By Giuseppe Giamundo Neto and Fernanda Leoni
Introduced under the differentiated procurement regime of Federal Law No. 12,462/2011 and incorporated into the new Procurement Law (Federal Law No. 14,133/2021), integrated contracting is a form of indirect execution of engineering works and services with the potential to provide considerable gains to the contracting parties, whether because the Public Administration can easily receive a finished project, or because the private contractor has the opportunity to innovate in solutions and resource management.
Although it is used fairly frequently, especially at the federal level, one aspect that has evolved little over the years is the understanding of the appropriate sharing of risks and responsibilities between the contracting parties — an essential element both in defining whether contract amendments may be signed in this type of arrangement and in identifying the situations in which the economic and financial rebalancing of the contract may be discussed [1].
This article explores the division or sharing of responsibilities and risks arising from this contracting model, especially in relation to the preliminary engineering design, focusing on the implications that errors or omissions by the contracting Administration in this document may have for the pricing of the bid and for the execution of the project itself.
The preliminary engineering design, as outlined in the legislation [2], is an initial informative document intended to guide the preparation of the bid and not the execution of the activity itself, since its detailing will be an essential part of the private contractor’s work. However, it is imperative that the information in the preliminary design be accurate and correct, in order to ensure a proper understanding of the basis for pricing the bid and, consequently, for developing the future design.
Accordingly, although a certain superficiality is expected in the preliminary engineering design, given the nature of the contracting process and the delegation of responsibility for developing the design to the contractor, it is essential that the information provided reflect reality and not contain errors, omissions or inaccuracies that could significantly affect the performance of the contract.
Liability
The contractor’s liability is directly related to the information provided in the preliminary design, as set out in the tender notice and its annexes. Thus, the contractor assumes risks based on this information and cannot be held liable for errors or omissions that were not evident when the bid was prepared but that later significantly affect contract performance. Obviously, it also cannot rely on a general premise that the preliminary design is shallow to fill gaps that should have been filled during the preparation of the designs.
Although this logic seems consistent with the very nature of integrated contracting — especially considering the short time available during a tender for a more in-depth assessment of the preliminary design and its possible flaws — this is not always the dominant view on the subject. The Federal Court of Auditors, for example, has several precedents holding that flaws or omissions in the preliminary design do not authorize amendments to correct them [3].
Only in a few cases do oversight bodies recognize that the preliminary design, although simple, must meet a minimum standard, preventing its superficiality from being used as a pretext for ruling out amendments intended to correct errors arising from the initial planning stage of the contract [4].
Despite the legitimate controversy, the legislation itself seems to have outlined a way of mitigating the risks of a deficient preliminary design, through a risk matrix that may even allow a fee commensurate with the risks assumed by the contractor to be included in the bid price. In this context, as defined in the tender notice, the risk of flaws in this document could be mitigated or even eliminated through payment commensurate with the cost of assuming that risk [5].
Where no such fee is established, or where the risk matrix is incomplete or non-existent, the solution lies in a reasonable analysis of the context. If the deficiency of the preliminary design is the evident cause of the subsequent change to the design; if the flaws were not easily identifiable at the time of the tender; and if this deficiency does not result from an error or omission by the contractor, it seems clear that the contract may be amended and that its costs will not be borne by the contractor. The contractor’s liability is not abstract or unlimited; it is tied to the information provided by the contracting Administration.
Therefore, the distinction between a simple expansion or detailing of the preliminary design and a technical error by the contracting Administration is crucial. The contractor cannot be held liable for serious errors or omissions in the preliminary design that directly affect the definition of the project and were not priced into the bid, but neither can it rely on the simplicity of this technical document to make the contracting party pay for design improvements that would be presumable or foreseeable through a more rigorous technical analysis, which is required in a contract of this nature.
In short, the legislation did not specify who is responsible for bearing the burdens arising from errors in the preliminary design, so they cannot be immediately transferred to the contractor, but must be the subject of detailed and equitable risk sharing that takes into account an efficient allocation of responsibilities, ensuring the effectiveness of this contracting model itself.
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[1] These were, in fact, the cases defined by law as capable of giving rise to amendments to contracts under the integrated contracting regime, as can be seen from the revoked article 9, §4 of Law No. 12,462/2011:
“Where integrated contracting is adopted, the signing of amendments to the contracts entered into is prohibited, except in the following cases: I – to restore the economic and financial balance resulting from fortuitous events or force majeure; and II – due to the need to change the design or specifications for better technical adaptation to the objectives of the contract, at the request of the public administration, provided they do not result from errors or omissions by the contractor, subject to the limits set out in § 1 of art. 65 of Law No. 8,666 of June 21, 1993.”
[2] The revoked article 9, §2 of Law No. 12,462/2011 provided: “In the case of integrated contracting: I – the call for bids must contain a preliminary engineering design including the technical documents intended to enable the characterization of the works or service, including: a) the demonstration and justification of the program of needs, the overall view of the investments and the definitions regarding the desired level of service; b) the conditions of soundness, safety, durability and delivery time, in accordance with the caput and § 1 of art. 6 of this Law; c) the aesthetics of the architectural design; and d) the parameters of suitability to the public interest, economy of use, ease of execution, environmental impacts and accessibility; (…)”. This wording is now reproduced in article 6, item XXIV of Federal Law No. 14,133/2021.
[3] In this sense: “In integrated contracting governed by Law 12,462/2011 (RDC), the risk inherent in developing the basic design is entirely allocated to the private party, and there is no legal permission to sign amendments due to any inaccuracies or omissions in the preliminary design” (TCU. Plenary Judgment No. 831/2023. Reporting Justice Benjamin Zymler. Session of 05/03/2023).
[4] See: “Indeed, there is an apparent paradox in signing an amendment based on omissions in the preliminary design, since it is much more likely to err or omit something in a poorly developed preliminary design than in a basic and/or detailed design. (…) Adopting the integrated contracting regime based on a preliminary design that was merely a survey of remaining services, without contractual provision for performance conditions sufficient to guarantee the final quality of the works and their compatibility with the estimated value, eliminates the benefits of adopting integrated contracting. Furthermore, as already noted in this report, the confusion between the execution regimes — integrated contracting and unit price — ended up benefiting the contracted consortium. In this situation, assuming the amendment was valid, it is clear that the preliminary design was deficient, including by failing to provide for performance conditions, contrary to §2 of art. 9 of Law No. 12,462/2011” (CGU. Report No. 201700820. Audit Monitoring the Management of VALEC Engenharia, Construções e Ferrovias S.A.).
[5] This was established by article 9, §5 of Law No. 12,462/2011: “If the preliminary design includes a risk allocation matrix between the public administration and the contractor, the estimated value of the contract may consider a risk fee compatible with the object of the tender and the contingencies assigned to the contractor, according to a methodology predefined by the contracting entity”. This wording was incorporated into article 23, §5 of Law No. 14,133/2021.
Originally published by ConJur (in Portuguese).
