Taking part in government tenders: disqualification and appeal

Service page: Commercial contracts lawyer: drafting, review and enforcement.

Who must hold a tender, and what it means for you

Section 2(a) of the Mandatory Tenders Law provides that the State, a government corporation, a religious council, a health fund (kupat holim) and an institution of higher education may not enter into a contract for a transaction in goods or in land, for carrying out work or for buying services, except through a public tender that gives every person an equal opportunity to take part in it. The last words are the main point. This is not a procedural requirement: it is the yardstick by which the court examines the whole process. Extending the duty to a local corporation was set in Amendment No. 14 to the Law. Its start depends on making regulations for transactions of a local corporation, and such regulations have not yet been made.

Section 2(b) prohibits the tendering body from discriminating between bidders because of disability, sex, sexual orientation, personal status, age, parenthood, race, religion, nationality, country of origin, views or party membership. And section 2(c)(1) extends this far beyond bad intent: “setting irrelevant conditions is also considered discrimination”. A threshold condition that is not related to the nature of the tender is, in itself, discrimination, even if nobody intended it.

Alongside the public tender, the Law and the regulations recognize other procedures: a closed tender, other competitive procedures, and an exemption from a tender in circumstances set in the regulations. An exemption is not an open field. It is a defined exception, requires a reasoned decision, and can be challenged when its conditions were not met.

Threshold conditions: what may be required of you

The main rule is short and often forgotten. Section 2A(a) of the Law: “A tendering body shall not set a condition for a bidder’s participation in the tender, unless the condition is required by the character or nature of the tender”. Alongside this, section 2A(b) requires giving reasons, in the tender documents themselves, for a condition stricter than what is stated in the Schedule to the Law. The same applies to a condition requiring proven experience specifically in working with the tendering body or with another public body. An unexplained “closed” experience condition is a classic point of attack.

And another provision that helps small businesses: under section 2A(a1), in a tender where the expected value of the contract is less than fifty million new shekels, receiving the tender documents or taking part in the tender may not be made conditional on a payment, except in cases and amounts set by the Minister of Finance. After winning, the stage where most of the risk builds up begins: the contract itself. So reviewing a contract before signing is part of preparing for the tender, not of what comes after it.

Separately from the threshold conditions of the tender itself, the Public Bodies Transactions Law, 5736-1976 (חוק עסקאות גופים ציבוריים, התשל״ו-1976) sets conditions for any contract with a public body:

• Section 2: confirmation from an assessing officer, a CPA or a tax adviser that account books and records are kept and that reports are made to the assessing officer and the VAT director (or of an exemption from keeping them). This provision does not apply to small transactions, below an amount that is updated from time to time.
• Section 2B: an affidavit on compliance with employment laws, including regarding a person “connected” to the supplier.
• Section 2B1: an affidavit on suitable representation for persons with disabilities under section 9 of the Equal Rights for Persons with Disabilities Law, 5758-1998. A supplier that employs at least 100 employees must also undertake to contact the director general of the ministry in charge, to examine how the duty is being applied.

These are the documents that actually trip bidders up: not the technical specification, but a certificate that expired the day before the submission.

The tender guarantee, and when it may be forfeited

Under regulation 16B(a) of the Mandatory Tenders Regulations, the tenders committee may make participation conditional on depositing a guarantee and set its type, conditions, amount and length. Regulation 17(b)(4) requires all of these to be set out in the tender documents. The guarantee is usually an autonomous bank guarantee, so the bank pays according to the wording of the letter of guarantee and not according to who is right.

But against a public body you have a protection that does not exist in an ordinary commercial transaction. Regulation 16B(b) provides that the committee may order the guarantee to be forfeited, in whole or in part, only after it gave the bidder an opportunity to present their arguments, and only on one of four grounds: acting with cunning, trickery or lack of clean hands; giving misleading information or inaccurate material information; withdrawing the bid after the deadline for submission; or, after winning, failing to comply with provisions that are a precondition for making the contract. A forfeiture without a hearing, or for a reason not on the list, is a defective forfeiture.

How bids are examined, and when a bid is disqualified

Regulation 20 governs the examination stage. It has several rules worth knowing before you assume that disqualification is the end of the road:

• The committee examines the bids within a reasonable time from the opening of the tender box, and does not discuss bids that were not in the box at the deadline for submission.
• A clerical or arithmetical error is not a disqualification. Under regulation 20(c), the chairperson of the committee may correct it. The correction is recorded in the minutes, and the bidder is notified of it.
• Regulation 20(d) requires disqualifying bids that are incomplete or mistaken, or based on incorrect assumptions or on a mistaken understanding of the subject of the tender, as well as bids that show harm to employees’ rights, unless the committee decided otherwise for special reasons that will be recorded. Note the last part: the committee has discretion, and it must give reasons when it uses it, or when it does not.
• Under regulation 20(e), the committee may, for reasons recorded in the minutes, invite a bidder to clarify details in the bid. If it did not do so for a defect that could have been clarified, that is an argument.

How the winner is chosen: the criteria and the weights

Regulation 22(a) lists the criteria for choosing the bid that gives the tendering body the most advantages, all or some of them: the price; the quality of the goods, land, work or service and how suitable they are for the tendering body; the bidder’s reliability, qualifications, experience and fields of business; references and the level of satisfaction with previous contracts, if required; special requirements of the tendering body; and the bidder’s conduct regarding employees’ rights. The last includes a negative written opinion or a negative audit report on this matter from the three years before the deadline for submission.

And the provision most worth remembering: regulation 22(b) requires the committee to include in the tender documents the details of all the criteria, the sub-tests, the relative weight and the method of weighting. Regulation 22(c)(1) adds that when a relative weight is set, the weight of the price compared with the quality score, and the method of weighting them, must be set out. Any weighting that was not published in advance, or that was applied differently from what was published, is a defect. The exception is rare cases in which the committee decided, for reasons that will be recorded, not to publish the relative weight of the criteria (regulation 22(c)(2)).

Finally, regulation 21(b): the committee will choose the cheapest or the most expensive bid (as the case may be), or, when criteria were published, the bid that gives the most advantages under them. To depart from this, it needs special circumstances and special reasons that will be recorded, and only after it gave that bidder an opportunity to present their arguments to it.

You were disqualified or did not win: where to turn, and within how long

First, the right of access, and it is wider than most bidders assume. Regulation 21(d) requires every participant to be notified of the results of the final decision. Regulation 21(e)(1) gives a participant the right, within 30 days from the date the notice was given, to inspect and get a copy of: the tenders committee’s minutes, its correspondence with the bidders, professional opinions prepared at its request, the position of the committee’s legal adviser, and the winning bid. The exceptions are narrow: parts whose inspection may reveal a trade secret or a professional secret or harm state security, foreign relations, the economy or public safety, and a legal opinion prepared as advice to the committee. Regulation 21(e)(2) makes clear that this does not detract from the Freedom of Information Law, and regulation 21(f) allows inspection to be made conditional on a payment to cover its cost.

The other side of the same coin: your bid will also be revealed to competitors. Mark in advance, in the body of the bid, which parts you think are a trade secret or a professional secret, and why. The committee decides, and a general claim that “everything is confidential” will not be accepted. Second, use every step with the committee itself: ask for written reasons, and use the right to argue where the regulations give it: before a guarantee is forfeited (regulation 16B(b)) and before departing from the ranking (regulation 21(b)).

Third, the court. Tender matters of the bodies listed in section 2 of the Mandatory Tenders Law and of a local authority are under the Court for Administrative Affairs, under item 5 of the First Schedule to the Administrative Courts Law, 5760-2000 (חוק בתי משפט לענינים מינהליים, התש״ס-2000), and not under an ordinary civil court. A claim for compensation whose cause of action is in a tender is also filed with that court, as an administrative claim.

Fourth, and critical: the deadline. Regulation 3(b) of the Administrative Courts Regulations (Rules of Procedure), 5761-2000 (תקנות בתי משפט לענינים מינהליים (סדרי דין), התשס״א-2000) provides that, where the law sets no other deadline, the petition will be filed without delay and no later than forty-five days from the day the decision was lawfully published, or from the day the petitioner was notified of it, or from the day they learned of it, whichever is earliest. Note the words “without delay”: they stand on their own. A petition filed on day 44 may still be dismissed for delay when the process has moved on in the meantime. On the other hand, the court may extend the deadline if it sees justification (regulation 3(c)), but do not count on it.

And what the court examines. It does not replace the committee’s professional discretion with its own. It checks whether the process was conducted lawfully: whether the conditions were “relevant”, whether the decisions were reasoned where the law required reasons, whether a right to argue was given where the regulations require it, and whether the principle of equality was kept in practice.

Frequently asked questions

Who must publish a public tender?

Under section 2(a) of the Mandatory Tenders Law, 5752-1992: the State, a government corporation, a religious council, a health fund and an institution of higher education, when contracting for a transaction in goods or in land, for carrying out work or for buying services. The tender must be public and give every person an equal opportunity to take part in it. Alongside it there are a closed tender, other competitive procedures, and exemptions set in the regulations.

May previous experience specifically with the ordering body be required?

Section 2A(a) allows a condition for taking part to be set only if it is required by the character or nature of the tender. Section 2A(b) requires giving reasons, in the tender documents, for a condition requiring proven experience in working with the tendering body or with another public body. Such a condition without reasons, and also an irrelevant condition, which section 2(c)(1) considers discrimination, is a ground for a challenge.

How long do you have to challenge a decision in a tender?

An administrative petition is filed with the Court for Administrative Affairs without delay and no later than 45 days from the publication of the decision, from receiving notice of it, or from the day the petitioner learned of it, whichever is earliest (regulation 3(b) of the Rules of Procedure Regulations). When the law sets another deadline, that deadline applies. The “without delay” requirement stands on its own, so it is worth acting immediately when you receive the notice.

When may the tenders committee forfeit the tender guarantee?

Under regulation 16B(b) of the Mandatory Tenders Regulations, 5753-1993: only after the bidder was given an opportunity to present their arguments, and only on one of four grounds. These are: acting with cunning, trickery or lack of clean hands; giving misleading information or inaccurate material information; withdrawing the bid after the deadline for submission; or failing to meet preconditions for making the contract after winning. A forfeiture without a hearing, or for a reason not on the list, is a defective forfeiture.

What do you check before submitting a response to a tender?

The tender documents: the threshold conditions, the criteria and their relative weight, which as a rule must be set out in them (regulation 22(b) of the Mandatory Tenders Regulations), and the guarantee requirements: its type, conditions, amount and length (regulation 17(b)(4)). The tender documents usually also require attaching the certificates without which a public body may not contract under the Public Bodies Transactions Law, 5736-1976: confirmation of keeping books and reporting to the tax authorities (section 2), and affidavits under sections 2B and 2B1. Make sure they are valid on the day of submission. Mark in the bid the parts you think are a trade secret, because participants may inspect the winning bid (regulation 21(e)). And finally, the deadline: the committee does not discuss a bid that was not in the tender box at the deadline for submission (regulation 20(b)).