Small business advocate raises reverse auction concerns

A  federal office that advocates for small contractors has warned the Office of Federal Procurement Policy that agencies are not complying with small-business rules when using reverse auctions to make purchases.

Winslow Sargeant, chief counsel in the Office of Advocacy in the Small Business Administration, asked OFPP officials in a letter dated Jan. 21 to issue a clear policy statement to the acquisition community, saying contracts awarded through reverse auctions must follow the Federal Acquisition Regulation’s rules on the simplified acquisition threshold.

The simplified acquisition threshold is between $3,000 and $150,000, and any purchase between those two amounts is reserved exclusively for small companies.


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He raises other concerns as well. Sargeant said his office hears from small companies that agencies handle reverse auction procedures differently. It's confusing for companies, according to his letter.

Sargeant also wants OFPP to issue another statement that tells agencies reverse auctions are best when used to buy commodities, not for service contracts.

In reverse auctioning, companies compete for contracts by lowering their prices against other firms. As Sargeant notes in his letter, the auctions are suited for buying common products, such as copy paper. The approach only works when the terms of the contract are clearly defined and there is little—or no—room for flexibility.

The Office of Management and Budget has received Sargeant's letter and plans to work on the issues it raises with SBA and other agencies, Moira Mack, OMB's spokeswoman, said on Jan. 24. She said the administration will work to continue to increase small business participation in federal contracting, and to ensure that agencies use the most efficient and effective acquisition tools.

Dan Gordon, former OFPP administrator, was an advocate for reverse auctions when used appropriately. And since the mid-2000s, OFPP has urged agencies in memos to use the auction approach as a means to save money and make procurements simpler.

"We think the proper use of reverse auctions can certainly contribute to both of these goals, and a number of agencies have reported to OFPP that small businesses have competed effectively and won many reverse auctions in recent years," Mack said.

Sargeant’s letter to OFPP stems from a protest filed Oct. 26 with the Government Accountability Office, raising an alarm about an Army contract award. The case is currently open and a decision is due Feb. 3.

According to a letter from SBA to GAO in support of the protesting small business, Mission and Installation Contracting Command in Fort Carson, Colo., used a reverse auction for a contract worth roughly $32,000. FitNet Purchasing Alliance, the protester, said the command should have set aside the contract solely for small contractors.

“We believe this case raises concerns that some federal agencies using reverse auctions may not be complying with the simplified acquisition threshold requirements,” Sargeant wrote in his letter to OFPP.

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Reader comments

Wed, Jan 25, 2012 Market Dojo e-sourcing software Bristol, UK

We are a small business that happens to offer reverse auction software. However we would also be very happy about being invited to bid in a reverse auction. There are a few reasons for this: 1) The buying organisation has invested their time and money in the reverse auction process therefore they are committed to buy. This is not always the case in a traditional tender when the buyer may not have put much time into the process. 2) The reverse auction typically lasts 30 minutes or so, which makes it an efficient use of your time. During that 30 minutes the power is at your fingertips to win the negotiation. Again, that instant feedback is very rarely provided during a traditional tender. 3) Finally, you have an indication of what the market is pricing their goods or services at so you can benchmark yourself with the competition. If you are successful, you know you are a market-leading vendor. If you are being outbid, then maybe you should look into ways of becoming more competitive or differentiating yourself by other means. In a final note, limiting the use of e-auctions to commodity items like copy paper is very short-sighted. Yes auctions should only be considered wherhe the specifications are robust and very clear but that can be the case for so many things, including construction work, professional services, manufacturing, logistics etc. The next time you take a flight overseas, pause to consider that I personally have e-auctioned components that go into the landing gear of such commercial airlines - and very successful it was too!

Tue, Jan 24, 2012 Luther Tupponce

So what does this issue have to do with reverse auctions? Absolutely nothing. Reverse auctions are simply another acquisition technique that focuses on improving savings to taxpayers by streamlining and improving the competitive process. As with any other technique, including offline techniques, agency buyers are required to follow applicable procurement laws, regulations and policies. The basis for SBA's issue is simple: FAR 8.404(a) states that FAR 19 (Small Business Programs) does not apply to BPAs or orders placed against FSS contracts. As such, under the FAR, there is nothing preventing agency buyers from purchasing from large or any other businesses through Schedule for purchases under the SAT. If SBA has a problem with the FAR, then SBA should address that problem accordingly and without attacking reverse auctions.

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