By Steve Kelman

Blog archive

How to make reverse auctions even better

Most of my life is the life of a regular professor (teaching, research and stuff), but there are a few companies -- not many -- in the federal marketplace with which I work. One is FedBid, the reverse auction provider for government, on whose advisory board I sit -- because their mission is to save the government money, and it's a mission which I truly support (especially in this budget environment).

I recently had two informal sessions at FedBid's headquarters in Vienna, Va. One was with a group of junior FedBid employees who interact at the front lines either with the government buyers who use FedBid to do reverse auctions or with the vendors who bid in these auctions. The other session was with the senior managers at the company.

The conversations showed me just how frequently vendors considering bidding on a government requirement point out problems with the product specs that have been posted online for the auction. One of the services a market-maker such as FedBid provides the government is help in getting out information about poor-quality requirements before it is too late -- before an inappropriate product has been delivered at an inappropriate price.
 
With the senior managers, I discussed two ideas for ways to increase the value reverse auctions provide the government. One idea is to implement an eBay/Amazon-style system to allow government customers to give quick and easy past performance feedback on purchases made through their system. I discussed this idea in a blog post a while ago, spurred by having seen that taxis in Beijing, China, were introducing an instant customer feedback system where customers could press a like or dislike button on leaving a taxi. Perhaps customers could simply vote thumbs up/thumbs down on their overall satisfaction, or maybe do one vote for delivery timeliness and other for product quality. The idea would be to keep it simple so there are lots of votes that can establish patterns.

FedBid already has a "performance alert" system that allows customers to send in information, which is posted with the vendor's information online, about problems they've had. I argued that this was too punishment-oriented, and that a system should allow good vendors to be rewarded as well. Also, with a very tiny number of performance alerts, these can be influenced by idioysyncratic factors of buyer personality or some special features of an individual transaction that led the buyer to post an alert. In this sense, a broader system that encourages wider participation after more transactions would give a fairer picture, based on many responses. There remains the problem of getting people to vote, since it would have to be after the product (or service) was received. Perhaps FedBid could hold a monthly lottery for a $10 Starbucks gift card (comfortably under the government's gift limit) for customers who cast a vote after a transaction, which could increase the number of responses and make the ratings more useful.
 
Another idea we discussed was using reverse auctions for the price/labor rate part of more complex services procurements (such as IT service contracts). Reverse auctions are most suitable to buying commodities or simple services. But one could imagine using it as part of the buying process for more complex services. Here, bidders would submit a proposal, with many elements, as normal. However, for the price part of the proposal (either labor rates by labor categories and/or fixed price contract line items), there could be a reverse auction where each bidder's lowest price by labor category got established.

Those lowest bids would then be plugged into the rest of the proposal, as part of proposal evaluation. Especially in a world where the government often is too short-handed to negotiate about price, and where list price labor rates (say on GSA schedules) are not discounted, even for large jobs, as often as they should be, reverse auctions could be a powerful tool to get the government a better deal.
 
There was sympathy in the group of managers for both ideas. FedBid is thinking about each. FedBid friends, as a member of your advisory board, I hereby cast my vote for moving forward with both these approaches. 

Posted by Steve Kelman on Apr 08, 2011 at 12:09 PM


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