VA resumes reverse auctions, but questions linger

The Veterans Affairs Department has lifted its ban on reverse auctions with new rules in place, but the questions that led to the temporary moratorium still haven't been answered completely.

Contracting officers now have to document in a contract file the government cost estimate for the purchase and how that number was calculated. Contracting officers have to detail how much it cost VA to hold the auction, including the fee the auction host receives.

Jan Frye, deputy assistant secretary at VA’s Office of Acquisition and Logistics, imposed the moratorium in March and then lifted it with an internal memo a month later, with the new guidelines spelled out. But he still has unanswered questions, he said.

“We are telling them to show the math on the dollars the VA saved,” Frye said. The documentation, the cost estimate and the fee “will add some credibility to the dollars that were being bragged about in savings.”

Frye said he’s not against reverse auctions. His concern was that VA wasn’t keeping track of the details to prove the acquisition approach’s savings. VA officials could not support the $7 million in savings it reportedly had saved. The auction house furnished the savings figures.

Frye also noted that reverse auctions are suitable only for procurements where the lowest price technically acceptable criterion is the only one that matters. “Selection criteria beyond LPTA would indicate that the requirements are too complicated to ensure that cost savings and acceptable quality would be obtained through the reverse auction method,” he wrote in the memo detailing the new rules.

VA uses prime vendors from its “Just-in-Time” compliance system for pharmaceuticals and similar supplies, but reverse auctions may be causing some deeper problems. It’s challenged VA’s philosophy on purchasing and exposed VA’s lack of knowledge about the details around auctions.

The Just-In-Time system relies on supplies and products from prime contractors that provide what VA needs and distributes them to VA hospitals. The program allowed VA to shut down numerous depots and rely on the preapproved vendors.

But reverse auctions may be affecting that program and its suppliers. Frye,  who said VA is conducting “thousands and thousands of these open-market buys,”  questioned whether the auctions defeat the purpose of the Just-In-Time system.

“I want to know how reverse auctions dovetail with our supply chain,” he said in a keynote at the April 26 Coalition for Government Procurement 2012 Spring Conference. “That’s what I wanted to know, and I haven’t got the bottom of that yet.”

Experts and auctioneers say VA’s concerns are not typical of other agencies.

David Wyld, management professor at Southeastern Louisiana University, said the decision to ban the reverse auctions appear to have been “an isolated, VA-only situation.” Other agencies, such as the Defense Department and Homeland Security Department, had demonstrated less uncertainty about the procurement method than VA, he said.

“I’ve seen no hesitation in those agencies to use reverse auctions,” Wyld said.

In federal agencies, reverse auction adoption has mostly been a bottom-up approach rather than a top-down mandate, Wyld said, with procurement officers using them to help them to “do more without more.”

The auctions could save an agency between 5 percent and 30 percent in costs, but the real benefit is they give small businesses who previously haven’t dealt with federal contracting a chance to take part of the action, he said.

Col. Scott Svabek, commander and principal assistant responsible for Contracting Healthcare Acquisition Activity at the United States Army Medical Command, said reverse auctioning is a fairly new idea in the field of Army contracting. However, the policy Army Medicine has adopted is specifically crafted to monitor use of supplies and equipment that have a high probability of bidders by more than one vendor and the product is commercially available, he said.

Overall, Svabek said, his agency has recognized the advantages of using reverse auctioning.

“We advocate its use, as we do any and all tools that allow our procurement officials to execute contracts efficiently and effectively,” he said, adding the Army is currently not reevaluating its reverse auction policy but might look to assess its effectiveness after the current fiscal year ends.

FedBid, the reverse auction service provider, said the situation was unique to VA because it was dealing with an old policy it needed to update. Other agencies have had improved savings and competition, including more awards to small businesses, said Lu Tupponce, chief administrative officer and general counsel of FedBid.

In its first year, the Veterans Health Administration had “an exponential growth in the number of awards for simple medical supplies going to service-disabled, veteran-owned small businesses,” Tupponce said.

Reader comments

Tue, Aug 7, 2012

It shocks me that they are allowed to operate in such a manner and get paid by basically taking kick-backs from the US Government. Also, in this day and age of high security to be able to operate in the open with little to no security. In addition be able to disbar a company from bidding. How are they able to get away with this?

Mon, Jul 2, 2012 totallynext

FEDBID - clearly circumvents FAR Part 13 - and the (1) Required sources of supply under Part 8 (e.g., Federal Prison Industries, Committee for Purchase from People Who are Blind or Severely Disabled, and Federal Supply Schedule contracts); (2) Existing indefinite delivery/indefinite quantity contracts; or (3) Other established contracts. required level of supply. In particular - it is a joke on the "brand name or equal" requirements - where RFQ say "don't bid unless exact match". If the prime purpose of the reverse auction site is to sell to the government - then they should BE REQUIRED TO FOLLOW THE FAR

Thu, May 31, 2012 Anonymous USA

FedBid practices are shady, my firm submitted a bid with all requirements, including subcontractor information, coincidentally 20 minutes later, my sub receives an invitation to bid directly on the same project, FedBid claims to have research methods that led them to contact the sub within this suspicious time frame, if so, FedBid has very unqualified personnel, they did not even take the time to research this sub on CCR (the first place to start research on a company to qualify for Federal contract bidding) and find that they did not have the certifications to bid on this project. Watch Out with the information you disclose to FedBid, it may be used against you!

Thu, May 3, 2012 Gerald South Florida

Reverse auctions themselves aren't an issue. FedBid's aggressive and highly questionable business model should be a major question, though. Government contractors that collect third-party data typically act in the background and collect data solely to perform one specific contract. For instance, consider what happens when the IRS hires a contractor to help in some fashion. The contractor's use of the data is limited to performing a specific task and taxpayers aren't asked to enter any side deal with the contractor. Limiting the contractor's role and use of data it collects helps, among other things, to avoid conflicts of interest and unfair competitive advantage. What's disturbing is FedBid's practice of taking information it gathers performing each Government contract and exploiting it to gain and keep other contracts. Here's what seems to be happening. Once an agency signs up with FedBid its contractors then must choose to register with the firm or cease competing. FedBid, in turn, has chosen to build and retain a large, cross-agency roster of potential bidders. For each auction, FedBid then announces with no little fanfare the large number of companies that it has notified of the bidding opportunity. No small part of FedBid's ability to grow its business is predicated on having a large (and coincidently private) roster of potential bidders. In short, FedBid seems to be growing based on asserting private control of public contract bidder information. Thus, the cumulative actions of several U.S. agencies are making them complicit in building a monopoly rather than impeding it. Rather than allowing pubic contract bidder information to be hijacked for one firm's gain, the U.S. should reassert control. There should be a single, central reverse auction registration, notification and initiation site to act as an auction-specific arm of FedBizOpps. A contractor could surely run such a site behind the scenes, but bidder information should remain in U.S. control. Actual auctions could then proceed on a variety of truly competitive platforms that all have auctions initiated through the central registration site. The difference would be that bidders would have no relationship or continuing presence with any privately-controlled auction platform. A related change would be that the U.S. pay auction providers directly so the bidders no longer enter private contract in order to bid on public work. After all, what prevents private contracts between bidders and auction providers from including terms that conflict with the interests of the U.S.? With these changes, FedBid and others could compete on quality and price to conduct reverse auctions. The status quo of allowing contractors to create private rosters that essentially filch and exploit bidder information serves no interests other than those of the one or two firms that build a critical mass first.

Thu, May 3, 2012 Stan Jenkins Morgantown, West virginia

No matter which firm manages the reverse auction tool, and even if the government manages the tool, if folks don't meet the requirements of the Competition in Contracting Act or the FAR, then the procurements are lousy. The fact that VA had problems with the procurements relating to FedBid has less to do with FedBid or the reverse auction technique and more to do with lousy federal contracting skills on the part of VA contract specialists. If it is happening in VA, it is happening all over because we have too many unskilled contract specialists who have grown up on training wheels and require Remedial Contract Law 101.

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