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Tuesday
Jul192016

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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Andy Spalding is a Senior Editor of the FCPA Blog and Associate Professor at the University of Richmond School of Law. He's the author of the ebook Olympic Anti-Corruption Report: Brazil and the Rio 2016 Games (available here). He'll be a speaker at the FCPA Blog NYC Conference 2016.