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Leyden Communications
(Israel) is proud to introduce this real time information to the
world business public.
Leyden, which has over 20 years experience in international marketing,
trade and commerce, serves today as an international consultant to Israel's
leading commercial and governmental organizations.
In our quest to enhance Israeli business and international trade, Leyden
is now providing the latest information on tenders offered by the Israeli
government.
This Website will
also be offering valuable tips on "how" to apply for Israeli
governmental tenders / bids / contracts.
Public Procurement
and its Legal Basis
1. Constitution and Legislation
Overview of Israel
and its Economy
Israel, the Middle
East’s only democracy, is located on a narrow stretch of land on
the eastern shore of the Mediterranean Sea. A country with a population
of slightly more than 6 million, Israel achieved its independence in
1948 after fighting a war of independence against the invading armies
of neighboring Arab countries.
Once a small localized
economy based on light industry and agriculture, Israel today is a world
leader in such areas as electronics and information technology. The
Israeli economy has undergone many changes in recent years, and as the
result of privatization and new legislation the government has greatly
reduced its direct involvement in the economy. The citizens of Israel
today enjoy a standard of living that is comparable with that of Western
Europe.
Israel is a founding member of the World Trade Organization, a signatory
of the GATT Uruguay round and is the only country in world that has
entered into free trade agreements with the United States, the European
Community and the European Free Trade Association.
Israel is a country that is still building itself and many major infrastructure
projects are being carried out or are in the planning stages. Most of
these projects are conducted by way of international tender and numerous
foreign companies have won such tenders.
Overview of the Israeli Legal Framework
Israel is a parliamentary democracy and is one of only a handful of
countries in the world without a written constitution. The 120 member
Israeli parliament or “Knesset” serves both as a house of
representatives and as the legislative branch of government. There are
no restrictions on the legislative powers of the Knesset except for
a limited number of “entrenched clauses” found in certain
“basic laws” which essentially enact constitutional norms.
Primary Legislation and Implementing Regulations
Primary legislation
in Israel is enacted by Israel’s Knesset. Primary legislation often
authorizes the government, through government ministers or other public
officials, to enact implementing regulations (secondary or subsidiary
legislation) pertaining to the primary legislation. Certain areas of
the law, as is the case with public procurement, are primarily governed
and regulated by the implementing regulations. Most laws enacted by
the Knesset expressly state which government minister is responsible
for enacting the relevant implementing regulations. In certain circumstances,
as is the case with public procurement, the implementing regulations
enacted by the relevant ministers must be approved by a committee of
the Knesset.
2. Budget Regulations
Procurement conducted by a government entity must specifically be provided
for in the entity’s budget. Pursuant to the Budgetary Principles
Law, 5745-1985 (the “Budgetary Law”), the amounts to be expended
by the government in any fiscal year are to be included in the annual
budget of the State of Israel. The budgets of other government entities
such as statutory companies, government companies and local governments
must be approved by either the Israeli Minister of Finance or the Minister
of the Interior.
The Budgetary Law also provides that the contracts of various government
organs and entities that are above certain designated amounts must state
that the specific transaction is provided for in the entity’s budget
and indicate the relevant section of the budget where it is included.
In addition, the Budgetary Law provides that unbudgeted-for contracts
valued above certain designated amounts are considered void.
3. General Overview of Laws, Implementing Regulations, International
and Bilateral Agreements Applicable to Public Procurement in Israel
a. The Three Main
Branches of Public Procurement in Israel
Public procurement
in Israel can generally be divided into three separate legal regimes:
Procurement by government ministries, government companies, government
subsidiaries and statutory companies;
Procurement by the Ministry of Defense, the Israel Defense Forces and
government companies and subsidiaries for which the Minister of Defense
is responsible; and
Procurement by municipalities and local and regional councils.
Although there are
many similarities regarding the basic legal principles and procedures
which apply to all three legal regimes, there are various substantial
differences, as discussed herein.
b. General Principles of Public Procurement Law in Israel
General Principles
“Tender”
has been defined by the Israeli Supreme Court as an “(i)nstitutionalized
framework for carrying out negotiations in preparation for signing a
contract, by way of competition between different proposals.” (Beit
Yules Ltd. v. Raviv Moshe & Co. Ltd., Additional Hearing 22/82,
43 (i) P.D. 441, 480 (1989)).
Israeli public procurement law is grounded on two central policies or
foundations: (1) to allow contracting government entities to choose
from among as great a number as possible of suitable proposals in order
to choose the best one; and (2) to provide all interested parties with
the opportunity to compete for a contract on the basis of fair competition
and equal conditions (Beit Ariza Rechovot Ltd. v. the Minister of Agriculture,
High Court Petition 292/61, 16 (i) P.D. 20, 27 (1961)). In short, the
basic principles of Israeli procurement law are intended to ensure the
public interest in equality and integrity as well as the economic interest
of the procuring entity (see e.g., Gozlan v. Beit Shemesh Local Council,
High Court Petition 368/76, 31 (i) P.D. 505, 511 (1976)).
Over the years the Israeli courts, through a series of decisions related
to procurement and the tender process, have established a modern body
of procurement law which apply to all government entities. These decisions
have articulated general principles that must be followed by the procuring
government entities during all stages of a tender. These principles
include equality, fair competition, reasonableness, good faith, impeccability,
and the lack of favoritism, arbitrariness, discrimination and conflicts
of interest on the part of the government entity. These principles are
considered so important and fundamental to public procurement in Israel
that it has been held that the procuring government entity must take
steps to prevent even the appearance of impropriety (Herut Ltd. v. the
Minister of Health, High Court Petition 794/78, 33 (ii) P.D. 716 (1979),
regarding favoritism of certain offerors). In addition, as is the case
in other jurisdictions, the law of contract, quasi-contract and torts
all apply to public procurement law and tender procedures in Israel.
The Legal Situation before the Enactment of the Mandatory Tenders Law
Prior to the enactment
of the Mandatory Tenders Law, 5752-1992 (the “Law”) there
was no general statutory requirement that government entities conduct
public open tenders when contracting to procure goods or services. Only
local governments were required by law to conduct public tenders. Many
central government entities, however, were required to procure by way
of public tender pursuant to the Finance and Business Rules issued by
the Israeli Accountant-General (the “Rules”). Pursuant to
the Rules, much discretion was given to the procuring entities, and
the Accountant-General allowed for many individual transactions to be
performed without the need for a public tender.
Prior to the enactment of the Law government companies were only required
to procure by way of public tender if their own specific internal guidelines
required this. Since the Rules as well as the specific internal guidelines
of other government entities were not legally binding directives grounded
in legislation passed by the Knesset and were not made known to the
general public, the ability to challenge the tenders of government entities
was somewhat limited. The Rules continue to serve as internal procurement
procedures for certain government entities even after the enactment
of the Law and the promulgation of its implementing regulations. The
Rules today, however, are only considered internal instructions of a
technical nature, which must conform with the provisions of the Law
and its implementing regulations.
The Enactment of the Mandatory Tenders Law
Israeli procurement law underwent a “revolution” on March
3, 1992 when the Law was enacted by the Knesset. The Law went into effect
on May 16, 1993. The enactment of the Law was the culmination of a process
that had continued for many years and had included various informal
proposals as well as formal proposed bills being submitted to the Knesset.
An early version of the Law was originally submitted to the Knesset
in 1984.[1]
The Law is essentially a very concise framework which specifies those
areas where secondary implementing legislation may be enacted. The Law
authorizes the Minister of Finance, upon the approval of the Constitution,
Law and Justice Committee of the Knesset, to promulgate regulations
in certain specified areas in order to implement the Law. The approval
required of the Knesset committee insures the parliamentary overview
of the implementing regulations. The result, therefore, is that the
vast majority of the content and procedures regarding mandatory government
tenders in Israel are included in the implementing regulations and not
in the Law itself.
In addition, due to the special nature and role of the military establishment
in Israel, and the importance and sensitivity of procurement by the
Ministry of Defense and the Israel Defense Forces, the Law provides
that the Minister of Defense can promulgate separate regulations implementing
the Law with regard to procurement by the military establishment.
c. Scope of the Law
The Law essentially
provides that all government ministries, statutory companies (companies
created through specific legislation), government companies and certain
other entities connected to the government may only enter into contracts
to procure goods or services through a public tender which grants every
person an equal right to participate. Section 2 of the Law provides
that:
“The State, all government bodies corporate, religious councils
and sick funds, may not enter into any contract for the performance
of any transaction in respect of goods or real estate, or for the performance
of work or the acquisition of services, except by way of a public tender
which provides every person with an equal opportunity to participate
in it.”
Section 1 of the Law defines “government bodies corporate”
as including government companies, government subsidiaries, and statutory
companies (“Government Bodies Corporate”).
d. Implementing Regulations of the Mandatory Tenders Law
In 1993 the Minister
of Finance promulgated the Mandatory Tenders Regulations, 5753-1993
(the “Regulations”) which implement the Law and provide the
basic procedural rules with respect to procurement by the government
entities covered by Section 2 of the Law, other than the defense establishment.
In 1993 the Minster of Defense promulgated the Mandatory Defense Regulations
(Defense Establishment Contracts), 5753-1993 (the “Defense Regulations”)
which provide the basic procedural rules applicable to procurement by
the Ministry of Defense, the Israeli Defense Forces and government companies
and subsidiaries for which the Minister of Defense is responsible.
e. Preferences for Local Products and Offsets
The Preference Regulations
In addition to the
Regulations and Defense Regulations, other implementing regulations
have been promulgated pursuant to the Law. These regulations include
preferences for Israeli products and services. Section 3A of the Law,
which authorizes the enactment of secondary legislation related to preferences,
was not included in the original Law but was only added as an amendment
in 1993.[2] These preference regulations have their origin in a pre-Law
government decision from February 1984 which required that government
entities provide certain preferences for local products and services
when conducting procurement.
The Mandatory Tenders Regulations (Preference for Israeli Products and
Mandatory Commercial Cooperation), 5755-1995 (the “Preference Regulations”)
apply to government ministries and Government Bodies Corporate only.
The Preference Regulations therefore cover both government entities
that procure pursuant to the Regulations as well as certain entities
that procure pursuant to the Defense Regulations. The Preference Regulations
provide for a preference with respect to the price criteria of Israeli
goods that do not exceed a proposal regarding foreign goods by more
than 15 percent (or 10 with respect to procurement by government companies).
The Preference Regulations currently do not apply to Israeli services
although the Israeli Ministry of Industry and Trade is currently proposing
that the Preference Regulations be expanded to provide for a preference
with respect to Israeli services as well.
The Mandatory Tenders Regulations (Preference for Products from National
Priority Areas), 5755-1995 (the “1995 National Priority Regulations”)
and the Mandatory Tenders Regulations (Preference for Products from
National Priority Areas), 5758-1998 (the “1998 National Priority
Regulations) provide for a preference of between five and fifteen percent
with respect to the price criteria in a tender with regard to goods
or services of offerors from certain designated national priority areas
within Israel. In general, the 1995 National Priority Regulations apply
only to government ministries (other than the Ministry of Defense) and
the 1998 National Priority Regulations apply only to tenders of the
Ministry of Defense.
The Preference Regulations, the 1995 National Priority Regulations and
the 1998 National Priority Regulations are similar in purpose to national
preference legislation in other countries such as the Buy American Act
in the United States.
Mandatory Commercial Cooperation (“Offsets”)
The Preference Regulations
also require foreign suppliers (defined as “a producer, supplier
or importer of imported goods or a supplier of work not executed in
Israel”) that contract with certain government entities for the
acquisition of goods or the execution of works the value of which exceeds
2,100,000 New Israel Shekels (“NIS”)[3] to implement “mandatory
commercial cooperation” (offsets) in an amount equivalent to 35
percent of the value of the contract. The mandatory commercial cooperation
requirement, however, is only a qualification for a foreign supplier
to participate in a government tender and is not a criteria for awarding
a contract. As described below, such mandatory commercial cooperation
is only to be performed if the foreign supplier actually contracts with
the Israeli government entity. The requirement to perform mandatory
commercial cooperation applies also to contracts above the said monetary
value which are not done by way of tender.
f. The Government Procurement Agreement
Israel is a signatory
to the 1994 Agreement on Government Procurement that was signed in Marrakech
on April 15, 1994 and entered into force on January 1, 1996 (the “GPA”).
The GPA, an agreement within the framework of the World Trade Organization,
is intended to open up government procurement contracts and tenders
of the signatory states to international competition and to remove national
preferences and discrimination against foreigners. Article III (1) of
the GPA requires that its signatory countries give the products, services
and suppliers of other signatory countries treatment “no less favourable”
than that given to domestic products, services and suppliers and that
signatory countries not discriminate among goods services and suppliers
of the other signatory countries when procuring.
The GPA, however, only applies to certain government tenders in Israel.
The application of the GPA to a specific tender depends upon the procuring
entity, the value of the contract as well as the type of product or
service being procured. The GPA applies to tenders of the following
Israeli government entities, for contracts valued above the listed thresholds:
Annex I of the GPA – Procurement by all government ministries (except
for the Ministry of Defense and the Ministry of Internal Security):
Supply contracts - Greater than $186,000
Service contracts Greater than $186,000
Construction contracts Greater than $12,189,000
Annex II of the
GPA – The municipalities of Jerusalem, Tel Aviv and Haifa
Supply contracts - Greater than $358,000
Service contracts Greater than $358,000
Construction contracts Greater than $12,189,000
Annex III of the
GPA – Various government companies including the Israel Airports
Authority, the Israel Ports and Railways Authority, the Israel Electric
Corporation, and Mekoroth Water Resources Ltd.:
Supply contracts - Greater than $509,000
Service contracts Greater than $509,000
Construction contracts Greater than $12,189,000
Pursuant to Section 44 of the Regulations, which provides that the Regulations
“shall apply to the extent that they do not contradict any obligation
of the State under an international treaty,” the provisions of
the GPA are given precedence over the provisions of the Regulations
if there is any contradiction between the two. Therefore, when an Israeli
government entity is involved in the procurement of goods or services
which is covered by the GPA, the Preference Regulations and the 1995
National Priority Regulations regarding preferences for local Israeli
products and services shall not apply with regard to suppliers from
any other GPA signatory country.
The mandatory commercial cooperation requirements, however, apply to
foreign suppliers in Israel even if the GPA applies to the specific
government tender. This is due to the fact that Israel, which is considered
a “developing country” for purposes of the GPA, negotiated
conditions for the use of offsets at the time of its accession to the
GPA. These conditions permit Israel to require offsets in the amount
of 35 percent of the contract value through the year 2000 and 30 percent
for the four years thereafter.[4]
g. Bi-lateral and other Agreements that Effect Procurement by Israeli
Government Entities
Israel has also
entered into a number of international agreements that apply to government
procurement with regard to suppliers from certain foreign states. Article
15(3) of the United States – Israel Free Trade Agreement of 1985
requires that Israel waive all “Buy National” (local preference)
restrictions with respect to government agency purchases of at least
$50,000 with regard to U.S. suppliers. The government agencies covered
by this Article are 13 Israeli government entities which came under
the framework of the WTO government procurement agreement that preceded
the GPA. A number of important procuring government entities such as
the Israel Airports Authority and the Israel Ports and Railways Authority
are included among the 13 entities. The Preference Regulations and the
1995 National Priority Regulations will not apply to suppliers from
the U.S. with regard to contracts of the 13 covered entities which are
above the noted threshold.
In 1987 Israel and the United States also signed the Memorandum of Understanding
Between the Government of Israel and the Government of the United States
of America Concerning the Principles Governing Mutual Cooperation in
Research and Development, Scientist and Engineer Exchange, Procurement
and Logistic Support of Defense Equipment (the “MOU”) which
relates in part to procurement by the Israeli Ministry of Defense. Within
the framework of the MOU the Israeli Ministry of Defense invites U.S.
suppliers to submit proposals in certain tenders for the acquisition
of defense supplies. The local preferences provided for in the Preference
Regulations will not apply with regard to American suppliers which participate
in tenders of the Ministry of Defense pursuant to the MOU. Preferences
for Israeli suppliers from certain national priority areas which are
provided for in the 1998 National Priority Regulations will, however,
apply to such tenders.
In 1997 Israel also signed two procurement agreements with the European
Community which open up each side’s public procurement markets
beyond the provisions of the GPA:
The Agreement between the European Community and the State of Israel
on Government Procurement broadens the scope of the GPA with regard
to European Community suppliers to cover additional entities and services
including Israeli municipalities not covered by the GPA, urban transport
entities, maintenance and repair services and medical equipment.
The Agreement between the European Community and the State of Israel
on Procurement by Telecommunications Operators opens up the procurement
of Bezek (Israel’s sole provider of telephone line service) and
Israel’s various mobile telecommunication operators to European
Community suppliers. This agreement requires that such Israeli entities
not apply any of the relevant local preference rules with regard to
European Community suppliers in procurement contracts of greater than
$186,000 for supplies and services and $12,189,000 for construction
services.
B. Procedure for Award of Public Procurement Contracts
1. Application of Relevant Legislation and Regulations
As discussed above,
the government entities included in Section 2 of the Law, other than
those that are a part of the defense establishment, are required to
procure goods and services by conducting public tenders pursuant to
the procedures and rules included in the Regulations.
The following government entities are required to procure pursuant to
the Regulations:
All government ministries (excluding the Ministry of Defense);
Reference units of such ministries;
Government companies and subsidiaries;
Statutory companies;
The Israel Lands Administration;
The office of the President, the Knesset, the State Comptroller’s
Office and the Knesset Central Elections Committee;
Religious councils; and
The Sick Funds (the four major providers of medical care in Israel).
Many of the largest
government procuring entities are required to procure pursuant to the
Regulations, including the Israel Ports and Railways Authority, the
Israel Airports Authority, the Israel Electric Corporation and Bezek.
Although the Regulations apply to a wide range of government entities
there are some differences regarding the applicability of the Regulations
to government ministries, government companies and statutory companies.
These differences can be summarized by stating that government companies,
due to their commercial nature, are given more latitude in a number
of areas including the exemption of certain contracts from the general
open tender requirement.
In addition to the Regulations all government entities have detailed
internal procedures pertaining to procurement. Such internal rules,
however, may not contradict the provisions of the Law or its implementing
regulations, including the Regulations. As stated above, the internal
procurement procedures set out in the Rules apply to most government
ministries.
Tender Committees
Pursuant to Section
8 of the Regulations, each government entity is required to appoint
one or more tender committees which are responsible for conducting the
tenders of the entity. Most entities have a number of tender committees,
each responsible for a different area of procurement. The tender committees
of government ministries and statutory companies are required to have
no more than five members, who must include the director-general of
the entity, the accountant and legal adviser (or their representatives).
Government companies are required to have a tender committee of at least
three members. Decisions of tender committees are adopted by a majority
vote.
Government entities other than government companies and subsidiaries
also have special exemption committees which must approve certain decisions
of the tender committee regarding exemptions from mandatory open tenders
and the holding of closed tenders. One exemptions committee, appointed
by the director-general of the Ministry of Finance, acts for all government
ministries. Certain other decisions of the tender committees regarding
exemptions require the approval of the Accountant-General of Israel
or the Director-General of the entity.
Estimates
Before entering
into the tender process, most government entities undertake to estimate
the value of the proposed transaction. Although not required in the
Regulations, as is the case in the Defense Regulations and the regulations
which apply to local governments, estimates are carried out for three
essential purposes:
In order to calculate what type of tender procedure is required (open
tender, closed tender, GPA tender, exempt from tender);
To ensure the transaction is covered by the budget of the procuring
government entity; and
To gauge whether the prices submitted by the various offerors are reasonable,
overpriced or “dumping” prices.
The estimate is
often undertaken by obtaining unofficial proposals from a number of
potential suppliers or by having an expert calculation prepared.
2. Types of Procedure
Exemptions from
Open Invitation Mandatory Tendering
The Regulations
include a long list of transactions which are exempt from the general
mandatory tender requirement included in Section 2 of the Law. In addition,
the Regulations include a list of transactions that require that a “closed
tender” be held.
Section 3 of the Regulations, entitled “Exemption from Mandatory
Tender”, includes 30 different categories of contracts regarding
transactions in goods, real estate, performance of work or the acquisition
of services which do not require the holding of an open public tender
and are exempt from the provisions of Section 2 of the Law.
The major exceptions to the general mandatory tender rule which are
included in Section 3 of the Regulations are as follows:
The value of the contract is not greater than NIS 42,000 (so long as
contracts not done by way of tender between the government entity and
the specific supplier do not exceed a total of NIS 84,000 during the
relevant budgetary year);
The contract is required on an urgent basis in order to prevent significant
harm;
Conducting a public open tender may cause harm to the national security
of the state;
The contract is a continuation of an earlier contract, made within three
years thereof, and the aggregate value is not greater than 50 percent
of the earlier contract; or
Where special and unusual circumstances justify not holding an open
invitation tender.
The value of a contract
is defined in the Regulations as being the total amount of payments
made pursuant to a contract (including taxes), exclusive of any options.
Section 5 of the Regulations provides for exemptions from public tenders
for transactions with certain expert professionals for the performance
of work or the acquisition of services.
Section 14 of the Regulations provides for exemptions for foreign transactions
if the said transaction is to be with a resident of a foreign country
and is to be carried out abroad if:
It is a transaction for the acquisition of goods which cannot be acquired
in Israel; or
The contract is entered into by a foreign branch or representative office
of the government entity for its own use.
The Regulations
also include provisions which provide for additional exemptions from
mandatory tenders for certain contracts of specific government entities.
Section 34 provides that a contract of a government company or subsidiary
for the performance of a transaction in goods or real estate, the performance
of work, or the acquisition of services, shall be exempt from tender
if:
The contract may harm the company’s profitability, its ability
to compete, its business opportunities, its ability to carry out a role
with which it was charged by law or its ability to supply an essential
service or commodity to the public;
The value of the contract is not more than NIS 168,000 (NIS 504,000
for government companies with an annual contract volume of more than
NIS 840,000); or
The contract is for the sale of goods or the acquisition of services
with a resident of a foreign state.
Section 39 of the
Regulations provides that a statutory company shall be exempt from the
public tender requirement if holding such a tender may harm its ability
to carry out a role with which it is charged to fulfill under the law
by which it was created or harms its ability to supply essential services
or goods to the public.
In addition, Section 23(b) of the Regulations provides that if an open
public tender is held and no proposals are submitted or if the tender
committee does not recommend any of the submitted proposals, the government
entity may enter into a contract without holding a new public tender
if it is concluded that there would be no benefit to the procuring government
entity in holding another open public tender.
Closed (Restricted Invitation) Tenders
Section 1 of the
Regulations defines a closed tender as a “tender in which invitations
for proposals are submitted to only certain offerors.” Before the
Law and its implementing regulations were in effect it was very common
for government entities to hold closed (restricted invitation) tenders
when contracting with regard to goods and services.
The Regulations provide that in certain instances government entities
are to hold closed or restricted tenders instead of a public tender.
Such instances are listed in Section 4 of the Regulations and include
the following:
The value of the contract is not greater than NIS 336,000;
A contract for goods with special characteristics and uncommon properties;
or
A contract regarding R&D.
Pursuant to Section
16 of the Regulations, when a government entity wishes to enter into
a contract that requires a closed tender, the tender committee shall
approach several suppliers included in its list of potential offerors
which each government entity is required to maintain.
A supplier who wants to be included in the relevant potential supplier
list of a government entity is required to submit an application to
the entity’s tender committee together with all information and
documents required by the committee. The supplier shall be added to
the list if the tender committee decides that the supplier is “fit”
to be included on the list.
If there are less than ten suppliers listed, the tender committee is
required to approach all of them with regard to a closed tender. If
there are more than ten potential suppliers the tender committee must
approach at least five suppliers who are to be chosen, in so far as
possible, on a rotating basis.
Limited Tendering under the GPA
Limited tendering
(closed tenders) is permitted under the GPA so long as it is “not
used with a view to avoiding maximum possible competition or in a manner
which would constitute a means of discrimination among suppliers of
other parties or protection to domestic producers or suppliers.”
Limited tendering is permitted under Article XV of the GPA in the following
circumstances:
There is no response
to an open tender or those submitting proposals do not comply with the
conditions of the open tender;
The products/services can only be supplied by a particular supplier
and no reasonable alternative exists;
The existence of extreme urgency; or
Procurement made under exceptionally advantageous conditions which only
arise in the very short term.
Article VIII of the GPA provides that suppliers from GPA signatory countries
are to be allowed to request inclusion in any qualified supplier lists
at any time.
Classification of Tenders
Pursuant to Section
9 of the Regulations, when a government entity intends to enter into
a contract its tender committee shall classify the contract as to whether
it requires an open tender, a closed tender, a GPA tender or comes under
one of the many exemptions to the general open tender rule included
in Section 2 of the Law. In certain circumstances, such a decision requires
the approval of the relevant exemptions committee, the Accountant-General
or the Director-General of the entity. Section 42 of the Regulations
requires, however, that procuring government entities give preference
to holding open public tenders in so far as this is “justified
and reasonable under the given circumstances” and do everything
possible to prevent a matter from becoming “urgent.”
3. Notices
When a government
entity intends to enter into a contract which requires an open tender,
Section 15 of the Regulations requires that notice of the same be published
in one Hebrew language daily newspaper in Israel, one Arabic language
newspaper in Israel as well as on an internet website. Most government
entity tender notices appear on the Israeli Government Advertising Office’s
tenders website (http://michrazim.lapam.gov.il). Many government entities
have also recently begun putting notice of proposed procurement on their
own individual websites. The tender committee may, at its discretion,
also publish notice of the tender in the foreign press and/or send notice
to at least two foreign potential offerors.
Section 15 requires that the notice of proposed procurement include
the following:
Description of the proposed contract;
The contract period, including any options;
Required preconditions for submitting a proposal;
Where the tender documents and additional information may be received;
and
The place and last date for submission of proposals.
Where applicable
the Preference Regulations as well as the 1995 National Priority Regulations
require that the tender notice state that certain preferences will be
given to Israeli products with respect to the price criteria. In addition,
Section 5(b) of the Preference Regulations requires that if the contract
is valued at more than NIS 2,100,000 the tender notice must state that
a foreign supplier is required to include with its proposal an undertaking
to carry out mandatory commercial cooperation in Israel if its proposal
is chosen.
Entities which are required to waive preference regulations for American
suppliers pursuant to the United States – Israel Free Trade Agreement
also send notices of proposed procurement to the commercial department
of the United States Embassy in Tel Aviv. Many other government entities
also send notices of proposed procurement to the U.S. Embassy in Tel
Aviv.
Many government entities also set up special meetings or “contractor
visits” before the deadline for proposals are to be submitted in
which potential offerors may meet with representatives of the procuring
entity, visit relevant locations and receive additional information
regarding the particular tender. These special meetings are often required
in order to be able to submit a proposal.
Invitation to Participate Regarding Intended Procurement – Article
IX of the GPA
Government entities
conducting tenders covered by the GPA are required to publish an “invitation
to participate regarding intended procurement” in either the Jerusalem
Post or the International Herald Tribune – Ha’aretz (Israel
edition), Israel’s two English language daily newspapers.
Each “invitation” to participate in a GPA tender is required
to include the following information:
Whether the procedure is open, selective or will involve negotiations;
The date for starting delivery or completion of the delivery of goods/services;
The place where tender documents may be received and the price thereof;
Where additional information may be obtained;
Economic and technical requirements; and
Financial guarantees required.
The notice must
also state that the tender is covered by the GPA.
The Tender Documents
As stated above,
the notice of tender provides information as to where the tender documents
may be obtained. Pursuant to Section 17 of the Regulations payment may
be required by the procuring government entity for the tender documents.
Israeli government entities almost always charge potential offerors
for the tender documents and in general the greater the value of the
contract the greater the charge for the tender documents. For large
tenders the tender documents may cost thousands of dollars and such
fees are not refundable. Many entities will permit potential offerors
to review the tender documents before they decide whether they are interested
in purchasing them.
The tender documents are considered an integral part of the tender and
are often incorporated into the contract that is to be signed by the
offerors.
Section 17 of the Regulations also states that the following are to
be included in the tender documents:
The conditions of the tender and the required conditions to participate
therein;
An offeror proposal form;
The text of the contract, terms of payment and the plans and specifications
related to the implication of the contract;
The conditions, amount and period of the required guarantee, if any;
Some or all of the criteria by which the winning proposal will be chosen;
and
Any other necessary information or documents.
Tender Documentation
– Article XII of the GPA
Article XII of the
GPA requires that the tender documents in a GPA tender include all information
that was in the notice of intended procurement as well as:
The language the proposals are to be submitted in;
Economic and technical requirements and financial guarantees;
All necessary information and documents; and
The criteria to be used for awarding the contract, including factors
other than price.
4. Time Limits
The Regulations
do not provide for any time limit with regard to submission of proposals.
Section 18 simply requires that the tender proposals be submitted at
the time and in the place designated in the conditions of the tender.
In practice the time limits for submission of proposals vary among the
government entities and the type of contract.
Time Limits for Tendering and Delivery - Article XI of the GPA
Article XI of the
GPA requires that any prescribed time limit be adequate to allow suppliers
of other contracting parties as well as domestic suppliers to prepare
and submit proposals before the deadline. The general rule prescribed
in this Article of the GPA is that there should be no less than 40 days
between the date of publication of the notice and the date for submitting
proposals.
5. Qualification of Tenders (Preconditions for Participation in the
Tender)
Section 6 of the
Regulations provides that participation in a tender shall be conditional
upon the following:
Possession of necessary licenses or registration required under law
in the area which is the subject of the contract;
Compliance with any relevant Israeli standards; and
Submission of documents required under the Transactions of Public Bodies
(Enforcement of Bookkeeping and Payment of Taxes) Law, 5736-1976 (for
Israeli entities).
If an offeror does
not fulfill all of the preconditions for participation in a tender the
tender committee is required to disqualify the proposal.
The government entity may add other relevant conditions as well as condition
participation in a tender on relevant experience, extent of activity,
annual turnover, personnel requirements and the recommendations of third
parties regarding the offeror.
Procuring government entities usually require that foreign offerors
have the applicable industrial ratings or similar approval and provide
basic incorporation and or other documents related to the company.
Many government entity tender notices simply state that participation
in the tender process is subject to the offeror satisfying all of the
preliminary requirements in Section 6 of the Regulations.
Section 7 of the Preference Regulations requires that a foreign supplier
attach to its proposal a “Foreign Supplier’s Undertaking Form
for Commercial Cooperation” in which the foreign supplier undertakes
to the State of Israel that in the event it wins the tender it will
carry out commercial cooperation at a level of at least 35 percent of
the value of the contract or transaction. This undertaking is a standard
form, the current version of which was published in Reshumot (the official
government gazette) in 1998.[5] Submission of this undertaking, when
required, is not a criteria for awarding a contract but is rather a
pre-condition for a foreign supplier to participate in the tender.
Qualification of Suppliers – Article VIII of the GPA
Article VIII of
the GPA provides that contracting government entities “shall not
discriminate among suppliers of other Parties or between domestic suppliers
and suppliers of other Parties.” Qualification procedures must
be consistent with the following:
Conditions for participation in the tendering procedures must be published
in adequate time to permit interested parties to complete the qualification
procedures, to the extent this is compatible with the efficient operation
of the procurement process; and
Conditions for participation in tendering procedures must be limited
to those which are essential to ensure the offeror’s capability
to fulfill the contract in question.
6. Specifications
Where relevant,
the tender documents include detailed technical specifications required
of the goods or services to be supplied. In this regard, government
entities often require documentation showing compliance with relevant
standards, laboratory reports and other types of authorizations. Technical
specifications often include information regarding technical and design
characteristics, methods of operation, methods of installation, quality
and dimensions.
If a proposal does not fulfill the technical requirements of a tender
(other than minor or insignificant differences) it will be disqualified
by the tender committee.
Technical Specifications – Article VI of the GPA
Article VI of the
GPA requires that technical specifications related to the characteristics
of the products or services to be procured “such as quality, performance,
safety and dimensions, symbols, terminology, packaging, marking and
labeling, or the processes and methods for their production and requirements
relating to conformity assessment procedures prescribed by procuring
entities” may not be required in a GPA tender if the purpose of
such specification is to create “unnecessary obstacles to international
trade.” Technical specifications are to be in terms of performance
rather than design or descriptive characteristics and based on international
standards, if any.
7. Terms and Conditions Required by Contracting Authority
The Israeli Supreme
Court has emphasized the importance of detailing the conditions of the
tender in the tender documents and has held that the decision regarding
the winning proposal may not be based on details, special characteristics
or conditions which were not included in the tender documents (see e.g.,
Interdko, Commercial Company for Industry Ltd. v. the Kiriat Shemona
Municipality, High Court Petition 63/85, 39 (iii) P.D. 324, 328 (1985)).
The conditions of a tender must be clear, unequivocal and reasonable
and must be such that they enable the comparison of the various proposals.
Every offeror in a tender must be able to understand what factors are
to be taken into consideration by the procuring entity when it chooses
the winning proposal. The tender committee will disqualify a proposal
that does not fulfill all of the required conditions listed in the tender
documents.
The contract included among the tender documents is usually a very detailed
document which includes all of the conditions and terms of the tender.
Many government entities use standard contracts for different types
of procurement contracts. Procurement contracts are discussed in greater
detail in Section E herein.
Procuring entities often require certain information regarding the offeror.
Such information may include the following:
Details on the various entities that make up the offeror;
A list of the offeror’s other customers who use the specific product
or service;
Details of the offeror’s activities and business;
The manpower and personnel of the offeror; or
The value/quantity of other projects being carried out by the offeror
at the same time.
Guarantees
Although not specifically
required in the Regulations, procuring entities almost always require
that all offerors submit as part of their proposal one or more bank
guarantees ensuring performance of the contract by the offeror. Offerors
are often required to submit a bank guarantee in an amount equivalent
to a certain percentage of their proposals (usually five or ten percent)
that is to be in force until the beginning of execution of the contract.
Such a guarantee is intended to ensure that the offeror begins carrying
out its obligations if its proposal is selected. In addition, offerors
are often required to issue a performance guarantee in order to ensure
that the offeror completes all of its obligations under the contract
if its proposal is selected. The submission of such guarantees is considered
a fundamental and essential requirement and the Israeli Supreme Court
has held that a proposal that does not comply with the guarantee requirements
of a tender cannot be chosen as its winner (see e.g., Y.S.Y. Sheddy
Construction, Digging and Development Company Ltd. v. Simcha Urieli
and Sons Engineering and Contracting Ltd. et. al, Civil Appeal 1828/93,
TAKDIN-ELYON 95 (2) 1266 (1995)). The tender documents are to include
information regarding the type, conditions, amount and time frame of
any required guarantees.
Price Offered by Offeror - Terms and Conditions
The Regulations
do not relate to the price offered by an offeror in a tender and this
information is usually included in the tender documents and the contract
attached thereto. The tender documents and the contract usually detail
the price and payment requirements.
Such requirements usually include information regarding:
What is to be included in the price component of the proposal (price
for the goods, V.A.T. and other taxes, importation and shipping costs);
Payment schedules; and
Currency of payment.
9. Tender
The notice of proposed
tender described above as well as the tender documents state where and
by when the proposals are to be submitted. The proposals are to include
all documents and information required in the tender documents, as described
above. Pursuant to Sections 18 and 19 of the Regulations a participant
in a tender is to submit its proposal to the relevant tender committee
in a sealed tender envelope to be deposited into the tender box at the
designated location. The various proposals remain in the locked tender
box until it is open in order to review the proposals which were submitted
by the deadline.
10. Processing of Tender
The tender committee
reviews all of the proposals that were deposited into the tender box
before the deadline for submission of proposals had expired. The tender
committee may not consider a proposal submitted later than the deadline
for submission.
Pursuant to Section 20 of the Regulations, as part of its review of
the proposals, the tender committee may contact an offeror and request
that it clarify details included in its proposal. The tender committee
may also correct clerical or arithmetic errors included in a proposal.
Disqualification of Proposals
The tender committee
initially reviews the various proposals and disqualifies all proposals
which do not conform to the basic conditions and requirements of the
tender. Section 20(d) of the Regulations requires that the tender committee
disqualify all proposals that are incomplete, mistaken or are based
on incorrect assumptions or misunderstandings of the tender, unless
the tender committee decides otherwise. The Supreme Court has emphasized
the importance of the requirement that a proposal must conform to the
conditions of the tender as well as the rule that those proposals which
include substantial changes from the conditions of the tender are to
be disqualified (see e.g., Hosem Ma’arachot Hagana Aminot v. the
Israeli Police, High Court Petition 691/82, 37 (i) P.D. 473, 475 (1983)).
Experts
Although not mentioned
in the Regulations, as is the case with the Defense Regulations and
the regulations which apply to local governments, the tender committees
of entities that procure pursuant to the Regulations may make use of
outside experts when examining proposals. This is often done for very
technical matters. The tender committee, however, makes all final decisions
regarding proposals and such authority may not be placed in the hands
of the experts who are only to serve in an advisory role and to make
recommendations to the tender committee.
Negotiations with offerors in a tender
In certain limited
circumstances, if mentioned in the tender documents and notice of tender,
a procuring government entity is entitled to conduct negotiations with
those offerors in a tender whose proposals were found to be the most
suitable.
Pursuant to the provisions of Section 7 of the Regulations, after such
negotiations are carried out the tender committee shall make its final
decision or may allow those offerors with whom it negotiated to submit
final proposals by a certain date.
The Israeli courts have held that negotiations may also be carried out
with the winning offeror after it has been selected by the tender committee
with regard to minor changes to the contract, conditions, etc. so long
as such changes do not effect the essential conditions and terms of
the tender (see e.g., Invest Impect Ltd. v. the Director-General of
the Ministry of Health, High Court Petition 118/83, 38 (i) P.D. 729
(1984)).
Negotiations - Article XIV of the GPA
Article XIV of the
GPA permits negotiations with offerors if notice that negotiations would
be permitted appeared in the tender notice or if no one proposal is
obviously the most advantageous in terms of the specified evaluation
criteria set forth in the notices or tender documentation.
11. Evaluation of Tenders and Award of Contract
Pursuant to Section
21(a) of the Regulations the tender committee is authorized to choose
the most suitable proposal or can elect not to chose any proposal at
all, in order to ensure the greatest benefit to the procuring entity.
Section 21(b) of the Regulations includes the general rule for the selection
of the winning proposal. This section states that the tender committee
shall choose the lowest priced proposal unless the tender committee
decides otherwise due to “special circumstances” after it
has given the offeror who submitted the lowest priced proposal the opportunity
to state its case before it.
Criteria
Section 21(b) also
provides that if the tender documents included various criteria by which
the winning proposal is to be chosen, as is almost always the case,
the tender committee shall select the proposal which provides the most
benefits pursuant to such criteria.
Section 22 of the Regulations provides that the criteria included in
the tender documents according to which the tender committee will choose
the winning proposal shall include all or some of the following:
The price;
The special properties or quality of the goods or services and their
suitability to the purposes of the tender;
The experience, expertise and qualifications of the offeror;
The degree of satisfaction with the offeror’s performance on previous
contracts and recommendations provided by the third parties; or
Any other special requirements.
Many government
tenders state what criteria break down is to be used to determine the
winning proposal (for example: Price 50%, Technical Characteristics
40%, Past experience 10%). The methods of computing such scores is usually,
however, not revealed by the procuring entity. Some government entities
will only list the criteria to be taken into consideration without providing
the relevant percentages.
It should be emphasized, however, that the lowest price submitted in
a public tender is given special importance in Israeli tender law and
greater scrutiny of the decisions of tender committees will be carried
out by the Israeli courts in cases where the lowest submitted proposal
is not selected.
When reviewing proposals, the estimate, if there is one, serves as a
test of the reasonableness of a particular proposal and is also used
to compare different proposals to each other. If all of the proposals
seriously deviate from the estimate the tender committee may decide
not to accept any proposal and this decision will be usually be upheld
by the courts.
Submission, receipt and opening of tenders and awarding of contracts
– Article XIII of the GPA
Section 4(b) of
Article XIII of the GPA states that “Unless in the public interest
an entity decides not to issue the contract, the entity shall make the
award to the tenderer who has been determined to be fully capable of
undertaking the contract and whose tender, whether for domestic products
or services, or products or services of other Parties, is either the
lowest tender or the tender which in terms of the specific evaluation
criteria set forth in the notices or tender documentation is determined
to be the most advantageous.”
Section 4(c) of this Article also provides that “Awards shall be
made in accordance with the criteria and essential requirements specified
in the tender documentation.”
Preferences with regard to the price criteria
As discussed above,
when determining the winning proposal pursuant to the relative criteria
the tender committees of certain government entities are required to
give preferences to Israeli suppliers with regard to the criteria of
price. In general, such preferences will not apply in the following
circumstances:
GPA tenders with regard to offerors from GPA signatory countries;
Tenders of government entities covered by Article 15(3) of the United
States – Israel Free Trade Agreement with regard to offerors from
the United States; or
Tenders which are covered by the Agreement between the European Community
and the State of Israel on Government Procurement or the Agreement between
the European Community and the State of Israel on Procurement by Telecommunications
Operators with regard to offerors from EU countries.
The Preference Regulations
Pursuant to Section
3 of the Preference Regulations, which apply in general to government
ministries and Government Bodies Corporate, if a foreign offeror would
have won a tender for the supply of goods in accordance with the specific
criteria of a tender, the tender committee shall recalculate the criteria
of price for Israeli suppliers who have submitted proposals such that
the proposed price of each Israeli proposal is reduced by 15 percent
(10 percent with regard to government companies and government reference
units).
If after such a recalculation is made a foreign supplier still receives
the highest weighted score pursuant to the criteria of the tender, the
foreign supplier will be designated as having won the tender. If, however,
after the required recalculation has been made, an Israeli offeror of
goods receives a weighted score that is greater than that of the foreign
offeror, the government entity is to propose to the Israeli offeror
that it lower its proposed price to the price at which its proposal
would have a weighted score equal to that of the foreign offeror. Essentially,
a “right of first refusal” is given to the Israeli offeror.
If the Israeli offeror agrees, it is to be chosen as the winner of the
tender at that price. If the Israeli offeror refuses to lower his price
offer, the government entity is to make the same offer to lower the
proposed price to the next two highest ranking Israeli offerors in turn,
if any, on the condition that each of their weighted scores is not lower
than that of the foreign offeror. If no such Israeli offerors agree
to lower their proposed price, the proposal of the foreign offeror is
to be declared the winner.
1995 National Priority Regulations
The 1995 National
Priority Regulations, which apply in general to government ministries
other than the Ministry of Defense, provide in Section 5 that if a supplier
who is neither a foreign supplier nor a supplier from an “A”
national priority area (as defined pursuant to the Encouragement of
Capital Investments Law, 5719-1959) would have won a tender in accordance
with the specific criteria of the tender, the tender committee shall
recalculate the price criteria for those Israeli suppliers from national
priority areas such that the proposed price of all such suppliers is
reduced by 5 or 10 percent (depending on what type of national priority
area they are located in). If a supplier from a national priority area
receives the highest score after such a recalculation the procuring
government entity is to propose to the supplier (up to four suppliers
from national priority area in turn) that it lower its proposed price
as described above in the Preference Regulations sub-section (a right
of first refusal).
Division of Contracts
If notice of the
same was included in the tender documents, Section 21(c) of the Regulations
allows the tender committee to select only part of a specific proposal
or to choose two or more suitable proposals and divide the contract
among them.
In certain circumstances, Section 4 of the Preference Regulations permits
the division of very large tenders for the acquisition of goods such
that 50 percent of the volume of the tender is awarded to a foreign
supplier and 50 percent to a local supplier. Notice of the same must
appear in the tender documents.
Sole Proposal
Section 23 of the
Regulations provides that the tender committee may select a proposal
in a public tender even if it is the only proposal submitted, so long
as the reasons for this are recorded by the tender committee. This may
not be done in a closed tender unless the exemptions committee gives
its approval that the holding of an additional open tender would not
provide any benefit to the procuring entity.
12. Post-Award Notifications
Pursuant to Section
21(d) of the Regulations every offeror in a tender is to be notified
of the final decision of the tender committee. All offerors in a tender
are entitled to review and study the final decision of the tender committee,
including the grounds for such decision as well as the terms of the
winning proposal. The tender committee may, however, determine that
disclosure of certain parts of its decision or terms of the winning
proposal are professional or commercial secrets, or will harm Israel’s
public or national security, foreign relations or economy, and forbid
offerors from reviewing such materials.
13. Cancellation of the Procedure
Pursuant to various
decisions of the Israeli courts, government entities may cancel a tender
in a number of circumstances, including when all of the proposals are
for amounts which are much greater or much lower than the estimate,
when there are no proposals that fulfill the required pre-conditions
for participation or other essential conditions of the tender, or where
there are serious flaws in the tender.
The Israeli courts have, however, emphasized the importance of not canceling
a tender, in so far as this is possible. The Israeli Supreme Court has
ruled that canceling a tender after the tender box has been opened and
then publishing a new tender is not desirable and all steps should be
taken to prevent such actions because this opens the doorway for contracting
with an offeror who was not entitled to win the original tender. This
in turn damages the principle of equal competition (see e.g., “Menorah”
Izi Aharon Ltd. v. The State of Israel – Ministry of Housing, Civil
Appeal 6283/94, 51 (i) P.D. 21 (1995)).
C. Procedure for
Award of Ministry of Defense Contracts
1. Application of Relevant Legislation and Regulations
As stated above,
the Law applies to the Israeli “defense establishment” which
is defined in the Law as including the Ministry of Defense, the Israel
Defense Forces and its dependent units, and the government companies
and subsidiaries for which the Minister of Defense is responsible. The
government companies and subsidiaries for which the Minister of Defense
is responsible (“Defense Companies”) include such important
entities as Israel Aircraft Industries and Israel Military Industries.
There are also certain differences between the application of the Defense
Regulations to the Ministry of Defense (which is defined for purposes
of the Defense Regulations as including the Israel Defense Forces) and
Defense Companies.
As stated, the basic procedural rules pertaining to the defense establishment
are included in the Defense Regulations which are promulgated by the
Minister of Defense after consulting with the Minister of Finance and
receiving the approval of the Constitution, Law and Justice Committee
of the Knesset. The Ministry of Defense also procures pursuant to the
“Ministry of Defense Rules”, which implement the directives
included in the Defense Regulations. Most of the other entities that
procure pursuant to the Defense Regulations also have internal directives
and procedures regarding procurement and tendering.
In addition to the Priority Regulations which apply to the defense establishment,
the 1998 National Priority Regulations apply to certain Ministry of
Defense contracts published after July 15, 1998.
Foreign Military Financing
Section 14 of the
Priority Regulations provides that the Priority Regulations shall not
apply to defense establishment imports which are financed by the support
funds of a foreign country. Such funds refer to procurement by the defense
establishment which is paid for with the military aid or “foreign
military financing” (hereinafter “FMF”) given to the
government of Israel by the United States of America. In recent years
the United States has provided Israel with approximately $1.8 billion
in FMF annually.
International Agreements
The GPA does not
apply to procurement by the defense establishment. In addition, Section
19 of the Defense Regulations provides that the Defense Regulations
shall apply so long as they do not conflict with an obligation of Israel
pursuant to an international treaty or a reciprocity agreement concluded
before the Law went into effect. The MOU is covered by the parameters
of this section.
Tender Committees
The various tender
committees of the Ministry of Defense make decisions with regard to
ordinary tenders. Ministry of Defense tender committees are required
to include among its members a “public representative.” These
public representatives are appointed to sit on the Ministry of Defense
tender committees by the Director-General of the ministry. In general,
the public representatives do not participate in meetings of the various
tender committees regarding transactions which are classified as secret.
The Ministry of Defense also has special tender committees for extraordinary
tenders, discussed below (which do not include public representatives),
and special exemption committees responsible for exempting or recommending
exemptions from certain mandatory tendering requirements.
Defense Companies also have their own tender and exemption committees.
Estimates
The Defense Regulations
require the Ministry of Defense, although not Defense Companies, to
calculate an estimate of the value of the transaction before the date
for submission of proposals has passed. Such estimates are almost always
carried out by Defense Companies as well.
Section 13 of the Defense Regulations require that the estimate be calculated
by one of the following methods:
The price in Israel based on the updated value of previous contracts
entered into by the Ministry;
The price in a foreign country (including costs for insurance and transportation
to Israel);
The market price in Israel;
The maximum price set by a relevant price control law;
The valuation of an assessor; or
A cost calculation.
2. Types of Procedure
Exemptions from
Open Invitation Mandatory Tendering
Unlike the Regulations,
the Defense Regulations do not state that preference is to be given
by the tender committees to holding open tenders. In addition, unlike
the entities that procure pursuant to the Regulations and the regulations
which apply to local governments, most of the procurement conducted
by the defense establishment is done by way of closed tender (or is
exempt from mandatory tendering).
As is the case with Section 3 of the Regulations, Section 3 of the Defense
Regulations includes a comprehensive list of transactions for which
the Ministry of Defense is exempted from holding a mandatory open tender.
Most of these exceptions also apply to Defense Companies.
Transactions which are exempt from mandatory tender include the following:
The value of the transaction is not greater than NIS 16,800 (or not
greater than NIS 42,000 if during the budget year no transaction was
performed without a tender with the supplier on an identical subject);
A transaction with the only supplier of the goods or services in Israel
or with the only entity which has the scientific capability, technology
or infrastructure to supply the goods or services;
A transaction regarding the testing or initial development of an innovative
idea;
A transaction which is the continuation of an earlier transaction (within
three years thereof), on terms no less favorable than the original transaction
and so long as the aggregate of the new transaction is not greater than
the original;
A transaction which is urgently required;
A transaction for the acquisition of vital services or goods (does not
apply to Defense Companies);
A transaction for the performance of auditing, architectural work, legal
work or economic consulting, or the performance of other professional
work that requires special qualifications, expertise, know-how, or special
trust with the provider of such services; or
A transaction, the disclosure of which may cause substantial harm to
Israel’s national security, economy or foreign relations.
Section 3(37) also
includes a very expansive “basket” exemption which provides
that a transaction will be exempt from an open tender when there are
special and unusual circumstances which justify this. Such an exemption
requires the approval of the Minister of Defense.
Section 4 of the Defense Regulations includes very important exemptions
from the mandatory tender requirements for certain transactions with
a resident of a foreign country or transactions that are to be performed
in a foreign country. Such exempted foreign transactions include the
following:
Certain transactions which are carried out with foreign country support
funds, are carried out in a foreign country or when the assisting country
requires that the transaction be carried out with certain specific suppliers
(this refers to FMF). In certain circumstances covered by this exception
it is necessary, however, to request written proposals from at least
three suppliers; or
Transactions for the acquisition of goods or services when there is
no producer of such goods or no provider of such services in Israel.
In certain circumstances covered by this exception it is necessary,
however, to request written proposals from at least three suppliers.
Section 24(b) provides
for similar “foreign transaction” exemptions for Defense Companies.
Section 24(b) does not, however, include an exception for transactions
which are carried out with foreign country support funds.
Section 24(a) of the Defense Regulations also includes a number of other
transactions for which Defense Companies are exempted from holding public
tenders. These include transactions where holding a public tender would
have a negative effect on the company’s business opportunities,
competitiveness, profitability, ability to carry out a task which it
is required to perform under law or its ability to supply the public
with a vital service or commodity.
Pursuant to Section 24(a)(2) of the Defense Regulations, Defense Companies
are exempt from open mandatory tenders in transactions valued at not
more than NIS 168,000 (NIS 504,000 for companies with an annual contract
volume of more than NIS 840,000).
Section 17(k) of the Defense Regulations provides that in an open tender
where no proposals are submitted or where the tender committee has decided
not to accept any of the submitted proposals, the procuring entity may
contract without holding a new open tender.
Closed (Restricted) Tenders
Section 5 lists
various transactions for which the Ministry of Defense shall hold closed
tenders. Pursuant to Section 25 of the Defense Regulations most of these
transactions also apply to Defense Companies. Such transactions include
the following:
A transaction the value of which is not greater than NIS 168,000;
A transaction which has been given a security classification of “restricted”
or higher;
A transaction regarding scientific work or R&D;
A transaction for the performance of professional work which requires
special qualifications, expertise or special know-how; or
The acquisition of goods which require that the Ministry of Defense
invest in infrastructure (does not apply to Defense Companies).
When the Ministry
of Defense holds a closed tender, at least 5 suppliers who are included
on its relevant list of recognized suppliers (discussed below) shall
be asked to submit proposals. The suppliers who are asked to submit
proposals shall be chosen by certain criteria including security classification,
quality assurance, reliability and financial strength. If the relevant
list of suppliers includes less than ten suppliers then all are to be
approached. All suppliers on the relevant list may participate in the
closed tender, even if they were not specifically approached.
When holding closed tenders, Defense Companies (who are not required
to have recognized supplier lists) are required to contact a number
of potential offerors based on their suitability for the implementation
of the transaction.
Many of the closed tenders which are carried out by the defense establishment
are considered “secret” and those participating are required
to maintain certain rules regarding secrecy.
Extraordinary Tenders
Pursuant to Section
7 of the Defense Regulations, extraordinary tenders may be held by the
Ministry of Defense with regard to certain transactions that are classified
as requiring closed tenders. The tender committee for extraordinary
tenders can carry out negotiations with the offerors who pass the initial
thresholds of suitability in a tender. After negotiations, the offerors
with whom such negotiations were held may submit final proposals.
Pursuant to Section 27 of the Defense Regulations, Defense Companies
may also conduct negotiations in certain closed tenders.
3. Notices
Pursuant to Section
11 of the Defense Regulations, notice of all public tenders must be
published in two daily Hebrew language newspapers. The information that
must be included in the tender notice is essentially identical to what
is required pursuant to the Regulations. The Defense Regulations provide
that notice of a proposed tender may also be published abroad “in
other ways.”
Where applicable, the Preference Regulations as well as the 1998 National
Priority Regulations require that the tender notice state that a preference
will be given to Israeli products with respect to the price criteria.
In addition, Section 5(b) of the Preference Regulations requires that
if the contract is valued at more than NIS 2,100,000 the tender notice
is to state that a foreign supplier must submit as part of its proposal
an undertaking to carry out mandatory commercial cooperation if its
proposal is chosen.
Tender Documents
Pursuant to Section
12 of the Defense Regulations, the tender documents in an ordinary open
tender must include the following:
Terms of the tender and pre-conditions to participate therein;
Contract terms (including time table, terms of payment and related specifications);
The text for the offeror’s proposal and the offeror’s undertakings;
Any guarantees required, including information regarding conditions,
amounts, and time period; and
Any other important information and documents that are necessary to
guarantee the fair and orderly conduct of the tender as well as to ensure
receipt of a proposal that will provide the maximum benefit to the contracting
entity.
The tender documents
in an extraordinary tender must also include the criteria for selection
of proposals, including the weight assigned to them.
4. Qualification of Tenders
Recognized Suppliers
and Contractors
Section 9 of the
Defense Regulations permits the Ministry of Defense to make participation
in a tender conditional upon the offeror being a recognized supplier
or contractor. This section does not apply to Defense Companies. Almost
all tenders of the Ministry of Defense require offerors to be so recognized.
Although not covered by the parameters of Section 9 of the Defense Regulations,
most Defense Companies also have their own recognized supplier lists.
Pursuant to Section 10 of the Defense Regulations, the Ministry of Defense
is to keep lists of Israeli suppliers by subject category. A special
committee, which includes a public representative, approves the inclusion
of suppliers on such lists pursuant to criteria determined by the Ministry
of Defense. Different criteria may be used for different supplier lists.
The criteria used for inclusion on such lists include the following:
Maintenance of quality assurance systems;
Security clearance;
Financial strength;
Ability to deliver goods or perform services or work within a defined
monetary framework; and
Reliability in past transactions.
Section 9 of the
Defense Regulations also permits the Ministry of Defense to make participation
in a tender conditional on additional relevant conditions pertaining
to the offeror. Section 26 of the Defense Regulations permits Defense
Companies to do the same. Such conditions include the following:
Experience;
Capability;
Qualifications;
The scope of activity;
Location of business; or
Recommendations of third parties.
5. Processing of Tender
Disqualification of Proposals
Pursuant to Section
17(e) of the Defense Regulations, and unless the committee decides otherwise
and records it reasons for the same, proposals shall be disqualified
in the following circumstances:
The proposal is based on incorrect assumptions;
The proposed price is unreasonable in light of the estimate; or
The proposal includes intentional errors which are intended to mislead
the tender committee.
Subject to Section
17(f) of the Defense Regulations, the tender committee is required to
disqualify proposals that do not comply with what was requested in the
tender documents or where the offeror added a reservation or fundamental
change to the tender conditions.
Pursuant to Section 17 of the Defense Regulations, the tender committee
may also do the following when reviewing the proposals:
Examine the proposals with the assistance of experts;
Correct arithmetic or clerical errors if there is only one possible
correction thereto; or
Clarify with an offeror the particulars of its proposal.
6. Evaluation and Award of Tenders
Selection of Winning
Proposal
After examining
all properly submitted proposals the relevant tender committee must
make its determination pursuant to the relevant criteria discussed below.
The tender committee may decide, however, not to choose any proposal
at all. Section 17(h) of the Defense Regulations provides that “in
general” if the proposals diverge by more than 25 percent from
the estimate the tender committee shall not choose any proposal.
Criteria for selecting the winning proposal
Open Tenders of
the Ministry of Defense
Pursuant to Section
14(c) of the Defense Regulations, in ordinary tenders the criteria for
selecting the winning proposal shall be the price, unless other criteria
are listed in the tender documents, or if the tender committee decides
that there are special reasons which justify otherwise.
Extraordinary Tenders of the Ministry of Defense
Section 7(a)(1)
of the Defense Regulations provides that in extraordinary tenders the
proposals are to be evaluated pursuant to the price, and the professional,
technical or administrative requirements of the transaction and their
relevant weights as described in the tender documents.
Tenders of Government Companies and Subsidiaries for which the Minister
of Defense is Responsible
Pursuant to Sections
28(b) and 29 of the Defense Regulations the tender committees of Defense
Companies are to choose the lowest priced proposal or may select the
winning proposal pursuant to one or more of the following criteria:
Price;
The quality of the goods or services offered, their special properties
and suitability for the procuring government entity;
Qualifications, expertise, experience, and credibility of the offeror;
Recommendations of third parties; or
Other special requirements.
The Preference Regulations
Pursuant to the
Preference Regulations, which are described above, the tender committee
is required to recalculate the price criteria in tenders where a foreign
offeror of goods would have won the tender such that a 15 percent preference
with regard to the price criteria is given to proposals submitted by
Israeli suppliers of goods.
U.S. suppliers who participate in tenders of the Ministry of Defense
pursuant to invitations within the framework of the MOU are considered
Israeli suppliers (and not foreign offerors) for purposes of the Preference
Regulations.
As stated, the Preference Regulations do not apply to imports of the
defense establishment which are paid for through foreign country support
funds (FMF).
1998 National Priority Regulations
Pursuant to the
1998 National Priority Regulations, which apply in general to Ministry
of Defense tenders published after July 15, 1998, if an offeror of goods
or services who is neither a foreign supplier nor a supplier from an
“A” national priority area in Israel would have won a tender,
the tender committee of the Ministry of Defense is required to recalculate
the criteria of price from between five to fifteen percent for Israeli
suppliers from certain national priority areas. The application of the
1998 National Priority Regulations is very similar to that of the 1995
National Priority Regulations described above and the “right of
first refusal” is to be given Israeli suppliers from certain national
priority areas.
U.S. suppliers who participate in tenders of the Ministry of Defense
pursuant to invitations within the framework of the MOU are considered,
for purposes of the 1998 National Priority Regulations, as suppliers
from the center of Israel (an area not designated as a national priority
area). Therefore the preferences provided for in the 1998 National Priority
Regulations will apply even if American suppliers have submitted proposals.
Sole Proposal
Pursuant to Section
17(i) of the Defense Regulations the tender committee may decide to
choose a proposal even if it was the only proposal submitted or it is
the only proposal that remains after the other proposals were disqualified.
Division of Tender
Section 17(j) of
the Defense Regulations provides that in certain circumstances the tender
committee may decide to choose several suitable proposals and divide
the contract between them or contract with regard to only part of the
transaction if notice of this possibility was provided in the tender
documents.
7. Post-Award Notifications
Pursuant to Section
17(m) of the Defense Regulations all participants in a tender are to
be notified of the decision of the tender committee. In ordinary open
tenders all offerors are to be notified of the price of the winning
proposal as well. Within 30 days of such notice all participants in
an ordinary open tender are entitled to inspect the winning proposal
unless the tender committee has decided not to allow inspection of all
or part of the wining proposal due to reasons of state security or professional
or commercial secrecy. There is no such right of inspection in closed
or exceptional tenders.
D. Procedure for
Award of Municipal Contracts
1. Application of Relevant Legislation and Regulations
As noted above,
local governments in Israel do not procure pursuant to the Law and its
implementing regulations but rather pursuant to separate legal regimes
that have been in effect for decades in Israel.
There are three
types of local governments in Israel: municipalities (cities), local
councils, and regional councils (collectively “Local Governments”).
There are approximately 60 municipalities, 140 local councils and 60
regional councils in Israel. Each of the three types of Local Governments
is required to procure pursuant to separate, albeit very similar, sets
of regulations. These regulations are promulgated by the Israeli Minister
of the Interior.
Mandatory Tender
Requirement
Section 197 of the
Municipalities Ordinance [New Version] (the “Municipalities Ordinance”)
provides that “(a) municipality shall not enter into a contract
for the transfer of any real estate or goods, the ordering of goods
or the execution of work, except by way of open tender.” The implementing
regulations with regard to Section 197 are the Municipalities Regulations
(Tenders), 5748-1987 (the “Municipalities Regulations”).
A similar public procurement requirement is included in both the Local
Councils Order (A), 5711-1950 (the “Local Councils Order”)
which applies to local councils and the Local Councils Order (Regional
Councils), 5718-1958 (the “Regional Councils Order”), which
applies to Regional Councils.
Section 192 of the Local Councils Order provides that “(t)he [local]
council shall not enter into a contract for the transfer of real estate
or goods, the ordering of goods or the execution of work except in accordance
with the provisions of the fourth schedule [of the Local Councils Order].”
The parallel section of the Regional Council Order, Section 89, provides
that “(t)he [regional] council shall not undertake to transfer
real estate or goods, to order goods or the execution of work except
in accordance with the provision of the second schedule [of the Regional
Councils Order].” The relevant schedules of the Local Councils
Order and the Regional Councils Order set out the procedures and rules
for tendering.
Unlike Section 2 of the Law, neither the Municipalities Ordinance, the
Local Councils Order nor the Regional Councils Order require mandatory
open tenders for the acquisition of services. In effect, however, Local
Governments issue tenders pursuant to the Local Government Regulations
for the procurement of services as well as goods.
The Municipalities Regulations, the Local Councils Order and the Regional
Councils Order (collectively the “Local Government Regulations”)
are very similar and most of their sections, including section numbers,
are identical to each other.
In addition to the three separate Local Government procurement regimes
mentioned above, local councils and municipalities may also jointly
procure goods and services pursuant to the Local Councils (Joint Public
Tenders) Law, 5732-1972 (the “Joint Tenders Law”) and the
Local Councils (Joint Tenders) Regulations, 5733-1973. The Joint Tenders
Law provides that local councils and municipalities may enter into a
contract for the supply of goods or services or the execution of works
on the basis of a joint public tender. When such tenders are held the
participating entities set up a joint tender committee. Appropriation
for cost of such a tender must be included in the approved budgets of
the participating Local Governments or it must be approved by the Minister
of the Interior. The Joint Tenders Law also provides that the Minister
of the Interior may order that a contract related to sewage systems
be made only by means of joint tender. Tenders issued pursuant to the
Joint Tenders Law are not, however, common in Israel.
Government Procurement Agreement
As stated above,
the GPA applies to certain tenders of the municipalities of Jerusalem,
Tel Aviv and Haifa. The Preference Regulations, which implement mandatory
commercial cooperation rules in Israel, were promulgated pursuant to
the Law and therefore technically do not apply to these three municipalities.
There is, however, no parallel secondary legislation promulgated pursuant
to the Municipalities Ordinance. In practice, the Preference Regulations
are applied by the three municipalities and the ICA with regard to the
mandatory commercial cooperation required in GPA tenders of the three
municipalities.
Agreement Between the European Community and the State of Israel on
Government Procurement
This agreement provides
that in certain tenders the 15 percent local preference rule included
in the Local Government Regulations, discussed below, shall not apply.
Section 2, Article 4 of this agreement provides that “With respect
to the procurements above a threshold of 550,000 SDR [approximately
$800,000] by the municipalities not covered by the …GPA [Jerusalem,
Tel Aviv and Haifa], Israel shall treat products, services and suppliers
of the EC no less favourably than domestic products, services and suppliers.”
Tender Committees
As is the case with
the government entities that procure pursuant to the Law, each Local
Government in Israel has a tender committee. These tender committees
are made up of members of the council of the Local Government entity.
As a result, the selection and make-up of tender committees involves
local politics and coalition considerations.
Unlike government entities that procure pursuant to the Law, the tender
committees of Local Governments do not have the final word regarding
procurement and as described below, only have the power to recommend
a proposal to the mayor or the head of the regional or local council.
Estimates
Section 11 of the
Local Government Regulations requires that the tender committee prepare
a detailed estimate of the value of the relevant contract before the
last date for submission of the proposals.
2. Types of Procedure
Exemptions from
Open Invitation Mandatory Tendering
As is the case with
the Regulations and the Defense Regulations, Section 3 of the Local
Government Regulations includes a long list of exemptions from the general
mandatory tendering rule. The list of exemptions included in the Local
Government Regulations is much more limited than those included in the
Regulations and the Defense Regulations. Other than the exceptions included
in Section 3, Local Governments do not have any discretion regarding
whether or not to issue an open invitation tender and there is no general
“basket” exemption referring to urgent situations (other than
as described below) or “special or unusual circumstances.”
Section 3 exemptions apply to the following transactions:
The value of a contract is less then certain minimum amounts:
NIS 105,000 (for municipalities) -
NIS 51,500 (for local councils) -
NIS 51,500 (for regional councils);
A contract with the only supplier of the goods or work in Israel;
A contract for the performance of scientific work;
A contract for the urgent ordering of goods or the execution of works
in order to save life or property; or
A contract for the performance of professional work that requires special
knowledge and expertise (such as planning, surveying and appraisal work).
Section 3(11) of
both the Local Councils Order and the Regional Councils Order provides
that the Minister of the Interior may exempt a certain contract from
the mandatory tender requirement. This exemption is not, however, included
in the Municipalities Regulations.
In order to prevent the circumvention of the Local Government Regulations
through the minimal amount exception included in Section 3, Section
5 provides that if the Local Government intends to enter into a number
of contracts for essentially the same goods or works, they will be considered
one contract for purposes of the Local Government Regulations.
Pursuant to Section 22(h) of the Local Government Regulations, the mayor
or the head of the local or regional council may contract with a supplier
without the holding of a tender if a majority of the members of the
council has given its approval because holding a new tender would serve
no useful purpose. This may be done if no proposals are submitted in
a particular tender, the tender committee decides not to recommend any
of the submitted proposals or the local council does not authorize the
decision of the mayor or the head of the local or regional council to
contract with an offeror who was not recommended by the tender committee
as described below.
“Small” Tenders
Pursuant to Section
8 of the Local Government Regulations, Local Governments may hold “small”
tenders (similar to closed tenders under the Regulations and the Defense
Regulations) for contracts valued at certain amounts:
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