Amendments and Addenda to Administrative Contracts: Limits on Changes

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Changes to contracts signed with the Brazilian government are subject to strict percentage limits and require formal justification. Without them, the change can distort the subject matter that was put out for bid and undermine the lawfulness of the agreement. Knowing when increases, reductions, and extensions are allowed is essential for suppliers and public managers who want to protect the validity of the contract.

The legal limits on changes to administrative contracts

An administrative contract is not a static agreement. Law 14.133 of 2021, which governs public procurement and government contracts in Brazil, expressly allows an agreement to be modified while it is being performed, as long as the legal boundaries are respected. The rule rests on a simple premise: the public interest may call for adjustments that could not have been foreseen when the contract was signed.

There are two paths to a change. The first is a unilateral modification, imposed by the government when the subject matter needs to be adapted to its intended purposes. The second is a change by agreement between the parties, which requires consensus and occurs, for example, when a guarantee is replaced or deadlines are revised. In both cases, the law requires the change to be reasoned and documented.

The most sensitive question is how much can be changed. The law sets maximum percentages precisely to prevent the contract that was originally put out for bid from turning into something substantially different, which would defeat the competition that came before it was signed. This safeguard protects not only the competitors who took part in the bidding process, but also the public treasury itself, by preventing contracts that escape prior oversight.

Increases, reductions, and the 25% or 50% limit

Under Article 125 of Law 14.133 of 2021, the contractor must accept, on the same contractual terms, increases or reductions of up to 25% of the contract’s updated initial value. This limit applies to construction works, services, and purchases in general, and it operates as a ceiling on quantitative changes imposed unilaterally.

There is one important exception. For the renovation of a building or of equipment, the limit on increases rises to 50% of the updated initial value. The higher percentage reflects the fact that work of this kind often uncovers hidden needs that can be identified only once the work is already underway, which justifies a wider margin for expansion.

Reductions have their own rules as well. When they result from an agreement between the parties, they may exceed the 25% ceiling, because a reduction made by mutual consent imposes no sacrifice on the contractor. A unilateral reduction, on the other hand, remains subject to the same percentage limit, which balances the government’s prerogative against the private party’s need for certainty.

Note that the calculation is based on the updated initial value, not on any amendments already signed. Reading the calculation base correctly keeps successive changes from inflating the contract far beyond what the original competition could support. That is why checking the calculation worksheet for each amendment is an indispensable step, both for the public manager and for the supplier who wants to protect its rights.

The rule rests on a simple premise: the public interest may call for adjustments that could not have been foreseen when the contract was signed.

The duty to preserve the contract’s economic and financial balance

Any change that increases or reduces the contractor’s burdens affects the financial equation of the agreement. For that reason, the law provides that when a unilateral modification is capable of affecting those burdens, the government must restore, in the same amendment, the economic and financial balance originally agreed upon.

This requirement protects the private party against disadvantages imposed without compensation. If the government expands the scope of the contract, it must pay for the addition in the proper proportion. If it reduces quantities, it adjusts the price downward. The aim is to keep the relationship between the obligations undertaken and the payment promised intact, so that a public prerogative does not become a tool for imposing undue costs.

Case law from the courts of accounts reinforces the point that rebalancing is not a favor but a right. If the amendment fails to provide for the compensation, it opens the door to administrative and judicial challenge, and the manager who ignored the duty to restore the balance may be held liable.

It is also worth remembering that economic and financial balance can be invoked in situations beyond the parties’ control, such as extraordinary economic events (álea econômica extraordinária). In those cases, the revision follows its own procedure, distinct from a simple quantitative change to the subject matter, and it requires concrete proof of the imbalance.

Extensions of time and the risk of distorting the subject matter

Extending the contract term is another common form of change. It may be used to complete works or services already begun when unforeseeable events occur, or in continuous-service contracts, which allow successive renewals within the maximum period set by law. In any case, an extension depends on an express justification and on a favorable opinion from the competent authority.

The most important limit, however, is not numerical but qualitative. The law prohibits unilateral changes that transform the subject matter of the contract. In other words, even within the permitted percentages, it is unlawful to modify the contract to the point of altering the nature of what was put out for bid.

Imagine a contract to pave a particular road that, through amendments, comes to include the construction of a public building. Even if the amounts stayed within the legal ceilings, the change would violate the essence of the bidding process, because it would hand the winning company something the other interested bidders never had the chance to compete for. This is exactly the kind of maneuver that the prohibition on distortion is meant to stop.

Distortion can also occur subtly, through an accumulation of small changes that, taken together, move the contract away from its original purpose. That is why each amendment should be assessed not only on its own, but in light of all the modifications already made, checking whether the sum of the changes still keeps the contract faithful to what was competed for in the bidding process.

Justification, formalization, and oversight of amendments

No contract change can be made without a stated reason. The justification must appear in the administrative file, showing the technical need, the fit with the public interest, and compliance with the legal limits. The change is formalized through an amendment (termo aditivo), an instrument that expressly records the modification, whether agreed or imposed.

Oversight of these amendments is carried out by the government’s internal bodies and, externally, by the courts of accounts. Amendments that lack proper justification, exceed the percentage limits, or distort the subject matter expose the manager to audit findings, disallowance of expenditures, and possible liability. For the contractor, a defective change can mean uncertainty about being paid the additional amounts.

Frequently Asked Questions

What is the maximum percentage increase in an administrative contract?

A unilateral increase may be up to 25% of the contract’s updated initial value for construction works, services, and purchases. For the renovation of a building or of equipment, the limit on increases rises to 50%. Reductions made by mutual consent may exceed these ceilings, but a reduction imposed unilaterally remains subject to the 25% limit.

Can the government freely change the subject matter of the contract?

No. Even within the permitted percentages, it is prohibited to transform the subject matter that was contracted. A change must preserve the essential nature of what was put out for bid. Modifications that alter the purpose of the agreement violate the rule of competition and may be annulled, and the manager responsible for the contract may be held liable.

Is the contractor entitled to keep the financial balance after a change?

Yes. When a unilateral modification increases or reduces the contractor’s burdens, the government must restore the economic and financial balance in the same amendment. This is a right of the private party, not a mere courtesy. If the balance is not restored, the change that was imposed can be challenged administratively and in court.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.