The NY Times Investigates the Federal Use of Reverse Auctions and Finds… Savings!

This post originally appeared on Public Spend Forum

Well, the discussion about the federal government’s use of reverse auctions has likely received more attention in the past few days than ever before. No, it’s not because of some scandal that has emerged regarding manipulation of an auction to favor one bidder over another (never happened!). It’s not because of some report that parts acquired through competitive bidding led to failure of the missile defense system (never happened!). And it’s not because a 15-year-old in Malaysia hacked into a reverse auction acquisition and won a $2 million dollar contract to supply the Pentagon with laptops (never happened!).

Why has this attention been directed at agencies’ use of reverse auctions unlike ever before? The answer is simple. It’s because this past weekend, millions of people in the New York City’s five boroughs and the entire New York Metropolitan area—and indeed, subscribers of The New York Times across the country—found a story on the front page of the Business section titled, “‘Reverse Auctions’ Draw Scrutiny.” The article, written by Danielle Ivory, certainly had a headline that likely made many New York Times readers get a coffee refill, expecting to sit down and read a lengthy exposé involving millions of dollars of fraud, kickbacks, misappropriations, waste or something that might make them take-up their virtual pitchfork to call for some executive’s or some Congressman’s head on a pike in comments and Facebook posts of the article.

However, as one with over a decade’s worth of experience working with, consulting on, and researching the federal government’s use of reverse auctioning, and as the founder and director of the Reverse Auction Research Center, I truly think 99% of those readers came away non-plussed at the scandal-free nature of the “scandal”—and perhaps with a much different message. There was no “smoking gun” or chain of events portraying that anything was really amiss when it comes to the Feds’ use of competitive bidding in Ivory’s piece. In reality, I think most readers thought to themselves that there was no real story there, whatever their familiarity with any aspect of federal contracting might be. In fact, if anything, the message was that reverse auctioning actually works to save the federal government—and by way of association, us taxpayers—a great deal of money. And readers likely came away thinking that the leading company in the government market, FedBid, was very successful at what it does in helping federal agencies save literally hundreds of millions of their tax dollars in the process, even if at the end of reading the article, they still couldn’t answer even a multiple choice question on what exactly a reverse auction is actually!

It appears that the Times’ writer looked at some of the popular negative claims regarding federal agencies’ use of competitive bidding—many coming from the most obvious sources, including sellers suddenly forced to compete for taxpayer dollars—expecting to uncover rampant corruption and a big waste of taxpayer dollars. Ivory went through last December’s GAO report on the role of FedBid in federal reverse auctions. And yes, she voiced some concerns—from the author of the GAO report and representatives of the contracting community—about FedBid’s dominant role as the provider of choice of reverse auction services to federal agencies.

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  1. Nick @ Market Dojo:

    I read something even more alarming in connection with this article.

    It was quoted that 1/3rd of the auctions are single-bidder, which tears out the very fabric of what makes it an auction. To counter this FedBid have created this ‘ghost bid’ feature whereby a buyer’s target price is submitted as a competitive offer against that one supplier. This encourages the supplier to bid against that ‘ghost bid’ as if it were a competitor, hence simulating a real auction. This is known as shill bidding on eBay and is a prosecutable offence.

    In European Procurement Law, this would be entirely illegal. Should a supplier discover this practice, the buying company would be taken to court. Even worse, this would expose (and does expose) the practice of reverse auctions as immoral, illegal and opaque, greatly dimishing the already fagile reputation of what can be a very fair, transparent and effective tool.

    Defending the ‘up to 3%’ commission by saying that a level of service is provided makes no sense either. The required level of input is not always proportional to contract value. Preparation, supplier conditioning, chasing bids etc. will be needed whether the contract is $50k or $50m. Taking a percentage commission is disproportional to the amount of work needed and this model really should be scrutinised by public officials. Afterall, the supplier will account for that commission in their offer, and charge that price year upon year, long after the FedBid fees have been taken, meaning the buyer is categorically not paying the market price for their goods/services.

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