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By Steve Kelman

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Beware: Taxpayer rip-off hidden in Defense authorization bill

steve kelman

Foreigners frequently ask me whether U.S. politics are dominated by wealthy special interests. I answer that this is certainly a problem, but that in general, the more visible a political question, the more that public opinion (including the opinions of grassroots political activists) are important. The flip side is political decisions are most at risk of being dominated by narrow interests when the issue is obscure, technical and gets no public attention. There the special interests can hold sway unchallenged.

I was reminded of this general principle when I became aware of some little-noticed provisions in the version of the Defense Department’s annual authorization bill passed by the House of Representatives that would place significant prohibitions on the government’s ability to use reverse auctions in procurement.

Although I am certainly considerably more knowledgeable about government procurement issues than the average person, I probably would never have heard of this provision if I hadn’t been told about it by FedBid and Compusearch, two companies that provide reverse auction services to government customers on both of whose Board of Advisors I sit.(Readers should please note this disclosure as you read the rest of this blog.)

The House provision grows out of the opposition of the small-business construction lobby to the (occasional) use of reverse auctions for simple construction services -- mainly building alteration, painting, repair and maintenance. Probably not surprisingly, these firms do not like the increasing competition and price pressures that typically arise from reverse auctions. But for that very reason, reverse auctions are often good for agencies and taxpayers. This lobby got the ear of the House Small Business Committee, one of the panels with jurisdiction over a portion of the Defense authorization bill, and made the case to have Congress prohibit reverse auctions in this area.

It gets even worse. For reasons (or pressures) I haven’t been able to fathom, the House bill goes much further than only prohibiting use of reverse auctions for construction. The actual language prohibits reverse auctions for all services, as well as "for goods in which the technical qualifications of the offeror constitute part of the basis of award."

Right now, most purchases the government makes using reverse auctions are for goods, not services, and most goods are bought from the low bidder meeting the specs. However, FedBid -- the largest reverse auction provider -- has helped the government buy a billion dollars' worth of services so far. Almost all of those services were relatively simple – things such as carpet installation, air conditioning installation or temporary secretaries -- and the average savings over the government estimated costs were about 11 percent, or more than $100 million.

Now, I am a big fan of the government's use of best value (i.e., not necessarily buying from the low bidder), for goods and services alike. But it represents a fundamental confusion to believe auctions cannot be part of best-value decisions as well, establishing each vendor’s best price against which the government can then trade off non-price considerations. Right now, the government is using reverse auctions as part of best-value buys only occasionally, but the last thing we want to do is preclude government buyers from improving and innovating in the future.

This special interest provision has not been included in the Senate version of the bill, so its fate will be determined by a House-Senate conference committee. Those trying to foist these provisions on the taxpayer are counting on getting them in under the radar screen. It is obviously utopian to expect the public to be engaged on an issue as invisible as this, but hopefully the Defense Department, the administration and legislators out to protect the taxpayer will stop this stealth attack.

Posted by Steve Kelman on Aug 01, 2014 at 9:02 AM


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Reader comments

Thu, Aug 14, 2014

Steve, I understand that: 1. Competition helps taxpayers get more per tax dollar; 2. Competition lowers vendors' profit margins, and reverse auctions intensify competition; 3. Vendors may have found a legislative path to protecting their profit margins at the taxpayers' expense. What is unclear is who -specifically- from "DoD, the Administration, or Congress" is going to fight for the taxpayer on this front. To whom should taxpayers express their support?

Thu, Aug 7, 2014

So, when trust in govt is at an all time low, I'm supposed to believe the opinion of someone who was a real govt insider. The taxpayer is fleeced every day and often right in front of our eyes (where did that $787B spending bill originated by the democrats and signed by the president in 2009 all go??). Until we, the taxpayer get better visibility into LARGE issues like that, this article simply appears to be a lobbying effort by someone with an interest in the outcome. No offense intended but I do not trust, nor do I believe Mr. Kelman. He's too much of an insider. Now where did that $787B go? That's almost as much as we've spent in two wars over a 10 year period. Where is it? Did it go to, "our crumbling infrastructure" as the president so often told us in 2009?

Wed, Aug 6, 2014 Stilton

You disclosed your relationship with the two rev. auction companies, yes. But that said, you have simply made public a certain bias that you have. Well done. But have you prepared a balanced analysis in this column. I am afraid we can never know. (You are probably aware that in the vast and $$$ world of medical research, docs list all of their research sponsors and other mullah--and then go right on researching and publishing in just those areas. Disclosure does not mean: we can trust you now. Suggest you find a similarly renowned fed proc expert to opine on reverse auctions. Good idea, professor?

Mon, Aug 4, 2014 Barbara Burch Colorado

I am retired now, but was a Contract Specialist, first at the Department of State, and later, at the Defense Department. At State, FedBid was one of the procurement tools I used to buy "commodity" items such as computers, peripherals, camera equipment, etc., and loved it. Of course, the program office had to write a very concise statement of requirements to assure that the process resulted in the office getting what they needed. But in a fast-paced procurement department, we were able to procure a multitude of goods for the program offices in a short timeframe at the best possible price. So it boggles my mind that Congress, which is supposed to keep the best interests of the taxpayer in mind, would conspire to eliminate such a valuable procurement tool. Shame on them!

Mon, Aug 4, 2014 KRL

Steve, If I remember correctly, the FAR once specifically stated that reverse auctions were unethical. Considering the discussion in your article and in another comment, there may be a reason to go back to that thinking. Why was this approach ever changed in the first place?

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