Reverse Auctions Once Again in Lawmakers' Crosshairs

Lawmakers are marshaling arguments to restrict the contracting tool called a reverse auction, criticizing agency reliance on a practice dominated by a single private firm at a Thursday hearing of the House Small Business subcommittee.

Rep. Richard Hanna, R-N.Y., who has introduced H.R. 1444 to limit reverse auctions, said that allowing contractors to bid electronically with increasingly lower prices to provide goods and services creates “a race to the bottom” that neither assures quality nor helps channel work to small businesses. “When reverse auctions are used properly, they can save taxpayer dollars,” Hanna said. “Unfortunately, some agencies have used reverse auctions in a manner that evades vigorous competition and contractor protections.”

Use of the tool at agencies such as the Veterans Affairs Department is dominated by a single Vienna, Va.-based firm called FedBid, which has become controversial for its lobbying practices. The Office of Federal Procurement Policy has been collecting data on the practice, but has yet to issue guidance, noted the panel’s ranking member, Rep. Nydia Velazquez, D-N.Y.

Dan Gordon, the former administrator of the White House procurement shop now teaching law at The George Washington University, said the best study on the subject—a December 2013 Government Accountability Office report—showed uncertainty as to whether reverse auctions save money or steer work to smaller businesses. “If all you care about is prices, then reverse auctions are for you,” Gordon said.  “But there is also past performance and quality” to consider.

He noted that FedBid conducts more than 99 percent of the auctions announced on the government’s FedBizOpps website, “so it’s pretty darn close to a monopoly” in performing a function that, Gordon added, “is closely associated with inherently governmental functions.”

Because FedBid controls the data -- a conflict of interest, he said -- agencies often don’t know what fees they’re paying. Sometimes it’s nothing because FedBid waives it. “FedBid does an excellent job,” Gordon said. “So good that agencies say, ‘Let’s go for it,’ which means federal officials are abdicating their responsibility.”

Private sector witnesses representing veterans and women’s groups promoting small business opportunities were also skeptical, with Davy Leghorn from the American Legion calling reverse auctions “a short cut used because there aren’t enough contracting officers.”

Hanna’s bill, which he hopes to move out of committee soon, assumes that reverse auctions are “best suited to buying well-defined commodities, but not skilled services with a high degree of variability,” according to a summary. It would ban their use for the procurement of “subjective services like construction and design, as well as products that prevent bodily harm, such as body armor. This would force agencies to use one of the other approved contracting processes, such as a sealed bid procurement or a negotiated procurement when a contract is suitable for award to a small business, or when the procurement is made using a small business program.” The bill would also require more training of contracting officers in the use of reverse auctions.

FedBid, which did not testify, said in a statement to Government Executive that its leaders were disappointed that no one from the company or industry was invited to the hearing.

”FedBid feels strongly that reverse auctions, when used appropriately, do in fact increase access and opportunity for small business contractors, allowing them to compete on a level playing field,” the statement said. “FedBid does not believe that reverse auctions in any way ‘abdicate’ a contracting officer's responsibility; rather, they are a tool that they can use as part of their process, rather than a replacement for that process.”

The firm, which is headed by former Office of Federal Procurement Policy Administrator Joe Jordan, said it supports language from the 2015 Defense authorization bill requiring more training and clarity around the use of reverse auctions.