Viewpoint: Reverse Auctions Save Taxpayers Money

Editors note: As lawmakers continue to weigh the merits of federal agencies’ use of reverse auctions, Government Executive asked a leading proponent of the procurement tool to weigh in on the topic.

What if there was a tool to help government agencies purchase quality goods and simple services more efficiently, while also ensuring savings and transparency for taxpayers, and providing more opportunities for small businesses to compete? Well, actually, there is. It’s called a reverse auction.

While reverse auctions often elicit strong opinions from both fans and critics, the real measure of their effectiveness is their actual results. And when you look closely at the results, it’s clear why use of this innovative tool continues to grow across the federal government.

First, there’s the increased savings. One of the underlying tenets of government contracting is the intent to get the best price for the taxpayers. This is where robust competition, core to any auction format, drives results. In fact, the innovation behind today’s reverse auction platforms only amplifies the opportunity for competition.

In fiscal 2014, federal buyers saved more than $158 million on the nearly 31,000 contracts awarded through the largest provider of reverse auctions to federal agencies, FedBid. This is a clear result of robust competition—an average of 10 bids submitted.

Second, the increased transparency a reverse auction platform injects into the contracting process is important. Not only is there more visibility of bidding opportunities, but each auction produces competition and pricing data for the buying agency to use in future decision-making.

Third, reverse auctions provide greater access for America’s small businesses to federal contracting opportunities. This too is a core tenet of federal procurement. And, here again, the results are clear. In 2014, more than 86 percent of contracts awarded through FedBid went to small businesses.

These are clear wins for government and taxpayers, but using reverse auctions appropriately is critical. They are not the right tool for every type of purchase. But, that doesn’t mean they are only good for rock salt or other bulk buys. What is important is for a contracting officer to consider the three C’s:

• Clear Specifications. The more specific a contracting officer can be about a purchase, the better opportunity a seller has to submit bids on exactly what the agency is looking for.
• Compelling Spend. Often, quantity drives the opportunity to achieve some savings and greater competition because it allows sellers a scale from which they can offer competitive pricing.
• Competitive Supply Base. There must be multiple suppliers for what the agency is seeking to buy, which will ensure a competitive bidding process to achieve best price.

Applying the three C’s, we can see that reverse auctions are an effective procurement strategy in a variety of scenarios. For example, reverse auctions do not have to be limited to products or commodity goods. Services such as painting or landscaping are just two examples of work competed on FedBid.

As with just about anything in Washington, the dialogue around the use of reverse auctions is robust. But, what shouldn’t be up for debate is what the results clearly demonstrate: Reverse auctions increase competition, transparency, savings for taxpayers and greater opportunity for small businesses. So let’s invest in training and guidance to empower federal buyers, not restrict them from using a tool that continues to prove highly effective.

Joe Jordan is the CEO of FedBid, Inc. He served as administrator for federal procurement policy from 2011 to 2013 and associate administrator of the U.S. Small Business Administration from 2009 to 2011.

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