Reverse Auction

Background:

• Due to the complexities of federal construction projects, the procurement of construction services using the reverse auction method fails to take into account construction’s unique mix of services and systems tailored to individual owner needs and budgets, site requirements and the changing composition of the project team, while products and commodities are manufactured with little or no variability.

AGC Message:

• Oppose Efforts to Use Reverse Auctions to Procure Federal Construction Projects. Congress must pass legislation clarifying that no Federal agency shall utilize reverse auctions as an acquisition tool to procure construction services.
• According to Government Studies, Reverse Auctions Are An Inappropriate Method for Procuring Construction Services.The Army Corps of Engineers conducted a year-long pilot program on the procurement of construction using reverse auctions and found the following: the acquisition of construction services using reverse auction cannot and should not be equated with the acquisition of commodities; there was no evidence of savings using reverse auctions over the sealed bid process; there is no valid method of establishing real savings because government construction projects are too diverse; and reverse auctions are not a protest-free methodology for obtaining firm, fixed-price contracts.
• Reverse Auctions Do Not Guarantee Any Proven Savings Over Competitive Bidding. Software vendors promoting reverse auctions have not proven that reverse auctions will generate savings in the procurement of construction or will provide benefits of “best value” comparable to currently recognized selection procedures for construction contractors. This is supported by the Corps of Engineers pilot program, which found no evidence that reverse auctions provide any significant or marginal edge in savings over the government estimate.
• “Best Value” Selection Methods are Becoming the Norm. Where price is not the sole determinant, owners are increasingly relying on selection criteria such as costs, past performance, qualifications and unique needs. Reverse auctions do not promote this dynamic; they promote an approach in which parties focus only on price. As a result, reverse auctions do not offer owners a good way to evaluate non-price factors.
• Sealed Bidding Ensures Competitors Have Only One Opportunity to Present Their Best Price. Where price is the sole determinant, the sealed bid procurement process ensures integrity by assuring that the successful bidder is the most responsive and responsible competitor with the best price. Reverse auctions ignore this tradition. The pressure and pace of the auction environment removes any assurance bids will be responsive and material to the owner’s needs. They also ignore the protections of sealed bid procurement laws and regulations, and years of precedent that address these critical factors and ensure the integrity of the process.