Long-time in coming, OFPP reverse auction memo rings hollow

It only took 15 years for the Office of Federal Procurement Policy to issue guidance for agencies on how best to use reverse auctions. And when OFPP finally did...

A nne Rung, OFPP administrator, released a six-page policy memo basically reminding agencies of best practices to keep in mind when using this tool. The only real instruction to agencies is for them to send her office a point of contact by July 10.

“OFPP seeks to work with agencies to identify the essential management data points (e.g., price paid for item, fees paid (if any), number of bidders and level of interactive bidding) and mechanisms for collecting and aggregating information in a manner that leverages technology and avoids the need for manual collection,” Rung wrote in the memo. “For your awareness, as a further step, the Federal Acquisition Regulatory Council will open a case to develop coverage on the use of reverse auctions in the Federal Acquisition Regulation and will address the guidance in this memorandum, as appropriate.”

The rest of the memo doesn’t necessarily address any of the long-held concerns by the Government Accountability Office, lawmakers and vendors.

GAO called on OFPP to release guidance on reverse auctions in December 2013, and lawmakers added some pressure a year later after repeated bid protests found problems with the way agencies were conducting these procurements.

“While I appreciate that after 15 years of promises, OFPP has finally issued guidance on the use of reverse auctions, I wish the administration had actually addressed any of the issues this committee has highlighted in its many hearings on this important issue,” said Rep. Steve Chabot (R-Ohio), chairman of the Small Business Committee in a statement. “As it is, the guidance doesn’t even bother to define reverse auction. It also doesn’t crack down on some of the worst abuses, such as instances where the contracting agency or its agents deliberately mislead small business vendors. As such, I believe the legislation introduced by my colleague Rep. [Richard] Hanna (R-N.Y.), which this committee marked up and which passed the House as part of H.R. 1735, is still necessary.”

The call for guidance from OFPP to help agencies use reverse auctions crossed three administrations.

In 2000, Ken Oscar, acting deputy administrator of OFPP, told Government Executive that his office would issue reverse auction guidance. That same year, the FAR Council also issued a notice in the Federal Register requesting information on reverse auction techniques.

Then in 2007, Congress in the National Defense Authorization bill directed OFPP to address reverse auctions. OFPP put out a data request to buyers and sellers, but never addressed the platform in mandated guidance.

Despite a lack of guidance from OFPP, GAO reported from fiscal years 2008 to 2012, agencies took a liking to the tool, almost tripling the number of reverse auctions — from 7,193 to 19,688 — and awarded about $828 million in 2012 contract awards alone.

That dramatic growth and several bid protest decisions that showed agency missteps when using this platform compelled GAO to call on OFPP again to issue guidance.

But a House staff member said all the memo does is meet GAO’s requirement and is far from helpful.

“There is nothing in the guidance to address GAO’s big issue that contracts were not being properly competed. It tells you to think about how many offerors you got in the past, but it doesn’t say if you are doing one round reverse auctions, that is a sealed bid and not to do reverse auctions,” the staff member said. “No one will lead with their lowest bid, so when you do one round of reverse auction the government has put itself in a disadvantageous position and the government will not get the best bid. But if you do a sealed bid, you will get the best bids. The pricing section of the memo talks about saving money, and I would agree that you can if you use reverse auctions properly. But the memo doesn’t provide any guidance on how to measure or capture savings.”

The memo also rings hollow with some in industry.

Philip Kircher, the government sales manager for Karcher North America, the largest manufacture of cleaning equipment in the world and holder of GSA schedule contacts for 25 years, said the memo doesn’t address many manufacturer’s primary concerns: Reverse auction sites do not allow direct communications with buyers and there is no protest mechanism, especially in light that third-party reverse auction sites can ban companies from submitting bids.

“The biggest problem that we have with reverse auction sites is they expose your price and it allows competitors to see the lowest bid price, which is an absolute violation of the FAR,” Kircher said. “Does it exactly show me company A is bidding $10? No, but if I bid $10 and I’m lagging, I know the bid is less than $10. If I bid $9.50 and I’m winning, I know my competitor is bidding more than that. And it doesn’t tell me if I’m the only one bidding. It just shows you that you are lagging if you haven’t met price point that buyer put in as artificial bid.”

The biggest complaint about reverse auctions is how agencies are using the FedBid platform.

Kircher and others say agencies were giving FedBid too much control and authority over the auctions instead of just providing the platform.

“We should be able to communicate with the buyer, so why do I have to wait for FedBid guys to forward my information to the agency?” Kircher said. “If a bid is due tomorrow and I have questions what are chances for my questions to be answered if I have to depend on FedBid to send them to the agency customer? If I send questions in a normal bid, the buyer is obligated to answer.”

OFPP’s guidance addresses the use of third-party tools — whether FedBid or Compusearch or General Services Administration’s platforms — saying “agencies are encouraged to elicit feedback from auction participants, including experiences with a third party contractor, if one was used to facilitate the competition.”

OFPP also reminds agencies to ensure its contracting staff carries out its “statutory and regulatory responsibilities, irrespective of whether a third party contractor is used to support the effort. This includes making sure that the contract file is documented with market research results, an independent government cost estimate, vendor quotes, brand name justifications (where applicable), a price reasonableness determination, and documentation that the vendor is a responsible source.”

But that is far from definite guidance in using third-party contracts, and that is frustrating to Kircher and others.

Joe Jordan, CEO of FedBid and former OFPP administrator, said the company has heard the concerns over suspending vendors and has stopped that process as of April.

“In the past, FedBid suspended sellers from our online marketplace who were not in compliance with the company’s Commercial Terms of Use Agreement. While we felt this was an appropriate and effective action to take between two commercial entities, in April we stopped doing so in order to comply with the GAO’s recent determination,” he said in an email to Federal News Radio. “We still have many industry-leading mechanisms to detect bad actors and refer them to responsible agency personnel.”

Jordan said the memo highlights the benefits of reverse auctions tools when used appropriately and effectively.

“I also totally agree that reverse auctions are not a one-size-fits all tool, and should never be used as a substitute for any of a contracting officer’s inherently-governmental decision making,” he said. “This guidance lays out a strong framework for contracting officials as they work through their considerations for what procurements are best suited for a reverse auction and how best to use them. The guidance also lays the groundwork for continued data collection that will only strengthen the resources available to contracting officials as they determine their purchasing priorities and strategies.”

This post is part of Jason Miller’s Inside the Reporter’s Notebook feature. Read more from this edition of Jason’s Notebook.

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