Law No. 11668/08 and Post Office Franchises

The creation of Brazilian postal services dates back to the discovery of Brazil in 1500. Soon after Portuguese explorer Pedro Álvares Cabral's arrival in Brazil, his official secretary, Pero Vaz de Caminha wrote to the Portuguese Crown with his view of the "new land", thus contributing to the development of postal services in Brazil.

Since then, postal services have improved and expanded in Brazil and their regulation regime became increasingly intricate. Such complexity reached its peak during the 1990s when the Brazilian Postal and Telegraphic Company, i.e., Empresa Brasileira de Correios e Telégrafos or ECT, initiated a move towards franchising part of its services to third companies.

The purpose of this article is not to cast a value judgment on such existing franchises; however, such public franchise concessions were in fact persistently criticized by various sectors of society and also challenged by the Brazilian Federal Attorney General’s Office and by Public Finance Courts under the rationale that they should be subject to public bidding procedures, as determined by paragraph XXI of article 37 of the Brazilian Federal Constitution.

Apparently, such turmoil will now be settled by Law No. 11,668/08, enacted on May 5, 2008. In accordance with such new law, franchise agreements executed by the ECT in the past must comply with the procedures established by the Brazilian Bidding Law No. 8,666/91, which are based on the criteria of the best technical proposal combined with the prices fixed on the request for proposal, as set forth in paragraph IV of article 175 of the Constitution, in pursuit of harmony with several Brazilian constitutional principles for which Public Authorities are accountable.

Nevertheless, there are certain aspects involving Post Office franchises that differ from standard franchise agreements, which are subject to the Brazilian Franchise Law No. 8,955/94.

Firstly, pursuant to article 2 of Law No. 11,668/08, the ECT is responsible for receiving mail from its franchisees, distributing and delivering the same to the final addressees. Accordingly, franchised postal services consist solely on the collection of mail, whereas the delivery and distribution of the same are under the ECT’s responsibility. In other words, Post Office franchises may only exercise supporting activities.

Moreover, the Brazilian Franchise Law does not prevent franchisees from executing various franchise agreements with the same franchisor. On the contrary, article 5 of Law No. 11,668/08 states that it is forbidden for one entity to directly or indirectly explore more than 2 postal franchises, such limitation being extensible to stockholders of any Post Office franchise that directly or indirectly perform such activity.

Further, it is important to point out that article 4 of Law No. 11,668/08 lists the main clauses that must be included in Post Office franchise agreements, such as, (i) the agreement’s term, which may not exceed ten years, but may be extended once for the same period of time, and (ii) the appointment of any out-of-court dispute resolution method.

Law No. 11,668/08 ensures the effectiveness of the existing Post Office franchise agreements (provided that they were in effect on November 27, 2007) until new agreements are executed in accordance with the provisions of such new law. The time limit for that to occur may be 24 months as of the enactment of supplementary norms to regulate such matter, given that Law No. 11,668/08 stipulates this same timeframe for the ECT to terminate the existing franchise agreements.

In parallel with other private-public initiatives, the regulation of Post Office franchises consolidates the involvement of the private sector in the administration and implementation of public services and represents an innovation, given that franchising – which for a long time has been tested in the business world – will certainly repeat its success within the public sphere. It is expected that such new method be scattered to other forms of private-public engagements with the aim at expanding and improving access to public services in affiliation with the private sector.

Further information on the above or other franchise related matters may be obtained directly from Juliana Martines at julianamartines@felsberg.com.br.