New Ruling by the Supreme Court on the Standing and Right of Inspection of a Bidder that did not Participate in a Tender

Adv. Roy Kubovsky*, partner in Shibolet & Co., specializes in commercial litigation and distribution laws

On July 22, 2015 a precedential ruling was given by the Supreme Court[1], which asserted for the first time that a potential bidder that chose not to participate in a tender has standing to challenge the tender and to inspect its documents.

The case began with a large-scale tender published by Mey Sheva, the water corporation of the city of Beersheba, for the establishment of a remote water meter reading system for the city and its environs. Although it had bought the tender documents and had intended to participate, the Arad company ultimately decided not to compete, as it deemed the terms and conditions of the tender impossible to comply with, and expected that other competitors would react similarly.

In retrospect, it turned out that bids were submitted and that Afcon had won the tender. In light of Arad’s suspicions that despite being pronounced winner, Afcon had not satisfied the tender conditions, Arad approached Mey Sheva with a request to inspect the tender documents. Arad’s request was denied, with the explanation that as Arad had not competed in the tender, it had no right to inspect the tender documents.

Arad subsequently petitioned the Beersheba District Court. The court clarified that Arad was not neither a party that had competed in the tender, which benefits from extensive inspection rights and an affinity to and an economic interest in the tender, nor an outside party, alien to the proceeding, sometimes called a “distinct public petitioner”, which, in appropriate cases, is also granted standing. Nevertheless, the court determined that as a potential bidder with a direct and significant interest in the tender results, and as it had presented reasonable and legitimate grounds to inspect the documents, Arad had a right to review the bid documents.

Afcon, which was dissatisfied with this decision, filed a petition for leave to appeal it, and thus the matter was brought before the Supreme Court. It is noted that to date, the Supreme Court has twice previously addressed the question of the right of a bidder that did not compete in a tender to attack it and to inspect its documents. In the first case[2] the judges’ opinions were divided, and while Judge Heshin held that in certain circumstances standing will also be granted to a bidder that did not compete, Judge Goldberg held that participation in a tender is an essential pre-condition for the right to standing to be recognized, and that non-participants should have no say. In the second case[3] it was ruled that since the issue was a set of tenders of mutual influence, the right of a bidder that had submitted a bid in one of them to inspect the documents of another tender affecting the tender in which it had participated would be recognized.

In its ruling, the Supreme Court dismissed Afcon’s petition for leave to appeal, confirming the District Court’s decision that the standing of a bidder that did not participate in the bid to attack the tender proceedings must be recognized, on certain grounds, and in this context the bidder must be permitted to inspect the tender documents. This, for example, applies in a case where that same bidder had chosen not to compete due to conditions that such bidder was concerned were not enforced by the party publishing the tender, in a manner that undermined its original decision not to participate.

On the practical level the court asserted that caution must be applied, as recognition of standing is not comprehensive, but the right would be granted after the court was convinced with a sufficient degree of certainty, while reviewing the petitioner’s right, the reasons why the petitioner did not particpate, and the prima facie case it had made that this is genuinely a potential bidder and not a pointless petition. The court added that the outcome might be different had a petition also been filed on the same subject by a bidder that had competed in the tender.

Thus, a new ruling was in fact established, and one that is of great importance with regard to the Tenders Law, although it is noted that this ruling joins the general trend that prevails in public law and in the Tenders Law in particular, to extend standing and the right of inspection.

It is yet too early to assess what impact this new ruling might have on the Tenders Law, and how it will be practically implemented.

Will the expansion of the circle of “gatekeepers” lead to a flood of petitions by parties that did not compete in a tender? Will it affect the manner in which bids are submitted due to the concern that they will be revealed to parties that did not participate in the tender? And how will this affect the entities publishing tenders, which are now likely to be faced with many more requests to review the tender documents? Time will tell.

One way or another, what is certain is that entities that publish tenders will no longer be able to casually dismiss requests to inspect documents on the grounds that those making the request did not participate in the tender. Now, the proper course of action will be to first examine, before replying to the request, whether this is indeed a potential bidder, noting the considerations set forth in the judgment, including the petitioner’s right, the reasons why it did not compete, and the prima facie case it had made (the judgment states that it does not present all of the considerations regarding the subject, and each case must be examined according to its circumstances). It is also certain that now, a competitor that did not bid will know that this does not automatically entail the absence of the right to attack the tender and to inspect its documents, and in the appropriate cases, the courtroom doors will also be open to that competitor.

* Adv. Roy Kubovsky represented Arad in the proceedings before the District Court and the Supreme Court, which are described above.


 

[1] Petition for Leave to Appeal 3888/15 Afcon Control & Automation Ltd. v. Arad Ltd. et al.

[2] Civil Appeal 6926/93 Mispanot Israel v. The Israel Electric Corporation, Judgments 48(3) 749 (1994).

[3] Civil Appeal 334/01 State of Israel v. Abu Shindi, Judgments 57(1) 883 (2003).