States find reverse auctions limiting for IT buys

States find reverse auctions limiting for IT buys

States are finding reverse auctions less effective for buying IT goods and services than other commodities, a new report concludes.

'Reverse auctions are effective when buying goods that have standard specifications such as office supplies and raw materials,' said Marcus Fedeli, manager of state and local opportunity products for Input, the Reston, Va., research firm that did the study. 'However, when dealing with IT systems and professional services where specifications vary greatly from vendor to vendor, reverse auctions are often not cost-effective or efficient.'

Input's report shows that state spending through online reverse auctions will grow 300 percent during the next three years.

In fiscal 2004, states spent $151 million on reverse auctions. The figure is expected to grow to more than $450 million this year. But only 8 percent to 10 percent of reverse-auction spending in 2004 was for IT goods and services, and that percentage is not expected to increase dramatically in coming years, Input noted.

Government agencies use reverse auctions as a way to cut procurement costs. Through these auctions, sellers bid increasingly lower prices as they compete to become the government's supplier. The bidding process is conducted live on the Internet for a set period of time.

States considered early adopters of reverse auctions include Massachusetts, Minnesota, Pennsylvania, Texas and Wisconsin. Overall, states have learned that they must be selective when deciding what to buy using this process because it might be more costly than a competitive procurement, Fedeli said.

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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