Demystifying reverse auctions in the public sector
Real-time reverse auctions can be a significant source of savings — both in time and money — for public procurement teams. They’ve been recognized as a legitimate public tendering format in the US since 1997 and used in federal and state procurement since 1999.
However, twenty years later, reverse auctions continue to be underused in the public sector.
What are reverse auctions?
Reverse auctions (also referred to as eAuctions) are an online, real-time purchasing technique in which vendors present successively lowered bids during a scheduled period of time. While ordinary auctions see bidders competing to win a product or service, in reverse auctions, two or more vendors compete to win the procuring organization’s business.
The goal of reverse auctions is to obtain the best price by encouraging competition among vendors. They are conducted using automated reverse auction software.
Reverse auctions typically occur at the end of a thorough purchasing process. Their success relies on clear specifications and a good understanding of the market. Like any other purchasing technique, they are not a silver bullet! But used judiciously and strategically, they offer significant benefits to your procurement function.
Why run reverse auctions in public sector procurement?
- Cost savings. In the first use of reverse auctions, initial savings are typically around 20% (although savings of 64% and higher are not unheard of!) Whether or not you see significant savings every time, using a reverse auction ensures that you are achieving the best market price at a given time.
- Market intelligence. The process gives buyers insight into where vendors stack up in the marketplace, as well as the strengths and weaknesses of certain vendors.
- Reducing procurement cycle times. Reverse auctions allow teams to compress the timelines of lengthy negotiations, and reduce the administrative burden on both buyers and vendors.
- Transparency and fairness. Reverse auctions provide all vendors the same information at the same time. For vendors, there is less guesswork on pricing. For organizations, there is a reduced opportunity for favouritism/bias, or the influence of a persuasive salesperson to impact the decision.
- Thorough documentation. All bids are recorded and cannot be manipulated, ensuring a thoroughly documented decision.
Getting started with reverse auctions
With these benefits in mind, many procurement professionals are beginning to explore the potential of reverse auctions in their procurement function. To help connect the dots between theory and practical application, join the upcoming webinar Demystifying Reverse Auctions in Higher Education Procurement, with subject matter expert Michael LaGrassa and Bonfire Client Success Lead Rachel Friesen.
Currently the assistant vice chancellor of administrative services at UMass Dartmouth, Michael has extensive hands-on experience with running reverse auctions for public sector procurement (a total of 25 in his career!) Meanwhile Rachel brings valuable technical insight from her experience in supporting dozens of procurement teams in their use of Bonfire for reverse auctions.
In this webinar on February 21, Michael and Rachel will demystify the process and methodology of reverse auctions through real-life examples. You’ll leave with a plan of action to evaluate the merits of this procurement technique for your organization.