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Idea to send: |
| Topic | Increase efficiency in state procurement with bulk purchasing or reverse auctions |
| Content | In a reverse auction, buyers set up an auction event to receive bids from suppliers. Buyers establish specifications for supplies or (far less often) services. When the auction opens, suppliers begin entering their price quotes. They bid down the price of fulfilling the requirement until a pre-determined time period ends. A number of state and federal agencies have adopted reverse auctions as part of their procurement strategies.
For example, Pennsylvania was the first state in the country to use reverse auctions in procurement. Contracting with a private online auction firm, the state purchased $30 million in rock salt for roads and saved $2.5 million. The state also purchased aluminum for license plates and coal for heating state buildings.
The Naval Supply Systems Command in Mechanicsburg, Pennsylvania held the first federal reverse auction. Firms competed to sell important components for ejection seats for various aircraft. The bidding period lasted fifty-one minutes. An award immediately followed. The Navy says that it saved $2.375 million.
So what happens in reverse auctions? Agencies often pre-screen their pool of suppliers before allowing them to participate. Because the low bidder is often declared the winner, buyers don't want to get stuck with irresponsible suppliers offering lower quality products. Bids that are too low make buyers nervous.
Auctions are usually run by private firms under contract with the state. Vendors pre-register and, in some cases, undergo training before the bidding begins. Suppliers bid remotely from their offices through an Internet connection and Web browser. Their identities are not revealed to fellow suppliers. Typically the auction firm is paid by the agency, but sometimes the winning vendor pays a fee in the form of a percentage of the winning bid price.
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