Israeli Court Freezes Desalination Tender, Forcing State Scrutiny of Bidders

State tenders panel to revisit issue to determine winner because it had ignored responsibility of firms in water quality scandal at Soreq A plant

President Rivlin visits IDE's Soreq desalination facility, Israel, June 3, 2018
Mark Neyman/GPO

The state has come under fire from a Jerusalem court for the mishandling of its giant international tender to build the Soreq B desalination plant.

The Administrative Affairs Court suspended the tender on Monday and ordered the state tenders committee to reevaluate it before announcing the winner. Judge Arnon Darel canceled the decision of the committee, which failed to disqualify IDE Technologies and the Chinese Hutchinson Company, and said it had to discuss objections raised against their very participation.

IDE and Hutchinson run the Soreq A facility, south of Tel Aviv, but are suspected of misleading the state in falsified reports about the quality of the desalinated water it supplied.

President Rivlin about to drink some water at IDE's Soreq desalination facility, June 3, 2018
Mark Neyman/GPO

In view of the allegations, a state review committee was established, headed by Udi Adiri, the Energy Ministry’s director general. In findings published in August, the committee showed evidence of sophisticated and deliberate fraud. According to the committee report, the public was supplied low-quality water, while the facility saved millions of shekels in expenses.

Despite this finding, the tenders committee did not disqualify IDE and Hutchinson, and then announced that the two were the final candidates in the 2-billion-shekel ($569 million) tender.

Spanish company Acciona, which lost in the tender, petitioned the court in response. Their lawyers claimed that the committee should have disqualified IDE and Hutchinson after discovering the fraud.

The Jerusalem District Attorney, which represents the state tenders committee, warned before the hearing that the financial significance of accepting the petition would be extreme because there were only three bids in the tender. This goes some way to show the significance of Darel’s decision.

“If the respondents’ bids should be disqualified (heaven forbid), and the petitioner’s bid remain as the sole bid in the tender, the matter would necessarily lead to a severe blow to the public interest,” the district attorney said. The district attorney argued that the result would be that the public would have to pay a much higher price for desalinated water “ in light of the enormous monetary gap between the petitioner’s bid and the bids of IDE and Hutchinson, which is estimated to be a gigantic sum, according to conservative estimates.”

Israeli PM Levib Eshkol inspecting a pilot desalination plan, April 30, 1964

In a letter to the court, the district attorney also claimed that the committee discussed the Adiri report’s findings, and that the report unequivocally stated that the behavior of the two companies at the Soreq facility was not brought to the attention of their board and shareholders, and therefore there was no need to disqualify the companies.

These claims didn’t convince Judge Darel, who opened the hearing by stating that he might have to cancel the tender. “There are many decisions here [that] should be referred to the tenders committee,” he said.

Darel added veiled criticism regarding the committee’s handling of the Adiri report. “The tenders committee must decide if it is sufficient to rely solely on the Adiri report to make a decision,” he said. “Perhaps the committee should investigate further the extent of the involvement of the board and shareholders.”

He ripped into the district attorney's representative, saying his hesitation whether to renew discussion of the tender in the committee or to leave the decision up to the court “is a dangerous statement when you tell me ‘don’t intervene because it’s for the tenders committee to consider.’”

After a short break, the district attorney representative returned and accepted the judge’s recommendation that the committee reexamine the tender. The representative then said the committee would set an expedited process to respond to the petition that would be shorter than the standard 45 days.” He added the state accepted the idea of looking into criminal aspects of the affair.