Decree establishes rules for integrity programs in public bids and government contracts

On December 09, 2024, Decree No. 12,304/2024 was published to regulate the parameters for evaluating mandatory integrity programs for large-scale public contracts and for the rehabilitation of bidders or contractors, as well as in cases where the integrity program is presented in the context of tie-breaking proposals, as provided for in Law No. 14,133/2021 (“Bidding Law”).

Decree No. 12,304/2024 brings significant changes that directly impact companies that take part in bids and contracts with the federal government, and contracting conducted by state, district and municipal governments using federal government voluntary transfer funds.

When defining integrity programs, Decree No. 12,304/2024 replicates many provisions of Decree No. 11,129/2022, which regulates Federal Law No. 12,846/2013 (“Clean Company Act”). Additionally, in line with recent guidelines published by the Brazilian Office of the Comptroller-General (“CGU”) and with what Brazilian authorities have been indicating as expectations for these mechanisms, Decree No. 12,304/2024 innovates by addressing ESG matters:

• Decree No. 12,304/2024 adds a new target for integrity programs: “Mitigating social and environmental risks resulting from the company’s activities in order to protect human rights.” 
• The decree includes the following parameters for assessing integrity programs:

“[…] IX – Specific mechanisms to ensure compliance with human and labor rights and the preservation of the environment;

[…] XVI – Transparency and socio-environmental liability of the legal entity; and

[…] XVII – Continuous monitoring aimed at improving the integrity program for preventing, detecting, and combating fraud, irregularities, harmful acts against the government (Brazilian or international), and conduct that violate human and labor rights and the environment.”

The Minister of the CGU will issue an act to address the assessment methodology and minimum criteria for classifying integrity programs as implemented, developed, or improved.

According to Decree No. 12,304/2024, proof of implementation of integrity programs will be mandatory for:

• Contractors in large-scale works, services, and supplies (when the estimated value of the initial contract and amendments exceeds BRL 239,624,058.14) – In this case, proof of implementation must be submitted within six months from the signing of the contract.
• Bidders who use the integrity program as a tiebreaking criterion – In this case, proof of implementation must be submitted together with the proposal.
• Those who apply for rehabilitation after penalties resulting from:
  • Submitting a false statement or document during the bid or the performance of the contract; or
  • Committing a harmful act against the government, as provided for in the Clean Company Act.

In these cases, proof of implementation must be provided together with the request to restore eligibility, and there will be an assessment of specific remedies to address the events that led to the penalty in the first place.

The CGU will be in charge of assessing whether the integrity programs are in line with the parameters established in Decree No. 12,304/2024 within the scope of Federal Executive Branch entities. This competence may be delegated to other public authorities when such assessment involves their own bidding and contracting proceedings.

In the case of state, district, and municipal government bodies that are funded by federal government voluntary transfers, the federative entity must define the competent authority to assess the integrity program.

In its assessment – which may be conducted on its own initiative, as a result of periodic assessment actions, or in collaboration with other public entities – the CGU may take all necessary measures to analyze the integrity program properly, including requesting information and conducting diligences, technical visits, and interviews.

The CGU may also waive the submission of documents and the assessment for companies that have been approved in specific programs promoted by the CGU to foster corporate ethics and integrity. The CGU may also recognize an assessment conducted by other federal, state, district, or municipal authorities, provided that such assessments comply with CGU criteria and parameters.

In addition, the CGU may propose a compliance plan to enforce specific measures when it concludes that the integrity programs were not adequately implemented, developed, or improved.

If bidders and contractors commit violations regarding the mandatory proof of implementation of integrity programs, they will be subject to administrative liability proceedings conducted by the CGU, with their respective rights to the due process of law. Such violations include:

• Failing to submit documentation related to the integrity program or submitting it after the deadline without justification;
• Omitting or refusing to provide information;
• Failing to comply with deadlines and measures set out in the compliance plan;
• Hindering the assessment conducted by the CGU;
• Committing fraud regarding documents and information related to the integrity program or
• Submitting a false statement to fulfill the tiebreaking criterion established in the Bidding Law.

The CGU may delegate to other public bodies or entities the competence to initiate and judge administrative liability proceedings related to their bidding and contracting procedures, without prejudice to the CGU’s competence to supervise and review such procedures, if necessary.

Those held liable will be subject to the following penalties:

• Warning;
• Fine (minimum 1% and maximum 5% of the bidding or contract value);
• Prohibition from bidding or contracting; or
• Declaration of unsuitability (disreputable status) to bid or contract.

If the violations against Decree No. 12,304/2024 correspond to harmful acts established in the Clean Company Act, the penalties provided for in the Clean Company Act may also be enforced.

The provisions of Decree No. 12,304/2024 apply to public service concessions and authorizations, public-private partnerships, and other public bidding and contracting processes governed subsidiarily by the Bidding Law, except when there is a specific provision that states otherwise.

The decree will enter into force 60 days after its publication.

Demarest’s Compliance and Investigations team is available to provide further clarification.