Small business advocate raises reverse auction concerns

A  federal office that advocates for small contractors has warned the Office of Federal Procurement Policy that agencies are not complying with small-business rules when using reverse auctions to make purchases.

Winslow Sargeant, chief counsel in the Office of Advocacy in the Small Business Administration, asked OFPP officials in a letter dated Jan. 21 to issue a clear policy statement to the acquisition community, saying contracts awarded through reverse auctions must follow the Federal Acquisition Regulation’s rules on the simplified acquisition threshold.

The simplified acquisition threshold is between $3,000 and $150,000, and any purchase between those two amounts is reserved exclusively for small companies.

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He raises other concerns as well. Sargeant said his office hears from small companies that agencies handle reverse auction procedures differently. It's confusing for companies, according to his letter.

Sargeant also wants OFPP to issue another statement that tells agencies reverse auctions are best when used to buy commodities, not for service contracts.

In reverse auctioning, companies compete for contracts by lowering their prices against other firms. As Sargeant notes in his letter, the auctions are suited for buying common products, such as copy paper. The approach only works when the terms of the contract are clearly defined and there is little—or no—room for flexibility.

The Office of Management and Budget has received Sargeant's letter and plans to work on the issues it raises with SBA and other agencies, Moira Mack, OMB's spokeswoman, said on Jan. 24. She said the administration will work to continue to increase small business participation in federal contracting, and to ensure that agencies use the most efficient and effective acquisition tools.

Dan Gordon, former OFPP administrator, was an advocate for reverse auctions when used appropriately. And since the mid-2000s, OFPP has urged agencies in memos to use the auction approach as a means to save money and make procurements simpler.

"We think the proper use of reverse auctions can certainly contribute to both of these goals, and a number of agencies have reported to OFPP that small businesses have competed effectively and won many reverse auctions in recent years," Mack said.

Sargeant’s letter to OFPP stems from a protest filed Oct. 26 with the Government Accountability Office, raising an alarm about an Army contract award. The case is currently open and a decision is due Feb. 3.

According to a letter from SBA to GAO in support of the protesting small business, Mission and Installation Contracting Command in Fort Carson, Colo., used a reverse auction for a contract worth roughly $32,000. FitNet Purchasing Alliance, the protester, said the command should have set aside the contract solely for small contractors.

“We believe this case raises concerns that some federal agencies using reverse auctions may not be complying with the simplified acquisition threshold requirements,” Sargeant wrote in his letter to OFPP.