Changes to Administrative Contracts: How Far Can the Government Go?

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

Changing an administrative contract during performance is a prerogative of the Public Administration, but Law 14.133/2021 (Brazil’s Public Procurement and Administrative Contracts Law) sets strict limits. Contractors must accept additions and reductions of up to 25% of the updated initial contract value, a figure that rises to 50% for the renovation of a building or equipment. Beyond those margins, and whenever a change upsets the cost equation, the contractor is entitled to have the contract’s economic and financial balance restored.

The 25% and 50% Limits Under Law 14.133/2021

Law 14.133/2021, which governs public procurement and administrative contracts, allows the Administration to modify the agreed subject matter while the contract is being performed. That power is not unlimited. Article 125 provides that the contractor must accept, on the same contractual terms, additions or reductions of up to 25% of the contract’s updated initial value for works, services, and purchases.

The current regime succeeds the model of the earlier legislation and keeps the logic of fixed percentages, now consolidated in a provision of its own. The new statute did not loosen the standard: it kept the 25% ceiling as the rule and the 50% ceiling as a narrow exception for renovations. Contracts signed under the current law follow this framework in full, which gives predictability to companies that work with the public sector on a regular basis.

The percentage rises to 50% only for additions resulting from the renovation of a building or equipment. The ceiling is calculated on the updated initial value, not on the amount already amended, which prevents the Administration from stacking successive amendments to get around the legal margin. Once that limit is exceeded through a unilateral order, the demand loses its legal footing, and the company may refuse it without being in breach.

Reductions follow a similar logic, with some nuances. The Administration may order reductions within the 25% margin unilaterally, adjusting the price to the quantities actually kept. Cuts above that level require agreement between the parties, because the law does not authorize the unilateral imposition of reductions that hollow out the contract beyond the legal margin. In that case, consent protects the company’s planning and avoids an abrupt disruption of performance.

The case law of the courts of accounts (Brazil’s public audit bodies) has settled on reading the 25% margin as a double guarantee: it protects the public interest in the contract’s continuity, and it shields the contractor from disproportionate expansions that distort what was priced in its bid. The margin exists for adjustments, not for rebuilding the subject matter from within the same contract.

The Power to Change Contracts Unilaterally and the Limit on Transforming the Subject Matter

So-called cláusulas exorbitantes (special clauses that give the government powers a party would not have in an ordinary private contract) grant the Administration powers that would not exist in a standard private contract. Among them is unilateral modification, provided for in Article 124 of Law 14.133/2021. It applies when the project is modified to achieve a better technical fit, or when the contract value must change because the quantity of the subject matter is increased or reduced.

This prerogative comes with an express brake. Article 126 prohibits unilateral changes that transform the subject matter of the contract. In other words, the Administration may adjust quantities and refine specifications, but it may not, under the label of an amendment, turn the contract into something substantially different from what was put out to bid and contested by the competing companies.

The distinction is decisive in practice. Changes that expand square footage, increase quantities, or correct technical solutions tend to fit within the legal framework. By contrast, adding new fronts of work, swapping out the essential scope, or changing the nature of the performance fall outside the unilateral power. If imposed, they give the contractor grounds to resist and to claim the economic consequences of the imposition.

This is where the debate shifts from how much may be changed to the price at which a change becomes legitimate. The percentage sets the volume; the economic and financial balance addresses the value. The two work together, and ignoring the second empties the protection the first promises.

Once that limit is exceeded through a unilateral order, the demand loses its legal footing, and the company may refuse it without being in breach.

Economic and Financial Balance as the Contractor’s Right

The restoration of economic and financial balance has constitutional roots. Article 37, item XXI, of the Federal Constitution ensures that the effective conditions of the bid are maintained throughout the contract. This mandate takes the form of the so-called economic equation: the relationship between the burdens the company has taken on and the compensation agreed at the time of the bidding must remain stable.

Law 14.133/2021 puts the guarantee into operation. When a unilateral change increases or reduces the contractor’s burdens, Article 130 requires the Administration to restore the balance in the same amendment that makes the change. This is neither a favor nor an act of generosity: it is a legal duty that arises at the same time as the change itself, not something left for later discussion.

The guarantee accompanies the contract from start to finish. It does not end at signing, and it does not depend on an express clause to exist, because it flows directly from the Constitution and the law. For that reason, even when the contract itself is silent, the company keeps the right to seek restoration whenever the equation is upset by an act of the Administration or by a duly proven extraordinary event.

It helps to separate concepts that are often confused. A price adjustment (reajuste) corrects price variations using an index agreed in advance. A renegotiation (repactuação) restores labor costs in continuous services that require a dedicated workforce. A review (revisão), also called rebalancing, responds to extraordinary events that upset the equation. Each tool has its own prerequisites, and choosing the wrong one can delay or defeat the company’s right.

When an Imbalance Justifies a Review

Not every fluctuation in costs creates a right to review. Brazilian law distinguishes ordinary risk (álea ordinária), which is part of the natural risk of doing business and is borne by the contractor, from extraordinary risk (álea extraordinária), which is unforeseeable or has incalculable consequences and shifts the risk to the Administration. Only the latter justifies restoration based on the unforeseeability doctrine (teoria da imprevisão).

Legal scholars and courts recognize several classic scenarios. The fato do príncipe (act of the sovereign) describes a general measure by the government itself that indirectly burdens the contract, such as creating or raising a tax. The fato da administração (act of the administration) is specific conduct by the contracting party that prevents or hinders performance. To these are added force majeure, acts of God, and unforeseen site conditions, which involve physical circumstances unknown when the contract was made.

The burden of proving the imbalance falls on whoever claims it. The company must show a link between the extraordinary event and the actual increase in its costs, usually through cost spreadsheets, invoices, and calculation records. A review does not seek a larger profit than the one contracted: it seeks to restore the originally agreed margin and return the contract to its economic starting point.

What a Company Should Watch For When Facing Unilateral Changes

When a change is imposed, the first step is to check whether the demand respects the 25% ceiling, or 50% for the renovation of a building or equipment. Orders that exceed the margin, or that transform the subject matter, may be refused with stated reasons, and the refusal does not amount to a breach of contract.

It is also worth distinguishing a formal change order from a mere verbal request by the contract inspector. Only a written amendment, or a written directive from the competent authority, has legal effect sufficient to bind the company. Informal instructions that expand the scope or speed up deadlines, without documentary support, do not bind the contractor and do not replace the formalization required for rebalancing.

Within the limits, attention turns to preserving the economic equation. It is prudent to record any cost impact formally, to require that the amendment provide for restoration in the same instrument, and to document performance with reports, photographs, and updated spreadsheets. Failing to speak up in time weakens later claims and shifts onto the company a burden that the law does not place on it.

The administrative route usually comes before the judicial one. Requests addressed to the contract manager, supported by technical evidence, allow a faster and less costly resolution. If the Administration still refuses to rebalance, judicial remedies remain available, including a challenge over suspending obligations when the default comes from the Administration itself. Technical and legal monitoring of the contract reduces the risk of missed deadlines and of implied waivers of rights.

Frequently Asked Questions

What percentage of additions must a company accept?

For unilateral changes, Law 14.133/2021 requires the contractor to accept additions or reductions of up to 25% of the updated initial value for works, services, and purchases. That ceiling rises to 50% only for additions involving the renovation of a building or equipment. Beyond those margins, the change depends on the company’s agreement and cannot be imposed unilaterally.

Does the Administration have to compensate the company when it changes the contract?

Yes. When a unilateral change increases or reduces the contractor’s burdens, the law requires the economic and financial balance to be restored in the same amendment. Restoration is a legal duty that arises together with the change, not a discussion put off for later. If the Administration ignores this requirement, the company has grounds to claim the difference through administrative and judicial channels.

Does any increase in costs justify a contract review?

No. A review requires extraordinary risk, meaning an unforeseeable event, or one with incalculable consequences, that upsets the economic equation set in the bid. Fluctuations that are part of the ordinary risk of the business are borne by the contractor. The company must show the link between the extraordinary event and the actual increase in its costs, with spreadsheets and documents that prove the impact.

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