Federal buyers will turn to reverse auctions more often in 2015, in their quest to stretch budgets and increase competition. There are now three different federal reverse auction services, run by: The Defense Logistics Agency (DLA), GSA Reverse Auction, and commercial provider FedBid. But these five facts could make you re-think your strategy.
- Over a third of all FedBid's 2013 reverse auctions involved just one bidder. That’s not quite as good as a sole source award, but awfully close.
- Low price doesn’t always win! An estimated 24% of FedBid’s 2013 federal contracts were not awarded to the lowest bidder.
- Reverse auction is mandatory at DLA for awards over $150,000, and resulted in about $25B in contract awards in 2012.
- Most awards are relatively small. 95% of FedBid’s total $2 billion in 2013 contract awards were worth less than $150,000 each.
- GSA’s Reverse Auction is limited to vendors who hold a current GSA Multiple Award Schedules (MAS) or Blanket Purchase Agreement (BPA).
Reverse auctions have definite pro’s and con’s.
The Government Accountability Office had a great deal more to say about 2013's federal reverse auctions, and recommended greater oversight and other changes, in its recent report.
For vendors, this can be a fast way to play, and could involve less cutthroat competition than you expect, especially if your target agency doesn't usually do business this way. Once you register on the site, bidding itself takes a lot less time than writing a proposal. The trick is not to get so enthralled with the game that your winning bid doesn’t cover your costs…or your profit.
Should you ever bid a job at break-even, just to win the opportunity to gain past performance? Tricky question. How would you justify raising your price for the same work on the next job?
The biggest drawback to reverse auctions isn’t the race to the bottom dollar. It’s this: when you submit bid after bid this way, the only feedback you’re getting is on price. You’re not building the relationships with the people who buy. You never give them the chance to find out about your company’s unique value proposition, and consider why they might want to do business with you directly instead of using reverse auction next time.
Reverse auction might be a great place to start. But when is it your strategic sweet spot?