The Risk of Disqualification of a Tender Win Due to Failure to Meet Time Restrictions Following the Win

The Risk of Disqualification of a Tender Win Due to Failure to Meet Time Restrictions Following the Win

Yair Aloni, Adv.
January 14, 2019

A winner of a tender was late by four days in one of the payments required to be made in order to consummate the win – is this a technical glitch or a material defect that may result in the cancellation of the winning in the tender?

A decision given by the Israeli Supreme Court in January 2019 discusses a case where the winner of a tender for purchase of land from the Israel Lands Authority was late in paying the balance of the lease fees by four days from the date stipulated in the tender terms. Under the Tenders Regulations, an administrative authority is authorized to disqualify a defected bid. In general, it is common to distinguish between a defect of a technical nature that can be cured and a defect of a material nature that violates the basic principles underlying the tender laws (such as the principle of equality) and which, by its very existence, brings to the disqualification of the bid. The Supreme Court held that similar rules should be applied in relation to the conduct of a bidder even after being declared a winner, if a flaw occurred on its part before consummating the win. Despite the fact that at the time of declaration of the winning bidder, the tender phase ends and the contractual stage begins between the authority and the winner, the authority is obligated to ensure that the principle of equality is maintained even at the stage of consummating the win. If the amounts and dates of the payment are set in advance as a material condition for the consummation of the win, it is not possible to deviate from such terms or to flex them by extending the bidder's payment time, as the flexibility of such material conditions is deemed a retroactive change in the terms of the tender which violates the principle of equality. Naturally, the principle of equality in tenders requires the winner of the tender to be precise and to meet the dates of payment to the authority, even if a short delay is involved and even if made without mala fide and regarding relatively small amounts.

However, there might be cases in which a delay in payment will not be considered a defect justifying cancellation of the win. That was the case when a winning bid of the Land Authority tender published in 2011 was required to pay three separate payments (lease fees, development expenses to the Land Authority and development expenses to the local authority). In that case, the Land Authority informed the bidder that if it does not pay the lease fees and development expenses by the due date, the win will be canceled. The bidder approached the Land Authority on the due date, asking whether any debt exists, but due to administrative constraints the response was received only the following day. The Court held that the delay was facilitated by the Land Authority’s constraints and as it was not specifically stipulated that a delay in payment of development expenses to the local authority would result in the cancellation of the win, the win will not be cancelled.

Canceling a win is a drastic and extreme measure, especially in the case of a short delay in consummation of the tender by the winner. However, a rigid and uncompromising approach in the form of strict adherence to the provisions of the tender contributes to increased certainty and stability in the decisions of various tenders committees so that each bidder can plan and calculate its steps accordingly. In view of this strict approach, it is strongly recommended that each bidder carefully examine the provisions of the tender and be assisted by a tenders professional, both at the stage of submitting the bid and at the stage of consummating the win, in order to ensure compliance with the terms and conditions of the tender and avoid the aggravation and economic damage involved in the loss of the win due to failure to comply with the provisions of the tender.