Reverse auctions haven't hit home with most buyers

Reverse auctions haven't hit home with most buyers

70 percent of respondents are unfamiliar with the new practice; some others favor current methods

By Richard W. Walker

GCN Staff

Reverse auctions have been getting some ink lately.

The Navy has conducted one. So has the Army.

But for most feds, reverse auctions are still an obscure buying method, a GCN Reader Survey found. Nearly all federal procurement or purchasing managers contacted in a telephone survey said their agencies hadn't conducted a reverse auction.

Given that reverse auctions, which are conducted online and in real time, are a brand-new approach to government procurement, that response was expected.

But 70 percent of respondents said they didn't know about reverse auctions and how they work. Nearly a quarter of the respondents, 22 percent, said they had heard about reverse auctions and knew how they worked, and 8 percent said they were somewhat familiar with them.

What are reverse auctions? And what's reverse about them?

In a conventional auction, bidders are the prospective buyers of an item or service, pushing prices up as the auctioneer seeks the highest amount.

In a reverse auction, the bidders are vendors competing for a contract through which to sell items or services to a single buyer, and they push prices down as the auctioneer seeks the lowest amount.

For example, prices plunged 25 percent during an online reverse auction staged last May by FreeMarkets Inc. of Pittsburgh for the Naval Supply Systems Command. During the 51-minute auction, bids went from $3.2 million to $2.4 million for more than 700 recovery sequencers used in aircraft ejection seats.

Also in May, the Army Communications-Electronics Command used a reverse auction to buy two IBM ThinkPad notebook PCs. The winning, or lowest, bid was $3,280'50 percent below General Services Administration Schedule contract prices.

Bidders in reverse auctions are prequalified, and agencies aren't required to accept the lowest bid. They can base their final decision on best value.

In the GCN survey, of the 30 percent of respondents who said they were somewhat familiar with reverse auctions, most'a total of 60 percent'said they saw some potential for reverse auctions as a procurement method for their agencies. About 27 percent of them responded with an emphatic yes that reverse auctions were a potential acquisition method.

But 33 percent were more equivocal, seeing reverse auctions only as a possible buying tool.

Why bother?

Of those familiar with reverse auctions, 40 percent said they didn't see much potential for the practice in their agencies. Their current procurement methods work just fine, thank you, they said.

'The [purchasing] mechanisms we have in place are effective,' said a Navy supervisory computer specialist in the Northwest.

A network engineer at NASA saw no need for reverse auctions. 'We have a contract called the Scientific and Engineering Workstation Procurement contract that guarantees the lowest price,' he said.

One product manager at the Defense Department liked the idea of reverse auctions but thought it was too new for her division to try.

'The management culture is not really up-to-date,' the buyer said.


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