Brazilian Law 14.133 was published on April 1st, 2021, introducing a new regime for private parties to bid and enter into contracts with Brazilian state-controlled entities. Among other issues, the new Brazilian “Public Contracts Act” allows the adoption of arbitration, mediation and dispute boards.
The new Public Contracts Act acknowledges that state-controlled entities can submit disputes to arbitration, provided that such disputes deal with “disposable pecuniary rights”. This is in line with the current wording of the Brazilian Arbitration Act. The Brazilian Public Contract Act however goes further and cites examples of issues that can be resolved through arbitration, such as: (i) review of the terms and conditions of public contracts to re-establish its original economic balance; (ii) whether or not a given party breached a contractual provision; and (iii) damages due to the private party. The arbitration shall be governed by law, not being allowed judgment in equity. Information about the arbitration shall be available to the public. The new Brazilian Public Contracts Act allows amendment of existing contracts with state-controlled entities to include arbitration clauses.
The procedure to choose arbitrators, arbitral institutions and members of dispute boards shall have technical basis, be transparent and equally treat the parties. Transparency does not mean that the public entity shall explain in detail the reason behind its choices – which might reveal its strategy – but rather that the public entity shall present brief justifications.
In summary, the new Public Contracts Law did not bring news for arbitration, but it is positive as it consolidates the possibility to submit disputes with state entities to arbitral proceedings. The main novelty is the express admission of dispute boards with state owned companies. Some local authorities such as the city of São Paulo have already been using dispute boards for major projects, but this is the first time federal legislation expressly mentions this dispute resolution system.
This article was contributed by Trench Rossi Watanabe, a Brazilian firm. Trench Rossi Watanabe and Baker McKenzie have executed a strategic cooperation agreement for consulting on foreign law.