Part 2 Specific Issues of Arbitration in Brazil, 18 Construction Contracts Involving the Public Administration

Subject(s):

Arbitral agreements

This chapter explores arbitration concerning construction contracts involving the public administration in Brazil. Contractual risk allocation is a crucial part of the economy of the contract and should be respected by arbitral tribunals while deciding such disputes. In practice, and especially in contracts involving public entities, it is the owner of the (future) facility who defines the draft contract used in the bidding process and, therefore, has the first say on the allocation of risks. In preparing the contract for the public tender, the public authority, as the owner, may feel tempted to allocate the vast majority of the risks to the private party, i.e., the contractor. However, the owner should avoid the pure and simple transfer of all risks to contractors for two main reasons. Firstly, it may preclude parties from submitting bids, limiting the competition between the market players. Secondly, the bidders will take into consideration the heavy allocation of risk on them when submitting their price offers, which will significantly increase the price of the project and sometimes even affect its viability. The chapter then considers the FIDIC (International Federation of Consulting Engineers) Red Book and Brazilian Law 8,666/1993 on construction works for the public sector.