From Birthright to HP, Israel Gave Billions to Private Contractors Without Tenders

Study for TheMarker shows phenomenon growing as state contracts out more and more services to the private sector.

AP

Israel’s government has spent 31.6 billion shekels ($8.1 billion) over the last five years awarding contracts to companies and other organizations without any kind of competitive bidding process, an analysis conducted by the Public Knowledge Workshop for The Marker shows.

More than 3,900 bodies, the biggest by far a company called Sarel that purchases medical equipment and medicines in bulk for the Health Ministry, and including the likes of Taglit and HP were awarded contracts without a tender over the last five years.

Of those hundreds of entities, just 50 of them accounted for 19 billion shekels of the spending, according to Public Knowledge, a nonprofit dedicated to open government popularly known as Hasadna. The data, being publicized here for the first time, were collected by Hasadna volunteers at TheMarker’s request.

The government’s huge and growing reliance on contracts awarded without any competitive process comes as more and more public services are contracted out to the private sector. The phenomenon has been particularly prominent at the health and education ministries, which awarded more uncompetitive contracts than any others (not counting the Defense Ministry, which wasn’t included in the study).

“The main problem with contracts like these is the growing reliance of the state on private sector bodies, which are acquiring knowledge and capabilities that the government is losing,” said Saar Alon-Barkat, who was one of two volunteers heading up the project. “It creates an addiction for services offered at inflated prices at the expense of the taxpayer.”

The Health Ministry awarded 8.2 billion shekels in uncompetitive contracts in the five years surveyed and the Education Ministry awarded 7.7 billion shekels. Half of the 50 biggest suppliers had contracts with the Education Ministry, figures showed.

All ministries and other government bodies are required under the Tenders Law that has been in force for the past 23 years to conduct open and competitive tenders to buy goods and services, preferably in the public eye. However, the law allows officials to make exceptions under special circumstances.

But officials have been playing fast and loose with the rules. Public tenders now occur very rarely and the number of contracts awarded without tender has doubled over the last five years. In 2014, less than 19% of all contracts by ministries were done through competitive tenders, not counting the Defense Ministry for which there are no publicly available data. Last year, 8.6 billion shekels in contracts were given without a tender, according to the Hasadna study.

Sarel was by far the biggest beneficiary of noncompetitive contracts, getting 5.3 billion shekels of business from the government over the five years of the study. That amount was bigger than the entire budget of the Environmental Affairs Ministry since it was founded in 1995, during which it spent no more than 4.5 billion shekels.

Yes

The Finance Ministry also expressed concern that it doesn’t know where and how the money allocated to Sarel is being spent. A draft report on the government’s relations with Sarel, said: “The government today has no effective supervisory or control mechanism over Sarel’s operations.”

Sarel in a non-profit formed in 1994 by Israel’s hospitals after the government spun off responsibility for buying drugs and medical equipment from the Health Ministry. It was exempted from the Tenders Law on condition that its profits would be handed over to the hospitals. However, when Finance Ministry Accountant General Michal Abadi-Boiangiu sought to investigate the government’s contractual relations with the organization, in 2014, Sarel refused to provide data or what price it pays for medicine it buys.

HP, the U.S. high-tech giant, has the largest number of contracts with the government exempt from tenders of any private sector entity, according to the Hasadna data. Sixteen ministries signed 81 contracts with the company over the five years for a combined value of 735 million shekels.

The Health Ministry was the biggest of HP’s customers, awarding it 267 million shekels, mainly connected with an information technology project for Israel’s hospitals under a long-term agreement that ends in 2020.

HP became a major government contractor by accident. The original contract was awarded in 1995 to Digital Equipment Corporation, which was acquired by Compaq three years later. In turn, HP bought Compaq 15 years ago and inherited the contracts, which have since grown and developed – without any competitive bidding.

Among universities and colleges, Ariel University – which is located in the West Bank settlement of Ariel and only achieved university status four years ago – was the biggest beneficiary of uncompetitive contracts from the government. Over the last five years, it was awarded 131 million shekels in 45 contracts, most of them from the Education Ministry.

Most of the contracts predate the starting point of the survey and are extensions of noncompetitive contracts that date from 2010, when Gideon Saar was education minister and promoted Ariel’s upgrading from a college to a university over the objections of the educational establishment.

The Techion Israel Institute of Technology was the second-biggest recipient, getting 101 million shekels in noncompetitive contracts over the five years, mainly from the Housing and Construction Ministry for engineering research. It was also awarded a contract by the Prime Minster's Office to set up the National Cyber Center.

Taglit, which runs trips to Israel for young Diaspora Jews, received 942 million shekels in five years from the government without a tender. The program is a favorite of Prime Minster Benjamin Netanyahu and the American billionaire Sheldon Adelson, who is a major contributor.

Participants of a Taglit-Birthright trip.
Taglit-Birthright