By Steve Kelman

Blog archive

VA and reverse auctions: what's up?

Last Thursday, fcw.com reported that the Veterans Affairs department's headquarters procurement shop had ordered a temporary halt to use of reverse auctions by the Veterans Health Administration (VHA), which runs the VA hospital system and is responsible for the vast bulk of VA purchasing. For several days, an unusually long time for an fcw.com article, the news was on the top-five read and emailed articles on the Federal Computer Week site.

Clearly, this bolt from the blue has attracted a lot of interest outside the VA, given the rapid spread of reverse auctions as a money-saving tool in this time of tight budgets;  indeed, only last summer, OFPP Administrator Dan Gordon had highlighted the VHA's use of reverse auctions as a best practice for government.

I have been on the Board of Advisors to Fedbid -- the reverse auction provider that runs the VHA auctions -- for a number of years, and firmly believe the company's business model is aligned with the interests of taxpayers and agencies in saving money, an important priority, especially when budgets are as tight as they are now. Whenever I write about reverse auctions, I note my association with Fedbid, and I will confess to being slightly uneasy about weighing in on the VA headquarters bombshell, because some blog readers may think I'm biased.

I will also add that I am an admirer of a lot of what VA headquarters procurement management has been doing over the past few years, including sponsorship of the magnificent VA Acquisition Academy and efforts to improve both IT and supply acquisition at the VA. That admiration adds to my hesitation to write (and maybe creates a potential bias of a different sort).

But whatever biases I may have -- and I've spoken to some people inside the VA about this to confirm my impressions  -- it is hard to avoid the conclusion that there is something strange about the behavior of headquarters in this situation. As a friend of improved VA procurement, I very much hope that it will be reversed.

The VA has had ongoing problems over the years with vendors located near VA hospitals selling overpriced medical equipment and other commodities to the hospitals with little competition. Furthermore, for more than 70 percent of the dollars VHA spends buying medical equipment off the multiple-award schedules (managed by the VA for GSA) there has been no competition among schedule holders. That means the VHA has presumably been paying multiple-award schedule retail prices, without getting the kinds of discounts that it is (rightly) government policy to encourage. These are situations that none of the procurement leadership at the VA has condoned.

VHA began about a year ago to begin using reverse auctions to increase competition and lower prices on schedule and open-market buys. Reverse auctions are a way to implement the idea of a second stage of competition to schedule buys, in line with government policy. In the view of VHA procurement leadership -- and in former OFPP Administrator Dan Gordon's view -- this policy has been a success. What is strange to me is why headquarters leadership is not cheering this on, because this is moving exactly in the direction of getting a better deal for taxpayers and veterans that headquarters has embraced.

There are losers from the reverse auctions VHA has introduced -- overpriced vendors selling to VA hospitals without competition -- and there are reports that when the suspension of reverse auctions was announced at a vendor conference, the audience broke into cheers. Because I trust the good faith and public spirit of the headquarters leadership, I don't want to believe that these voices have overridden the interests of taxpayers and veterans. But I will confess that the bureaucratese in the memo from headquarters suspending reverse auctions gave no even vaguely convincing arguments for why they did what they did.

It's time for reason and cool heads to prevail here. If headquarters has concerns that need to be examined -- although there was nothing in the suspension memo to suggest what these concerns in fact might be -- let them be examined. But meanwhile, I urge the dedicated procurement professionals in headquarters to allow the VHA to exercise its judgment in embracing reverse auctions as a pro-taxpayer, pro-veteran procurement tool.

Posted on Mar 13, 2012 at 12:09 PM


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