Senate committee encourages reverse auctions

The committee says reverse auctions stimulate “aggressive competition” among vendors and lead to lower prices.

The Senate Armed Services Committee gave its blessing to reverse auctions in its new report on the fiscal 2013 National Defense Authorization Act.

It acknowledged that the military is turning more so to the competition tool in which companies bid lower prices to win contracts for commodities and simple services. The auctions stimulate “aggressive competition” among vendors, lowering costs and also helping small businesses in the marketplace, according to a report accompanying the bill. The report was released June 5.

During fiscal 2010 and 2011, various defense agencies used FedBid, a leading service provider for reverse auctioning, to purchase $820 million worth of goods and simple services, bringing about $107 million in savings. In addition, small businesses received 75 percent of the dollars from those competitions.

“The committee encourages the military departments to expand their use of reverse auctions for appropriate types of commodities and simple services, whenever doing so would be expected to result in savings,” according to the report.

However, earlier this year, reverse auctions came under scrutiny by the Veterans Affairs Department.

Jan Frye, deputy assistant secretary at VA’s Office of Acquisition and Logistics, raised concerns that the auctions were disrupting the agency’s supply chain, leading to complaints from VA suppliers. His main concern was that contracting officers depended too much on FedBid without appropriate oversight.

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. When buying medical supplies alone for its hospitals, the department saved $2 million since March 2011 by using reverse auctions, officials reported in October.

Frye banned the use of reverse auctions for about a month to investigative the effects of the reverse auctions on VA’s purchasing.

“I’m not against reverse auctions, but I’m concerned that sometimes we don’t know what we’re doing when we set about to do reverse auctions,” Frye said in a keynote at the April 26 Coalition for Government Procurement 2012 Spring Conference.

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