Home Publications The Court held a tender bid to be valid, despite a discrepancy in the bank guarantee attached to it

The Court held a tender bid to be valid, despite a discrepancy in the bank guarantee attached to it

In an unprecedented and unique judgment that was given on September 12, 2021, by the Jerusalem District Court (the honorable Justice Alexander Ron), the court granted an administrative petition that was filed by Target Call Ltd. through our firm’s Litigation Department, against a decision of the Tenders Committee to disqualify its bid in a tender for the construction of infrastructure and the provision of telephone support services for civil servants on issues relating to salary, terms of service and pensions (AP 4036-07-21 Target Call v. Ministry of Finance, Comptroller-General’s Department).

In view of the court’s recommendation in the hearing that was held on the petition, the State gave notice that it went back on the decision to disqualify the petitioner’s bid because of a discrepancy in the bank guarantee that was attached to its bid.

However, the court was not satisfied with this and held in its judgment that when a bank guarantee that is submitted is defective in that it goes beyond the requirements of the tender (‘a more favorable guarantee’), it would appear to be difficult to claim that the principle of equality between the bidders has been undermined.

Background – a defect in a more favorable guarantee that is submitted in a tender

Judgments given in Israel have always adopted a formalistic approach when examining compliance with the requirement of a party holding a tender to deposit a bank guarantee. Case-law has adopted a strict approach called the ‘complete compliance rule’, according to which any deviation from the wording of the guarantee that was requested by the party holding the tender will result in the disqualification of the bid in its entirety. This approach is based on the understanding that the bank guarantee has great financial significance, and as such, it is a material issue in the tender process, and any concession relating to it will give an unfair advantage to a particular bidder and undermine the principle of equality between the bidders, which is a fundamental principle in the law relating to tenders. This approach is intended to incentivize the bidders to comply strictly with the requirements of the guarantee and to obtain appropriate advice, thereby reducing the scope of the legal proceedings.

Case-law has considered whether the ‘complete compliance rule’ should also be applied to a guarantee where the defect in it is favorable to the party holding the tender and detrimental to the bidder that submitted it (a more favorable guarantee). A guarantee is more favorable, for example, when the amount in it is higher than the amount requested in the tender or it is valid for a longer period than requested. In a ruling given by the Supreme Court (APA 2628/11 AFCON Control and Automation Ltd. v. State of Israel, the National Water and Sewage Authority), it held that a defect in a more favorable guarantee should be treated in the same way as a defect in an inadequate guarantee, and in both cases, the bid that was submitted in the tender should be disqualified.

In recent years, the courts have begun to question the correctness of the rule determined by the Supreme Court regarding a more favorable guarantee. Thus, for example, it has been held that if the defect in a more favorable guarantee is the result of poor drafting of the terms of the bank guarantee by the party holding the tender or a lack of clarity in the terms of the tender, this may render the guarantee valid. In another case, it was held that a bid should not be disqualified if there is a negligible discrepancy that occurred in good faith and did not give that bidder an advantage. However, in those judgments, the courts did not address the fundamental question of whether a more favorable guarantee ipso facto gives an advantage to the bidder and undermines the principle of equality between the bidders.

The judgment in the Target Call case

In the tender in which Target Call participated, it was stipulated that the bidders should attach to their bid a bank guarantee linked to the index of December 2020. Target Call submitted a guarantee that was linked to the index of the following month, January 2021. The Consumer Price Index for January 2021 fell by 0.1%, and therefore the guarantee of Target Call was in practice for a higher amount than the one required according to the terms of the tender. This was, therefore, a more favorable guarantee. The Tenders Committee of the Ministry of Finance adhered to the well-established formalistic approach and disqualified Target Call’s bid.

In the judgment, as stated, the court set aside the decision of the Tenders Committee and held that Target Call’s guarantee complied with the terms of the tender. The importance of the judgment is that the court added a fundamental ruling that if there appears to be a defect in the guarantee that benefits the holder of the tender, it is hard to claim that equality between the bidders has been undermined. The judgment plays an important part in limiting the strict rule regarding guarantees in tenders in general, and more favorable guarantees in particular.

* The aforesaid is provided as general information only and should not be relied upon in any specific case without additional legal advice.
* For any question or clarification relating to the aforesaid or in any case where there is a need for specific advice, please do not hesitate to contact the Litigation Department at our firm.