By Camillo Giamundo and Leonardo Muradian Cundari
The Public Procurement and Administrative Contracts Law (Law 14,133/21) reinforces the importance of the Terms of Reference (TR) for transparency and efficiency in public procurement. Wednesday, February 26, 2025. Updated on February 25, 2025, 2:22 p.m.
One of the main purposes of the Public Procurement and Administrative Contracts Law (Law 14,133/21) is to promote planning, equal treatment and efficiency in spending public funds on administrative contracts, providing instruments for public managers to structure a valid tender that pursues the public interest and the needs of the administration. Accordingly, right in the definitions chapter, article 6 of the law defines these instruments with a view to clarity in interpreting the legal provisions. One of them, the Terms of Reference (TR), the subject of this article, is defined in item XXIII on the basis of the basic elements that the document must contain to serve the purposes of the tender, demonstrating the government’s need for the contract in the specific case, namely:
a) definition of the object, including its nature, quantities, contract term and, where applicable, the possibility of extension;
b) grounds for the contract, consisting of a reference to the corresponding preliminary technical studies or, when these studies cannot be disclosed, an excerpt of the parts that do not contain confidential information;
c) description of the solution as a whole, considering the object’s entire life cycle;
d) contract requirements;
e) execution model, defining how the contract should produce the intended results from start to finish;
f) contract management model, describing how performance will be monitored and inspected by the body or entity;
g) measurement and payment criteria;
h) supplier selection method and criteria;
i) estimates of the contract value, accompanied by reference unit prices, calculation reports and supporting documents, with the parameters used to obtain the prices and for the respective calculations, which must be included in a separate, classified document; and
j) budget adequacy.
In addition, Law 14,133/21 innovates by providing, in article 19, item IV, that the Terms of Reference are one of the mandatory documents in the preparatory phase of the tender, reinforcing their importance as a structuring element of the process, while article 23 highlights the need for the preliminary technical studies underlying the TR to be carried out preferably by a multidisciplinary team, ensuring greater technical robustness in defining the object and estimating costs.
It follows from these provisions and the legal definition that the Terms of Reference, as the starting point of the tender, are consistent with the basic principles of Public Administration, including legality, purpose, morality and efficiency. Despite the administrator’s discretion in choosing how to allocate public funds, public contracts must necessarily serve the underlying public interest, using the means permitted by law to (i) identify the State’s needs to be met through the contract; (ii) determine, based on technical studies, the best alternative among all possible ones; and (iii) certify the availability of public funds to make the contract feasible.
All these requirements must be properly listed in the TR to avoid fiscal irresponsibility, tender steering and corruption. By analogy with the fruit of the poisonous tree doctrine, all subsequent acts of the tender, such as the preparation of the tender notice, will be tainted by the defects of a flawed TR and may cause losses to the public treasury, as shown in the following excerpt from a Federal Court of Auditors judgment1:
In the case file and as already set out in this report, it can be seen that the irregularities, which began in the internal phase of the tender (irregularity in the terms of reference and lack of price research), extended into the external phase (tender notice with a clause that restricted the tender), culminating in a tender steered toward the company APLICAR. In the performance of the contract, there was also advance payment for a product that did not meet the object of the agreement; that is, non-performance of the object was established, since the software was incompatible with the (free) operating system of the computer procured, thus constituting tender fraud and damage to the public treasury due to non-performance of the object.
With the start of the external phase of the tender upon publication of the tender notice, any citizen, company, association or interested entity may challenge the call for bids or request clarifications, under article 164 of the procurement law. It is common, for example, to see challenges concerning the impossibility of the object to be contracted or restrictions on competition, referring to the technical specifications set out in the Terms of Reference.
Accordingly, the Administration’s internal and external oversight bodies are responsible for overseeing the Terms of Reference, as well as the other instruments and phases of the tender.
As for internal oversight bodies, comptroller offices are responsible for overseeing the Administration, as well as all those who receive public funds, in defense of public assets, in preventing and combating corruption, in management transparency and in planning public spending.
In this regard, Law 14,133/21, in its article 169, reinforces the role of internal control by providing that bodies must establish risk management and internal control systems to assess the regularity of contracts, including the analysis of the TR as an essential step.
Among the external oversight bodies, in turn, the Courts of Auditors play the leading role in monitoring the budget and public procurement. Their competence includes not only the legal analysis of the requirements of administrative acts and contracts, but also technical and accounting oversight, fulfilling the duties defined in article 71 of the 1988 Federal Constitution.
That is, the Court of Auditors has been given the role of supervising the execution and performance of such contracts and the allocation of public funds, which includes the prior examination of the tender’s internal acts, and it may suspend the tender if any irregularity is found. If willful misconduct is found, with the aim of manipulating the rules of the competition and imposing restrictions or favoring certain bidders, the Court may refer the case to the Public Prosecutor’s Office to investigate possible acts of administrative misconduct or crimes against the Administration, in addition to its power to impose fines.
It should be noted that article 172 of Law 14,133/21 provides that the Courts of Auditors may, in the event of serious irregularities, order the precautionary suspension of the tender or the annulment of acts, provided this is based on an imminent risk to the public treasury or the public interest, expanding external oversight mechanisms.
According to Dimas Ramalho, Councilor of the São Paulo State Court of Auditors2, the most common irregularities in the internal phase of the tender, including the preparation of the TR, are the following:
“(1) the structural condition of the tender (tender modality, tender type, procedural rite), (2) the definition and formatting of the object (excesses or flaws in specifications, grouping of lots without regard to the nature or common origin of the components, improper bundling), (3) the general conditions for participation (consortia, cooperatives, companies under suspension/debarment, companies in judicial reorganization), (4) the qualification requirements, (5) the criteria for analyzing and evaluating bids (reports, certifications, samples, cost estimate), (6) as well as the conditions for supply and/or provision of services (delivery or start-of-service deadlines, accredited network, subcontracting).”
Referring back to the aforementioned article 6, XXIII of the procurement law, it can be seen that many of the flaws mentioned above stem from elements initially set out in the TR, which will necessarily be reflected in flaws in the call for bids, and the Court of Auditors may then preliminarily suspend a tender tainted by such defects. This justifies greater attention to the preparation of the Terms of Reference and to the tender notice’s compliance with its requirements, so that the intended contract does not encounter obstacles when examined by the Court of Auditors.
Originally published by Migalhas (in Portuguese).
