Decree that regulates the classification of consumer goods as luxury or common quality goods for public procurement purposes is published

Decree No. 10.818/2021, which establishes criteria for the classification of consumer goods to be acquired within the federal public administration, in the categories of common quality or luxury goods, was published in the Federal Official Gazette (DOU) of 9.28.2021. The Ordinance aims to regulate article 20 of Law No. 14.133/2021, which prohibits the Administration from acquiring luxury consumer goods to meet its demands.

The Decree adopts a totally economic criterion based on the income-elasticity of the demand for the good – which consists of the ratio between the percentage change in the quantity ordered and the percentage change in average income – to differentiate the two categories of consumer goods, classifying them as:

• Luxury goods: consumer goods with high income-elasticity related to demand – that is, when the increase in consumer income leads to a significant (disproportionate) increase in demand for the good – which would be identifiable from certain attributes of the good itself (i.e. ostentation, opulence, strong aesthetic appeal or refinement); and

• Goods of common quality: consumer goods with low or moderate income-elasticity related to demand – that is, when the increase in consumer income does not lead to a disproportionate increase in demand for the good.

Likewise, the new regulation determines that, when classifying a certain good as a luxury good, the public entity must pay attention to (a) the economic variables that affect the price of the good, especially the regional/local logistical ease or difficulty of accessing the good (economic relativity), and (b) the change in the market variables of this good over time (temporal relativity), related, for example, to aspects such as technological evolution, social trends, change in its availability in the market and changes in the process of logistical supply.

Despite this, goods with high income-elasticity related to demand will not be classified as luxury goods – and may, therefore, be acquired by the Administration – when:

• The acquisition takes place at a price equivalent to, or lower than, that of a common quality good of the same nature, or

• Its superior characteristics are justifiable due to the specific activity performed by the public body or entity (g goods that are needed by the public body/entity to perform activities strictly related to its public purposes).

It will be up to the contracting units of the public body or entity, jointly with its technical units, to identify the presence or not of luxury consumer goods in the orders submitted by the sectors preparing their annual contracting plan, and, if so, determine the return of the documents formalizing the order to the requesting sector for the rejection or replacement of the requested good.

In addition to being valid within the scope of the Federal Public Administration, this decree must be observed in contracts carried out by other federal entities (States, Federal District and Municipalities) funded by public resources voluntarily transferred by the Union.

This article is intended exclusively to provide information and does not contain any opinion, recommendation or legal advice from Kestener & Vieira Advogados in relation to the matters herein addressed. Copyrights are reserved to Kestener & Vieira Advogados.