Reverse auctioning is an innovative price negotiation technique using secured Internet-based technology. This technique involves posting a requirement on a web site accessible by the public and allowing vendors to post bids publicly. Vendors are able to see the current bids (but not the identity of the bidders) and post new or revised bids that are lower thus increasing the sense of competition. All other aspects of source selection and negotiation remain unchanged.
First Principles
- Reverse Auctions are not applicable to every acquisition.
- They require a clear and concise statement of requirements.
- Traditional documentation processes are still valid.
- Initial price proposals are required.
- Only sources determined to be in the competitive range can participate in the Reverse Auction.
- Offerors must give permission before their price may be disclosed.
- Offerors' identities must be protected.
- Applicability
- Reverse auctioning is an appropriate pricing tool for many competitive procurements.
Legal Issues
There is a discussion on the acquisition reform homepage at: www.arnet.gov regarding legal considerations. The consensus is that to ensure reverse auctions are legally conducted you must follow these key steps.
Key Steps
The solicitation must request initial proposals, provide notification of intent to use the reverse auction process, and provide notification that an offeror's price may be disclosed during discussions with their consent {FAR 15.306(e}.
In order to conduct negotiations, a competitive range must be determined. Price or cost must be evaluated in every acquisition. Therefore, in order to establish the competitive range and engage in discussions via the Reverse Auction, the Contracting Officer must first obtain proposals, including price proposals.
Lessons Learned
- The reverse auction technique may not drastically change or streamline the procurement process.
- It is a highly effective pricing tool.
- Prior to opening the auction, all participating vendors should log on and verify their connection to the system.
- A set period of time for the Reverse Auction should be established based on the number of participants, and the complexity of the acquisition.
- Need flexibility to increase time for receipt of offers if there is an offer at notional closing time. For example, if a bid is received within one minute of the closing time for the auction, the auction period is extended for an additional minute.
Considerations:
Use of reverse auctioning in federal procurement has not been challenged in court/GAO.