Changes to the Brazilian Public Procurement Law and its repercussion in the Insurance sector

The Brazilian House of Representatives has approved, on 25 June 2019, the main text of the bill related to the new Brazilian Public Procurement Law (Bill No 1,292/1995), which provides significant changes to the current Public Procurement Law (Federal Law No. 8,666/1993).

Amongst the proposed alterations, we highlight the requirement of the contracting party of providing surety bond (seguro-garantia) for any projects that are valued higher than R$100 million Reais, in the amount of 20% of the total value of the contract (30% in case of projects that are valued higher than R$200 million Reais). Such surety bonds are currently not mandatory in accordance with the law and shall not surpass 5% – in general cases – and up to 10% of the total contract value for projects considered to be with high technical complexity and considerable financial risks.

Another significant change to the law is the obligation of insurance companies to undertake the performance of the project or construction works (through full or partial subcontracting) in case of default of the contracting party. Failure to do so would subject such insurance company to fines equivalent to the amount being guaranteed.

The increase in the requirement for the contractual guarantees has been well received by the (re)insurance sector, considering the potential growth on premium intake that it represents. However, the obligation to perform contracts of different nature and possible sanctions for non-performance of such contracts have been theme of multiple public hearings and discussions between legislators and members of the insurance sector.
Once approved by the House of Representatives, the Bill shall be revised by the Senate, and then can be passed as law.

 

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Marcella Hill
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