Postal Service first to try online reverse auctions

The U.S. Postal Service has put its stamp of approval — at least tentatively — on online auctions.

USPS next month plans to receive bids via the Internet when it picks

suppliers for pre-printed and pre-stamped envelopes, for fuel and for leases

on truck trailers.

The move makes the Postal Service the first federal agency to wade into

the fast-growing realm of business-to-business Internet auctions, where

prices are bid down instead of up.

The Postal Service hopes to shave 10 percent off the cost of envelopes,

$5 million to $7 million a year on fuel and $3 million to $4 million a year

on trailer leases, said USPS spokesman Gerry Kreienkamp.

FreeMarkets Inc., a pioneer in business-to-business online auctions,

will direct traffic through this intersection of e-commerce and "snail mail."

"This is a test to see what kind of savings we can get from these reverse

auctions," Kreienkamp said.

Business-to-business auctions are vastly different from the standard

procurement process in which contracts are awarded on the basis of sealed

bids and bidders have only one chance to submit the winning offer.

Online auctions are "dynamic," meaning companies typically submit several

bids over the course of an hour or two. The live competition tends to drive

the price steadily lower as bidders jockey to win a contract. The auctions

often are referred to as "reverse auctions" because prices go down rather

than up.

In place of the Postal Service publishing the usual requests for quotations

and companies responding with a bid, FreeMarkets will assemble a pool of

bidders and "pre-qualify" participants to ensure that they can meet the

Postal Service's requirements, said David McCormick, FreeMarkets' vice president

for public-sector business.

Competition among bidders typically cuts costs 2 percent to 25 percent

in auctions conducted for businesses and state government agencies, McCormick

said.

Postal Service auctions will be "hosted" in FreeMarkets' Pittsburgh

headquarters, but the companies interested in selling envelopes or leasing

trailers to the Postal Service won't be there. Instead, they will submit

bids via the Internet from computers at their home offices.

Postal Service officials won't be there either. They will be "passive

participants," probably watching the action on computer screens at the Postal

Service headquarters in Washington, D.C.

The Postal Service beat the General Services Administration and the

Defense Department in moving online to buy commodities. GSA has been planning

to test online auctions this spring, but has not set a date. And DOD says

online auctioning "has potential" to save the military money but has no

schedule for starting the service.

The Postal Service probably also set a speed record for decision-making.

McCormick said FreeMarkets had been "in discussions" with the mail service

about conducting online auctions only since January.