OFPP issues guidance on reverse auctions

The Office of Federal Procurement Policy has issued guidance reminding federal chief acquisition officers that while reverse auctions can get them lower prices for common goods and services, they have to be used carefully.

A six-page June 1 memo to CAOs and senior procurement executives from OFPP Administrator Anne Rung offered up some of the basics on how to best apply the acquisition technique to squeeze as much value as possible out of the process, while avoiding some of the more common difficulties that have arisen with their use.

The memo also starts the ball rolling on developing a "case" in the Federal Acquisition Regulation  to incorporate information on the use of reverse auctions in the formal procurement rules.

Rung also promises to work with agencies to gather management information -- including prices paid for items, fees, number of bidders, levels of interactive bidding and other data -- to help build a digital library on reverse auctions that acquisition officers can refer to. She asked agencies that have used reverse auction tools themselves, or through a third-party auction provider, to provide contact information by July 10 so OFPP can talk with them about their experiences and methodologies.

The guidance follows a December 2014 request from Reps. Jeff Miller (R-Fla.) and Sam Graves (R-Mo.), chairmen of the Veterans’ Affairs and Small Business committees at the time, that OFPP look into opening a FAR case to address reverse auctions. Current House Small Business Committee Chairman, Steve Chabot (R-Ohio) introduced legislation in March aimed at protecting small businesses in reverse auctions by requiring formal training of contracting officers that use them and prohibiting their use for sole-source contracts. Committee spokesmen did not reply to requests for  comment on Rung's guidance.

The use of reverse auctions has jumped dramatically among federal agencies looking to save money, and Government Accountability Office studies have shown that in some instances they weren't used very effectively.

In a February blog post, Joan Kornblith, GSA's Federal Acquisition Service communications manager, said over the past year, her agency's reverse auction platform in the first quarter of 2015 surged 1,000 percent compared with the same period a year earlier. During that time, she said, auction sales bounded from $737,000 to $10.8 million, with the total awarded auctions for small and large businesses equaling $24 million.

Rung's memo advises a number of bedrock practices for CAOs, such as determining whether using reverse auctions are the best fit for a given acquisition, whether the agency using it is reviewing data from prior auctions, and whether small business participation is being addressed.

She also warns CAOs about fees charged by third-party reverse auction providers, advising procurement officers to set up a “fair” fee structure with those providers, whether a percentage of the transaction, a percentage of the savings or a flat fee.