best solution presented by the participants of the dialogue in an impartial and technical way.

If the competitive dialogue is used in contracts where the Public Administration does not have the ability to accurately indicate the technical specifications or knowledge about the solutions offered in the market, how to ensure that the public manager will make the best choice among those offered by competitors? The challenge lies not only in choosing the best solution proposed but also in the choice of the competitors themselves who will participate in the discussions, when the Administration itself does not have sufficient knowledge about the market.

The Competitive dialogue, more than any other type of competition for public procurement, presupposes a disparity of information and knowledge between the public authorities and private companies. Law No. 14,133/2021 itself directs this problem by providing for the possibility of hiring technical advisory professionals (item XI, of art. 32).

Although the technical advice can solve the issue of lack of knowledge on the subject, ends up generating new public procurement, demanding more time and resources from the Administration.

In addition to all the issues mentioned above, there is a clear discrepancy between the robustness of the European rule compared to the lack of sufficient provisions to regulate the issue in the new Brazilian legislation. While Directive 2014/24 of the European Union contains broad provisions on the subject, Law No 14,133/2021 summed up to address the issue specifically in only one of its provisions (art. 32).

The lack of robust or rigid regulation may result from an attempt to increase flexibility in future public procurement, which is one of the objectives proposed by the new law. The public manager was given the freedom to define their selection criteria, requirements, and choice of the winning proposal, establishing only that the final proposal should be the more advantageous, not defining whether the advantage should be in economic, technical or innovation terms. In other words, there was clear scope for the public manager to define the criteria of this procedure, which, although it can be seen as an advantageous flexibility, is still a lack of specific regulation, something that has already been criticized in studies on the subject^[3].

From a practical point of view, experience has shown that the lack of regulation and excessive discretion of the public manager have led the Courts of Auditors to act more strongly in order to suppress the lack of regulation or penalize excessive discretion, which may lead to more impositions or penalty by the control bodies. This creates legal uncertainty to the public manager and to the private companies that are not able to predict the future decisions of the Courts of Auditors.

Since the new Law No. 14,133/2021 was too brief in terms of regulations of this new competitive modality, public managers will have to define the issue, being susceptible to supervision and possible sanction by the control bodies, which may hinder or even prevent the use of this modality, depending on the caution of the manager who will evaluate its fit. Let us remember that the lack of clarity in the terms used by the law was also criticized for the use of this type of competition in Europe.

The critics made above were not made with the intention of discourage the use of this modality or to take credit from the innovation brought by law. They raise points that can still be the subject of legislative improvement. The diversity of practices should occur in a safe environment that allows the public manager to "risk" a more flexible procedure without having to worry about possible further accountability.

We understand that the title of this paper brings a rhetorical question, once only the courage of innovation of public managers, the technical preparation of public and private lawyers and the flexibility of the control bodies can enable the implementation and improvement of the instrument of the competitive dialogue in the country.

^[1] European PPP Expertise Centre. Procurement of PPP and the use of Competitive Dialogue in Europe: A review of public sector practices across the EU. Available in: https://www.eib.org/attachments/epec/epec_procurement_ppp_competitive_dialogue_en.pdf. Accessed May 20, 2021.

^[2] LIMA, Edcarlos Alves( "Competitive dialogue and the practical challenges of its operationalization – An innovative bidding modality, but which requires care to be used correctly by the public manager." Article published on 11/05/2021.

^[3] Question scored by Celso de Almeida Afonso Neto in "Competitive dialogue: a stillborn in Brazilian law", text included in the work Limits of control of public administration in the rule of law / coordination of Fabrício Motta, Emerson Gabardo - Curitiba: Íthala, 2019.

Category: Environmental

The new Law on Administrative Procurement and Contracts, published on April 1 (Law No. 14,133/2021), was well received by the market upon reiterating the need to insert the issue of sustainable national development into public procurement processes in Brazil.

Although the term "sustainable development" has already been addressed in other normative acts relating to procurement, as in Law No. 12,462/2011, which deals with the Differentiated Procurement Regime, the new procurement law promotes inclusion of sustainability in public tenders in a practical way, since it provides more specifically for the environmental issues that must be taken into account so that the concepts of the Brundtland Our Common Future Report of 1987 can actually be adopted.

During the preparatory phase of the procurement, it is necessary to prepare a technical study, which should contain, among other items, details on potential environmental impacts and respective mitigating measures and issues related to reverse logistics, energy consumption, and other natural resources.

The new law on procurements provides for greater environmental control in the criteria for publishing the notice, such as the requirement that the contractor obtain environmental licenses. The law also establishes that the processing of environmental licensing processes of works and services tendered must occur as a priority before the environmental agency.

In order to guarantee sustainable procurements, Law No. 14,133/2021 innovates and surprises positively in establishing the possibility of using the criterion of best sustainable price, instead of lower price, in order to define the winning company. That is, the preference for goods and/or services that have less environmental impact on the production process is established.

Another innovation is the possibility of dispensing from the bidding process the services of collection, processing, and marketing and sale of recyclable or reusable municipal solid waste conducted by associations or cooperatives formed by low-income individuals.

It is noted that the public administration follows the global market trend in requiring enterprises to take environmental, social, and governance criteria, known as ESG, and meet environmental and alternative laws aimed at lessening impact on the environment.

The new procurement law has a clear concern with the environmental impacts arising from the services to be contracted and establishes measures that will contribute to sustainable national development. In this scenario, ventures that show an interest in winning procurements processes should be adapted to environmental legislation.