Government Contracts Monitor

Reverse Auctions – The Future of Government Contracting?

December 17, 2013

On December 9, 2013, the U.S. Government Accountability Office released study GAO-14-108 entitled “Reverse Auctions – Guidance Is Needed to Maximize Competition and Achieve Cost Savings.” The study focused on the Departments of the Army, Homeland Security, the Interior, and Veterans Affairs and their use of reverse auctions to acquire predominantly commercial items and services, predominantly information technology products and medical equipment and supplies. Most of the auctions resulted in contracts of $150,000 or less, with a high rate of award to small businesses. The study found that four agencies used the same commercial service provider (FedBid) to conduct their reverse auctions.

The study also found a 175 percent increase in the use of reverse auctions between FY2008 and FY2012. “Of the $828 million in fiscal year 2012 contracting actions that resulted from reverse auctions, $746 million – or 90 percent – were for products. Services, in contrast, constituted about 10 percent. Across the agencies, four categories of services – Lease or Rental of Equipment; IT and Telecom; Medical Services; and Maintenance, Repair and Rebuilding of Equipment – made up nearly 60 percent of the $83 million used to buy services through reverse auctions.”

While noting that the use of reverse auctions is on the rise, the GAO noted several issues with how agencies currently conduct reverse auctions. First, GAO raised concerns over a lack of interactive bidding in more than one third of agency reverse auctions. The lack of competition led to inefficient bidding. Second, GAO noted concerns over how agencies demonstrate cost savings from reverse auctions. In particular, GAO expressed concerns over how agencies set a target price from which they judge the benefits of reverse auctions. Finally, GAO noted that while the FAR permits reverse auctions, the FAR lacks specific guidance and results in an agency by agency approach to reverse auction guidance and procedures.

The takeaway from this GAO study is that the Federal Government is actively looking for ways to increase the use of reverse auctions and to achieve the overall cost savings that reverse auctions are purported to produce. As the anecdotal stories of cost savings spread, more agencies are likely to start using or increase their use of reverse auctions. In other words, reverse auctions are likely to be a large part of the future of government contracting.

Michael J. Schrier is the attorney responsible for the content of this article.