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Bidders who win tenders for infrastructure contracts and fail to meet the terms of the tender will forfeit the tender, according to new directives compiled by the treasury's accountant general, Yaron Zelekha, together with deputy director-general Zvika Halamish.

The new directives are aimed at countering the efforts by contractors to revise the terms of tenders they have been awarded and to receive assistance from the state. Examples of this phenomenon have occurred in the areas of transportation, desalination and natural gas, when the contractors have run into difficulty in raising funds for the projects according to the original tender conditions.

As part of the new regulations, the contractor that comes in second in the bidding will remain in the picture until the tender winner completes arranging for the requisite project financing. If the first choice fails in this mission, the second-place finisher will get a chance to take up the project.

The new policy was already implemented in the tender recently issued for paving a road from Nes Tziona to Modi'in (Road 431). The road will be built according to the PFI (Private Finance Initiative) method in which the contracting company finances the project itself and operates it for a period of 15-30 years. During this period, the contractor receives payment from the government. The project is valued at NIS 1.2 billion.

The Finance Ministry notes that it aims to make tender conditions more flexible during the competition process, while imposing stricter criteria after the tender is awarded.

Upcoming tenders that will be managed according to this new policy include: a light rail project in Tel Aviv assessed at NIS 10 billion and a fast lane at the entrance to Tel Aviv from the south, estimated to cost NIS 360 million.

The fast-lane project will be conducted according to the BOT (Build, Operate, Transfer) method. Like the PFI system, this method obliges the contracting company to arrange for its own financing and to ultimately hand the project over to the authority that commissioned it. However, during the period when the contractor operates the project, it will collect fees (tolls) from the users.

Heavy going for J'lem light rail

The light rail project in Jerusalem is one of the examples where many revisions were made to the original NIS 1.9 billion tender after it was awarded to the City Pass company in November 2002. According to the tender, City Pass was to have completed raising the required funds by the end of August 2003. The company did not manage to get the finances organized by this date and asked for an extension until December 2003. The terms of the tender were ultimately sweetened for City Pass to help it raise funds. For example, a government grant of NIS 1.7 billion will be provided during the course of the project's construction, and not at its conclusion as originally stipulated.

Despite the extension and easier terms, City Pass still failed to meet the December 2003 financing deadline. It requested and received an additional extension until the end of February 2004. When this date came and went, it received another extension to June.

Meanwhile, advisers hired by Bank Hapoalim and Bank Leumi found that the tender had included a projection of usage (and resultant revenues) for the light rail that were too high. As a result, the banks argued that the profitability of the project is now in doubt. A team of officials from the treasury and the Transportation Ministry is now working to come up with solutions that will satisfy the banks and enable the project to receive more financing.

Since no second-place finisher is still in the picture, the government may decide to execute the project itself if City Pass ultimately fails to put together a sufficient financial package. In any case, the delay in raising funds has put the project behind schedule by at least a year.