Small Businesses in Public Tenders: LC 123 Benefits Few Use Properly

Tie preference, exclusive competition, quotas in divisible purchases, a grace period to regularize certificates and priority in tiebreakers. What the law guarantees small businesses and what to do so you don't lose any of these rights.

Published Aug 25, 2026 · Updated Oct 23, 2026 · Busca Licitações Team · 11 min read

This text was written for companies registered in Brazil. Foreign suppliers should also read how foreign companies can bid in Brazilian public tenders.

Complementary Law 123/2006 (Small Business Statute, or LC 123) created a set of concrete advantages for micro and small businesses (ME/EPP) in public procurement. It isn't just rhetoric: these are automatic mechanisms, built into the bidding systems, that decide public tenders (licitações) every day.

The problem is that many small businesses don't know about these rights or misuse them — they forget to tick a declaration box in the system, stop bidding because they think they've lost, or fail to submit a certificate showing a pending issue because they don't know they can regularize it later. This guide goes through each benefit, explains how it works in practice and shows what to do so you don't lose it.

Who is eligible

Companies and sole proprietors whose annual gross revenue falls within the limits of LC 123 qualify as a microenterprise (ME) or small business (EPP). The individual microentrepreneur (MEI) is treated as a microenterprise for this purpose, and rural producers operating as individuals and cooperatives also receive equivalent treatment, under the conditions set by law.

Critical point: the benefit isn't automatic just because you're small. You need to declare your status in the bidding system by ticking the corresponding box when you submit your bid. Without that box ticked, the system treats your company like any other — and none of the mechanisms below are triggered.

Benefit 1 — Tie preference

It is the most powerful benefit and the most wasted. If an ME or EPP bid is up to 5% higher than the lowest bid submitted by a larger company, it is considered a tie — even though the amounts differ. This is the tie preference (empate ficto). The small business is then called to submit a new bid, lower than the first-place one. If it does, it wins.

In the electronic reverse auction (pregão eletrônico), the call is automatic and the deadline is short: five minutes, as a rule. Anyone who left the screen thinking they had lost simply doesn't respond and loses the right. I've seen contracts decided this way.

The margin is 5% in any reverse auction (pregão), electronic or in person, and up to 10% in the other procurement methods, such as competitive bidding (Article 44 of Complementary Law 123/2006). The strategic consequence: in a tender where you're an ME, you don't have to be the cheapest during the bidding phase. Getting within 5% of the leader already guarantees you the chance to undercut later — which lets you preserve your margin during the bidding.

The tie preference does not apply when the best bid already comes from an ME or EPP. In that case, competition among small businesses follows the ordinary rules.

Benefit 2 — Exclusive competition in smaller purchases

Contracts up to a certain value must be reserved exclusively for MEs and EPPs. Larger companies cannot submit bids in these tenders — and this is the range where many of the electronic direct awards (dispensas eletrônicas) published every day fall.

For newcomers, this is the most generous entry point the legislation offers: competition restricted to companies of the same size, fewer document requirements and contract values compatible with a small operation.

Exclusivity can be set aside in situations provided for by law — when there isn't a minimum number of competitive suppliers based in the region, when differentiated treatment isn't advantageous or would harm the purchase as a whole, among other cases justified in the procurement file.

Benefit 3 — A quota of up to 25% in divisible purchases

When buying divisible goods, the government must reserve a quota of up to 25% of the purchase for MEs and EPPs. In practice, the tender notice (edital) splits the item into two lots: one open to everyone and another exclusive to small businesses.

It's an excellent and underused mechanism: the competition for the reserved quota usually has fewer participants than the main lot. When reading the tender notice, check whether there is a reserved quota and focus your effort there — the closing price is often better than in the general lot.

Benefit 4 — Subcontracting small businesses

The government may require the winner to subcontract MEs or EPPs, at a percentage set in the tender notice. For a small business that isn't yet big enough to bid for the entire contract, it's a way into the supply chain: it's worth monitoring large tender notices in your industry and introducing yourself to the companies that usually win them.

It's also a way to build a track record: performing as a subcontractor generates experience and, depending on how it is documented, can earn you a technical capacity certificate (atestado de capacidade técnica) — a topic covered in how to get your first technical capacity certificate.

Benefit 5 — A grace period to regularize tax documents

MEs, EPPs and MEIs may submit tax and labor compliance documents showing pending issues and regularize them after being declared the winner, within the legal deadline, which may be extended at the government's discretion.

There are two traps here. The first: the document must be submitted anyway, even with the pending issue. Attaching nothing is not the same as attaching a certificate with a restriction, and this confusion eliminates many companies. The second: the benefit covers tax and labor compliance only, not the other requirements — legal qualification, technical qualification and economic-financial qualification must be complete from the moment you submit.

Benefit 6 — Priority over the tiebreak criteria

When there is an actual tie in amounts, Law 14,133/2021 (Brazil's Public Procurement Law) has its own tiebreak criteria (Article 60): a final bidding round between the tied bidders, evaluation of performance in previous contracts, gender equity actions and a compliance program. But the law itself preserves Article 44 of Complementary Law 123/2006 — meaning the ME/EPP preference is applied before those criteria. In practice, it is the tie preference working in exact ties too; it is worth knowing it takes priority.

What the law does not guarantee

It's worth being precise so as not to create false expectations. LC 123 does not exempt small businesses from meeting the technical specification, having delivery capacity, submitting a technical capacity certificate when required or maintaining their legal and financial qualification. Nor does it guarantee a better price or priority in payment.

The benefits concern access and tiebreaking — they open the door and help in the competition. Performance is the same for everyone, with the same oversight and the same sanctions.

How not to lose any of these rights

Always declare your status. When submitting each bid, check that the ME/EPP box is ticked. That click is the key to everything.

Keep your company size up to date with the Receita Federal (federal tax authority) and in your registration on the bidding system. A company that has grown and hasn't updated its status loses the benefit — or, worse, becomes liable for a false declaration.

Stay on screen until the session ends. The tie preference call has a deadline of minutes.

Attach the certificate even if it shows a pending issue, to preserve your right to regularize.

Read the tender notice looking for a reserved quota and exclusivity — these are opportunities with less competition.

An example of the tie preference deciding the outcome

A reverse auction for office supplies, with the item contested by six companies. At the end of the bidding phase, the situation is this: a large distributor closes at R$ 48,000; an EPP is at R$ 49,900, about 4% higher; four others are further behind.

Without the tie preference, the result would be settled. With it, the system identifies that the EPP is within the 5% margin and calls it to submit a bid below the leader's. The EPP has five minutes. It had calculated its floor at R$ 46,500, so it has room: it offers R$ 47,900 and wins.

Notice the behavior that made this possible. The EPP didn't fight cent by cent during the bidding — it stayed close, preserving its margin, knowing it would have the last word as long as it stayed within range. And it remained on screen until the end, which seems obvious and is precisely what many companies fail to do.

The counterexample is just as instructive: an ME that closes at R$ 55,000, almost 15% above the leader, is outside the margin and isn't called. The tie preference helps those who came close, not those who gave up early.

Risks of declaring a status you don't qualify for

Because the benefit depends on a declaration, there is a temptation to tick the box without meeting the requirements. It's a bad idea, for three concrete reasons.

First, verification is simple: the agency checks the declared revenue and the company's classification with the Receita Federal. Second, a false declaration constitutes fraud in the tender, with consequences ranging from disqualification to a declaration of ineligibility — a sanction that shuts you out of the public market for years, in addition to possible criminal liability. Third, the benefit you gain is temporary, while the record of the penalty is long-lasting.

Be especially careful at the moment of transition: a company that exceeds the revenue limit during the fiscal year must update its status. Continuing to declare itself an EPP after growing is the most common mistake in this area — and the easiest to detect.

Summary table

What changes when the company stops being an EPP

Growing is the goal, but it's wise to anticipate the effect on tenders. Once it exceeds the revenue limit, the company loses the tie preference, exclusivity, the reserved quota and the grace period for later regularization. It starts competing on equal terms with larger companies — on the very day its status changes.

The transition is usually painful for those who built their revenue only in the protected ranges. That's why the sensible strategy is to use the ME/EPP period to build what isn't lost: technical capacity certificates, a solid balance sheet that meets demanding financial ratios, relationships with purchasing departments and mastery of a specific niche.

Companies that do this cross the threshold without a drop in revenue, because they were already competing outside the reserved ranges as well. Those that don't suddenly discover they were competing with an advantage that no longer exists.

Frequently asked questions

Do I need to prove my status?

The declaration in the system is usually enough at the bid stage, but the agency may require proof — a simplified certificate from the Board of Trade (junta comercial) or a lookup in Simples Nacional (the simplified tax regime for small businesses). Keep the document handy.

Are a company under Simples Nacional and an ME the same thing?

No. ME/EPP status derives from gross revenue; opting into Simples is a choice of tax regime. It's possible to be an ME without being under Simples — and the tender benefits follow the size classification, not the tax regime.

I lost the tie preference because I didn't respond in time. Can I appeal?

If the system issued the call correctly and the deadline passed, there's no flaw to allege. If the call didn't happen when it should have, then you do have grounds — see appeals in public tenders.

Does exclusivity apply to every procurement method?

It applies according to the contract value and the conditions of the law, covering reverse auctions and direct awards (dispensas de licitação) within the value range. The tender notice always states when the tender is exclusive.

Do cooperatives have the same rights?

Cooperatives receive equivalent treatment under the conditions set by law. Check the wording of the tender notice, which usually spells it out.

How the benefits appear in the tender notice

Knowing where to look saves reading time. Exclusivity is usually stated right in the "Participation" section (Da participação), with wording along the lines of "participation in this tender is exclusive to microenterprises and small businesses". The reserved quota appears in the description of the lots, usually with the phrase "quota reserved for ME/EPP" (cota reservada a ME/EPP) followed by the percentage.

The tie preference and later regularization rarely appear prominently — they are usually found in a chapter on differentiated treatment, referring back to LC 123. The absence of this mention doesn't eliminate the right: it derives from the law, not from the tender notice. If a tender of a compatible value fails to provide for exclusivity without justification, this can be questioned through a challenge to the tender notice (impugnação), as explained in challenging a tender notice.

Here's a useful habit: whenever you open a tender notice, search the document for the terms "ME", "EPP", "pequeno porte" (small business) and "cota" (quota). In thirty seconds you'll know whether that tender has any favorable carve-out — and sometimes you'll discover that the competition is much thinner than it seemed.

Strategy for small businesses

Put the benefits together and a clear strategy emerges. Focus your effort on the value ranges with exclusivity and reserved quotas, because competition there is structurally lower. Use the tie preference to preserve your margin during bidding, instead of fighting cent by cent from the start. And keep your documentation flawless, since the later-regularization benefit only covers the tax side.

In practice, this means prioritizing electronic direct awards and mid-value reverse auctions in your state, and monitoring the categories you supply every day. See what's open right now among the tenders still accepting bids and check, in each tender notice, whether there is a reserved quota or exclusivity — those are the words worth the most money to a small business.

ME/EPPLC 123rights