Category: Succession planning

The majority of the Plenary of the Supreme Court (STF) established, in February, the theory that states and the Federal District cannot collect Transmission Tax on Donations and Inheritance (ITCMD) on donations and inheritances received from abroad before the Brazilian Congress regulates the issue through a complementary law.

The theory was established in the judgment of Extraordinary Appeal No. 851,108 (Topic 825), which occurred under the general repercussion arrangement {for reviewing appeals} and, therefore, with binding effect. Most Justices (7 x 4) concluded that states and the Federal District cannot institute collection by their own law.

According to the decision, the Federal Constitution provides that it is incumbent on federal supplementary law, and not to ordinary state laws, to regulate the matter and, to date, there has been no complementary law on the subject. Therefore, the states and the Federal District are prevented from requiring payment of ITCMD in these situations.

In the specific case, the Supreme Court reviewed an appeal brought by the State of São Paulo against a decision by the Court of Appeals of São Paulo (TJ-SP) that found article 4 of São Paulo State Law No. 10,705/00 to be unconstitutional. The provision provided that the state could charge the ITCMD on donations and inheritance from abroad received by people residing in the state.

Despite the favorable understanding of taxpayers, the majority of Supreme Court Justices (9 x 2) opted for the proposal to soften the effects of the decision. Thus, it will be valid for facts that occurred after publication of the judgment and for facts discussed in lawsuits not yet finalized at the time of publication of the judgment, which has not yet occurred and should be analyzed to confirm the position adopted by the court.

In summary:

The decision is extremely relevant in the planning of assets and succession so that increasingly structures abroad are used to hold assets, as well as succession vehicles, such as trusts and foundations, whose beneficiaries are Brazilian. In addition, there are many Brazilians living abroad.

In cases where donors or deceased persons are domiciled abroad, the property inherited is located abroad or the inventory is carried out outside Brazil, there will be no levy of inheritance or donation tax.

The trial has already had an impact on the Legislative Houses: on March 17, Complementary Bill No. 37/21, authored by Congressman Hildo Rocha, was submitted with the aim of filling the gap of subsection III, paragraph 1, of article 155 of the Federal Constitution, which was highlighted in the judgment by the Supreme Court.

The bill presented provides that the ITCMD institution will be responsible for:

• stating where the inventory or probate is processed, or the donor is domiciled, with respect to real property, personal property, securities, or receivables located abroad (subsection II and paragraph 1 of article 2 of the bill);
• the jurisdiction where the beneficiary of the assets or rights is domiciled, when the donor is domiciled or resident abroad or if the deceased has his inventory processed abroad (paragraph 2, subsections I and II, of article 2 of the bill);

The bill has not yet been processed by the House of Representatives.

 The article was written in conjunction with the firm's entire Tax team.

Category: Capital markets

The demand for sustainable investment products and securities that incorporate good environmental, social, and governance (ESG) indicators has increased significantly around the world. In response, investment managers and advisors began to offer various investment options labeled sustainable, supposedly incorporating ESG factors. However, the lack of standardized and precise definitions in relation to ESG topics carries risks. When investment managers and advisors do not formulate clearly and consistently how they define ESG and how they use related terms (especially in retail products or services), they can confuse investors.

In this context, the Division of Examinations of the Securities and Exchange Commission of the United States of America (SEC) issued a risk alert, citing concerns regarding deficiencies, transparency failures, and weaknesses in the internal controls of investment managers and advisers for ESG products. At the same time, the agency recognizes and praises some effective practices that must be disseminated in the industry.

In its evaluation work, the SEC's Division of Examination took into account: (i) portfolio management, including review of policies and procedures, use of ESG terminology, due diligence and monitoring of investments in ESG topics; (ii) advertising and marketing activities, including review of the company's regulatory files, websites, external certification reports, customer presentations, and marketing materials; and (iii) compliance, including review of policies and procedures, compliance supervision, and review of ESG investment practices.

Among the points of concern and alert, the Division of Examination highlighted situations in which:

• unfounded or potentially misleading statements were used regarding ESG investment processes and adhering to global ESG classification standards;

• portfolio management practices were inconsistent with disclosures regarding ESG approaches;

• controls were inadequate to maintain, monitor, and update clients' ESG-related investment guidelines, mandates, and restrictions;

• the vote in the governance bodies of the investee companies was inconsistent with the declared approaches and public statements by managers related to ESG;

• there were inadequate internal controls to ensure that ESG-related disclosures and marketing were consistent with company practices; and

• compliance programs did not adequately address relevant ESG issues, especially when compliance department professionals had limited knowledge of ESG topics and performance metrics.

Among the ESG best practices observed with investment managers and consultants, the Division of Examination identified concrete cases of policies, procedures, and practices that seemed to be reasonably designed in view of their specific approaches to investment in ESG, highlighting the following:

• clear, accurate disclosures tailored to company-specific approaches to ESG investment and which have aligned with real business practices;

• ESG factors that could be considered together with many other factors and contrasted with international ESG standards adopted by evaluating bodies;

• explanations of how investments were evaluated based on targets set by international ESG standards;

• policies and procedures that addressed investment in ESG, while dealing with important aspects of the companies' business strategy and operational practices; and

• professionals from compliance-specific practices related to ESG of companies.

While the SEC's Division of Examination risk alert applies only to U.S. issuers supervised by such entity, Brazilian issuers, managers, and advisors can proactively evaluate the concerns and recommendations raised to mature their measurement, due diligence, internal controls, and disclosure practices related to their ESG products.

Category: Corporate

One of the great challenges facing organizations in these times of multi-stakeholder capitalism is the integration of environmental, social and corporate governance factors (ESG - Environmental, Social and Corporate Governance) in its strategic planning, business model and organizational culture. Unlike environmental sustainability, which is a subject already known by companies, the ESG agenda becomes a broader effort to monetize, account and reflect in numbers environmental, social and governance concerns in the financing and investment decisions of markets, funds, investors and funders.^[1]

We have followed clear messages from institutional investors, capital allocators, international organizations and academia warning that the company's function is to "generate value for all stakeholders" (Business Roundtable, 2019) and "generate shared and sustainable value" (World Economic Forum, 2020). The ESG movement gained even more prominence in January 2020 with the BlackRock CEO's (Larry Fink) annual letter to its shareholders around the world, announcing a twist on the group's investment policies. Sustainability would become the center of BlackRock's investment strategies and decisions, determining a significant reallocation of capital in order to mitigate the effects of climate change and foster long-term value creation.

A year later, in the annual letter of 2021, Fink points out that "climate risk is an investment risk," but also says that "climate transition creates a historic investment opportunity," and so BlackRock will continue to "advocate public policies to help make the financial system more resilient, sustainable, and equitable, including progress toward the carbon neutrality goal."

In Brazil, ESG initiatives will be increasingly prominent in the establishment of public policies and guidelines of financial and capital market regulators. One example is the sustainability agenda released by the Brazilian Central Bank in September 2020, the Agenda BC#, whose role will be fundamental in allocating resources for the development of a more sustainable, dynamic and modern economy.

The Brazilian Securities and Exchange Commission (CVM), in turn, positioned itself as an innovation facilitator, promoting the green agenda through its Financial Innovation Laboratory (LAB). With the contribution of LAB, on December 7, 2020, CVM placed a proposal to amend its Instruction No. 480/2009, which establishes the rules for the structure of the Formulário de Referência, the main document disclosed by companies publicly-held in Brazil. CVM sees growing investor interest and accelerated development of content and the way information about ESG is disclosed by issuers, either voluntarily or as a result of legal and regulatory obligations. Future, more robust and prescriptive regulatory initiatives focusing on sustainability issues should not be ruled out.

In this new scenario, organizations that are unable to integrate ESG concepts into their business models will certainly face competitive disadvantages, real possibilities of loss of value of their shares and brands, reputational damages and, in the end, impact on dividends and return on investment. Neglecting the integration of ESG factors into business models and investment analysis may cause a failure of pricing, inadequate risk measurement and inefficient allocation of capital. Systemic risks may affect certain segments, so that the consideration of ESG themes becomes one of the main characteristics of the prudent investment process.

This new stakeholder capitalism leads us to ask some important questions about the performance of directors and officers of publicly-held companies: can they refuse to implement ESG policies and actions on the grounds that their sole duty of trust is to seek financial return for shareholders? Would administrators have discretion, ethical duty, or legal duty to seek to implement ESG policies and actions? This duty would be understood as a duty to seek value for shareholders from a fundamentalist perspective (correlating sustainability initiatives with long-term value creation) or it would be a new fiduciary duty, not limited to shareholders, but extendable to different stakeholders?

Law No. 6,404/76 (Corporations’ Law) determines that the administrator must exercise his duties "to achieve the purposes and in the interest of the company", but also provides that his/her performance must satisfy "the public good and the social function of the company" (art. 154). In addition, the administrator is authorized by such Law to "authorize the practice of reasonable free acts for the benefit of employees or the community in which the company participates, in view of its social responsibilities" (art. 154, §4).

As it turns out, our Corporations’ Law is not exclusively focused on maximizing shareholder profit. In fact, it is quite advanced in this particular, legitimizing administrators to make decisions aimed at meeting the interests of stakeholders in general, and not only to the interests of shareholders. In our current legislation, there is no specific obligation for administrators to mitigate negative impacts or generate positive impacts for other stakeholders in addition to shareholders. This would be a business decision that aims to reconcile the solution of socio-environmental problems with investment returns to shareholders, and therefore protected by business judgment rule.

However, the Brazilian administrator has other duties, such as the duty of diligence, which requires the administrator to be as diligent as any active and probe man usually employs in the administration of his own businesses (art. 153 of the Corporations’ Law and art. 1011 of the Civil Code). In the current context, investors, the market, consumers and employees require companies to act respecting ESG principles, and it is already more than proven that companies that adopt such principles are more resilient to face a scenario of crisis, uncertainties and instabilities such as the current one – and, with this, generate greater value to shareholders.

In this sense, we can understand that the expected diligence of an administrator in the stakeholder capitalism was expanded, so that it cannot be omitted in the consideration of ESG factors in decision-making. In order for the administrator to be adequately informed about risks and opportunities, it is imperative to map the ESG themes. Only then can he/shemake reflected decisions taking into account the impacts for the different stakeholders Involved. It is a new decision-making process that requires the administrator to consider internal and external factors in the organization. Although the stakeholders are not granted ESG rights by law, the duty of diligence of the administrators takes new contours, since the negligence of the ESG aspects has the clear potential to destroy shareholder value in the long term.

There is no doubt that companies should continue pursuing profit, the ultimate purpose of their social interest. At the same time, however, they must take into account their social interest and the interests of their shareholders, employees, suppliers, customers, members of the community in which they operate and the environment, among other stakeholders. The Davos Manifesto 2020, the result of the 50th meeting of the World Economic Forum, preaches that the interests of all stakeholders be taken into account in corporate decisions and that the goal of a company is to involve all its stakeholders in creating shared and sustainable value. In other words, the governing bodies, such as board of directors and executive board, should not only look at the generation of short-term dividends, but also at the interests of the other actors surrounding the company.

It is undeniable that ESG initiatives are already changing the world of business and investment and will continue to do so. In these new times, investors, consumers and society in general expect more from companies than the mere maximization of profits. Organizations that internalize these responsibilities and implement ESG initiatives, meeting the expectations of their stakeholders, will bring greater long-term benefits to their shareholders and the communities in which they operate. With this, the administrators will more adequately fulfill their duty of diligence, in the best interest of the company, with the satisfaction of the public good and the social function of the company.

^[1] A major study released in 2020 by BAILARD, called "From SRI to ESG: The Origins of Socially Responsible and Sustainable Investing – 2020", teaches that "ESG analysis seeks to assess the materiality of non-traditional data to determine which companies are best prepared to compete in a world facing a gradual reduction in natural resources, increased regulatory burden, growing population and climate change."

Category: Institutional

Eduardo Perazza, Antonia Quintella de Azambuja, Lucas Souza Passos, Savio Pereira de Andrade and Marina Rocha dos Santos

Over the past few years, discussions on the rights of LGBTQ+ people have gained legal relevance, worldwide and in Brazil, due to the urgent need to recognize this population’s status as full-fledged citizens and equal members of society. One of these rights that has been much discussed and that is fundamental to transgender people is the right to legally be referred to by the name with which the person identifies and by which they are known.

On the international stage, one of the main standards in this debate is the Universal Declaration of Human Rights (UDHR), adopted by the United Nations (UN) General Assembly in 1948, when Brazil was already a member state. The UDHR is the source of every subsequent legal standard that guarantees the protection of human dignity. In Article 2, the UDHR denounces any kind of discrimination on the grounds of “race, color, sex, language, religion, political or other opinion, national or social origin, property, birth or other status”. In addition to the UDHR, the American Convention on Human Rights (ACHR), or the Pact of San José, of which Brazil is a signatory, is another important landmark in the international human rights legislative framework that contributes to the protection of the right to a name as an expression of human dignity (especially Article 18 of the ACHR).

Among the international debates that contributed to the consolidation of respect for the right to a name, Advisory Opinion No. 24/2017 issued by the Inter-American Court of Human Rights in response to a request made by the Republic of Costa Rica is worth mentioning. In that Advisory Opinion, which sought clarifications on obligations under the ACHR relating to gender identity, equality and non-discrimination of same-sex couples,^[1] the Court interpreted several rights and guarantees mentioned in the ACHR and how they would apply specifically to the LGBTQ+ community.

In particular, the Court was urged to speak on the recognition of each person’s right to a name according to their gender identity. On that point, Advisory Opinion No. 24/2017 recommended that changes in name and birth-assigned gender should depend only on the manifestation of the applicant’s will in  making such changes, according to their self-perception (which logically stems from the rights to privacy and intimacy). In addition, the applicant should not be made to undergo any form reassignment therapy or any form of body modification, which is not always in the interest of transgender people, as recognized by the Yogyakarta Principles.

These principles are the result of an international meeting of human rights groups held in 2006 in the city of Yogyakarta, Indonesia. They were supplemented in 2017 by additional principles and obligations derived from the application of international human rights laws to combat violations suffered by LGBTQ+ people. Here we refer to principle No. 32, which recognizes the universal rights to autonomy, integrity and self-determination, regardless of one’s gender identity. In full, Principle No. 32 states: "[e]veryone has the right to bodily and mental integrity, autonomy and self-determination irrespective of sexual orientation, gender identity, gender expression or sex characteristics. Everyone has the right to be free from torture and cruel, inhuman and degrading treatment or punishment on the basis of sexual orientation, gender identity, gender expression and sex characteristics. No one shall be subjected to invasive or irreversible medical procedures that modify sex characteristics without their free, prior and informed consent, unless necessary to avoid serious, urgent and irreparable harm to the concerned person."^[2]

The Inter-American Court of Human Rights also emphasized the need for each State to support those who wish to change their names, ensuring that the process can be done out of court and that it occurs as simply and quickly as possible, without the interested party having to make any disproportionate efforts.

In Brazil, the Federal Constitution establishes the rights to dignity, intimacy, private life, honor, image and equality as fundamental rights. The principle of the human dignity expressed in item III of article 1 of the Constitution is considered a basic foundation of the Republic. Respect for the identities of transgender people and their chosen names is extracted as a necessary corollary of these principles and rights.

In recent years, the Brazilian Supreme Court (STF) was urged to interpret Article 58 of the Public Records Act (Law No. 6,015/1973) in accordance with the Federal Constitution and the applicable international legislation, and to settle any diverging case law on the possibility of changing a person’s given name – the first part of the individual's name, which serves to individualize them – and their gender marker – a term used to designate gender in official records, which, in Brazilian public offices, is only binary (female/male) – before a civil registry, without the need for prior judicial authorization, a surgical sexual reassignment procedure, or any other type of body modification.

In March of 2018, when ruling on Direct Action of Unconstitutionality (ADI) No. 4,275, the Supreme Court finally recognized that the procedure for rectification of name and gender marker by transgender people could be done administratively, before the competent civil registry offices, regardless of any body modification. In his vote, Justice Marco Aurelio acknowledged that "the change in the records with the public register depends only on the free expression of the will of the person who aims to express their gender identity" and that "[t]he person should not have to prove who they are, and the State should not condition the expression of identity to any type of standard, even if it is merely procedural". the Justice also stated that "[i]t is the duty of the Public Authorities, in the Democratic State of Law, to promote peaceful coexistence, in the field of pluralism, without admitting the imposition of the will of the majority based on exclusively moral choices, especially when it comes to a person’s inalienable somatic constitution.”

The decision was confirmed en banc by the Supreme Court in subsequent judgments, as in the case of Extraordinary Appeal (RE) No. 670,422. In this case, the reporting judge, Justice Dias Toffoli, confirmed the position adopted in the leading case and expanded the Court's previous understanding to "recognize the intended right not only for transsexuals, but for all transgender people" and established the following rule with general repercussion:

"1 – Transgender people have a fundamental subjective right to change their first name and gender classification in the civil registry, requiring nothing other than the manifestation of the individual's will, and may exercise such right both in court and out of court through administrative means.

2 – This change must be recorded on the margin of the birth certificate, with the inclusion of the term 'transgender'.

3 – On the birth certificates there will be no comment as to the origin of such change, and issuance of the full birth certificate will not be allowed except at the request of the interested party themselves or by judicial order.

4 –If the procedure is carried out by judicial means, it will be up to the judge to order, sua sponte or at the request of the interested person, the issuance of specific instructions for the amendment of other records before the relevant public or private entities, who shall the preserve confidentiality of such acts."

To regulate the administrative procedure for rectification of transgender peoples’ names, the National Council of Justice (CNJ) issued Provision No. 73/2018,^[3] which regulates the process of registering the change in the name and gender marker on the birth and marriage certificates of a transgender person and provides, in Paragraph 6 of Article 4, a list of the documents that must accompany the application for such a change:

• a birth certificate that has been issued within no more than 90 days;
• a marriage certificate that has been issued within no more than 90 days (if applicable);
• copy of ID;
• copy of national civil identification document (ICN) (if applicable);
• copy of Brazilian passport (if applicable);
• copy of individual tax identification number (CPF) issued by the Ministry of Economy;
• copy of voter ID;
• copy of social identity card (if applicable);
• proof of residence; and
• certificates of civil, criminal and criminal enforcement proceedings issued by the competent judiciary branches (state and federal), protest certificates and certificates issued by the electoral court of the place of residence for the last five years, all issued within no more than 30 days.

This provision must be observed by all registry offices in Brazil, and requests to change names may be made with any registry (not necessarily the same registry where the birth was recorded). It will be up to the notary who receives the application to forward the request to the registry in which the birth was registered, if it is not the same.

In practice, however, the extensive list of documents provided for in Provision No. 73/2018 creates problems that end up becoming real obstacles to fulfilling the main purpose of the procedure.

It is well known that one of the major challenges faced by the transgender population in Brazil is their entry into the labor market. This means that, for the most part, they are citizens who are unable to afford the costs of obtaining the more than ten certificates required according under Provision No. 73/2018. Therefore, the gateway to a procedure that was created to facilitate the exercise of the right to human dignity is, in fact, an obstacle.

This becomes even worse for transgender people living on the street or in shelters. For these people, in addition to the problem of the cost of the required certificates, there is also the difficulty in presenting adequate proof of residence. The provision, in fact, did not address this issue and unfortunately ends up creating rules that perpetuate this population’s difficulty in accessing a dignified existence, which would allow them, in the future, to have proof of residence.

There are also various reports of notary officers making unreasonable demands for documents, requesting, for example, presentation of medical or psychological reports that, although no longer mandatory, are listed as optional documents that may be enclosed in the application for change of name, pursuant to Paragraph 7 of Article 4 of Provision No. 73/2018 – or even denying requests for gratuity in the process of issuance of the necessary certificates, thereby effectively making the process impossible.

In this sense, although the attempt to advance transgender rights undertaken with the enactment of Provision No. 73/2018 is undeniably, its effectiveness and scope need to be addressed. Only in this way will it be possible to continue to advance and put into practice the legislative framework that guarantees the transgender population the right to their dignity and to their chosen name.

Therefore, it is essential that the competent entities, such as National Judicial Review Board (Corregedoria Nacional de Justiça) and the Association of Notaries and Registrars of Brazil (Anoreg), act to investigate irregularities in these services and non-compliance with the process established in Provision No. 73/2018, with the fundamental cooperation of the Judiciary. Similarly, it is necessary that entities such as the Brazilian Bar Association, the Public Defender's Office and even the Civil Police intervene when called upon to combat cases of discrimination against transgender people based on their gender identity.

^[1] Available in Spanish at: https://www.corteidh.or.cr/docs/opiniones/seriea_24_esp.pdf [Accessed on 04.13. 2021]

^[2] Available at: https://www.refworld.org/docid/5c5d4e2e4.html [Accessed on 04.13. 2021]

^[3] Available in Portuguese at: https://www.cnj.jus.br/wp-content/uploads/2018/06/434a36c27d599882610e933b8505d0f0.pdf [Accessed on 13.04.2021]

Category: Real estate

Full capacity consists in the ability of an individual to acquire rights and exercise duties in the civil order. Minors under the age of 16 are considered absolutely incapable due to not being able to carry out the acts of civil life in person and in themselves. In turn, those who are subjected to a certain restriction in their acts, or in the manner and exercise them, i.e., (i) young people between 16 and 18 years old, (ii) habitual drunks and those addicted to drugs, (iii) those who, for transient or permanent reasons, cannot express their will and (iv) the prodigals are considered relatively incapable.

In order to recognize the relative incapacity of the last three groups mentioned, it is necessary to interdict them through the institution of guardianship through specific legal action. The guardian judicially elected to assist the relatively incapacitated is responsible for the role of administering his assets,for his benefit, in order to assist him in the practice of the acts of civil life.

The validity of the entire legal transaction requires the full capacity of the parties involved or, in support of those considered relatively incapable, the proper assistance of their guardian, in order to ensure that the manifestation of will actually meets the interests and expectations of those involved. This premise is also essential in all real estate transactions: purchase and sale, leasing, institution of usufruct, and donation of real estate properties.

In March 2021, the 1st Chamber of Private Law of the Court of Justice of São Paulo upheld a ruling that annulled a donation of property made by the elderly who, a few months before being legally recognized as relative incapable due to mental disability, had donated his only real estate property, in which he resided, to his neighbor, with a lifetime enjoyment reserve for himself. The medical report produced proved that the elderly already lacked lucidity at the time of the donation, which justified the annulment of the legal business.

At the time of the trial at first instance, the bad faith of the donee was recognized in the transaction, since it was clear the low cognition of the donor about the acts of life in general. As a consequence, the beneficiary was ordered to pay compensation for moral damages in favor of the elderly fixed at R$ 10,000.

The important point of this decision is the recognition that the donation of a real estate property by relatively incapacitated is subject to annulment, even if the judicial interdiction procedure is not yet completed at the time of the transaction to acknowledge the relative incapacity of the donor.

Any real estate transaction must have the prior verification of the fulfillment of the requirements for the conclusion of a legal business, starting with the capacity of the agents involved. The fact that a person is not legally prohibited, therefore, does not prevent the annulment of a real estate contract if it is found that, at the time of the transaction, he already manifested inability to perform certain acts alone, or in the way of exercising them.

This court decision sets a precedent for families to seek the annulment of previously concluded real estate transactions in the course of the interdiction process in order to protect the one who has not yet been declared incapable at the time of the transaction. In turn, on the other side of the contractual relationship, there is a need to act more diligently to ensure that the person who negotiates cannot be considered relatively incapable, which would jeopardize the validity of the intended legal business.

Although such a decision may create legal uncertainty, in view of the subjectivity in the characterization of relative disability not yet enacted, we believe that the protection of the relatively incapable not yet recognized as incapable should prevail. Also, the conduct of a robust real estate due diligence, including obtaining a negative certificate of interdictions and guardianship on behalf of the counterparty, mitigates possible risks of future questioning of the validity of the legal transactions. In the case of transactions with individuals, whenever there is doubt about the civil capacity of any of the parties, it is recommended that the signing of contracts take place in person and without representation by prosecutors.

Category: Infrastructure and energy

Approved by Congress after more than seven years of processing and signed by the Brazilian President on April 1, the New Public Procurement Law will replace, after two years of vacatio legis, Law No. 8,666/93, which has been in force for almost thirty years, and other disparate laws regarding procurement and administrative contracts.

No law is perfect, and the New Public Procurement Law could perhaps have implemented further advances on many points. In any case, and with the caveat that its actual effect will only be better known over time, from the interpretation and application reiterated by legal scholarship, the Judiciary and the Public Administration itself, among other law enforcement operators, it is possible to identify in it some positive developments.

It would be unfeasible to describe all these innovations in this brief article, but it may be informative to draw attention to some of the main pillars of the text:

1. Consolidation and simplification. Although the New Public Procurement Law has more articles than Law No. 8,666/93 considered alone (191 vs. 126), it seeks to implement an important simplification and rationalization of public procurement legislation, by consolidating provisions previously disciplined in Law No. 8,666/93 and other disparate laws, such as the Law of the Differentiated Contracting Regime and the Auction Law, incorporating positions already settled in the case law.

It is also clear that the New Public Procurement Law will not apply to state-owned enterprises, which will continue to be governed by their own statute (Law No. 13,303/16).

2. Modernization and adaptation of the law to new technologies. The new law seeks, correctly, to adapt to the digital world and new technologies. While this concern permeates a number of its provisions, it is worth noting the general rule that "bids will be held preferably in electronic form", assuming in-person sessions only exceptionally and subject to due grounds (art. 17, §2), or the provision that allows the electronic execution of contracts (art. 91, §3). They are not exactly innovations, although electronic formalization was not expressly included in specific public procurement laws and administrative contracts, but these measures undoubtedly consist of relevant steps to break our bureaucratic red tape culture.

As for new technologies, article 19, §3, according to which, "in the bidding for works and services of engineering and architecture, (...),Building Information Modelling (BIM) will preferably be adopted or similar or more advanced integrated technologies and processes that will replace it".

3. Environmental sustainability and diversity. In addition to the purely economic criterion and the defense of the equal protection nature of the bidding, the New Public Procurement Law deepens other values already provided for by specific public procurement laws and administrative contracts, among other laws to encourage diversity and environmental sustainability. Examples of provisions that promote innovation, diversity, inclusion, and other social aspects:                                                                                                                                                                                     
   • Article 5, by contemplating sustainable national development as one of the guiding principles of the new law;
   • Article 11, by establishing as the objective of the bidding process "encouraging innovation and sustainable national development";
   • Article 25, §9, by authorizing the notice to require that a minimum percentage of the labor responsible for the fulfillment of a particular contract be made up of " women who are victims of domestic violence" or by people "from or discharged from the prison system";
   • Article 60, III, assuming as a tiebreaker, the "development by the bidder of actions of equity between men and women in the workplace ";
   • Article 45, VI, by providing that bids for works and services must comply with the rules relating to "accessibility for people with disabilities or reduced mobility";
   • the various standards that provide for micro-enterprises and small businesses.

4. Integrity, compliance and prevention. As a legacy of Lava Jato and other anti-corruption measures, the new law establishes as an express objective of bidding processes "avoiding overpriced or manifestly unenforceable prices and overbilling in the execution of contracts". In bids for large-scale works, the notice must be "provide for the mandatory implementation of an integrity program by the winning bidder" (art. 25, §4). The "development by the bidder of an integrity program, as directed by the control bodies" is expressly permitted as a tiebreaker criterion (art. 60, IV). , The " implementation or improvement of an integrity program, in accordance with the standards and guidelines of the control bodies" is envisaged, as a criterion for sizing the sanction (art. 156).

5. Strengthening the obligation of compliance with the contract by the customer and the vendor. In recent years, various issues of administrative contracts have been discredited. On the one hand, there were frequent situations of non-compliance with the contract by the Government or, at least, suspension of its performance without due cause, resulting in stoppage and deterioration of works, payment obligations brought to the judiciary, and increased stock of sham bidding. This scenario discourages serious bidders or the presentation of a more efficient proposal. This also contributed to bidders treating the bidding and contract as mere formalities to be assumed unfulfilled, submitting unenforceable proposals, with the certainty that they could be renegotiated, throughout the performance of the contract, from the most ancillary conditions to those most characteristic of that type of contracting, creating an industry of artificial revisions and rebalancing.

The New Public Procurement Law seeks to correct this situation. Among other provisions aimed at ensuring compliance with the contract by the private sector, in contracts for works and engineering services of great size, it allows vendors to be required to ensure faithful compliance with the contract in the amount of up to 30% of the value of the contract. The new law also gives insurers who have issued this guarantee the right to monitor the contract and, where necessary, intervene in it to ensure compliance. It is an important innovation, because Law No. 8,666/93 contemplated as a maximum guarantee the value of 10% of the contract, which did not encourage insurers to act more proactively in monitoring the contract.

Responsible planning was also implemented, through mandatory preparation of the Annual Contracting Plan (Art. 12, VII and §1) and the express responsibility of the senior management of the contracting body or entity by "promoting a healthy and reliable environment, ensuring the alignment of contracting with strategic planning and budget laws" (art. 11, single paragraph).

It is also worth mentioning the institution of the duty of the Public Administration to strictly observe chronological order in the realization of payments due from it in its administrative contracts. This order will be verified by contract category: supply of goods, leases, provision of services, and execution of works. The agent responsible for approving payments may be personally liable in the event of non-compliance with this chronological order. This reduces the scope for favoritism.

6. Efficiency, flexibility and debureaucratization. The new law consolidated disparate legal provisions that promote the efficiency of bidding processes and procurement, as against merely formal issues.

For example, in evaluation of bids, the new law allows the price criterion to take into account not only the nominal value of the tender, but the lowest overall expenditure for the government, considering "indirect costs, related to the expenses of maintenance, use, replacement, depreciation and environmental impact of the object tendered, among other factors linked to its life cycle" (art. 34, §1).

With similar inspiration, the new law introduced as a criterion for judgment the "higher economic return", reserved for efficiency contracts, in which the remuneration of the vendor will consist of a percentage of the savings provided to the government.

Also as an unfolding of this search for greater efficiency, the new law offers greater flexibility in the bidding process, admitting a broader set of procurement modalities available to the Public Administration (integrated contracting, semi-integrated contracting, efficiency contract, etc.), judgment criteria and bidding alternatives. Some of these instruments were already available to state-owned enterprises and, depending on the adoption of the differentiated procurement regime, even for other state agencies and entities, but have now been raised to legal tools unquestionably applicable to the entire Public Administration, including direct, local, and foundational.

In parallel with the extension of the scope of some procurement modalities, the new law was noteworthy for creating the concept of competitive dialogue. Unthinkable in times more attached to our bureaucratic tradition, this modality of procurement allows discussion of solutions between the Public Administration and private stakeholders in intermediate phases of the bidding process, aiming to achieve the most efficient solution to meet the public interest.

7. Objective risk allocation. Finally, we highlight the provisions of the new law in order to honor the objective allocation of risks, including through the preparation of a risk matrix in contracts, bringing the law closer, in this respect, to other more modern statutes, such as PPPS legislation. Again, although the instrument was already legally available to state companies, there were doubts as to whether it could be used by the direct administration, local or foundational.

In addition to offering greater clarity to contracts regarding the distribution of responsibilities between the parties, the objective allocation of risks also seems to enable more flexible solutions to be designed according to the specificities of each contract. In that regard, Law No. 8,666/93 seemed much more rigid in that regard, in that way, to the extent that certain risks should, according to its predominant interpretation, necessarily be allocated to one party or the other, without much room for sharing or creating exceptions.

It is important, however, that this sharing of risks is done efficiently in each case, allocating the risks to the party with the greatest capacity to manage and mitigate them.

In parallel to these undeniable advances, some presidential vetoes to the law passed by the Brazilian Congress deserve attention. Twenty-six original provisions were rejected by the Executive Branch in the signed version of the New Public Procurement Law. Among them, we highlight the following:

• a) the right to receive legal advice from public law: the new law recognizes the duty of public law to represent judicially or extrajudicially public agents who have their acts questioned in the administrative, supervisory, or judicial spheres, provided that such acts have strictly observed guidance contained in the legal opinion. In the original version of the new law, this right was exceptional in the event that the legal opinion was drafted by a non-permanent professional of the Public Administration.

This exception was vetoed. In practice, if the legal opinion is emanating from a professional outside the Public Administration, the public agent will not be able to be represented judicially or extrajudicially by public law.

The veto seems appropriate to us. In addition to the original provision contrary to the professional prerogatives of lawyers, regardless of public or private careers, external legal opinions undergo internal procedures of approval and receipt by government attorneys. There is no reason to demote an external legal opinion, duly scrutinized through this procedure, just because the lawyer does not belong to the permanent staff of the Public Administration.

• b) Restriction of competitive dialogue: the original version of the new law limited the application of competitive dialogue to cases in which the modes of open or closed dispute did not allow proper assessment of the variation between the proposals. This restriction was also vetoed, and also in good time.

In practice, the limitation would intimidate the application of competitive dialogue, as it would be very difficult to justify why the open or closed mode of dispute was not adopted. The evaluation of the variation between proposals is the result of a process pertaining precisely to the stage of dialogue. In the end, the Public Administration may eventually come to the conclusion if there is the possibility of variation between the proposals of the pre-selected bidders and how this variation will be assessed.

• c) Monitoring competitive dialogue: in the version of the new law approved by the Legislative Branch, the Court of Auditors was allowed to follow and monitor competitive dialogues, opining, within a maximum of 40 business days, on the legality, legitimacy, and economic advantage of the procurement, before execution of the contract. This provision has been vetoed. Although we agree with the reasons for the veto, for which this duty of the Court of Auditors, in addition to going beyond the rigid list of Article 71 of the Constitution of the Republic, would harm the principle of separation of powers, in practice it is known that the control bodies have exerted a real and comprehensive interference in public procurement. The original rule had the merit of seeking to discipline this interference, which may occur incidentally and extemporaneously through representations, complaints, or audits by a jurisdiction or sampling, which inevitably imply the participation of the Court of Auditors in administrative contracts.

Other laws have already predicted prior involvement of the Court of Auditors in the more complex administrative procurement processes, and it seems to us that these measures have only brought about more legal certainty for public-private businesses.

• d) Escrow account: the new law seeks to strengthen the obligation of the contracting public power. Among other measures, the original version contained the provision that "in the procurement of works, the sending of the service order for the execution of each stage will necessarily be preceded by a deposit into an escrow account of the financial resources necessary to pay the expenses corresponding to the step to be performed" (art. 115, §2). In other words, work would not be started without cash and segregated in that regard.

The provision was vetoed. The veto reasons pointed out that the mandatory deposit into an escrow account as a requirement for sending a service order in the execution of works brings about the risk of pooling of resources, performing the financial relocation that may prove necessary or even to meet urgent or unexpected demands.

The new law aimed to prevent precisely this flexibility in the management of resources destined for the payment of service orders. If it is true that the issuance of the commitment note continues to be a requirement for the realization of public expenditure, it is not for the issuance of the service order. The New Public Procurement Law did not condition the issuance of the service order on the issuance of the commitment note, and the version signed did not do so even in relation to the deposit into an escrow account, which would be an even more effective measure for the vendor's safety. These absences will subject the vendor to the various disadvantages of discretionary or mandatory contingencies, encouraging opportunistic behavior by public administrators.

• e) Leniency agreement with the participation of the Court of Auditors: finally, the vetoes covered a provision pursuant to which, under the possibility executing a leniency agreement, under the Anti-Corruption Law, the Public Administration could exempt the person concerned from the administrative sanctions of the new law and, in the event of a favorable response by the Court of Auditors, also those sanctions provided for in the organic law of that body.

The provision was helpful. The execution of leniency agreements without binding other authorities entitled to the application of sanctions is the main risk for those concerned and certainly the factor that most causes a hindrance to collaboration in investigative procedures involving illegal acts vis-à-vis the Public Administration. The provision only implemented the possibility of cooperation between some of these legitimate authorities. There was no obligation. And facilitating this cooperation could bring about more legal certainty for the practices of leniency agreements.

In the case of the errors and successes of the New Procurement Law and the vetoes of the President of Brazil, there seems to be reason for us to believe that the new law may, in fact, constitute an important step towards a healthier and more efficient public procurement environment.