The tender process gives the publisher, which is usually an authority or public body, the opportunity to select the offer best for it, while when determining the best offer takes into account various parameters such as: price, quality, seniority and experience of the bidder, etc., and each such parameter has a different weight while weighing the winning bid. In relation to the bidders, the tender might give them an equal opportunity to participate in the business activity, as part of the principle of equality that applies regarding authorities and public bodies.
Occasionally, the participants in the tender encounter a situation in which the tender was canceled, whether at an early stage or at an advanced stage. Cancellation of the tender can be made by two entities: one, by the tender committee, and the other by a judicial court due to a flaw in the tender procedure. In the event that the tender was canceled by the tender committee, must the participants receive the cancellation as an established fact? Or are there cases in which the committee illegally decided to cancel the tender, and the participants have the right to object to this cancellation? In this article we will focus on cancellation of a tender by the tender committee, and considerations that the authority should consider when contemplating to cancel a tender.
The Prerogative of the Authority to Cancel a Tender
In Israel, similarly to many other countries in the world, it is mandatory that the public bodies publish a tender prior to their entering into agreements of various kinds. This obligation is imposed upon them under the Mandatory Tenders Law, 1992 and the regulations enacted accordingly. Thus, in Israel tens of thousands of tenders are held in year through which transactions are made in various amounts estimated at ten billion shekels each year.
In light of the fact that the funds of the authority contracting in the tender are public funds and assuming that the transaction in which the State is contracting, holds a benefit to the general public, the public has a legitimate interest (and even a right) in the existence of judicial review in relation to the criteria by which the authority chooses to contract with one of the bidders in the tender. Among the powers granted to the authority in the tender process, is the authority to cancel the tender in case there is justification for this, and reasons for this are many and varied. For example, when there is an imperfection in the wording of the tender, which could mislead the bidders; in the event that the authority has decided to carry out the work subject of the tender by itself; due to cuts in the budget intended for performing the contract; for the reason that not even one proper bid has been submitted, and more.
Criteria that the Authority is Subject to when Contemplating to Cancel a Tender
During the tender process, and before a binding agreement is entered into between the advertising authority and the bidder, it seems that it can be assumed that the advertiser may cancel the tender at any time and for any reason. However, in practice it is not so, and the cancellation of the tender is not an absolute right of the advertising authority. The law gives the authority the right to cancel a tender for various reasons and at various stages of the tender process, from the date of publication of the tender, after proposals have been submitted and even after opening the proposals. Although the provisions of the law do not determine the scope of discretion that the authority has when contemplating to cancel a tender, but court rulings indicate that a decision regarding the cancellation of a tender is subject to the general legal norms such as good faith and transparency and in accordance with public policy based on appropriate and reasonable considerations.
On one hand it can be said that there are good reasons to leave the authority with the power and discretion to cancel a tender in circumstances that justify it. After all, one of the main interests that guide the authority is the effective use of public funds, and if it would be better to cancel the tender rather than uphold it in these circumstances – the authority has the power to do so. On the other hand, giving too broad discretion may be an opening for the intrusion of extraneous considerations that could reach the level of corruption. For example, the tender committee might utilize its authority in circumstances under which it turned out that the tender winner is not who the committee wished to honor. Moreover, it is within the tender committee’s power to decide to cancel the tender and start over again. But this decision may raise the suspicion that it is aimed to improve the terms of the contract with the authority’s preferred bidder, and that it would harm the reliance interest and expectation of the bidders while some of them abandoned other opportunities as they expected and relied on the current tender.
Court rulings indicate that when reviewing the various considerations of the authority contemplating to cancel a tender, we must examine the underlying reason for cancellation of the tender taking into account the date of cancellation. For instance, if the decision to cancel the tender was made at a relatively early stage of the tender (for example: at the stage of publishing the tender and before proposals were submitted), the reliance interest and expectation of the bidders is less significant and therefore the courts tend to confirm the cancellation of the tender at such an early stage. And conversely, as the stage of the tender is more advanced, the harm caused to the reliance interest and expectations of the bidders are higher and therefore the courts are suspicious and critical regarding the cancellation. In general, the earlier the tender is cancelled, the court tends to be less stringent regarding the cancellation considerations, and as the tender is cancelled at a more advanced stage – the court tends to punctiliously scrutinize the authority’s considerations.
The difficulty in a decision to cancel a tender at the stage after the proposals have been opened is that the content of proposals at this stage is already known to the tender committee members. Thus, cancelling a tender at this stage may be the result of the intention of the tender committee to prevent a certain bidder from being awarded with the contract.
A ruling recently passed in the matter of Yosef Zamir vs. the Municipality of Herzliyadiscussed the issue of cancellation at the stage after the submission of the proposals and the opening of the envelopes.
In the case above, the Herzliya municipality published a tender for carrying out works for disabled access, geometric arrangements, infrastructure, maintenance and development. The municipality’s tender committee decided to cancel the tender at the stage after the proposals had been opened and to issue a new tender in its place. The committee explained that it cancelled the tender for 2 reasons: first, the existence of a defect in the quantities list published by the committee in the tender which affected the assessment of the monetary value of the expected contract; second, as one of the bidders (the petitioner) was a contractor who had worked with the municipality during the last recent years and is familiar with the works undertaken.
The court ruled that the main components of the new tender did not differ from those of the canceled tender and there had not been any material change in circumstances between the dates on which the two tenders had been held – this conclusion of the court paints both the tender procedure and the cancellation in a negative light. As for the second reason presented by the municipality, the court ruled that the fact that the petitioner was a contractor who had previously worked with the municipality was not in itself a reason to impair the equality between the bidders.
The court further held that the cancellation of a tender and its reissuing may improve the efficiency of the contract (especially from the authority’s side), but this shall harm the reliance interest of the bidders. The court further ruled that publishing a new tender placed the bidders who competed in the tender that was canceled, for obvious reasons, at a disadvantage.
A judicial decision regarding the cancellation of the tender’s committee decision of cancelling a tender is not a small matter. Courts usually tend not to interfere in the tender committee’s considerations when it seeks to cancel a tender. However, granting sweeping authority to the authority might become an opening for prohibited preference and corruption and every cancellation of a tender needs to be examined in accordance with the specific circumstances of each case.
The courts determinations derive from performing a balance between the interests of the authority and the public not to oblige the authority to enter into an agreement that it does not want or the public has no need for, for example, in circumstances where none of the proposals submitted deserved to win the tender, and this opposite the reliance interest and expectation of the bidders to enter into an agreement with the authority and the latter’s duty to act reasonably, with transparency and good faith.