Going, Going, Gone

Pennsylvania's Department of General Services has inked a deal with Internet auctioning company FreeMarkets OnLine Inc. to test popular online auctions in the world of government purchasing.

During the three-month trial, Pennsylvania will conduct three or four live cyberauctions to buy commodities such as coal, office furniture and aluminum to make license plates. The state expects to spend about $20 million over the Internet during the trial, and officials expect to save 10 percent to 30 percent.

Unlike eBay Inc. and other World Wide Web companies that specialize in consumer trading, FreeMarkets is a business-to-business electronic-commerce company looking to bring Internet buying and selling to the government market.

"A lot of people have compared this agreement to eBay auctions, but it's really a lot different," said Lauren Cotter Brobson, a spokeswoman for the state's Department of Community and Economic Development, which is promoting the agreement as part of an e-commerce strategy that Gov. Tom Ridge soon will put forward. "FreeMarkets has software that is specific to this type of auction, where bidders are pre-approved. It is much more of a closed environment than the general audience you see on the Internet."

Pennsylvania's auctions will be similar in structure to FreeMarkets' deals with large companies now trading over the Internet, such as Bristol-Myers Squibb Co., Frigidaire Home Products and Zenith. To pull off an auction, which lasts a few hours on an appointed day, FreeMarkets does a lot of scrambling behind the scenes.

"The first thing we do is work with the buyer to see what they need and in what quantity," said Glenn Meakem, FreeMarkets' chief executive officer and co-founder. "We call this 'industrial market-making.' "

To "make a market," the Pittsburgh-based company helps state purchasers develop a request for quotations that matches the identified products and the online auctioning process. The company then takes the agency's list of traditional suppliers and notifies that pool of selected vendors about the auction.

"This is not just a technology challenge, although we have very innovative software that works really well, but it is useless unless we make the market," Meakem said.

During the auction, FreeMarkets gives buyers and bidders access to its BidWare software to submit bids across the company's secure network.

The 125-employee company also ensures that modems and Internet service provider connections are working properly.

The state's auctions will open and close in a matter of hours-another departure from eBay's system and other auctions that span several days but see a spike of interest and activity within the last several hours or even minutes.

Pennsylvania's effort is the first government experiment in cyberauctions, Meakem said, although the company is working on similar opportunities at the U.S. Defense Department. In Pennsylvania, the biggest challenge for FreeMarkets has been the myriad of procurement regulations surrounding government buying. Before the agreement with Pennsylvania was secured, FreeMarkets worked extensively with state lawyers.

"Pennsylvania's legal department has been very involved in helping us get the appropriate waivers we need to hold the auctions," Meakem said. "Our process is completely new, and it doesn't always adhere to the old way of doing things. But what we are doing espouses and pushes the spirit of fair competition. I believe it in fact promotes a more open and fair market. And what we have found in the last 18 months is a willingness to accept the spirit of the law in these new methods."

Several other state governments have indicated an interest to hold online auctions that could be used to purchase computers and other equipment, Meakem added.