By: Edmur de Almeida

The new government needs to implement a number of measures to control the public deficit and promote a resumption of economic growth, preferably in its first year of office, when, in theory, there are more chances of the Legislative approving projects of interest to the Executive. Such measures will help confirm the campaign’s developmental discourse and show investors that they will have the ideal environment for private sector participation.

One of these actions is undoubtedly the new public procurement law and contracts law, which is directly associated with a relevant fact: a good part of Brazilian GDP comes from public spending and investments.

The surety insurance has a fundamental role in the context of the new law, as it makes possible the completion of important works for Brazil, such as schools, hospitals, roads, ports, airports, railways and hydroelectric plants.

After much discussion in the two legislative houses, it was pacified the understanding that the value of the guarantee insurance for large contracts should correspond to 30% of the value of the contract. There are those who want more and those who want less.

The main problem in adopting smaller values is that they may make it unfeasible to retake and conclude the object of these contracts, especially the works. The discourse of those who defend the maintenance of the current value (5%) is that most of the works stopped due to the lack of payment by the public administration, and not by the default of the builders.

Now, one thing is one thing and another thing is something else. Governments could not delay or stop paying for contracted services, since there is a budget of their own before hiring, in addition to the fiscal responsibility law. More recently, there have also been initiatives by the government to provide guarantees for its financial contribution to major projects, through the Infrastructure Guarantee Fund, administered by the Brazilian Agency for Guarantee and Guarantee Funds.

Thus, the role of the insurance bond must be to guarantee the end of the work in cases in which supplier breaks, leaves or does not account to provide the service. In the case of works, studies done here in Brazil and in other countries have concluded that 30% is a comfortable level to fulfill this objective.

Of course, this will result in an increase in the final cost of insurance for the construction company, which, as is already the case today, is passed on to the contract price. Who will pay this account is the public administration with the money of our taxes. But it’s the cost for the system to work and give back to society what it needs.

Another consequence is that the builders will only have more works at the same time if their economic and financial condition is consistent with this. It may not be good news if seen exclusively by the side of these companies. However, the important thing is that, for everything and everyone, the system works.