The following legislation regulates the procurement of government contracts in Israel:
Aside from the general legislation pertaining to all public contracts, sector-specific compliance is embedded in the following statutes:
The application of procurement legislation to entities is rooted in two sources: tender law and municipal regulations. In section 2(a) of the Mandatory Tenders Law, a "public body" is defined as the state and any government corporation, religious council, health fund and institution of higher education.
The local authorities issued the Municipalities Regulations (Tenders), in terms of which the duty to conduct tender procedures (subject to specific circumstances) is incumbent upon all local authorities in Israel.
Entities that are not included in section 2(a) of the Mandatory Tenders Law and do not constitute local authorities are not directly required to conduct tender procedures. However, the Supreme Court has previously held that even public entities that are not directly subject to the Mandatory Tenders Regulations are bound by the general principles of public procurement, although this is not expressly stipulated in neither the law nor regulations.
According to section 1B(a) of the Regulations, it is preferable that a public body conduct public tenders to the extent that provision is made so that a public body shall opt to contract by way of a regular public tender, even where it is permitted under the Regulations to contract by way other than of a regular public tender. Accordingly, even a public body that is exempt from tendering should still follow this procedure.
However, pursuant to section 1B(d) of the Mandatory Tenders Regulations, if a public body elects to contract other than by way of tender, such decision shall be made in accordance with the Regulations after examining the feasibility of conducting a tender and insofar as this is justified and reasonable in the circumstances of the case. Therefore, a public body not having to conduct a tender process would be subject to the fulfilment of certain conditions.
In this regard, section 3 of the Mandatory Tenders Regulations sets out numerous grounds on whose basis a public authority may be exempt from tendering. These grounds are subject to factors such as the value of the contract, its subject matter or whether or not the contract requires urgent execution. Since not contracting by way of tender is subject to both statutory and subjective criteria, there is no automatic rule that exempts public bodies from the tender process.
According to section 3(1) of the Mandatory Tenders Regulations, a contract entered into by a Ministry for the execution of a transaction involving goods or land, for the execution of work or for the purchase of services, does not require tendering where the contract encompasses one of the following.
Likewise, according to section 34 of the Regulations, which specifically refers to government companies, a contract entered into by a government company for the execution of a transaction involving goods or land, for the execution of work or for the purchase of services, does not require tendering, if it similarly encompasses one of the following:
Falling below the financial threshold is not the only criterion that would dispense with the procurement process. In fact, there are other instances where the procurement process is not required, such as in respect of contracts entered into by the Bank of Israel involving the printing of currency or imports by the defence establishment that are funded by foreign military financing.
As a general rule, the Mandatory Tenders Law specifies that the tender process shall be equally open to any person (or entity), without discrimination between the participants and potential bidders. Nevertheless, it is clarified that any distinction or other pre-condition for participation in the tender, which is required due to the nature or essence of the tender shall not be deemed as prohibited discrimination. Accordingly, in the vast majority of the tender (and pre-qualification) procedures for public procurement and government contracts, a participant or any member thereof, including interested parties in such member, directors or managers thereof, and including individuals, shall not be residents or nationals of a country which does not have diplomatic relations with the State of Israel. In addition, in some of the tenders and pre-qualification procedures for public procurement and government contracts, the participant itself must be duly incorporated in, or a resident of, the State of Israel.
Firstly, it is mandatory for a public body to conduct a tender when holding a tender process is the rule and the possibility of obtaining an exemption from doing so is an exception (section 2 of the Mandatory Tenders Law). When a public body conducts a tender or makes an individual approach following a tender, it must do so in a transparent, fair, and equitable manner – given the circumstances of the case – to ensure maximum benefits are garnered for the public body (section 1A of the Mandatory Tenders Regulations). Moreover, the public body is duty-bound to act in good faith, which duty is imposed on it by virtue of case law and is also obliged to act with clean hands. In addition, the Tender Committee must act in the absence of a conflict of interest, and in the strong belief that the Tender Committee and those acting on its behalf have no connections to any of the potential bidders in the tender. With regard to some of these duties – namely, where the public body invites a bidder to participate in the clarification process – they must be done in coordination with the Tender Committee and documented in minutes maintained by the Tender Committee.
The Mandatory Tenders Regulations mandate the prior publication of regulated contract award procedures (viz, a public tender).
The Tenders Committee may elect to issue a preliminary request for information which it deems necessary for the purposes of launching the contract award procedure. Such request is nonetheless subject to compliance with the following: (i) the request shall be made publicly; (ii) the receipt of information and holding of discussions with those responding to the request ("respondents") shall be done in a fair and equitable manner; (iii) the Tenders Committee shall document any information received and discussions held with respondents; (iv) a response to a preliminary request for information shall not constitute a condition for participation in the actual tender, shall not confer on a respondent an advantage merely because he responded to the request, and shall not obligate such respondent's inclusion in the tender or contracting with him in any other manner; and (v) the information received is subject to the mandatory disclosure regulations.
Section 1A(a) of the Mandatory Tenders Regulations requires that public bodies hold either a tender or a specific invitation process pursuant to a central tender, as transparently as possible in the circumstances of the case and on a fair and equitable basis, ensuring maximum advantages for the public body. Moreover, subsection (b) thereto states that a public body that opts to contract other than by way of tender pursuant to the Regulations, shall conduct the procedure as closely as possible according to the principles required for holding a tender. The reason for the preference for the aforementioned procedure – as reflected in both the legislation and case law – is the necessity for good governance, the implementation of the principle of equality, and in order to ensure the greatest possible inclusion of bidders.
The Regulations set out various other types of procedures that may be utilised by the awarding authorities, including a restricted public tender or a closed tender, or the granting of an exemption from the tender procedure based on the unique requirements relevant to the particular tender process.
According to section 7(a) of the Mandatory Tenders Regulations, negotiations can be conducted as part of a tender process, only if provisions allowing these negotiations are embedded in the tender documents.
In such circumstances, section 7(c)(2) of the Regulations requires that subsequent to the Tender Committee determining the final group of bidders, it shall engage in negotiations with every bidder so as to confer on each of them a fair and equitable opportunity in so far as their bids are concerned. Primarily, the negotiations should be conducted as set out below:
Additional conditions for the negotiations are set out in subsections 7(c)(3) to (6) of the Regulations, which prescribe as follows:
Furthermore, complex bids must be recognised from the perspectives of practicality in the process of the negotiations by promoting the success of the ‘best and final’ submission. In accordance with this approach, the tender procedure will usually comprise two separate bidding phases. In the first phase, all qualifying financial proposals are opened and assessed. The price is then raised, which, in turn, triggers the second phase, in which only the proposals that meet the higher price will be considered. In practice, this additional negotiation process may be carried out among several bidders either in an open meeting with the bidders or through an online submission.
The Tender Committee of the awarding authority may determine that a tender be conducted as one with a prequalification stage, as a tender with a two-stage evaluation, as a public tender with additional competitive features, as a framework tender or as a combination of such tendering mechanisms, based on the nature of the contract and subject to the fulfilment of certain conditions as prescribed in the definition for the specific type of tender earmarked in the Regulations.
The Tender Committee shall allow for perusal of the tender documents comprising, inter alia, all of the following:
No specific time limit is imposed but it is determined by law that the Tender Committee shall not consider bids that are not deposited in the tender box by the stated deadline for submission of the relevant bid.
As a general rule, the Mandatory Tenders Law determines that the tender shall not include a threshold condition for the participation of a bidder in the tender, unless such condition is required in view of the character or nature of the tender.
In this regard, section 2A(b) of the Mandatory Tenders Law establishes that if the tender publisher decides to specify stringent conditions for potential participants’ eligibility in comparison to the conditions set out in the Schedule to the Mandatory Tenders Law, such determination must be explained within the tender documents. Among such conditions are seniority, previous experience, financial robustness and scope of production or supply.
In addition, section 6 of the Mandatory Tenders Regulations determines that the participation in a tender shall be conditioned upon the following:
Pursuant to such section, it is also possible to mandate additional preliminary conditions for the participation in the tender, such as previous experience, scope of work, credentials, etc.
There are various ways to limit the number of bidders participating in a procurement process including:
The criteria for selection of the bid that would confer maximum advantages on the tender holder are, wholly or partially:
The criteria for selection of the bid shall be determined in advance and the tender holder may not add further criteria after the tender is published.
Pursuant to sections 17(b)(5) and 22(b) of the Regulations and by virtue of case law, the Tender Committee is obliged to include amongst the details in the tender documents each of the criteria, the secondary tests and the relative weight to be given for selection of the winning bid as well as the manner for evaluating the foregoing.
Thus, section 22(c) provides that the Tender Committee must detail in the tender documents the relative weight of each criterion and of the secondary tests to be established in fulfilment of such criterion. It must also detail the relative weight conferred on the various bids, based on the price that is proposed or requested, as applicable, as opposed to the quality scoring, and the manner for evaluating the quantity component as opposed to the quality component.
Generally, the tender documents are published at the beginning of the tender. Upon conclusion of the tender, the unsuccessful bidders can ask the Tender Committee how the scores for all the bids were distributed, as is usually done in practice.
Under the law, the Tender Committee must notify all bidders who participated in the tender of the results of the tender. Within the ambit of announcing the results of the tender, there is no obligation on the part of the Tender Committee to give reasons for its decision. However, after receiving the results of the tender, any unsuccessful bidder may review the decision of the Tender Committee in order to understand the reasons behind its decision.
According to section 21(d) of the Mandatory Tenders Regulations, every participant in a tender shall be notified of the results of the Tender Committee's final decision.
According to section 21(e) of the Mandatory Tenders Regulations: "Any participant may, within 30 days from the date of delivery of the notice, peruse the minutes of the Tender Committee, its correspondence with the bidders, the professional opinions that were prepared at its request, the position of the committee's legal adviser and the winning bid in the tender, and receive a copy of these documents".
Notwithstanding this entitlement, the provision of information may exclude parts of the decision or the bid, the perusal of which could – in the opinion of the Tender Committee – reveal a trade or professional secret or harm the State's security, foreign relations, economy or public security. Furthermore, a legal opinion that was prepared in the framework of legal advice given to the Tender Committee, including an examination of possible alternatives to an action or decision of the Tender Committee or an assessment of the prospects and risks resulting from such decisions in future legal proceedings, will also not be disclosed.
To the extent that a bidder does not request the procurement file within 30 days, the bidder will not be barred from perusing the documents and may do so by exercising its rights in accordance with the Freedom of Information Law, 1998, by submitting an appropriate request therefor.
A late decision by a bidder to exercise such right of perusal will make it more difficult to prepare the appropriate request and may cause delays in the submission thereof.
The Regulations are silent as to whether notification should be made before or after the contract with the successful bidder is concluded. Nonetheless, it is inevitable that notification to an unsuccessful bidder be provided after signing the contract (for award of the tender with the successful bidder, as doing so will impede any possible attack on the Tender Committee's decision.
The Court for Administrative Matters is the authority to which review applications are addressed. There is no intervening authority in this regard and, accordingly, any remedies to be granted will be awarded solely by said Court.
A judgment handed down in relation to either an administrative petition or administrative action can be appealed to the Supreme Court. Additionally, administrative proceedings are sometimes conducted in a civil court, for example, a private tender (as opposed to a public tender), a claim relating to a contract that was awarded following a tender, certain types of financial claims against an authority.
Furthermore, tenders are often urged to be handled by district courts – for example, municipal company tenders.
For any infringement of the procurement rules, bidders may claim for damages. However, damages arising from infringement of the procurement rules – especially when the relief sought amounts to damages for loss of profits – are particularly difficult to attain. Aggrieved tenderers will have to obtain an interim order, launch an application to set aside the award and only then proceed to institute an administrative action. In the administrative petition appeal of Ports Authority v Tzomet Engineers, Planning, Coordination and Projects Administration Ltd, PD 59(2) 145, the judge held that expectation damages should be awarded only in cases of bad faith on behalf of the contracting authority – an element that is difficult to prove. Moreover, the courts for administrative matters have adopted – as a rule – the strict limitation in respect of damages claims as set out in the administrative petition appeal of The Broadcasting Authority v Katimora Ltd, Supreme Court Judgments 2007(3) 2403 (2007). This often results in the aggrieved tenderer not having an opportunity to put forward the merits of the case before it is dismissed on procedural grounds.
Furthermore, the court's decision following the completion of a review application regarding defective conduct on the part of an authority in a tender process – either in relation to the successful bidder or in relation to actions carried out by the Tender Committee itself – may result in the cancellation of the tender procedure or in the cancellation of the winning bid and, by default, the cancellation of the contract with the successful bidder that came about by virtue of that tender procedure.
There are tenders that contain provisions prohibiting the possibility of submitting claims for temporary relief. In addition, in the case of tenders in which the contract is carried out over time (such as a tender for services), even without an automatic suspension of the tender procedure, the service provider can be substituted as long as the court has accepted its claims and the applicant was announced as the second successful bidder (under the successful bidder) and named as such by the authority from the outset.
In accordance with the law, any bidder participating in a tender process, including a potential bidder, is entitled to apply to the court and contest the decision of the Tender Committee. This right will apply regardless of whether the application arises from a preliminary decision to make changes to the tender provisions, or from significant decisions regarding the rejection of bids, the transition from one stage to another in the tender process or a decision on a winning bid.
The ability to contest the Tender Committee's decisions will be subject to the tender provisions that relate to the applicable stage of the tender (eg, there are tenders that only allow for a decision to be challenged once the winner of the tender has been selected). In addition, the relevant tender stage will also determine the nature of the remedies that can be applied for in appealing the Tender Committee's decision (eg, there are tenders that prohibit the submission of applications seeking temporary relief, which may have the effect of delaying or suspending the continued conduct of the tender procedure). Naturally, contesting a decision of the Tender Committee will also be subject to delays.
An aggrieved tenderer that wishes to file an administrative petition is likely to go through several stages, the first of which – to prevent the contract from being awarded and executed by the successful tenderer – is the application for an interim order. The court may grant an interim order simply to preserve the status quo during the trial, subject to the fulfilment of the following three requirements:
According to the Courts for Administrative Matters Regulations, 2000 (section 3), an administrative petition must be lodged within 45 days of the date of publication of the contracting authority’s contested decision, the date on which the contested decision was presented to the petitioner, or the date when it became known to it. Notwithstanding this, even an aggrieved tenderer that lodges an administrative petition within this statutory time limit still runs the risk of its petition being denied on the basis of "objective circumstances", which would then mark the petition as being lodged in delay, despite the fact that the delay may have originated from circumstances over which it had no control.
Once successfully lodged, the proceedings will be subjected to the normal duration in which a decision is generally rendered except in an instance of urgency. In the ordinary course, the duration will depend on the frequency of interim applications and decisions as well as whether or not witnesses are required. In an urgent matter, the aggrieved tenderer will have to prove the urgency prior to trying the merits of its case and, assuming its urgency plea succeeds, the court will likely expedite its decision.
As a general rule, administrative procedures are usually dealt with much more expeditiously than other civil cases as they do not involve the usual submission of pleadings, nor are the parties afforded the opportunity to cross-examine each other. Instead, examination is conducted by the court.
Israel is a country in which litigation proceedings are widespread. This fact, coupled with the considerable number of tenders that are conducted each year, has resulted in a large volume of procurement claims being considered or adjudicated before the relevant review body. Since no official public record or statistic exists in this regard, we hold the view that at least dozens of procurement claims are instituted annually.
For an administrative procedure, the costs involved would include attorneys’ fees as well as court fees –both of which are estimated to total approximately ILS2,000. Of course, this amount does not include the cost of legal representation for filing the petition and conducting the litigation, which would largely depend upon the scope of the petition, the character and nature of the tender, the issues underlying the petition and the law firm hired to provide the services.
According to section 8A of the Mandatory Tenders Regulations, subsection 11 thereto includes (as one of the powers of the Tender Committee) the ability to "approve a material change in the terms of a contract that was concluded pursuant to a tender". To this extent, amending a contract without initiating a new procurement procedure generally requires the approval of the Tender Committee. Assuming that such approval is not granted and the requested amendment is material, it is probable that a new procurement procedure will need to be initiated.
Notwithstanding the foregoing, once the tender stage has been concluded and the project is in the contract stage, there are certain circumstances in which the contract can be changed or adjusted without initiating a new procurement procedure. This is especially relevant when it comes to long-term contracts that may encounter circumstances that could not have been foreseen from the outset. Naturally, the ability to amend the contract will be subject to the rules of administrative and contract law.
In addition, public authorities that are governed by their own specific pieces of legislation will not be bound by the provisions of the Mandatory Tenders Law or the Regulations. For example, as set out in the Definition section of the Regulations, a "public body" specifically excludes the defence establishment from its ambit. Therefore, when an amendment to a concluded contract is required by an authority that is governed by specific legislation, section 8A must be read in line with the relevant applicable legislation.
About 30 exemptions from mandatory tendering are listed in the Regulations, with the primary exemptions being:
In the past year, several significant decisions have been rendered by the Supreme Court on the subject of tender law, including:
The court disqualified Omega being awarded the tender, in light of it having failed to satisfy the threshold conditions related to the required previous experience of a bidder in the tender. The court ordered that the matter be returned to the Tender Committee for it to decide how to proceed with the tender. S. Horowitz & Co. represented Pangea DW in this appeal.
As far as the authors are aware, no proposals are under consideration by the legislator to change the existing legislation.