by Camillo Giamundo and Bruno de Oliveira Cortopassi

The private party’s lawful exercise of the right to suspend services or terminate the contract in its relationship with the Public Administration is often deterred by the threat of illegal and abusive administrative sanctions.

The Administrative Law regime, by virtue of the principles of the supremacy of the public interest over the private interest and the non-disposability of public interests by the Administration, gives the Public Administration a position of superiority over private contractors, through prerogatives that do not exist in private relationships, known as “exorbitant” clauses, which give it this hierarchical position in pursuing the collective interest.

Among the exorbitant clauses, there is frequent doubt and discussion about the benefit that Federal Law 8,666/1993, which governs administrative contracts, grants the Public Administration through the prerogative of delaying payments owed to the private party for up to 90 (ninety) days (art. 78, XV), requiring it to bear, during that period, the costs and expenses of the services it provides without any possibility of halting or scaling back work, under penalty, among other things, of contractual sanctions (art. 87).

Nevertheless, by allowing delays — or non-payment — of up to 90 (ninety) days, article 78, item XV of Law 8,666/93 guarantees the private party the possibility of suspending or terminating the contract if this period is exceeded, with payment ensured for the losses suffered and the services performed up to that point (art. 79, §2 and items).

In practice, however, it is not uncommon for the Public Administration not only to delay — and therefore default on — the payment due under the contract for longer than legally permitted, but also to impose administrative sanctions on the private contractor when it exercises its right to suspend or even terminate the contract, overstepping and abusing its position.

Although the private party, when contracted, knows the special position it will assume in its relationship with the Public Administration, accepting the exorbitant clauses previously set out in the tender notice and the future contract, which must be annexed to the call for bids, it cannot be accepted that the burdens and losses caused exclusively by the contracting entity should fall on it under the pretext of the principle of the supremacy of the public interest and its non-disposability, upsetting the economic and financial equation and making it impossible to continue providing the services, especially for longer than permitted by law, and particularly under the threat of a contractual sanction. Note that article 87 of Law 8,666/93 provides for the possible imposition of a warning, a fine, temporary suspension from tenders and prohibition from contracting with the Administration and, most seriously, a declaration of unfitness, allowing sanctions to be applied jointly (§2), which in itself may pose a serious threat to the private contractor, especially one that regularly contracts with the Government and may be harmed by arbitrary and illegal administrative decisions.

In situations such as this, where the contracting Public Administration has been in default for longer than the legal limit and the private party has exercised its right to suspend its services or terminate the contractual relationship, the imposition of any sanction by the Administration appears abusive and illegal, calling for intervention by the Judiciary to immediately suspend its effects. The Minas Gerais State Court of Justice, in a situation such as this, ordered the Administration to refrain from imposing a sanction due to non-payment for longer than the period provided for in article 78, item XV of the Procurement Law. In that case, a pharmaceutical company filed a writ of mandamus seeking to prevent administrative sanctions from being imposed due to the suspension of the contract as a result of the Public Administration’s default. Reporting Judge Carlos Levenhagen grounded his decision by explaining that the administrative contractual regime, although it guarantees a series of special features arising from the primary nature of protecting public interests, cannot serve as a justification for failing to comply with contractual obligations and art. 78, XV of Law 8,666/93, since the non-disposability of public interests cannot be applied without restriction:

“As is well known, the administrative contractual regime has a series of special features arising from the primary nature of protecting public interests, one of which is the Administration’s predominant position within the contractual relationship, an expression of the principle of the supremacy of the public interest (…) Thus, from the evidence in the case file, it can be seen that the contractual object was duly performed by the contractor, which, however, did not receive the agreed consideration from the municipal entity, which is why it invoked the prerogative of art. 78, XV, of Law 8,666/93. Furthermore, the Municipality failed to demonstrate the existence of any ground or fact preventing, modifying or extinguishing the petitioner’s right.”
(TJMG – Mandatory Review-Cv 1.0647.16.003941-6/001, Reporting Judge: Carlos Levenhagen, 5th CIVIL CHAMBER, decided on 12/14/2017, summary published on 01/23/2018)

It is thus clear that it is still common practice for the Public Administration to invoke the principle of the supremacy of the public interest to avoid fulfilling its contractual obligations — especially that provided for in article 78, item XV of Federal Law 8,666/93 — so that it will be up to the contractor to take the necessary steps to suspend services or terminate the contract, and it cannot be sanctioned for the regular exercise of its legally guaranteed right; any arbitrary acts must be overturned through the appropriate judicial channels.

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*Camillo Giamundo holds a specialization and a master’s degree in Administrative Law from the Pontifical Catholic University of São Paulo (PUC-SP), and is a founding partner of Giamundo Neto Advogados.

*Bruno de Oliveira Cortopassi is a law student at Universidade Presbiteriana Mackenzie and a member of the Administrative Law team at Giamundo Neto Advogados.

Article originally published in Migalhas (in Portuguese), on 04.01.2020.