Thirty Years After Outsourcing Began, Israeli Government Admits System Is Flawed

Tel Aviv parking garage tragedy encapsulates problems with government tenders: Process is awkward, focused on costs but not quality, and there is little follow-up.

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Rescue workers from the Home Front Command at the site of the collapsed multi-level parking garage under construction in Tel Aviv.
Rescue workers from the Home Front Command at the site of the collapsed multi-level parking garage under construction in Tel Aviv.Credit: Ofer Vaknin

The reasons for the parking garage collapse in Tel Aviv’s Ramat Hahayal neighborhood this week are gradually emerging – and one of them, as it turns out, is the faulty process by which the government conducts tenders for services.

In the case of the parking garage tragedy, which left four people dead and others still missing, the Tel Aviv municipality awarded the tender to build and operate the facility to a subsidiary of Africa Israel Investments. It is not clear why the project was handed over to the private sector when Ahuzot Hof, the municipal transportation and infrastructure development company, was capable of handling it.

But in any case, the terms of the tender were fundamentally flawed: Bidders were not rated by the quality of the construction or services they were supposed to provide – the only criterion was cost.

“I can’t pick the highest-quality bid because they would say the decision was corrupt. You always have to go with the lowest bid,” Dr. Efrat Tolkowsky, a member of the city’s tenders committee, told Haaretz this week.

The garage tender is indicative of the failures of the Israeli government, 30 years after it made a strategic decision to outsource social services. It has failed to structure tenders properly, or to ensure service providers are supervised. After a damning report, the cabinet is due to meet on Sunday to conduct a historic debate on the matter.

Contracted social services, which include home nursing care, services for youth at risk, shelters for battered women, old age homes, adoption and the like, is big business. In a typical year, the state outsources some 276 categories of service to about 13,000 suppliers. The budget is 9.3 billion shekels ($2.5 billion) annually, equal to 40% of all procurements the government makes outside of the Defense Ministry.

The lack of controls or accounting was so severe that until the report spurring next week’s cabinet discussion, no one knew the extent of outsourcing.

The initiative’s genesis goes back to the Trajtenberg committee, which was formed in the wake of the 2011 social-justice protests in order to propose a long list of reforms to improve the quality of government and life in Israel. Among its proposals was improving the quality of outsourced services.

From that minor proposal grew a major undertaking, involving officials from six ministries and resulting in a study titled “Improving the Provision of Social Services Provided Through Outsourcing,” which is now getting the attention of the prime minister and cabinet.

What the report found is a process riddled with inefficiencies. It takes an average of 20 months from when officials begin writing a tender until it is actually published. Nearly a third of all tenders end up being exempt from competitive bidding altogether.

Among the tenders that are competitive, the conditions and process is so complicated that 30% draw fewer than three bids and 7% have just a single bidder. The terms are often written in such a way that new bidders are deterred from even trying.

In 40% of the cases, the ministry awarding the tender doesn’t know whether the bidders already have contracts with it.

In 95% of cases, like the contract for the Tel Aviv parking garage, the quality of services is not a factor. The tenders state what services are to be supplied, but rarely add what results they are supposed to achieve.

Nor does the government ensure it’s getting the services it contracted for. In 60% of all tenders, the report found, fulfillment of terms was examined only once a year.

Officials prepare the tenders in isolation, without talking to people in the sector who will be bidding on it, the report found. That is a reflection of the same concerns that Tolkowsky voiced – that officials will be accused of favoritism or corruption if they are seen as too close to outside suppliers.

But the downside is that the tender terms are often unrealistic, which means the prices paid do not resemble market rates, and often differ between tenders even when both are for the same service, with no mention of quality.

In spite of system’s shortcomings, none of the ministries involved in preparing the report fundamentally opposed the idea of outsourcing. Private providers can usually provide services for less money, and can provide more professional staffing.

Nevertheless, the Prime Minister’s Office insisted that the report wasn’t prepared to in order to cut back services or cut budgets. “The ministries very much wanted it done because they truly believe in improving the quality of government services. The goal isn’t monetary savings but to improve services and get more for the money,” it said.

Officials are planning a two-year effort to reform the process, pending cabinet approval. The next generation of tenders will include goals for the provider, a mechanism for evaluating the services as they are provided, and sanctions for providers who fail to meet them.

Contracts will run for five years, to give providers enough time to settle in to the job and for the government to better evaluate them. Officials will be able to consult with outsiders on tender terms.

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