Why Not Consider a Pre-Contractual Dialogue?

We live in a time when a significant portion of regulation continues to be addressed through contractual arrangements. In Brazil, we have a consolidated system of dual regulation that must coexist harmoniously, namely, regulation by contract and regulation through legislative and regulatory rules.

We have also achieved sufficient institutional maturity to recognize that regulation should increasingly be implemented through dialogue-based methods, since it is through the active participation of society and economic operators that regulation derives its legitimacy.

Brazilian Regulatory Agencies use different tools to gather input from society and potential economic operators, with terminology that may vary depending on the sector.

It is not uncommon for policymakers and regulators, as a means of gauging the market, to use tools such as roadshows, calls for input, participatory meetings, and other equivalent mechanisms. The objective is to gather information, data, and evidence, and to consider possible alternatives for structuring infrastructure sectors, thus validating the assumptions to be adopted in the project.

These tools seek to understand economic operators’ preliminary business perspectives, their perceptions of past experience, including what worked and what did not, and what may be done in the future, such as innovations and proposals capable of increasing efficiency in the regulated sector. Naturally, they also help increase the private market’s interest and appetite.

This is a fundamental stage, as it enables the regulator to interact and engage in open dialogue with the private sector through participation mechanisms and meetings that, depending on the regulatory framework applicable to each sector, may be either open or restricted.

Once this preliminary market-sounding stage has been completed, public authorities consolidate the business model and its underlying assumptions, whether legal, technical, economic, or financial. At this point, they make important regulatory decisions that will, to a large extent, be reflected in the tender documents and the contract.

The dialogue-based participation of society and the market culminates in the essential holding of public hearings, where oral debate takes place in public sessions, whether in person or virtually, or public consultations, where contributions and suggestions may be submitted in writing.

Of course, regulatory authorities may revise their proposals and accept suggestions submitted during public hearings and consultations. In practice, however, amendments to draft tender documents and contracts are not particularly common, since these documents naturally reflect regulatory decisions that have already undergone a process of maturation, at least with respect to material issues.

There appears to be, and this is merely a hypothesis, a gap between the stage at which information is gathered from the market, through roadshows, calls for input, participatory meetings, and similar mechanisms, and the point at which regulatory decisions are effectively made and materialize in the drafting of the tender documents and contract. These documents will subsequently be subject to criticism and suggestions from society and the market through public hearings and consultations, but with little room for negotiation.

Could an additional stage be introduced into the regulatory participation cycle? Do economic operators actively participate in drafting the concession agreements that will govern their relationships for decades? If a significant portion of regulation is crystallized in the concession agreement itself, why not open its design to a greater degree of dialogue?

Therefore, before regulatory decisions are consolidated in the tender documents and the contract, one could consider introducing a new stage, referred to here as pre-contractual dialogue[1], which would undoubtedly enhance the quality of the regulatory decisions that will subsequently be incorporated into the contract.

Based on the input gathered during the market-sounding stage, regulators would discuss a preliminary draft agreement with the market, thereby establishing a phase with a more negotiation-oriented approach involving economic operators. Suggestions could be gathered through public meetings or even restricted meetings with interested private-sector participants, depending on the rules established by the relevant Regulatory Agency.

If regulation is predominantly implemented through contracts, economic operators need greater room for negotiation to discuss the underlying assumptions, clauses, and conditions, particularly given the stricter constraints on amending public contracts and the long-term nature of the contractual relationship to be established.

Implementing pre-contractual dialogue would not require formal legislation, but merely the adoption of rules by the Regulatory Agencies themselves. From a broader perspective, there would be three distinct stages of dialogue-based participation: (i) market sounding and the gathering of data and information, through roadshows, calls for input, participatory meetings, or other equivalent tools; (ii) pre-contractual dialogue, during which the preliminary draft concession agreement would be open to negotiation-oriented discussions with private-sector participants, in either public or restricted sessions; and (iii) public hearings and consultations, which, unlike the preceding stages, are legally required and broaden the discussion with society and the market regarding the public policy choices that have already matured and are embodied in the tender documents and contract.

It is inconsistent with the current stage of consensual decision-making in Brazilian Administrative Law for a draft agreement, particularly in infrastructure sectors, to provide so little room for open negotiation with those who will assume obligations, risks, and private investment commitments in long-term public projects.

Competitive dialogue, a new procurement procedure introduced by Law No. 14,133/2021, ushered in a new phase of dialogue-based participation by potential bidders during the procurement process itself. Why not now consider pre-contractual dialogue?

[1] I would like to thank Professor Fernando Villela de Andrade Vianna, who, during a preliminary discussion on the subject, suggested the term “pre-contractual” for the dialogue proposed in this article.