Contracts Management in the Brazilian Company of Urban Trains: Fuel Purchases and Governance Issues

Introduction

The public sector in Brazil is targeted by compelling and harsh criticism, as complaints about the inefficiency of the public sector are common knowledge. The lack of performance in the field has been long a source of much discussion and questioning by society, whose demands are ever more stringent when the subject is the quality of the service developed by public servants.

These issues arise from a series of situations such as development crisis in developing countries, exhaustion of the economic model, as attested by fiscal incapacity and intervention, fragility of the political model leading to insufficient governability, and deficiencies in the administrative model resulting in bureaucratic distortions (Matias, 2010; Correio & Correio, 2019; Teixeira & Gomes, 2019). In addition to this, there have been numerous corruption scandals in Brazil in recent decades, ranging from financial fraud in state-owned companies to “secret budgets” in the federal government.

State-owned companies in Brazil have accrued considerable influence in social, economic, and political spheres, either by the volume of assets and the relevance of state-owned companies at every federal level or by their historical importance in the national development model. Yet, effectiveness and efficiency are hardly employed as success metrics for this kind of entity, due to the unusual market conditions they operate in, as most work in markets without economic interest, and as such, without adequate competition (Sacramento et al., 2021).

Regardless of the company segment, contract management maintains its relevance. Its object establishes rights and duties while guiding the relationship between market participants, be they with clients, suppliers, or outsourcing partners. Contract management encompasses the processes from the creation to the execution of the arrangement, from monitoring the steps, organization, and control of the documents able to subsidize the completion of the contracts, as well as mitigating the default risks for the previously accorded terms (Oliveira et al., 2020).

Meirelles (2000) defines a contract as every settlement of wills, established freely between parties, whose objective is the creation of mutual obligations and rights. Following this interpretation, contract management elevates the chance of successful results, reducing costs and optimizing processes, leading to a general improvement in financial and operational indicators, assuring the completion of the previously agreed obligations.

Nonetheless, good management requires a well-defined action plan whose basis should derived from proper contract analysis, whose text must be clear and assertive and aligned to the financial and technical capabilities of the involved parties. As to address these management requirements, governance practices are indispensable. The necessity for said procedures derives from the core governance principles, such as transparency, parity, accountability, and responsibility, allowing the governance system to track and monitor the contracts management process while also optimizing resource usage and the relationship between interested parties (Justo, 2020).

The Brazilian Institute of Corporate Governance (IBGC) defines corporate governance as the system in which companies and organizations are managed, monitored, and incentivized, including relationships between partners, management boards, regulating bodies, and any other interested party (Instituto Brasileiro de Governança Corporativa, 2018). In 2016, to provide public companies and hybrid entities with a higher degree of credibility, the “State-owned Entity Responsibility Act” was signed. The act defined strict regulations for state-owned entities regarding purchasing processes, acquirement bids, and board indication for administrative and executive roles (Lei n. 13.303/2016, 2016).

The Brazilian Company of Urban Trains (CBTU) is a state-owned entity related to Brazil's Federal Government. The company has a central administration in Rio de Janeiro and five superintendencies who operate the passenger rail transit systems in the Brazilian cities of Belo Horizonte, Natal, Maceió, João Pessoa, and Recife, this being the largest.