Guidelines for Industrial Cooperation in Israel
Israel’s Parliamentary Constitution and Law Committee has approved additional amendments to the Mandatory Industrial Cooperation regulation. The amendments bring into force changes recommended by the Industrial Cooperation Authority (ICA), which implements policy on behalf of the Ministry of Economy.
The new rules impose a mandatory requirement for The State, Government Corporations and Public Agencies (hereinafter referred to as Government Buyers) to ask for Industrial Cooperation when their purchase of foreign goods or services exceeds the threshold amount equivalent to 5 Million USD. It also binds health sector institutions to the mandatory policy. Legislation in that regard is in process, aimed at including Municipal Authorities to comply with this requirement as well. This will affect, for instance, contracts for sewage treatment projects, water treatment, power systems, etc.
The regulations distinguish between defence related purchases and civil purchases. The former, except when acquisitions are made under the FMF program, require a 50 percent Industrial Cooperation undertaking. Civil acquisitions require an undertaking of 20 percent from Foreign Suppliers in countries which are parties to the Government Procurement Agreement (GPA), and 35 percent from all the rest.
Foreign Suppliers may contact the ICA regarding any subject related directly or indirectly to their Industrial Cooperation Undertaking or fulfilment activity. Assistance will be provided to potential and existing obligors in identifying and locating suitable Israeli manufacturers and partners for joint ventures, outsourcing, R&D, and other modes of cooperation and strategic partnerships with Israeli industry.
All ICA support, assistance and services are provided on a complimentary basis. The ICA will:-
· Provide information about Israeli industry.
· Conduct surveys related to Israeli industry.
· Co-ordinate visits by representatives of Israeli industry to foreign companies.
· Co-ordinate visits by representatives of foreign companies to Israel in order to survey local industry.
· Organise conferences between foreign companies and Israeli industry.
Long-term cooperation leading to the competitive production of Israeli products. The goal is to develop new markets for high quality goods and to create a framework for bilateral or multilateral industrial and trade cooperation between the foreign company or its subsidiaries, and Israeli industry.
In addition to direct R&D grants for industry, emphasis is placed upon regional job creation.
· The encouragement of international co-operation in industrial R&D
· The encouragement of technological entrepreneurship
· The development of future technologies by means of increasing the academic-industrial interaction and cooperation.
The Meaning of ‘Industrial Cooperation’:
Industrial cooperation can be carried out by means of local sub-contracting, investment, R&D, technology transfer, work placed in Israel, the purchase of Israeli-made goods, or otherwise as agreed upon with the ICA.
Mandatory Industrial Cooperation is required in all Government Buyers' acquisitions the value of which exceed 5 Million USD, as well as in any follow-on procurement the value of which exceeds 500,000 USD, within five years as of the date of the original contract.
Unless otherwise agreed with the ICA, a minimum of 20 percent local sub-contracting related to the project/product purchased from a foreign company is required for fulfilling the obligor’s Industrial Cooperation Undertaking.
The regulation distinguishes between ‘defence and security’ purchases, and acquisitions for the civil sector.
1. Defence and security purchases require an undertaking of at least 50 percent of the foreign content value.
2. Civil procurements from countries that are signatories to the Government Procurements Agreement (GPA) of the WTO will be subject to a requirement of 20 percent of the foreign content value.
3. Civil purchases from non-GPA countries are subject to Industrial Cooperation amounting 35 percent of foreign content value.
Multipliers will encourage buy-back programs involving industries in the Galilee, and the Negev, areas targeted for employment and regeneration. The incentive will be offered to defence and to civil contractors. Multipliers are to be granted on a case by case basis.
There are no penalty provisions for non-compliance. However, the ICA shall be entitled, after having given the Foreign Supplier the opportunity to voice its claims to the ICA, to determine, with the consent of the Accountant General of the Ministry of Finance and in consultation with the relevant Minister involved in this matter, that a Foreign Supplier that did not comply with its Industrial Cooperation Undertaking pursuant to these regulations, shall not be entitled to engage in supply contracts with any Government Buyer for a period that shall not exceed five years.
Government agencies issuing civil sector tenders that fail to comply with the requirement to ask for industrial cooperation in their tender documents will have their tenders suspended until compliance is reached.
To be negotiated case-by-case but in general an undertaking should be implemented within the validity period of the supply contract. The ICA may extend the fulfilment period if there are complexities involved.
Pre-performance Offset - the Umbrella Industrial Co-operation Agreement (UICA) – and Credit Banking:
An Umbrella Industrial Co-operation Agreement (UICA) is an agreement between the ICA and a Foreign Supplier to any Israeli Government Buyer, which covers Industrial Co-operation Undertakings related to its sales during a defined period of time.
The purpose is to encourage significant pre-performance activity, and the accumulation of credits. Credits may be banked, usually for not less than five years, and may be used to cover obligations incurred by the Foreign Supplier within the validity period of the UICA.
This type of agreement may be advantageous to both parties because:
§ Negotiations regarding Industrial Cooperation Undertakings occur only once. Since all the procurements by the Government of Israel are covered by the UICA, any subsequent negotiation concerning each purchase is unnecessary.
§ The supplier’s surplus industrial cooperation activities in Israel are maintained in its account and will serve to cover obligations resulting from its future sales in Israel.
§ The supplier’s corporate divisions, as well as its subsidiaries, may also (to an agreed extent) take part in the fulfilment of the obligations stemming from the UICA.
§ The agreement is brought to the attention of all potential Israeli Government Buyers.
The bidding Foreign Supplier is required to include, as an integral part of its bid, a signed undertaking to implement an Industrial Cooperation Program with Israeli industry. An Industrial Cooperation Undertaking form is to be submitted to each bidder by the Government Buyer as part of the tender or RFP documents.
The entity issuing the tender, in agreement with the ICA , may to a certain point alter the undertaking form. The undertaking must be signed and executed by the manufacturer of the goods offered and will become an integral part of the proposal.
Government Buyers are obliged by the "Tenders Law Regulations" to obtain the ICA 's approval regarding the Foreign Supplier's Industrial Cooperation Undertaking prior to signing any supply contract exceeding the threshold of 5 Million USD. The ICA will grant its approval after reviewing the undertaking document and ensuring its full compliance with the Regulations.
The responsibility for obtaining a formal Industrial Cooperation Undertaking signed by the Foreign Supplier lies with the relevant Government Buyer's purchasing department. Once the undertaking is signed, the responsibility for communicating with the Foreign Supplier and monitoring its fulfilment will be ICA 's. The ICA will receive the Foreign Supplier's periodical progress reports and keep the relevant departments updated concerning any developments related to the fulfilment of its undertaking.