It is time to await the practical effects of Federal Decree 10,024/19, in the hope that they will help strengthen a public administration focused on achieving the main objective of every tender.
In force for just under six months, Federal Decree 10,024/19 established new rules for tenders held through electronic reverse auctions; through the changes made, it expressly included common engineering services, previously expressly excluded by the repealed art. 6 of Federal Decree 5,450/20051, regulated the possibility of electronic waiver, and made the modality mandatory for bodies of the direct federal public administration, autonomous agencies, foundations and special funds.
The short period it has been in force does not yet allow us to draw firmer conclusions about the practical effects of the new rule on public procurement; however, there is no denying that the innovations introduced were expected and were well received by professionals in the field, especially since the modality is seen as a faster means of making the purchases and obtaining the services needed by the administration in general, bringing greater efficiency.
Among the many changes made, this brief study looks at the new functioning of the bidding stage, provided for from art. 30 of Federal Decree 10,024/19 onwards, which will require auctioneers to adjust somewhat with regard to the limits of their role and bidders to plan more strategically.
Under the model established by the repealed Federal Decree 5,450/05, after the auctioneer ranked the proposals, the competitive phase would begin, with bidders entering their bids through the electronic system. Under this system, (i) the other bidders would be immediately informed of bids received, including the amount entered, (ii) they could submit successive bids, (iii) noting that a bidder could only submit a bid lower than its own last bid, and (iv) bidders would be informed in real time of the lowest bid registered, without the bidder being identified.
This stage would close at the auctioneer’s decision, with the electronic system sending a notice that bidding was about to close, “after which a randomly determined period of up to thirty minutes will elapse, at the end of which the receipt of bids will automatically close”, that is, the so-called random time.
Since it was a random period of up to thirty minutes, unknown to the bidders and to the auctioneer, and which, given the vagueness of the provision, could be set at one or two minutes2, the winner would be the bidder that submitted the lowest bid before the random time closed. Clearly, the rules set out in Federal Decree 5,450/05 favored a bidder’s cunning rather than the efficiency, in its broadest sense, of the contract, as well as undermining the competitiveness inherent in the purpose of this provision, highlighting the weaknesses of the model then in force.
In this regard, seeking to create a model more attentive to the purposes of public procurement through electronic reverse auctions, Federal Decree 10,024/19 separated the bidding modes, establishing in its art. 31 the open mode and the open-and-closed mode, to be chosen at the public administration’s discretion, verbatim:
Art. 31. The following bidding modes shall be adopted for submitting bids in electronic reverse auctions:
I – open – bidders shall submit public and successive bids, with extensions, according to the award criterion adopted in the tender notice; or
II – open and closed – bidders shall submit public and successive bids, with a final sealed bid, according to the award criterion adopted in the tender notice.
Sole paragraph. In the open bidding mode, the tender notice shall provide for a minimum difference in amounts or percentages between bids, which shall apply both to intermediate bids and to the bid that beats the best offer.
In the open bidding mode, the time for submitting bids was set at ten minutes, after which the stage will be automatically extended by the system whenever a bid is submitted in the last two minutes of the public session (art. 32). The automatic extension will also last two minutes and will occur successively whenever bids are submitted during that extension period, including intermediate bids (art. 32, §1). If there are no new bids in the first stage or in the respective extension, the public session will automatically close (art. 32, §2).
Put more simply, from the eighth minute of the first ten-minute stage, all bidders know they have two more minutes to beat a given bid. So if a new price is entered in the meantime, the system extends the bidding by another two minutes, and so on.
There is thus a known and sufficient period for bidders to plan and estimate their pricing strategies for the contract. If they fail to act, that is, do not enter their prices, it is understood that they are not interested or, at most, were negligent, and in the latter case responsibility will no longer lie with the system established by the governing rule. There is genuine price competition here, allowing the administration to seek the most advantageous proposal.
Still on the open bidding mode, the provision of art. 32, §3 is noteworthy, since if there is no automatic extension by the system, the auctioneer may, assisted by the support team and with justification, allow the bidding stage to be restarted in pursuit of the best price.
This may be one of the most sensitive points of this new system, and to curb practices seeking to circumvent a given bidder’s negligence, for example, it is essential that the measure be accompanied by proper justification from the auctioneer, stating the reasons for restarting the stage and how this relates to the objective criteria of art. 7, sole paragraph of Federal Decree 10,024/19.
It should also be noted, now considering the auctioneer’s role in conducting the tender, that the provision of art. 32, §3, given the system introduced and the bidders’ prior knowledge of it, should be adopted in exceptional situations, at the risk of jeopardizing the integrity sought by the new model.
In the open-and-closed bidding mode, the bidding stage will last fifteen minutes (art. 33). At the end of this period, the system will send a notice that bidding is about to close and, after a randomly determined period of up to ten minutes, the receipt of bids will automatically close (art. 33, §1).
Once this last period has ended, the system will give the bidder with the lowest offer and the bidders with offers up to ten percent higher than it the opportunity to submit a final sealed bid within five minutes, which will remain confidential until the end of the period (art. 33, §2). In the absence of at least three offers meeting the conditions immediately above, the bidders with the next best proposals, in order of ranking, may also submit a final sealed bid within five minutes, which will remain confidential until the end of that period (art. 33, §3).
In the absence of a final sealed bid ranked under §2 and §3, the closed stage will be restarted so that the other bidders, in order of ranking, may submit a final sealed bid within five minutes, which will remain confidential until the end of that period, after which the ascending order of advantageousness will be observed (art. 33, §4).
This bidding mode also replicated the provision of art. 32, §3, discussed above, which calls for greater care on the part of bidders and the auctioneer responsible for conducting the procedure.
In any event, what can be drawn from these provisions is that the new model proposed by the federal decree definitively breaks with the obstacles to selecting the proposal most advantageous to the public administration contained in the previous rule, making the competition much more serious, both from the bidders’ point of view and from that of the auctioneer and their support team, who will certainly have to mature the way they take part in and conduct tender processes.
There is an unequivocal improvement in the public administration’s performance, especially with regard to bidding criteria that clearly aim at advantageous proposals rather than the collusion that could arise under the inadequate model in force under the previous rule, which in no way achieved the purposes of Federal Law 8,666/93.
It is time to await the practical effects of Federal Decree 10,024/19, in the hope that they will help strengthen a Public Administration focused on achieving the main objective of every tender.
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1 Federal Decree 5,450/2005
Art. 6 Tenders in the electronic reverse auction modality do not apply to contracts for engineering works, real estate leases and disposals in general.
2 This inconsistency ended up triggering review by the Federal Court of Accounts in a specific case in which the random time was set at less than five minutes. On that occasion, the TCU informed the audited body that “granting a short time for the bidding phase in electronic reverse auctions, as well as executing the command to close the bidding phase while price reductions in bids are significant, (…) hinders obtaining the most advantageous proposal, constituting a breach of art. 3 of Law 8,666/93”. (Judgment 1,188/2011 – Plenary, Reporting Justice Augusto Sherman Cavalcanti, decided on 05/11/2011).
Article originally published in Migalhas (in Portuguese), on 04.17.2020.
