Reverse Auction - Current State

Current State

Reverse auctions (also becoming known as service auctions) are undergoing a resurgence at present, as evidenced by a number of service auction sites that are doing a significant volume of business both in number of projects and amount of money spent. There are narrow scope sites, such as those specializing in programming, technical writing and other professional, desk-based work or in home improvement and construction work.

In 2004, the White House Office of Federal Procurement Policy (OFPP) issued a memorandum encouraging increased use of commercially available online procurement tools, including reverse auctions. In 2005, both the Government Accountability Office and Court of Federal Claims upheld the legality of Federal agency use of online reverse auctions. In 2008, OFPP issued a government wide memorandum encouraging agencies to improve and increase competitive procurement and included specific examples of competition best practices, including reverse auctions. In 2010, The White House Office of Management and Budget cited “continued implementation of innovative procurement methods, such as the use of web-based electronic reverse auctions” as one of the contracting reforms helping agencies meet acquisition savings goals.

Keys to success as a supplier in reverse auctions are: (a) Thorough preparation – it's essential to know your costs, your suppliers, your requirements, and your market to the greatest extent possible – tiny details can make the difference between winning and losing, and between being profitable or not; (b) Reverse auctions should be largely kept to the supply of commodity products rather than proprietary ones; and (c) Having a strong, competent bidder leading your effort at the time of the auction, with clear guidelines on when to bid and when to fold is essential.