When will a defective bank guarantee‎ result in disqualification of tender bid?

When will a defective bank guarantee‎ result in disqualification of tender bid?

Yair Aloni, Adv.
April 22, 2018

The Tender laws are less than forgiving when it comes to a defective bank guarantee of a bidder. The Courts apply a strict approach under which a defect in the bank guarantee leads to the disqualification of the bid other than under very limited exceptions. In many cases, a losing bidder hopes to find defects in the winning bidder’s guarantee in order to use for its favor so that it may demand disqualification of the winning bid, even when it comes to "technical" grammatical errors. How far-reaching is the requirement to be meticulous when examining tender guarantees?
Supporters of the strict approach will argue that this is intended, inter alia, to maintain equality between the bidders and to strengthen the certainty among the various tender participants. However, more lenient approaches also exist and according to such not any defect will necessarily lead to the harsh outcome of a bid disqualification and in certain cases where there is no concern of unfairness or harming the equality between the bidders, these should be examined in a purposeful manner according to the circumstances of the case.
In a case decided several years ago, for example, a law firm filed a tender bud and noted the names of its three partners on the bank guarantee and at the end of the firm’s name it was written "Ltd." Other tender participants contended that the wording of the guarantee had two material flaws: One, lack of compliance between the identity of the bidder and the guarantor's identity, because one of the named partners already retired from the firm; Second, the law firm was not incorporated as a limited company, thus the guarantee was issued in the name of a non-existent entity. Regarding the first flaw, the Court held that the bid and guarantee were under the official name of the firm as it was at the time of submission of the bid and thus no defect exists, certainly not one that justifies the disqualification of the bid. However, in respect of the second defect, the Court held that the guarantee was foreseen as having been given in favor of a different legal entity (a limited liability company) and therefore the bid was disqualified.
In an early 2018 case, the Tenders Committee disqualified a bid because of a "defective" guarantee due the fact that the guarantee included the bidder’s previous name, including its former middle name, while in the tender documents included the current name which also corresponds with the official registry. Another discrepancy was in the manner in which the bidder's first name was stated, which was missing a vowel. In this case, the Court examined the issue in a target-oriented manner, holding that the main goal was to prevent a situation in which the bid was submitted by one person and the guarantee was issued in the name of another or it is not clear who the guarantors are. It was held that even if at first glance the name appearing on the guarantee was not written in the same manner, there was no doubt, especially with the Tenders Committee and the bank, as to the name or identity of the guarantor and it its duties as guarantor were perfectly clear and it couldn't avoid the duties on the grounds that the name was not registered correctly on the guarantee. Therefore, there was no justification for disqualifying the bid because of the misspelling.
Due to the delicacy of this issue, it is recommended to act wisely and consult with a lawyer who specializes in the field of tenders prior to submitting the tender bid and checking the wording of the guarantee, but certainly immediately upon receipt of notice of the failure to win due to any defect.