Economic-Financial Balance in Public Contracts and Price Adjustments

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

A company that contracts with the Brazilian government has the right to preserve the original economic balance of the agreement. When unforeseeable events drive up costs, restoring that balance is possible, but it depends on choosing the right legal tool and building the request on rigorous evidence.

The right to maintain economic-financial balance

A public contract starts from an equation: on one side, the obligations the private party takes on; on the other, the agreed compensation. This proportion, fixed at the moment the bid is submitted, is protected by the Constitution. Article 37, item XXI, guarantees that the actual terms of the offer will be maintained throughout performance. Changing that balance without compensating the harmed party breaks the logic of the agreement itself and shifts onto the contractor a burden that was never its own.

Law 14.133 of 2021, the current framework for public procurement and contracts, incorporates this principle and regulates the mechanisms for restoring balance. The premise is straightforward: a private party should not bear alone the fluctuations that fall outside the ordinary risk of the business. When an extraordinary event throws the numbers off, the right arises to bring them back to their starting point, without enriching either side.

Understanding this right is the first strategic step. Many companies absorb losses because they believe the contract price stays fixed until the contract ends. It does not. What takes skill is identifying which mechanism applies to the case at hand, because each one has its own cause, deadline and method of proof, and choosing the wrong path often sinks a legitimate claim.

Price adjustment, revision and renegotiation: three mechanisms that are not the same

Price adjustment, revision and renegotiation respond to different causes. Mixing them up is the most common mistake, and the one that most often undermines legitimate claims. Price adjustment in the strict sense corrects for inflation in the cost of inputs and materials. A previously agreed index, either sector-specific or general, is applied almost automatically, once the minimum interval of one year from the base date of the bid has passed.

Renegotiation (repactuação) is reserved for continuous service contracts that rely on dedicated labor. It tracks the actual change in payroll costs, usually resulting from a collective bargaining agreement. It does not rely on a presumed index. It relies on the cost spreadsheet and a detailed showing of the new cost of the labor used to perform the contract.

Revision, also called economic-financial rebalancing, is the proper tool for unforeseeable events. It applies when an extraordinary event beyond the parties’ control, or one that was foreseeable but had incalculable consequences, makes performance abnormally more costly. This category includes force majeure, acts of God, the fato do príncipe (a government act that makes performance more burdensome) and extraordinary economic risks that upset the contract’s original proportions.

The practical difference is decisive. Price adjustment and renegotiation deal with changes that are expected within the normal course of a contract; revision deals with the unexpected. Asking for revision when the case calls for price adjustment, or the reverse, usually leads to denial because the legal basis does not fit, even when the loss is real and measurable. The facts must be legally characterized correctly before any calculation is made.

The premise is straightforward: a private party should not bear alone the fluctuations that fall outside the ordinary risk of the business.

How to build the administrative request for rebalancing

A request for rebalancing is, above all, an exercise in proof. The government does not presume that the balance has been upset: it is up to the contractor to demonstrate it objectively. The request should describe the supervening event, state the date it occurred and pinpoint exactly which items in the spreadsheet were affected. General claims of higher costs, with no tie to documents, tend to be dismissed for lack of support.

Building the case starts with the original spreadsheet compared to the updated one. You need to show the cost projected in the bid and the actual cost after the event, item by item. Invoices, price quotes, official index bulletins, collective bargaining agreements and proof of supplier price increases form the foundation. Every figure presented should have a traceable source, or the government may treat the calculation as one-sided and unjustified.

It is also important to show a causal link between the event and the loss. It is not enough that costs went up: you must prove that the increase resulted from the event invoked, and not from poor management or a risk assumed in the bidding process. The unforeseeable nature of the event and the abnormal size of its impact must be clear, because the ordinary risk of the business remains with the contractor.

It is also worth gathering technical reports and expert opinions that explain the origin of the event, especially when the cause involves market swings or government measures. An accounting opinion that translates the spreadsheet into plain terms strengthens the credibility of the request and lowers the risk that the government will send it back for additional evidence.

The timing of the request is another sensitive point. The best course is to file it as soon as the imbalance appears, which protects the right to relief for the period after the request. Putting off the filing may mean losing rebalancing for the stretch of the contract already performed. Keeping a record of filing numbers, dates and the government’s responses organizes the timeline and supports any later dispute over the scope of the rebalancing.

Strategy and precautions that improve the chances of approval

From a strategic standpoint, a well-built request anticipates the government’s objections. It helps to separate clearly what is a price adjustment from what is a revision, and to avoid mixing legal grounds in the same petition. When the contract allows more than one mechanism, each should be pursued through its own channel, with the calculation base and the time frame that belong to it, without overlapping requests.

A careful reading of the bid notice and the contract clauses is essential. Adjustment indexes, the base date, the frequency of adjustments and the existence of a renegotiation clause are usually set out in the contract. Ignoring them weakens the claim and opens the door to denial for failure to follow the required form. The contract is the first source to consult, even before you decide on the argument that will support the request.

Frequently Asked Questions

What is the essential difference between price adjustment and contract revision?

Price adjustment corrects for inflation in the cost of inputs through a previously agreed index, applied periodically and almost automatically, one year after the base date. Revision, or rebalancing, responds to an unforeseeable and extraordinary event that makes performance abnormally more costly. The first deals with expected change; the second deals with an unexpected impact that breaks the contract’s economic balance.

Can a company request rebalancing at any time during the contract?

The request should be filed as soon as the imbalance appears. Rebalancing tends to cover the period after the request, so delay in filing may cause the company to lose its right to relief for the stretch of the contract already performed. Documenting the date of the event and filing promptly preserves the time frame of the claim and heads off any argument that the company accepted the new situation.

What documents support a rebalancing request?

The minimum set includes the original and updated cost spreadsheets, invoices, price quotes, official index bulletins and, for services that rely on labor, the applicable collective bargaining agreement. Every amount needs a verifiable source and a direct link to the event invoked. The more traceable the calculation, the less room the government has to refuse the rebalancing sought.

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