Mato Grosso requires guarantee insurance with a resumption clause in tenders and becomes the first state in the movement to combat public works stoppages

Mauro Mendes, governor of the state of Mato Grosso, commented, in the announcement of the tender, that it would be the ‘end of pick-pocketing, the end of companies that enter, win and then don’t do it’. The politician also highlighted that all public works in MT, with a value above R$50 million, will have this requirement. “We have poor performance from some companies”, he said, adding that “stopped work is disrespectful to public money”.

The Mato Grosso Infrastructure and Logistics Secretariat (Sinfra-MT) signed 374 contracts between 2019 and March of this year, 2024. Of the total number, 39 contracts were terminated and, of the 125 completed works, 106 had some type of delay. In the country, a survey by the Federal Audit Court (TCU) showed that there are 8,600 works on hold, around 40% of existing contracts that involve federal resources.

Esteves Colnago, director of institutional relations at the National Confederation of Insurance Companies (CNseg), highlighted: “The most expensive work is the one that is not delivered. There is a vicious circle in hiring, but the manager had no instruments to change this.” The inclusion of the resumption clause in tenders provides that insurers will be able to monitor the execution of the contract, have access to technical and accounting audits and request clarifications.

“It’s been difficult in Mato Grosso, construction people are looking for ways to change or make the notices more flexible so that not everyone has this clause,” said Colnago. “There is a recurring lobby, with different arguments”, added the director of institutional relations at the National Confederation of Insurance Companies. Among the arguments, there is the possibility of making projects more expensive and giving power to insurance companies, which will begin to filter construction companies that they believe have the quality to complete the works.

The cost of construction guarantee insurance is around 3%. According to Roque Melo, president of the Credit and Guarantee Committee of the National General Insurance Federation (FenSeg), with the clause, there is a tendency that the cost will not remain the same, “due to the fact that the percentage will be six times higher, going from the current 5% to 30%”. The executive mentioned that the costs for insurance companies will be different, which will consider the need to monitor the work from start to finish.

“In any case, the cost will continue to be immaterial compared to the benefit for the State of seeing the works completed without the need for a new bidding process or additional disbursements”, explained Roque Melo.

The Insurance Market’s intention is that the Mato Grosso tender, with a planned investment of R$110 million, will be a reference for the country. Esteves Colnago informed the Valor Econômico newspaper that 12 insurance companies can respond immediately to similar notices. In order for the model to be followed, CNseg and FenSeg have already spoken to representatives from Goiás, Mato Grosso do Sul, Minas Gerais, Paraná, Rio Grande do Sul, São Paulo and Sergipe, as well as municipalities and the federal government.

By structuring public-private partnerships (PPPs) in the areas of education and health, Rio Grande do Sul plans to include the resumption clause. Pedro Capeluppi, state secretary of Partnerships and Concessions, pointed out that the role of insurance companies in public works is fundamental because it occurs before contracting, with the evaluation of the project: “In concessions and PPPs, which have long-term contracts, the insurance company starts to be an important actor. To provide a policy, she will evaluate the proposal and the risks. This will remove adventurers who are unable to deliver what was contracted.”

Capeluppi said that he does not have the final design of the two PPPs, which will involve the renovation of one hundred schools – with an auction expected for January 2025 – and the construction of a hospital in Viamão, in the metropolitan region of Porto Alegre, whose auction is scheduled for July 2025.

The secretary also commented that the issues of resuming works need to evolve and will involve legal changes for the parties involved, but the additional cost would not be an impediment to more contracts using the model. “The biggest cost is work being stopped. The argument that could make the work more expensive is a complete fallacy,” he said. For Capeluppi, these experiments need to be successful, for the clause to work, but he issues a warning. “The success of the clause is not its use up front, but the end of the stopped works. This will show that the mechanism had the desired effect,” he concluded.