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VA halts reverse auctions, citing 'violations' of contract hierarchy

The Veterans Affairs Department ordered its Veterans Health Administration contracting offices to stop using reverse auctions until further notice, according to a recent memo from a senior official. The memo, provided to Federal Computer Week by an unnamed source, comes only months after the VA announced how much money the auctioning had saved the department.

Jan Frye, deputy assistant secretary for acquisition and logistics at the VA, wrote in the March 3 memo that reverse auctioning is disrupting the department’s supply chain and has caused a “ground swell” of complaints from VA suppliers. He also noted there have been at least one protest, potential increased costs, small-business program anomalies, and “violations of our VA contract hierarchy.”

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“We simply did not think through all of the unintended consequences of reverse auctions when we recently made the decision to allow their use,” he wrote.

In a reverse auction, companies are bidding to sell their products to the government and competition for an agency’s bid drives the price down. Competition is at the heart of a reverse auction. The VA has awarded more than $100 million in commodities sales through reverse auctions, and saved $7.1 million, according to FedBid, which hosts the auctions.

Based on the memo, which was sent out Saturday afternoon, Frye wrote he was concerned about over-reliance on FedBid. He has anecdotal evidence that contracting officers are turning the process over to FedBid without the appropriate oversight.

Frye told his officials to examine 25 random FedBid contracting files starting March 5. Once finished, he will release the results from the examinations to senior contracting officials.

Frye directed his order to the VHA because it uses the auctions most often.

According to industry sources, a VA official announced the decision this week at the department’s Supplier Relationship Transformation Conference in Denver.

VA officials did not respond to requests for comment on the memo or reverse auctions.

As it stands, VA officials will review their policies on reverse auctions, looking specifically at how the auctions can support the “corporate doctrine of just-in-time delivery by VA prime vendors,” the memo states.

“While I am not opposed in principle to reverse auctions, it is clear they are causing significant perturbations in the VA supply chain,” Frye wrote.

FedBid said on March 7 that it’s confident the VA will reinstate the reverse auction policy.

“We understand the interruption in contract usage by VA is for temporary review purposes,” said Lu Tupponce, FedBid’s chief administrative office and general counsel.

Tupponce said FedBid has created more opportunities for veteran-owned businesses to sell products to the federal government by leveling the field and promoting fair competition. Small businesses are awarded more than 80 percent of the dollars competed through FedBid’s reverse auctions.

The VA recently wrote about the money it has saved through reverse auctions.

“The Veteran’s Administration praised this service recently on its website touting millions of dollars in savings and how FedBid has expanded the department’s small business goals,” Tupponce said.

In the VA-written report, officials said they have saved $2 million in medical supplies for its hospitals since March 2011.

“In this kind of economic environment, two million dollars is not small change,” said Susan Taylor, deputy chief procurement officer for the Veterans Health Administration’s Office of Procurement and Logistics, in the report.

Further, 64 percent of the awards went to small businesses with veteran-owned small businesses getting half of those wins.

The report also notes that FedBid is free to the government and requires no software to use.

"Frye has unleashed a bit of a firestorm," said a source close to the situation.

The VA is saving money, but VA's long-time suppliers are unhappy. The source said the suppliers are not particularly accustomed to a lot of competition, and reverse auction stiffens competition.

About the Author

Matthew Weigelt is a former FCW senior writer who covered acquisition and procurement.

Reader comments

Fri, Apr 19, 2013

I'm a little surprised at the comments here. I presume that some have some skin in the game, because as an American Taxpayer I think that this article brings to light how much the VA (and probably other government agencies) have been over-paying for various products and services for many years. For full disclosure purposes, I work for www.vendorfeud.com and Fed Bid could be considered a competitor in some arenas. I am not sure how their process works, but I would assume it is not that far off from ours. The Buyer defines what they need, Sellers are invited to fill out the RFx and then the bidding commences. In our pricing model, we don't collect a fee unless a contract is awarded (a fee that the seller is aware of before making their bid), so there is no risk in participating for the Buyer or the sellers. Contracts can also be awarded based on "best value" not necessarily lowest bid. If a particular seller doesn't get the contract or the Buyer makes a bad business decision by selecting the wrong Seller, I don't see that as the fault of the procurement method, but rather the parties participating.

Tue, Mar 12, 2013 Keven Barnes Kuwait

You do not have to be an attorney to file a GAO Level Protest PRE-AWARD against any and all Reverse Auctions - and you should at every possible opportunity until the message is loud and clear to the Agencies, the GAO, Congress and your fellow small businessmen and women. Reverse Auctions are a violation of procurement integrity; contracting officers POC information is not listed; competition doesn't meet the "reasonable " FAR threshhold, and running a final part of DLAs Reverse Auction for 1 hour or less prejudices the bidders who cannot attend. ALL Reverse Auctions should be challenged. Contact me a Latvian Connection LLC and I will help your draft your GAO Level Protest. It is time to flood the GAO with Pre-Award protests.

Fri, Aug 10, 2012

As a contracting officer that has used Fedbid I have absolutely nothing but positive praise for it. Anyone on here that says GSA pricing will get you the lowest price on anything has not used Fedbid. You are lucky if the quotes received from GSA Ebuy come near the initial pricing provided by your requestor just from their simple internet searches. On the flip side with Fedbid I have ALWAYS saved money utilizing it. The additional competition equates to lower prices every single time by using Fedbid. Using GSA has NEVER produced a lower price than a bid I put out on Fedbid from the instances I have compared the two. The only people that could possibly be upset with the use of Fedbid are the GSA vendors missing out on the free ride they have been receiving. Yes, Fedbid does receive a fee if the government ultimately saves money on the procurement but the vendors would never offer prices as low as they do without the reverse auction system setup. Fedbid has every right to make money if it is also providing the service it was intended for which is ultimately to save the government money.

Mon, Apr 30, 2012 SDVO Business Owner

I see the potential value in reverse auctions but not in FedBid. FedBid offers no control over supply chain integrity until after a low-bid is determined at best! Also, FedBid misrepresents a bidder's potential bid as not being the actual low bid unless that bid also covers the FULL FedBid fee and is still at or below the government target price. I've had conversations with many other small businesses and too often FedBid is collecting a fee beyond the margins of the winning bidder without putting any skin in the game. I say thank-you to the VA for stopping the bleeding and hope other agencies learn from their example. A little market research would save the gov't more money, time, and headaches than the use of FedBid or other reverse auctions. Senior leadership needs to start running their organizations with the same fiscal responsabilities and concerns with which they run they personal lives.

Mon, Apr 16, 2012 Small Business

Fedbid is a joke. The reverse auction process flies in the face of the federal procurement system and the contract negotiation process. Many bids don't require the actual pursued product to be on contract (example: a toner company bidding on blankets) and the results usually don't bring the best value to the end user. Many vendors use this as an opportunity to bid prohibited import products.

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