DOD saves on reverse auctions, plans more

DOD saves on reverse auctions, plans more

By William Jackson

GCN Staff

The Navy saved more than $3.7 million in its first two procurements using online reverse auctions, which have become a popular way of driving down prices on the Internet.

'I was a skeptic when it was first discussed, but I really feel it is an appropriate pricing tool,' said Capt. Kurt R. Huff, a supply officer with the Naval Supply Corps in Philadelphia.

The Navy conducted its first auction in May and two more since then. Two others are planned this month in a pilot with FreeMarkets Inc. of Pittsburgh.

The Defense Energy Support Center held its first reverse auction this month, also with FreeMarkets, knocking an estimated $452,000 off the cost of a month's worth of natural gas from Washington Gas Energy Services for military installations in the Washington area. Twenty bids came in from six suppliers in 30 minutes. The center plans 11 more auctions, five of them for natural gas.

The Army also has conducted several Web auctions. The Air Force is holding its first this month, and the Postal Service also is planning a pilot with FreeMarkets.

Not far away

'You're going to see a flood of these things happening in the near future,' said Lt. Col. Russ Blaine of the Office of the Assistant Air Force Secretary for Acquisition. He spoke this month at a General Services Administration conference in Washington.

Auctions will be one feature of a pilot procurement portal hosted by GSA's Federal Technology Service at www.buyers.gov. The site, which has tailored commercial electronic purchase services for government needs, will go live early next month.

In a reverse auction, a buyer invites prospective sellers to bid. Each bidder can see the other bids in real time and can respond to drive down the bid price. Through FreeMarkets, which has been supporting business-to-business reverse auctions since 1995, the government is taking its first tentative steps toward a buying technique that it only recently decided is legal.

'We have concluded that auctioning is permissible,' Huff said. 'But somebody sometime, somewhere is going to protest this technique.'

It will take time to build up administrative and judicial decisions that define the permissible limits of anonymous, online auctions, speakers at the conference said.

FTS will charge a fee of 2 percent to 9 percent on each sale at www.buyers.gov, depending on its size.

Besides reverse auctions, the GSA Web site will also offer eFast, a buyer aggregation service that will combine individual buys to get volume price discounts [GCN, July 3, Page 6].

MobShop Inc. of San Francisco, which has been doing buying aggregation for consumer sites for years, provides the eFast component of the portal. Participating companies offer products during a preset buying cycle, usually two to five days.'The more orders placed during the cycle, the lower the price.

Another service on the site, the Quick Quotes purchasing system, lets buyers compare products via software from Frictionless Commerce Inc. of Cambridge, Mass. After making a decision, a user completes the purchase using software from CyberSystem Technologies Inc. of Hunt Valley, Md.

Reverse auctions do not eliminate the need for conventional procurement procedures, such as requesting quotes and validating potential bidders, and they do not reduce lead time, Blaine said.

Just when a reverse auction is the best buying method has yet to be determined, Huff said. So far, the Navy has used the technique only when price was the determining factor. Best-value procurement auctions are scheduled for mobile medical imaging services on Aug. 18 and for aircraft carrier equipment on Aug. 23.

'My feeling is, we're going to have a number of auctions to see if they are an appropriate way to do best-value procurements,' Huff said.

The Navy's first auction in May was for recovery sequencers'the electronic brains of ejection seats used in B-1, F-15, F-16 and F-117 aircraft [GCN, June 12, Page 1]. Three previously qualified vendors bid anonymously in an online auction.

The Navy's estimated cost for the procurement was $3.4 million, and the first bid came in at $4 million.

The bidding halted at $2.37 million, a 28 percent savings. Within an hour, the Navy awarded a contract for the sequencers to Hi-Shear Technology Corp. of Torrance, Calif.

A second auction on June 30 saved $2.8 million, or 22 percent over five years, on shipboard berthing equipment.

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