When tendering morality and insanity

When tendering morality and insanity

May 24, 2020

A famous saying attributed to Albert Einstein states that insanity is doing the same thing over and over again and expecting different results - does this apply also to public tenders? If a shopping mall discovers that a tenant with a turnover-linked rent provided false data, the owner would be insane to ever lease to any business managed by the defrauding manager. But what if the injured party is the State? For example, the Port of Haifa reveals that the winner of the tender to operate a service in the Port defrauded the Port and provided it with false information. After a few years, when the Port publishes a new tender, is the Port not required to disqualify a company which driving force is the same manager who defrauded it?

Unlike a private business, when the State is involved, it is important to ensure that its contracts are entered into in a manner that maximizes the public benefit and prevents corruption and this is one of the key reasons for public entities' tender requirement. The law sets the criteria for choosing the offer that gives the highest benefit to the tender publisher while maintaining equality, with one of the criteria being the bidder's credibility. Accordingly, caselaw teaches that the tender publisher has discretion in re-contracting with a bidder who defrauded it and the tender committee may, and is actually obligated to, consider past bad experience with a bidder, even if this may cause discrimination. This obligation is reinforced when there are serious suspicions of the bidder's moral integrity. Thus, in a case decided by the Jerusalem District Court in May, 2020, a bidder was accused of fraudulent behavior in a previous engagement and an inquiry committee was initiated on such issue. The Court held that it was appropriate, and even required, that the matter be considered, especially when it was a tender in the same field as the previous, and when there was a concern of a serious fraud.

What about a manager who ran a fraudulent activity but now works for another company? The Organs Theory attributes a corporation the thoughts and actions of its officers, as they are its "brain" and "nerve center" of the corporation. Thus, when a manager of a company previously managed an activity that defrauded a public entity and is now the manager of another company bidding in a tender, it is more than reasonable to demand that the tender committee will take a note of this.

Finally, it is important to note that the passage of time is also of significance. In a case that decided by the Haifa District Court in May, 2010, regarding an electricity company tender for the construction of a chimney at a power plant, one of the bidders was disqualified for acting negligently 12 years earlier, resulting in the death of construction workers. The Court held that criminal suspicions may enable disqualification, as well as bad past experience with the bidder, however bad experience must be reviewed through tests of relevance, reasonableness and proportionality and may thus sometimes lead to disqualification but sometimes will only be one of the considerations. In that case there was no reason to disqualify the bidder, both due to the passage of time and due to actions taken by the bidder to prevent the recurrence of such an incident.

In light of the above, because everything depends on circumstances and because when attacking a tender timing of raising a contention is of the essence, whether one wishes to bid in a tender after a bad past experience with the State or when it is a competitor in a tender, one of the managers of which was involved in such 'bad experience', it is vital to urgently consult an attorney with expertise in the field.