The government loves reverse auctions. When money is scarce and cost is a top consideration, reverse auctions are viewed as a great way to lower prices and feed a buyer’s belief that they are better than William Shatner at driving low prices. Reverse auctions are so popular that when industry leader FedBid was suspended, GSA’s reverse auction business skyrocketed.
There is, in fact, nothing wrong with properly run reverse auctions being one part of the government’s overall acquisition strategy. It’s when that tool is misused that care needs to be taken. Good government acquisition means doing it right, regardless of the specific method used.
While everyone wants the government to be a good manager of public funds, a look behind the reverse auction curtain may find that not all is rosy in this world. Anecdotal evidence we’ve collected over the past several months suggests that whether FedBid, GSA, or some other entity is conducting a reverse auction, corners are being cut. The drive for low prices may sometimes leave government procurement rules, safeguards intended to protect both government and industry, on the cutting room floor.
Companies from multiple industry segments state that reverse auctions can start at a bid price that is below their actual costs. It’s easy to dismiss these claims as bellyaching if they come from one firm. When they come from multiple companies, representing diverse industry segments, all with long track records of successful government business, the yellow caution flag needs to be raised.
No one is really raising such a flag right now for at least two reasons. First, as GSA and FedBid both like to point out, the great majority of reverse auction winners are small businesses. Meeting or beating small business goals is a prime objective for most government buyers. Second, the low prices being obtained offer the promise of the government being able to meet its needs at a fraction of the originally projected cost. Scarce dollars go further and companies with prices that are “too high” are called out.
Those who support best practices in government acquisition, though, need to start asking questions. We can start with, “If bid prices do start at or near the cost points of reliable, vetted firms, from where are the firms that win getting their products?” Any agency or private sector reverse auction organization needs to know that they’re doing business with an authorized re-seller. Without that assurance, there is no guarantee that the winner will have access to the product or be able to deliver it. If the government has to go out and re-procure the same items, what did they save going the reverse auction route the first time?
Another question should be “Are those products compliant with the Buy American or Trade Agreements Act?” If the price for an IT solution, for example, is 50, 60, or 70 percent off GSA or other published pricing, the immediate question should be “Where is that product from?” It’s likely that the product is from China or another non-compliant country. While contractors can get in trouble for providing non-compliant items, the installation of those products into government operation systems creates potential security risks for the agency that brought them.
Closely tied to this is the issue of secure supply chains. Steep discounts can also mean that the product being offered is either re-manufactured or comes from some place other than an appropriate secure supply chain. Government systems can again be at risk and, if something goes wrong with that product, no legitimate contractor will touch it.
Reverse auctions can be a viable way for the government to meet certain procurement needs. If agencies are going to be able to keep it as a tool, however, proper acquisition planning steps must be taken. Vetting companies and ensuring that you’re getting what you thought you were getting are two good places to start.
If agency buyers won’t do this work, the oversight community must step in to ensure that’s what being auctioned aren’t the protections built into the acquisition system that should protect the government and ensure its secure operation.
Larry Allen is president of Allen Federal Business Partners and the former president of the Coalition for Government Procurement. He served as a member of the Multiple Award Schedule Advisory Panel and the “Federal Contracts Report” Board of Advisors. He has also testified before both the U.S. Senate and House of Representatives.