Spend Matters welcomes another guest post from David C. Wyld, the C.E. Laborde Professor of Management at Southeastern Louisiana University and founder of the Reverse Auction Research Center.
Earlier today I posed two questions. Is the reverse auction platform for events or is it a marketplace? And can vendors trust a self-managed system?
To address the second question, one of the primary values a market-maker brings to competitive bidding is the ability, as an independent third party, to create a safe environment for parties to conduct business. In that role, the market-maker can deliver impartiality to the process that is simply not there if the buying organization is running the reverse auction platform.
A primary lesson learned from the first wave of reverse auction marketplaces back in the dot.com era is that industry consortium and single company-run markets do not work in the long term because vendors come to see them as exploitative and working only for the gain of the buyer. These failed models have contributed significant fodder to those currently criticizing reverse auctions as being bad for suppliers. Yet, it is no different with a government-run marketplace today, as there is no neutral party in the GSA model to encourage mutually beneficial buyer-seller matches.
Steve Kelman, who is a Professor of Public Management at Harvard and previously served five years as the Administrator of the Office of Federal Procurement Policy, recently expressed his concern that GSA could use the new reverse auction site as a way of monopolizing the reverse auction market, both for government agencies and for vendors seeking to do business with the federal government. In doing so, GSA could actually decrease competition in government contracts for affected goods and services, primarily in the information technology area—meaning prices paid for such items could rise as a negative consequence for agencies and for taxpayers.
To summarize, regardless of the existence of private reverse auction firms successfully delivering significant savings to federal agencies, GSA has decided to develop and operate its own reverse auction platform. It relies heavily on the buyer to solicit, engage, and manage vendors and administer the entire range of reverse auction support requirements, including providing spot training, quality assurance, and issue response. Combined with GSA’s strategic choice to exclude the independent market-maker function, GSA Reverse Auctions provides users with a tool most suited for high-dollar and complex requirements.
The next article in this series will specifically address the question, “What is the true cost of ‘free’ reverse auctions from GSA?” Although touted as ‘no cost’, there are real and significant costs to the taxpayer for building and operating a private sector business model.