Government Agencies’ Use of Reverse Auctions Reveal Deeper Issues

This post, written by Jonathan Messinger, originally appeared on Public Spend Forum

The big headline out of the Government Accountability Office’s report on federal agencies’ use of reverse auctions has been that—in some cases–agencies have ended up paying more than they could have if they’d gone a different contracting route. While it’s inarguable that’s the case, reading through the report, the story is obviously much more complicated than that. According to the GAO, looking at agencies’ FY2012 reverse auctions, 27% involved only one vendor who may have submitted one or multiple bids, and another 8% had multiple vendors who only submitted one bid each. It’s a fair guess that contractors begin their bidding high, waiting for the competitors to drive down the price, and when no competitive bidding ensues, the high bid becomes the price paid.

[C]ontracts that are awarded using competitive procedures but for which only one offer is received (one-offer awards) have recently become an area of concern. We reported on this issue in 2010, and OFPP has noted that competitions yielding a response of only one offer deprive agencies of the ability to consider alternative solutions in a reasoned and structured manner.

Likewise, because FedBid—who runs the reverse auction process for the majority of the agencies—does not show who is bidding, vendors can at times bid against themselves. And while this may result in lower pricing, it fails to increase competition, and it’s possible that the same prices could have been achieved using a method that doesn’t cost agencies an additional fee, as is the case with reverse auctions.

But while the headlines may tag the agencies for not always getting the best price through reverse auctions, it’s important to note that in 2012, reverse auctions for the Army, Department of Defense, Veteran Affairs and Department of Interior resulted in approximately $98 million in savings. So what’s the problem?

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