Brazil Announces Anti-Procurement Fraud Program in Wake of Rio 2016

Cinnaminson, NJ-  Feeling the oncoming wave of eager bidders and publicity-hungry corporations, Brazil has decided to institute a procurement fraud initiative in preparation for the 2016 Summer Olympics.  Reeling from a messy 2014 World Cup contracting process of excessive contracts, inflated bids, and construction disasters, the Brazil government has announced the formation of the Regime Diferenciado de Contratacoes (RDC).  The multifaceted procurement correction tool has outlawed separate contracts for stadium construction and design (a response to the drawn-out legal battles between the designers and builders of the World Cup stadium following several on-site deaths) while also allowing the government to not disclose proposed budget before accepting bids, combatting inflation.  An experiment nonetheless, time will tell if the Brazilian remedy will improve their contracting process or just stifle free enterprise.

The original post form the FCPA blog is reproduced below with its link following.

 

ANDY SPALDING ON BRAZIL’S FIRST PILLAR: PROCUREMENT REFORM

Procurement obviously presents among the highest risks for corruption. Brazil took its rare good fortune of hosting the 2014 FIFA World Cup and 2016 Summer Olympics as an opportunity to evaluate its procurement regime. In so doing, it adopted important reforms; hosting the Olympics thus became a catalyst for positive governance change.

Two features of Brazilian procurement had become problematic. The first was the practice of soliciting separate bids for design and construction. It might seem that two sets of eyes are better than one, and that involving more companies in the project would tend to decrease opportunities for corruption. But when a problem arose in construction, the finger-pointing began: the design company blamed the construction company, and the construction company blamed the designers. The result could be litigation, delay, and cost overruns.

The second problematic feature was the practice of “open bidding,” in which the government would announce the project budget before accepting bids.  Companies who might be able to build the project for substantially less than the budget would sometimes inflate costs to more closely approximate the government’s budget. In this way, open bidding could lead to cost inflation.

The Regime Diferenciado de Contratações, law No. 12462/11 and locally known as the RDC, is Brazil’s experiment in addressing the inefficiencies of traditional procurement. First, the RDC permits a single bidding process for the design and construction phases. Second, it eliminates the requirement of open bidding, allowing the government in certain circumstances to accept bids without publicizing its budget.

Will these work? It’s too early to tell. But Brazil has treated Olympic preparation as a kind of laboratory, in which it is conducting experiments. When the dust has settled, Brazil will evaluate the record of this new procurement regime, and a public debate on further reforms is expected to follow. Regardless of the ultimate determination, Brazil is plainly using the Olympic Games to move forward in building a government that is more accountable, transparent, and effective.

Who knew?

Procurement was just the first of four major legal reforms enacted in a two-year period; I am calling these laws the four pillars of Brazil’s Olympic governance legacy. Stay tuned to read about the others, or see our ebook, videos, and other resources at law.richmond.edu/olympics.

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