Savings from reverse auctions not being maximized

As the use of reverse auctions continues to rise, the Government Accountability Office says agencies need more clear cut guidance to realize a maximum amount of...

By Ellen Kortesoja
Federal News Radio

Agencies are increasing their use of reverse auctions without enough dependable information on the potential for cost savings.

The Government Accountability Office analyzed the four main agencies using reverse auctions, and pointed to practical flaws in a recent report.

From fiscal year 2008 to 2012, the number of reverse auctions used by the Army, Department of Homeland Security, Interior, and Veterans Affairs almost tripled, according to the report.

As agencies turn more and more to reverse auction contracts believing in their time and money-saving capabilities, GAO cautions officials to make sure gains are being realized. The report found that for more than one-third of the contracts in FY 2012, competitive bidding was not used to drive prices lower in reverse auctions.

“Reverse auctions are a promising, innovative way for agencies to save taxpayer dollars. As with any tool, though, there is a right way and a wrong way to use it.” Sen. Tom Carper (D-Del.), chairman of the Homeland Security and Governmental Affairs Committee said in a statement.

A reverse auction requires sellers to compete against one another, and allows the buyer to compare all proposals with added transparency. Oftentimes the competition results in a lower price. Up until 1997, Federal Acquisition Regulation (FAR) guidelines prohibited bidders from seeing competing bids in contract negotiations. Currently, the FAR doesn’t include anything about reverse auctions specifically.

In fiscal 2012, the four studied agencies reported saving $98 million from reverse auctions. But, GAO questioned that amount. The calculated savings do not account for awards where vendors did not compete to drive prices down. Also, baseline prices for contract awards are variable and determined by a contracting officer. Contracting officers are mandated to use either market research or the government independent cost estimate to determine the selected target price for an auction in a certain value threshold. According to GAO, contracting officers decide many features of each auction that ultimately dictate the level of competition and potential cost savings. About a quarter of reverse auctions were not awarded to vendors with the lowest bid in 2012.

The four agencies examined all used FedBid’s reverse auction services. GAO found that using FedBid to moderate reverse auctions for many small contracts allowed senior contracting officials to spend more time on more complex acquisitions.

GAO said in some cases agencies ended up double paying when using reverse auctions. Almost half of the reverse auctions in FY 2012 resulted in overlapping contracts — causing the agency to pay two fees. One fee for the existing contract and another fee to FedBid for its reverse auction services.

The report also discovered that agency officials and contractors alike have uncertain ideas about where the money goes throughout each step of the reverse auction process and how FedBid is involved.

GAO recommended that the Office of Management and Budget take steps to amend the FAR so that it addresses agencies’ use of reverse auctions. It also urged OMB to issue government-wide guidance to help agencies determine reverse auction best practices.

The Office of Federal Procurement Policy says it requested each individual agency’s reverse auction policy in 2012, and the results are still pending.

Reverse auctions for contracts $150,000 or less made up 95 percent of 2012 acquisitions. The majority of products purchased using reverse auctions tended to be commercial IT products and services, and medical supplies. Goods and services that are easily available and without many specified requirements represent the most prevalent use of reverse auctions, and the bulk of vendors bidding are small businesses.

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