Savings abound

For $1.3 million in fees, Pennsylvania reaped $8.5 million in savings in

1999 by using online auctions to make purchases ranging from coal for heating,

aluminum for making license plates and salt for melting ice on roads.

"We're very happy with it," said Gary Ankabrandt, assistant chief counsel

for the Pennsylvania Department of General Services.

The state is the first in the nation to try buying supplies through

online auctions, and the results so far have been eye-opening. Using the

online auction service FreeMarkets Inc., state officials watched in amazement

as bidders repeatedly pared their prices and tried to undersell one another

online.

The state bought a million tons of rock salt for about $30 million — $2.5 million less than expected. Auctioning also cut 10 percent off the

cost of rolls of aluminum for the state's new license plates. And similar

savings were realized on coal used for heating state buildings.

But online auctions have not always worked. An effort to auction a service

contract proved less successful. The state tried to encourage bidding among

companies for contracts to spray roadsides with herbicides to reduce the

cost of controlling weeds and other plants. "But there wasn't much competition,"

Ankabrandt said. With just two bidders, neither of whom were inclined to

bargain, the auction wilted.

Auctions seem to work well for items such as coal and salt that have

"well-defined specifications" and multiple suppliers, Ankabrandt said. But

they are not well suited to other types of purchases. The state considered

auctioning off construction projects, but encountered such strong resistance

from construction companies that it dropped the idea.

Fees keep auctioning from being practical for small purchases, Ankabrandt

said. FreeMarkets charges the state a minimum of $55,000 a month plus a

portion of the bid volume of the savings to conduct auctions, so it has

to be a large contract to be worthwhile.

The state also worries that if too much is bought via auctions, small

companies might get crushed by large ones in the competition for state business.