Understand performance bonds with step-in clauses under Law 14,133: step-in, percentages, insurer role, risks, inspection, claims and completion of public works.
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A performance bond with a step-in clause is the mechanism provided for in Law No. 14,133/2021 that may allow the insurer, in the event of contractor default, to take over execution and complete a public work or engineering service. This is known as step-in. The logic differs from a guarantee that merely indemnifies the Administration financially: the contractual design may provide for physical continuity of the scope, with the insurer following the contract from the outset and potentially organizing its completion in the event of a claim.
The instrument, however, should not be treated as an automatic solution for stalled public works. To function, the procurement notice, contract, policy, risk allocation matrix, inspection, documentation and project management need to be consistent. An insurer cannot efficiently take over a project whose design is incomplete, whose measurements are unreliable, whose remaining scope has not been quantified or whose problems have accumulated without records.
In 2026, the updated threshold that characterizes large-scale public works, services and supplies under Law No. 14,133 exceeds R$ 261.9 million. For these procurements, the Law allows a performance bond of up to 30% of the initial contract value. The step-in clause is governed especially by art. 102.
What is a performance bond in public contracts?
A performance bond is a form of contract security intended to ensure fulfillment of the obligations assumed by the contractor before the Administration. The principal is generally the contracted company; the obligee is the Administration; and the insurer assumes the obligations defined in the policy within the limits and conditions of the guaranteed risk.
Law No. 14,133 regulates contract security in arts. 96 through 102. Requiring security is not automatic for every contract: it depends on an administrative decision and must be provided for in the procurement documents when applicable.
The central point is not to confuse three different mechanisms:
- ordinary contract security;
- additional security for bids below 85% of the Administration’s estimate in public works and engineering services;
- performance bond with a step-in clause.
The additional security below 85% derives from art. 59, §5, and follows its own logic. It is not synonymous with a performance bond containing a step-in clause.
What is a step-in clause?
A step-in clause provides for the possibility that the insurer may assume execution and complete the scope when the contractor defaults, under the terms defined in the procurement notice, contract, policy and applicable law.
Under the model in art. 102, the insurer must sign the contract and its amendments as a consenting intervenor. This position is not merely formal: the law gives it the ability to monitor execution, access facilities, obtain technical and accounting audits and request clarification from the technical manager.
This changes the traditional logic of insurance. Instead of appearing only after contractual collapse, the insurer can follow the evolution of the risk.
Why early monitoring matters
When the insurer only learns the actual condition of the project after a crisis, it must reconstruct months or years of execution. If documentation, schedules, measurements and records are weak, the time required to understand the liabilities may neutralize part of the expected benefit of the mechanism.
A step-in clause therefore assumes technical transparency during execution.
When Law 14,133 allows a performance bond with step-in
Art. 102 allows the procurement notice, in contracting public works and engineering services, to require a performance bond and provide for the insurer’s obligation to assume and complete the scope in the event of contractor default.
Art. 99, in turn, addresses large-scale procurements and allows security in the form of a performance bond of up to 30% of the initial contract value.
In 2026, Decree No. 12,807/2025 updated the amount in art. 6, XXII, to R$ 261,968,421.04. This updated amount must be considered when determining whether a project qualifies as large-scale in that fiscal year.
The mere fact that a public work exceeds this amount does not eliminate the need for planning. The procurement notice must clearly define the form of security, percentage, conditions, term, insurer obligations and relationship with the main contract.
A performance bond is not the same as additional security for an abnormally low bid
This distinction deserves attention because the percentages may coexist in the same procurement.
The additional security under art. 59, §5 is required when the winning bid is below 85% of the amount estimated by the Administration for public works and engineering services. Its amount corresponds to the difference between the estimate and the winning bid, under the terms of the Law.
Contractual performance-bond security, by contrast, is linked to execution security. The step-in clause is a specific mechanism within this framework.
Mixing these concepts in the procurement notice can create inconsistencies among evaluation criteria, qualification, contract execution and performance.
What the insurer can do during execution
The Law provides that the insurer, as a consenting intervenor, may monitor the contract. In practice, this creates a third layer of observation over project performance.
It may be interested in:
- physical progress;
- schedule deviations;
- the contractor’s financial condition;
- significant changes;
- contract amendments;
- claims;
- nonconformities;
- events that increase exposure;
- design changes;
- quality of documentation;
- risk of default.
This does not replace public inspection. The Administration remains responsible for managing and inspecting the contract. The insurer’s monitoring serves interests associated with the insured risk.
How inspection should prepare for a contract with step-in
Effective step-in depends on reliable records of progress, quality, changes, pending items and remaining scope. Inspection must build this traceability from day one.
If the contract contains a step-in clause, the quality of records becomes even more consequential.
Evidence-based inspection helps ensure that progress, problems, changes and pending issues can be objectively reconstructed.
Inspection should maintain, among other records:
- contractual baseline;
- updated schedule;
- physical and financial measurements;
- Daily Construction Report;
- nonconformity records;
- testing and inspections;
- RFI log;
- change log;
- claims log;
- design and revision status;
- material and equipment documentation;
- photographic records;
- meeting minutes;
- pending-items register;
- updated risk allocation matrix when applicable.
The closer the contract gets to a default situation, the more important it becomes for these records to remain consistent.
What happens when there is a default
Default should not arrive as a surprise. In a well-monitored contract, warning signs appear beforehand: loss of productivity, reduced crews, supplier delays, repeated recovery promises, increasing claims, missed milestones and a growing backlog of pending items.
The stoppage warning-sign checklist can be used to identify early deterioration.
When the event evolves into an insurance claim, contractual and insurance rules apply. SUSEP Circular No. 662/2022 regulates performance bonds and requires clarity regarding covered risks, obligations and procedures.
SUSEP explains that indemnification may occur through payment of guaranteed losses or, depending on the principal obligation and specific legislation, through performance of the guaranteed obligation in order to continue and complete it.
Is the insurer required to complete the project in every situation?
This should not be assumed as a general rule. The obligation depends on the contract design, step-in clause, policy, applicable law and characterization of the default and insurance claim.
This is exactly why the procurement notice needs technical review before procurement. Contradictory wording among the notice, draft contract and policy creates a risk of dispute precisely when the Administration most needs continuity.
The documentation needs to clearly define:
- the event that constitutes material default;
- guaranteed obligations;
- amount and limit of security;
- term;
- notification procedure;
- monitoring rights;
- responsibilities during any transition;
- form of continuity;
- treatment of contract amendments;
- conditions for acceptance and closeout.
Why the step-in clause must originate in procurement planning
A performance bond with step-in must be consistent with the procurement notice, contract, risk allocation matrix, measurement and acceptance. Inconsistencies discovered after procurement may undermine the very mechanism intended to protect the Administration.
Learn about Technical Review of Procurement Notices and Attachments
It is not advisable to treat the performance bond as a standardized clause added at the end of the procurement notice.
The mechanism affects the project’s risk architecture. The Administration needs to decide why it intends to use it, which risks it seeks to mitigate, what percentage is appropriate and how step-in will relate to the schedule, payments, inspection and any termination.
A poorly structured Terms of Reference or set of attachments can compromise this logic.
How the risk allocation matrix connects to the performance bond
The risk allocation matrix defines who bears specific events. A performance bond should not be used to erase that allocation.
If a risk belongs to the Administration and legitimately impacts the contractor, it makes no sense to automatically treat it as a default covered by the security.
On the other hand, failures attributable to the contractor, inability to mobilize, abandonment and persistent nonperformance may fall closer to the core risk that the security is intended to protect, subject to the contract and policy.
Good modeling reduces conflict among four questions:
- did a risk event occur?
- who assumed that risk?
- was there a contractual default?
- is the event covered by the insurance?
The technical challenge of step-in: knowing exactly what remains
If the insurer needs to organize completion, the first question is objective: what is the project’s actual remaining scope?
The answer depends on reliable documentation. Contracted quantities are not the same as executed quantities. Financial completion is not necessarily physical completion. Measured work may still have quality issues. Delivered equipment may not be installed or tested.
The article on remaining work scope shows how this separation should be made.
In a takeover scenario, it is necessary to inventory:
- completed and accepted work;
- completed work with pending issues;
- partially executed work;
- stored materials;
- delivered equipment;
- systems under installation;
- pending tests;
- pending designs;
- open interfaces;
- warranties;
- as-built documentation;
- licenses and authorizations;
- safety and preservation liabilities.
Without this inventory, any completion plan begins with high uncertainty.
Does a step-in clause prevent stoppage?
It can reduce the risk of prolonged discontinuity, but it does not eliminate the technical causes of a troubled project.
If the project has design errors, insufficient budget, pending expropriation, incomplete permitting, unresolved interferences or inconsistent scope, changing who executes it does not automatically solve the problem.
For this reason, step-in should be seen as a tool for contractual continuity, not a substitute for sound engineering.
How the transition to a potential takeover should work
A well-structured transition needs to preserve the project while the solution is formalized.
Freeze the project status
The physical condition on the reference date should be recorded through photographs, surveys, inventories, tests when required and documentation of open work fronts.
Protect completed work
Work and equipment need protection against weather, degradation, theft, vandalism or deterioration during transition.
Reconcile documentation
Designs, revisions, RFIs, approvals, submittals, certificates, manuals and records must be consolidated.
Quantify the remaining scope
The new team needs to know exactly which quantities and deliverables remain outstanding.
Takeover plan
The plan should establish mobilization, priorities, critical path, risks and re-entry milestones.
The methodology connects to the technical protocol for restarting a stalled public work.
Risks of a poorly drafted procurement notice
A procurement notice may mention a “performance bond with step-in” and still create uncertainty if its attachments are not consistent.
Typical problems include:
- different percentages in the procurement notice and contract;
- security required in a form incompatible with step-in;
- failure to define insurer obligations;
- term inconsistent with the schedule;
- failure to address contract amendments;
- vague insurance-claim criteria;
- contradictory risk allocation matrix;
- lack of insurer access to required records;
- unclear final acceptance requirements.
These errors can be identified through an integrated technical review of the procurement notice and attachments before publication.
Performance bonds and large-scale procurements in 2026
The definition of large-scale procurement is updated annually. Decree No. 12,807/2025 set the amount in art. 6, XXII, at R$ 261,968,421.04 for 2026.
This amount matters because art. 99 allows, for large-scale procurements, security in the form of a performance bond of up to 30% of the initial contract value.
Using historical values without checking the annual update can result in an incorrect classification.
How to assess whether the mechanism makes sense for a project
The decision should consider criticality and risk, not only value.
Useful questions include:
- what is the impact of a prolonged stoppage?
- is there a high risk of abandonment or inability to complete?
- can the scope technically be transferred to another contractor?
- are the designs sufficiently mature?
- does the documentation allow the remaining scope to be measured?
- does the Administration have adequate inspection capacity?
- are risks clearly allocated?
- does the insurance market have capacity for the risk?
- is the cost of the bond proportionate to the benefit?
- are there critical systems whose transition requires specialized knowledge?
The role of Engineering Consulting
Engineering Consulting can support both planning of the mechanism and contract execution.
During planning:
- technical review of the procurement notice;
- risk analysis;
- coordination of attachments;
- definition of measurement criteria;
- documentation structuring;
- assessment of inspection and acceptance requirements.
During execution:
- physical progress monitoring;
- schedule verification;
- deviation analysis;
- measurement audits;
- evidence records;
- change analysis;
- support in diagnosing default;
- inventory for a potential transition.
In a potential takeover:
- condition assessment;
- quantity reconciliation;
- definition of remaining scope;
- mobilization plan;
- design review;
- commissioning and acceptance.
Checklist for reviewing a step-in clause
Before publishing the procurement notice, verify:
- is the requirement justified?
- are the form of security and percentage consistent?
- do the procurement notice and draft contract say the same thing?
- must the policy reflect the step-in obligation?
- is the insurer a consenting intervenor?
- are access and monitoring rights provided for?
- is the term compatible with the risk?
- are contract amendments addressed?
- are default criteria clear?
- is the risk allocation matrix consistent?
- can inspection documentation be accessed?
- are acceptance criteria defined?
- is there a transition protocol?
Final considerations
A performance bond with a step-in clause is one of the most relevant innovations of Law No. 14,133 for engineering contracts because it brings the guarantee closer to the objective that truly matters to the Administration: having the scope completed.
But step-in alone does not correct poor design, deficient inspection or fragmented documentation. The weaker the contract is before the insurance claim, the harder it will be to organize continuity afterward.
The best use of the mechanism begins before procurement: a consistent risk allocation matrix, coherent procurement notice, mature design, measurement rules, inspection records and clear acceptance criteria. Then, if step-in becomes necessary, the Administration and insurer encounter a technically legible project rather than a liability that must be reconstructed from scratch.
In critical contracts, Engineering Consulting can support diagnosis, risk analysis, transition, inventory of completed work and a takeover plan without replacing the Administration’s authority.
Technical references
[1] BRAZIL. Law No. 14,133, of April 1, 2021 — Public Procurement and Administrative Contracts Law. 2021. Available at: https://www.planalto.gov.br/ccivil_03/_ato2019-2022/2021/lei/l14133.htm.
[2] BRAZIL. Decree No. 12,807, of December 29, 2025 — update of the amounts under Law No. 14,133 for 2026. 2025. Available at: https://www.planalto.gov.br/ccivil_03/_ato2023-2026/2025/decreto/d12807.htm.
[3] SUPERINTENDENCE OF PRIVATE INSURANCE (SUSEP). Performance Bonds — questions and answers. 2026. Available at: https://www.gov.br/susep/pt-br/copy_of_planos-e-produtos/seguros/seguro-garantia-2/seguro-garantia.
[4] SUPERINTENDENCE OF PRIVATE INSURANCE (SUSEP). SUSEP Circular No. 662/2022 — Performance Bonds. 2022. Available at: https://www.gov.br/susep/pt-br/central-de-conteudos/noticias/2023/janeiro/seguro-garantia-encerrado-o-prazo-de-adaptacao-a-circular-no-662-2022.
Frequently asked questions
It is contract security that may provide, in the event of contractor default, for the insurer to assume and complete the scope, pursuant to art. 102 of Law 14,133 and the terms of the contract and policy.
It means the insurer enters the continuity of the contract to organize execution and completion of the guaranteed obligation when the mechanism was provided for and the applicable conditions are present.
No. The security requirement depends on planning and the procurement notice. The Law establishes specific rules, including for large-scale procurements.
Decree 12,807/2025 updated the amount in art. 6, XXII, of Law 14,133 to R$ 261,968,421.04 for 2026.
No. The additional security under art. 59, §5 has its own legal basis and calculation. The step-in clause is part of the contractual performance-bond regime.
No. The Administration remains responsible for contract management and inspection. The insurer may monitor execution to manage the insured risk.
No. It can reduce discontinuity risk associated with contractor default, but it does not automatically solve design, permitting, budget, expropriation or scope problems.
Complementary technical materials
Key content on the topic
- Additional security below 85% under Law 14,133
- How to restart a stalled public work
- Remaining work scope
Related services
- Technical Review of Procurement Notices and Attachments
- Technical Support for Oversight of Engineering Works and Contracts
- Engineering Technical Consulting
