In January, the state government of São Paulo enacted Law No. 16,933/2019, which regulates the institutes of contract extension, early extension, and rebidding in the State of São Paulo. This law is similar to the rules set forth in Law No. 13,448/2017, which governs the same institutes in the federal public administration sphere.

In both of the laws abovementioned, the institute of extension refers to two distinct modalities. The first one consists of the extension of contract, carried out due to the advent of its original term, by means of which its length of validity is modified. The second one consists of the early extension, which, under federal law, is conditioned on the provider making new investments not originally provided for in the contract and which are not amortizable considering its initial term. It is worth noticing that in the State of São Paulo, the obligation for the provider to include new investments under contractual terms is also a condition for the pure and simple extension of contract.

Certain requirements provided for at the federal level regarding the extension institute were not mentioned in the text of the state law. An example is the lack of a reference in the São Paulo rule to the need for explicit authorization in the public notice or in the original contract as a requirement for the adoption of the processes of extension of contract and early extension.

In addition, the state law does not define a deadline term for the presentation of a request for the extension intended by the interested party, in contrast with the provisions set forth in the federal law. The latter requires that the request for an extension shall be submitted at least 24 months in advance, counted as of the end of the original contract signed, and must also occur when the contract has reached between 50% and 90% of its original term.

Other requirements of the federal law that were detached from the São Paulo version of the rule are the prohibition that the same contract is extended more than once and the limit on the term of its extension. While extensions of federal contracts may only occur once and with its duration limited to a period equal to or shorter than the extension period originally established or admitted in the contract, in state contracts these limitations do not exist. This is because, in the state rule, there is no prohibition on successive extensions and their duration is not linked to a specific framework based on the original term of the contract, but, in fact, is related to the (i) amortization of investments not originally provided for or (ii) the mitigation or resolution of economic and financial imbalance.

In order to justify the extension and support its decision, the competent entity shall present a technical, economic, and environmental study demonstrating the advantage of the extension in relation to promoting a new bidding procedure. In addition to the requirements already enforced at the federal level, the State Administration must contemplate additional analysis and information, namely: (i) the reasons for maintaining or changing the remuneration criteria; (ii) mechanisms that demonstrate mitigation or resolution of the economic and financial imbalance found in relation to the private partner; and (iii) guarantees that will be given to the private partner as a way to mitigate the contractual risks and reduce the associated costs. At this point, the state legislature was especially concerned with guaranteeing the economic and financial balance of contracts in the context of changing their term of duration.

The most relevant procedural change in the state law, in comparison with the federal law, is the fact that it is silent with respect to prior public consultation and the submission of the extension process to the scrutiny of the accounting court.

The rebidding provided for in the federal law also inspired the São Paulo legislator. This administrative procedure provides for a friendly termination of partnership agreements and the signing of a new business arrangement for the ventures, under new contractual conditions and with new contracting parties, by means of a bid promoted for this purpose. Both laws provide for the possibility of rebidding existing contracts that: (i) are not being complied with by providers; or (ii) whose providers show an inability to fulfill the contractual or financial obligations assumed.

On the one hand, the federal law establishes that the regimes for judicial and extrajudicial reorganization provided for in Law No. 11,101/2005 (except in the case provided for in paragraph 1 of article 20 of this law) do not apply for the rebidding procedures intended by the public authorities. The state law, on the other hand, does not mention these regimes.

Another important provision of the state law also inspired by the federal rule is the possibility for the parties to submit their calculation of the compensation to an arbitration proceeding, carried out alongside the administrative proceedings for the new bidding. The state legislature reveals the same intent to make the process more efficient, since the discussion of compensation in the judicial sphere is one of the main factors for delay in cases of the termination of contracts. Thus, both laws recognized faster means for the resolution of conflicts: amicable termination and arbitration.

The definition of property right, in order to allow the submission of the termination procedure to arbitration, gained an amendment in the state law. The text finds that divergences regarding the technical execution of a contractual obligation shall also be considered an economic right subject to arbitration, in addition to those other situations already considered in the federal law, namely: (i) questions related to the recomposition of the economic and financial balance of the contracts; (ii) calculation of compensation resulting from the termination or transfer of the concession contract; and (iii) default in contractual obligations by either party.

The state rule has also required the execution of a public consultation before deciding to rebid a contract. However, instead of sending the studies to the accounting court after the public consultation, the Commission of Control and Oversight of the Legislative Assembly will be the institutional body responsible for expressing its opinion on the process in São Paulo.

As a way to mitigate risks and reduce costs associated therewith, the São Paulo law established a general authorization for the creation of a public guarantee in common concession contracts, public-private partnerships, concessions governed by sectorial legislation, permission of public services, and other public-private deals. This provision seems to bring in an important component of innovation, with no corresponding provision in the federal law: The State Administration, which was only authorized to provide guarantees under public-private partnership contracts, could now do so in relation to other various types of contracts.

The federal law restricts its scope of application to road, rail, and airport industries, considering that others sectors already have a specific rule regarding those institutes. In turn, the state law referred to health, sanitation, piped gas services, and transportation infrastructure sectors (such as highways, road, rail, metro, railway, and waterway transportation).

Both laws reflect an increasingly well-founded understanding that conventional bids bring with them their own costs and therefore cannot be considered the only legally valid alternative available to the public administration. Both extensions and rebidding, if the precautions for their correct application are observed, can minimize opportunity costs and provide greater speed and economy in the implementation of new investments, in addition to accomplishing termination of unsuccessful contracts, resolving the imbroglios, and giving continuity to the projects of the State’s interest.