Camillo Giamundo and Brenda Monticelli

Law 14,133/21 has governed new public procurement since January 2024, giving rise to debates on unfeasible prices, especially in engineering works and services, under art. 59.

Since January 2024, new public procurement processes in Brazil have been governed exclusively by the new procurement and contracts law (Law 14,133/21). Naturally, the implementation of this new law raised questions about how its provisions should be applied in practice in tender processes, and because of these questions, previously unclear scenarios have been discussed in the competent Brazilian courts with the aim of consolidating the application of the new law.

It was in discussing one of these issues that the TCU recently addressed the question of unfeasible prices under Law 14,133/2021, reaffirming its case law already consolidated while Law 8,666/93 was in force.

To understand this issue and the TCU’s position, it is essential to understand that price unfeasibility occurs when a bidder’s offer is considered unviable for performing the contract. A bid is thus considered unfeasible when the amounts offered are so low that they do not allow the service to be properly performed or the product to be delivered in accordance with the requirements and standards set by the Public Administration.

The wording of art. 59, §4 of the new procurement law expressly describes unfeasibility, in the case of engineering works and services, as “bids whose amounts are less than 75% of the amount budgeted by the Administration”. The same provision allows the contracting Administration to carry out due diligence to confirm the feasibility of the amount proposed, or to require bidders to prove it (§2).

Identifying unfeasible prices is extremely important to ensure that contracts are performed with quality and to avoid problems such as service interruptions, delivery of poor-quality products or the need for contract amendments that increase the originally estimated costs and erode the savings the original bid should reflect.

The Federal Court of Auditors already had a consolidated understanding on this matter.

Approved while the former law was in force, Precedent 262, analyzing art. 48, item II, §1, subparagraphs “a” and “b” of Law 8,666/93, established relative unfeasibility. According to the precedent, established based on Judgment 3,240/10, the Administration should give the bidder the opportunity to demonstrate the feasibility of its bid, ruling out the summary rejection of economically advantageous bids for the Public Administration.

This understanding was expected to apply to the current legislation as well since, although art. 59, §4 of Law 14,133/21 provides for an objective criterion to assess the unfeasibility of bids for engineering works and services, the new legislation is not limited to this criterion. As mentioned, §2 of that article allows the Administration to carry out due diligence or ask bidders to demonstrate that the prices offered are consistent with the conditions necessary for full performance of the contract.

However, contrary to expectations that the previous understanding would be maintained, the TCU, in Plenary Judgment 2,198/23, considered the terms of art. 59, §4 of Law 14,133/21, which provides that “in the case of engineering works and services, bids whose amounts are less than 75% (seventy-five percent) of the amount budgeted by the Administration shall be considered unfeasible”, and item III of the same article, under which “bids presenting unfeasible prices shall be disqualified”, concluding that there would be no need for due diligence to assess price unfeasibility, since a bid below the 75% threshold would automatically be considered unfeasible by the law itself and should therefore be disqualified.

Although at that first moment the understanding was that art. 59, item III, in conjunction with §4, of the new procurement law should be interpreted literally, establishing an absolute presumption of price unfeasibility in tenders for engineering works and services, this position was soon corrected.

In this regard, the Court’s institutional publication “Procurement and Contracts: TCU Guidance and Case Law”, in its fifth edition, stressed that the understanding in Plenary Judgment 2,198/23 was isolated, “and it is advisable to await new decisions to gain a clearer and more definitive understanding of the application of this legal provision based on specific cases.”

In addition, also in the fifth edition of its Guidance and Case Law, the TCU stated that there is no obstacle to applying the Court’s Precedent 262 to Law 14,133/21. This is because, as seen above, art. 59, item IV, in conjunction with § 2, of that law expressly provides that feasibility may be demonstrated by the bidder.

Considering the understandings set out in the institutional publication, as well as most of the case law and TCU Precedent 262, Plenary Judgment 465/24 was issued. This judgment correctly determined, in general terms, that the bid unfeasibility parameter established in art. 59, §4 of Law 14,133/21 must be interpreted systematically and in line with §2. The understanding of Precedent 262 was therefore maintained, as the decision concluded that there is a relative presumption of price unfeasibility, so that the Administration must give the bidder the opportunity to demonstrate the feasibility of its bid.

The judgment proved essential since, in addition to resolving the controversy previously raised, it clarifies that, even when a bidder’s offer is less than 75% of the amount budgeted by the Administration, the bidder has the right to justify and prove its commercial reasons and the viability of its prices, in order to preserve the economic advantage offered to the Administration.

In conclusion, despite the “scare”, the TCU has been reaffirming its Precedent 262, maintaining its commitment to treating price unfeasibility as a relative presumption, in good harmony with the objectives and premises of a tender, with a view to ensuring the selection of a bid capable of producing the most advantageous contract for the Public Administration.

Originally published by Migalhas (in Portuguese).