Cancellation of tender – the thin line between legitimate and unreasonable

Cancellation of tender – the thin line between legitimate and unreasonable

Yair Aloni, Adv.
November 15, 2020

A company participated in a tender after diligently filling out all the tender forms and once the bids were revealed it became clear that it met all the threshold conditions. The publisher of the tender believed that the financial offers were not as attractive as estimated and utilized a provision in the tender document stating that the Tenders Committee "does not undertake to accept the cheapest or lowest bid, or any bid whatsoever" to declare that the tender is cancelled, followed with the publication of a new tender soon after. Is this an extreme and drastic measure or application of a legitimate right of thet ender publisher?

The Israeli Tender Obligation Regulations stipulate that the Tenders Committee may decide on the selection of the most suitable bid or decide not to select any bid, all with the aim of ensuring the "maximum benefits" to the tender publisher. Additionally, a bidder who participated in a tender is subject to the provisions of the tender and cannot later raise contentions retrospectively. Theoretically, under this principle, if a tender publisher sets in advance that it will be entitled to exercise its discretion whether to accept "any bid" and may cancel the tender, the tender publisher fulfilled its duty and the bidder cannot contend against a decision to cancel the tender.

However, one of the overriding principles of a tender is the principle of equality. Although the tender fulfills other purposes as well, such as, inter alia, maximizing the business interest and the right of the tender publisher to receive an excellent offer by increasing competition between the bidders, these principles may conflict from time to time. In a conflict between the business interest and the principle of equality, the principle of equality prevails due to its great contribution to the public's trust in the tender process and by serving the principal in the long-run. This is because allowing the cancellation of a tender in a progress stage, even for legitimate commercial reasons, may open the door to corruption or prohibited preference. Thus, for example, a tender publisher may decide to cancel the tender after learning about the identity of the bidders, whether out of a desire to choose a party that did not participated in the tender at all or to prevent a contractal relations with a particular bidder who actually submitted a bid. This option severely impairs the bidders' reliance and certainty on tender procedures and may also prevent bids being submitted by potential participants.

Another difficulty arises when the tender holder decides to cancel the tender after the bids were revealed and their content exposed, but shortly thereafter decides to publish a new tender or another competitive procedure, in exactly the same matter. Thus, even if the motives for canceling the tender were for seemingly legitimate reasons, such as the lack of economic logic in the tender result, at this point there is growing concern of harm to the principle of confidentiality and fair competition, as the commercial information is already in the open, visible and known – thus jeopardizing the principal of by enabling bidders to make improvements to their bids.

Thus, for example, in October 2020, the Administrative Court of Be'er Sheva overturned a decision of the Israel Electric Corporation (IEC) Tenders Committee that decided to enter into a new competitive bidding process (by request for proposals) even though two bids remained eligible in the tender and one was even selected as the winner. In that case, the IEC tried to take advantage of the procedure in order to improve the financial bids received and the Court did not see this kindly.

Therefore, it is advisable not to accept Tenders Committee's decisions as a done deal as they are subject to scrutiny by the Court which does not hesitate to interfere in cases of unreasonableness, for so long as the petition is made on time. It is important to seek the help of a lawyer with experience in the field of tenders throughout all the stages of the tender in order to ensure that decisions made throughout the tender process are made pursuant to the law.