Minnesota tests reverse auctions

The Minnesota Department of Administration has launched a reverse auction pilot in hopes of saving money on purchases of goods.

Minnesota is one of the first states to use reverse auctions, in which vendors compete against each other online in real time for state contracts. The lowest bidder wins the contract, and that saves the state money because companies will lower their usual prices in hopes of winning the deal.

The Materials Management Division of the state's Department of Administration (www.mmd.admin.state.mn.us), the agency responsible for buying goods and services for several agencies, is handling the pilot.

Brenda Willard, MMD's acquisitions manager, said the state legislature was happy to support the program as long as it dealt with goods and did not interfere with existing state contracts for services or construction. "Which was just fine with us," Willard said. "Goods are very cut and dry. This is what you want, this is when you want it. It's much more conducive to reverse auctions."

The inaugural auction on June 21 was for the state Department of Corrections. The department bought 500,000 pounds of aluminum for license plates, saving about $35,000. Minnesota used MaterialNet (www.materialnet.com) to handle the auction. They also plan to use Procuri Inc. (www.procuri.com) to handle at least one other auction, likely involving office paper or road salt.

Willard said MMD officials want to see both vendors handle an auction before deciding by the end of the year on one for a long-term contract.

Florida and Pennsylvania also have reverse auction systems in place.