My own state of Illinois has banned the use of reverse auctions in the telecom and construction industries because of the good-old-boy supplier system of graft and corruption. Incidentally, if you want to read a hilarious spoof piece from The Onion on how my home state is dealing with its budget deficits, click here. (WARNING: DO NOT READ THIS IN THE OFFICE OR IF YOU ARE EASILY OFFENDED). On a more serious note, at least some governments are leveraging tools to cut procurement fraud. Consider how in India, government has turned to online procurement tools to reduce fraud in the tendering process. However, as you'll read below, there's been pushback from parties who previously benefited at the expense of taxpayers.
According to the above-linked story, "The electronic system for tendering and handling projects ... of the Bruhat Bangalore Mahanagara Palike (BBMP) has not gone down too well with our city councilors." Yet this is "Not surprising, considering the fact that they are no longer 'in touch' with the contractors and stand to lose the 'cuts' from projects tendered by the BBMP." According to the article, all projects above a certain price point, roughly $22,500, must go through the system to ensure "transparency and accountability" and to specifically avoid "interference from councilors or officials during the bidding process."
As anyone who has spent much time in India knows, corruption is even more rampant in government contracting than it is in my home state (and that's a difficult distinction to obtain, mind you). It's also rampant in the private sector, as I once observed first hand when someone I knew was running a country office for a company in India mysteriously built his own home at the time of an office build-out, using the same contractor and even some of the same materials (I wonder who paid for that...). Given this, the fact that regions in India are introducing a rigorous, online-enabled competitive bidding toolset into the sourcing process is just what the spend doctor ordered -- despite the fact that certain parties are bound to have organ rejection from the process as their kick-backs dry up.
While not perfect, reverse auctions have a great place in all forms of government contracting where daylight is likely to prove sanitizing. If you're curious to read about how auctions will potentially drive much needed transparency in Illinois, you can check out our recent post on the subject. In this piece, I argue that my state "should be forced to run reverse auctions for every category of spend over a certain level (e.g., $50K) to shed light on possible former corrupt or collusive contracting practices. For example, if a new bidder is able to show material savings (e.g., 5-10% for commodities, 10-40% for SKUs/services with greater value add), it might very well provide fodder for officials not just to save tax payer money, but to research potential fraud/bias in former contract award decisions. And over time, even if reverse auctions do not become a favored bidding format, state procurement and contracting officials should still be required to use an online bidding process (e.g., sealed bid, multi-round sealed bid, etc.) that creates a documentable audit trail of activity amongst potential suppliers."