## Facts

- A private developer invited ten contractors to participate in a closed private tender for infrastructure work in a residential project.
- Tender materials included technical specifications, a quantity survey, plans, special conditions, and a detailed draft contract intended for execution with the winning bidder.
- The contractor submitted the lowest bid among invited tender participants.
- The developer negotiated for a lower “target price” and, after initial refusal, the contractor agreed to perform at that reduced price.
- The parties reached agreement on all material terms, subject only to formal ratification by the developer’s board of directors.
- On the same day, the board refused to approve the deal and instead contracted with a cheaper contractor that had not participated in the tender and did not comply with the tender conditions.
- The contractor sued alleging either (a) breach of a binding contract or (b) liability for bad-faith negotiations under § 12(b) of the Contracts (General Part) Law, 1973, and breach of duties inherent in private-tender procedures.
- The district court dismissed the claim, finding no contract due to the unmet board-approval condition and concluding the private developer had no enforceable tender-based duty akin to public-law equal treatment.
- On appeal, the Supreme Court agreed no final contract was formed but held the developer negotiated in bad faith and remanded for determination of remedies, including potential expectation damages.

## Issues

1. Whether a private entity running a closed tender owes tender participants a duty of good faith in negotiations that includes compliance with the tender framework, such that awarding the contract to a nonparticipant may constitute bad faith.
2. Whether § 12(b) precontractual liability for bad-faith negotiations permits recovery only of reliance damages or may also permit expectation damages (including lost profits) when negotiations were advanced and the contract likely would have been concluded absent bad faith.
3. Whether, given the board-approval condition, a binding final contract existed notwithstanding agreement on material terms.

## Decision

- The Supreme Court held no binding final contract was formed because board ratification was an unfulfilled condition.
- The Court held the developer breached the duty of good faith in negotiations by using the tender process to obtain price concessions and then abandoning the tender framework to contract with a nonparticipant.
- The Court ruled that § 12(b) is not categorically limited to reliance damages; expectation damages may be available in appropriate cases where negotiations were sufficiently advanced and terms sufficiently certain.
- The Court accepted the appeal in part and remanded to the district court to determine the proper measure of damages and whether expectation damages were justified and provable on the facts.

## Legal Principles

- A party must conduct contract negotiations in good faith; breach can create precontractual liability under § 12(b) even when no final contract is formed.
- A closed private tender can create enforceable duties grounded in good faith, including fair conduct consistent with the tender’s stated framework and the legitimate expectations it generates.
- Bad faith may be found where an organizer reaches near-complete agreement with a leading bidder and then, without fair tender-consistent justification, awards the work outside the tender to a nonparticipant.
- Remedies for bad-faith negotiations may include expectation damages when: (a) negotiations reached an advanced stage, (b) the contemplated contract’s material terms were sufficiently definite, (c) non-formation is attributable to bad faith, and (d) the loss (including lost profits) was foreseeable and provable under the applicable remedial standards.
- The existence of a formal approval condition can prevent final contract formation while still permitting liability for bad faith in the negotiation process leading up to the contemplated agreement.

## Conclusion

The court distinguished the absence of a final contract from liability for precontractual misconduct, holding that a private tender organizer may incur § 12(b) liability for bad-faith abandonment of the tender framework and that, in advanced negotiations, damages may extend beyond reliance losses to include provable expectation damages.


Kal Constr. Ltd. v. E.R.M. Raanana for Constr. & Leasing Ltd., CA 6370/00, 56(3) PD 289 (Isr. 2002)