My favorite tenders are blue and white

My favorite tenders are blue and white

August 5, 2020

Public protests over the government's handling of the COVID-19 crisis are supported by many due to the lack of support for small local businesses, especially at a time when a global health crisis is undergoing. Therefore, and in a strong contrast to this, it is surprising that when it comes to large 'businesses', i.e. giant corporates, it seems that the State favors contracting with Israeli ('blue-and-white') companies.

The preference for Israeli manufactured goods is anchored in the obligation of public entities that may contract only by means of a tender. In 1995 the Preference of Israeli Made Goods Regulations were promulgates and such stipulate that a tender publisher is obligated in certain cases to prefer bids of 'local' participants, even if the bid is not the best one under the tender’s terms. Note, that such obligation was recognized in caselaw many years before the promulgation of the regulations. For example, in 1984 the Supreme Court held that the promotion of local bids is a separate consideration that the tenders committee may consider when reviewing the offers. The formal purpose of the regulations is to promote local industry and the economy, but over time the Courts enumerated additional purposes, such as: protecting local produce to create jobs, saving in foreign currency, etc.

The preference rates set in the regulations are derived from a variety of parameters, including the tender’s field and scope. Thus, for example, national security reasons require under the regulations that a tender for the purchase of textiles for the Israeli Ministry of Defense may only be from local produce bidders, provided that such preference does not contradict an obligation of the State under an international treaty.

With the outbreak of the COVID-19 crisis, a bill was put on the Knesset’s table aiming to extend the application of the regulations so that it would obligate more bodies of a public nature, inter alia to ensure applicability of the obligation to prefer domestic products to tenders for public projects funded by non-governmental organizations. At the same time, it seems that recently the Courts are also encouraging this principle. Thus, in early July 2020, the Supreme Court held that although the regulations do not apply to competitive procedures for licensing public transport service lines, the tenders committee was still entitled to award additional points in the tender to local bus manufacturers, in order to advance the economic policy of the State.

The preference for Israeli produce is clearly a worthy goal, especially when the local economy encounters difficult times. However, it jeopardizes the incentive of local entities to become more efficient, enables the stronger local entities to raise prices, harms the interest of international companies to enter Israel and severely harms competition in the domestic market. The main victim is, as usual, the public.

In light of the above, especially in the current period when there seems to be a tendency to prefer 'blue-and-white’ products, when a company, and in particular a non-Israeli one, considers bidding in a government tender (but not only), it is important to consult an attorney with expertise in the field as soon as practical. Such lawyer would be able to examine the tender’s terms as well as the feasibility of participating in it, prior to spending large funds in vain.