Legal Updates

Non-execution of a contract due to lack of good faith in the negotiation may cause the contract to be deemed as if executed

June 1, 2020

The Haifa Municipality Tender Committee did not discuss the results of a taxi service tender for many months despite repeated inquiries, contending that it was necessary for committee members to study the tender and therefore discussed other tenders and that the chairman of the committee was not present. Finally the bidder that was supposed to have won demanded to receive back the bank guarantee deposited.
The Court held that the bidder was entitled to compensation for the period commencing two weeks after the committee could have been convened until the date when the bidder demand the bank guarantee, as if the bidder won the tender and activated the service. The tenders committee has the authority to postpone the decision on the tender, but such power must exercise in a reasonable manner. There is no reason to postpone the discussion so that members of the tenders committee will study the material because they should study it ahead of time, nor is it reasonable to postpone the discussion due to the absence of the chairman of the tenders committee. When a bidder requests to receive back the bank guarantee deposited, unlike a situation in which the guarantee is sent involuntarily, this constitutes withdrawal from the tender. In a situation where a contract is to be executed and its terms are clear but due to the lack of good faith of one of the parties it is not entered into, compensation can be obtained as if the contract was entered into and breached by the party acting in bad faith. Here all the terms were agreed, and only the highest bid in the tender was to be declared as the winning bid and therefore, due to the lack of good faith of the tenders committee the winner is entitled to compensation due to the income withheld from it between the reasonable date in which the bid could have been declared winner and contract executed and the date that the bank guarantee was returned per the bidder’s demand.