The world is currently concerned about the immediate and future consequences of the coronavirus pandemic (COVID-19). With the number of infected individuals already in the hundreds of thousands, and entire countries in quarantine, there is no economic sector that has managed to escape its effects. Given the scenario, it became impossible to fulfill an endless number of obligations agreed before the present reality, thus raising the possibility of qualifying it as a force majeure event – which would allow non-compliance with such obligations.
In Administrative Contracts, the situation is not very different from what is observed today in private agreements, after all, both contractors and Public Administration itself have been suffering the effects of the pandemic. In the administrative sphere, however, the issue shall not be seen in the same way as in Private Law.
In the case of a pandemic like the one the world is currently facing, it is possible to speak of “act of God” and “force majeure”, legal institutes that, even if not defined by law, can be understood as events caused by nature or by human action which change the conditions under which the contract was signed, making it necessary to rebalance or adjust terms.
As a rule, both private and administrative contracts contain clauses providing for which party will be held responsible in the event of non-compliance with an obligation due to force majeure – even if, in situations where the contract establishes such responsibility to the contractor, the risk can be shared with the employer. If this is not the case, one must analyze which obligation has not been fulfilled and if it has not been fulfilled due to the unforeseen fact.
It is a well-known fact that the COVID-19 pandemic has taken on unimaginable proportions, and that no economic sector will emerge unscathed from the crisis generated. As a consequence, many of the contracts signed with the Public Administration will have to be revised – which is possible, since Law 8.666/93 establishes in its Article 65, d) that an Administrative Contract can be revised so that the economic-financial balance existing at the time it was agreed can be reestablished.
The matter here is that, for this to happen, the Public Administration must, first, recognize the cause and effect relationship between the unforeseen fact and the impossibility of fulfilling a certain obligation, and then, determine the size of this impact in the fulfillment of what was previously agreed – something extremely complex, since it takes into account how the provision of each contracted service was affected.
Another typical administrative legal institute that deserves attention here is the factum principis, a general order given by the competent public body that affects the terms of the concession. In a scenario of crisis like the current one, it is a prerogative of the Public Administration to modify the terms of a contract aiming at the greater interest of the public interest, even if this creates new costs for the contractor.
As well as the revision of contractual terms, measures such as the factum principis are already being considered by the Public Administration.
In extremely affected sectors, such as aviation, measures are already being studied to support concessionaires that manage privatized airports which, as the airlines, have suffered from the drastic decrease in the number of passengers and, consequently, in turnover. Recognizing that the scenario would make it impossible for them to pay the concession under the agreed terms, the National Civil Aviation Agency reevaluated these concession contracts after understanding that “the crisis has grounds of force majeure and that it gives interested parties support to ask for the financial economic rebalancing of the contracts.”[1]
In sectors considered essential to the population, such as the electric, the possibility of using the factum principis is already being considered, with several states of the federation raising the possibility of temporarily suspending the collection of the electricity bill, or temporarily prohibiting the interruption of the service due to default. Such measures, although apparently good for the population, can bring losses not only for the energy distribution companies, but also for the administrative entities themselves, since they would no longer collect the revenue from taxes embedded in the bills. To get a sense of how much this would represent, it is worth mentioning that, according to data from Confaz (National Council for Economic Policy), electric energy represented in 2019 about 11% of the R$ 509.8 billion that the states collected with the ICMS (the Tax over Merchandise and Services Circulation).[2]
It is still too early to measure which contracts should be reviewed and to what extent. The only certainty now is that, while some economic sectors may feel the effects of the crisis more than others, every single one will do so to some degree. Thus, all those who have contracts signed with the Public Administration should keep in mind that, since the pandemic is considered a force majeure, it is presented as a possibility to revise previously agreed terms so that non-compliance with obligations on account of the COVID-19 is not penalized.
[1] Available in: <https://oglobo.globo.com/economia/por-coronavirus-anac-fara-revisao-de-contratos-de-concessao-dos-operadores-de-aeroportos-privatizados-24309917>.
[2] Available in: < https://www1.folha.uol.com.br/mercado/2020/03/distribuidoras-questionam-propostas-de-suspensao-da-conta-de-luz-por-coronavirus.shtml >.
