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New provisional measure allows the re-bid of concession agreements in force

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11/25/2016 11:34 AM Demarest News

New provisional measure allows the re-bid of concession agreements in force

Provisional Measure (MP) no. 752 was published today, November 25th, editing rules about the proceedings for extension and re-bid of partnership contracts in highway, railroad and airport sectors. The rules are applicable for the projects qualified to this end according to the Investments Partnership Program - PPI (Law no. 13,334/16).

The MP provides 03 instruments (i) contractual extension; (ii) anticipated extension; and (iii) re-bid.


1. Contractual and anticipated extension

These instruments are applicable for highway and railroad sectors according to the following rules:

  • Contractual, in cases of end of contractual term, as long as formally expressed within 24 months before the end of the original contractual term;
  • Anticipated, in which the final term of the contract will be altered and can include new investments not previously set out in the original contract; it can only be used in cases where the contractual execution is between 50-90% of the original term;

(i) for highway concessions, it is necessary that at least 80% of the due obligatory works were executed between the initial concession term and the date of the extension request;

(ii) for railroad concessions, it is necessary to prove the compliance with the security and production goals defined in the contract for three years in a five years interval or compliance with security goals defined in the contract in the last five years; both cases counting from the date of the extension request.

In all cases, the original contract or invitation to bid should have a provision for extension. The extension shall be for a shorter or equal period to what is set out in these documents.

Any party can request the term extension. Moreover, it is necessary that the contract has not been extended before.

The extensions should be submitted to public hearing, opened to suggestions for at least 45 days.

The parties should sign a contractual amendment with the new terms and new investment schedule. The amendment must be submitted to the Federal Audit Court (TCU) together with the studies and reports about the case.


2. Re-bid

This instrument is applicable for highway, railroad and airport sectors.

It is an amicable extinction of the concession agreements in place, in cases where the concessionaire is unable to comply with the contractual or financial obligations originally taken. The parties shall sign a contractual amendment formalizing the details of the agreement.

In order to allow the re-bid process, the original concessionaire must present: (i) the justification and technical elements that show the ability and convenience of the process, with proposals for solution of the difficulties faced; (ii) renounce of the term for correction of failures and infractions, for forfeiture effects; (iii) formal statement on the intention to embrace the re-bid process irrevocably and irreversibly, according to the MP rules; (iv) necessary information for the re-bid process, especially the statements related to investments in reversible goods linked to the business and financing instruments used in the contract.

The original concessionaire will be entitled to indemnification, to be defined by means of arbitration or other private dispute resolution instrument, and eventually paid by the new concessionaire. On the other hand, the Granting Authority will be responsible for the indemnification to the lessors of the original concessionaire.

The MP prohibits that the following persons participate in the re-bid process: (i) concessionaire or SPE originally contracted for the execution of the partnership contract; (ii) SPE's shareholders holding at least 20% of the stock in any moment before the re-bid process. This limitation extends to the participation of this persons in consortium, capital stock or new SPE participating in the new bid.

In all cases, the responsible body or entity should present a technical study to support the extension or re-bid, with proper identification of the object, reason and other relevant information, which shall be subject to public hearing opened to suggestions for at least 45 days.

Demarest Advogados

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