By George Griffin, PTAC Counselor at North Carolina A&T University
A reverse auction is one in which the roles of buyer and seller are reversed. In an ordinary auction buyers compete to obtain a good or service by offering increasingly higher prices. In a reverse auction, the sellers compete to supply a good or service by offering decreasingly lower prices. Reverse auctions have always existed, but their popularity in government contracting has steadily increased in the last five years. The benefits include opening the market to more sellers which results in savings from the more intense competition and lower procurement cost.
This method of acquisition is best suited for commercial items and simple services that can be purchased on a low price, technically acceptable basis.
As a seller reverse auctions are often not looked upon as favorably. Buying decisions no longer factor in long-term relationships, quality and customer service. The auction atmosphere can increase the stress level and increase the probability of submitting a bid which is too low.
I recommend individuals new to reverse auctions prepare their auction bids similar to a Request for Quotation (RFQ) and only submit one price. Understand the minimum requirements, your cost structure and submit a bid which creates the necessary profit for your business. The low bidder you are competing against may not be able to supply the specified product or service at the awarded price. You can’t assume the lower priced bidder is going to make a profit. You can’t even assume that if the auction indicates you are not the low bid that there is an actual bid below you. Some auctions use the buyers estimate (the projected cost) as a low bid.
Please don’t get caught up in the excitement of real time pricing, preparation is the key and it should lead to profitable business. Focus on trying to submit one fair and reasonable bid. If you have questions concerning “Reverse Auctions”, contact your local PTAC counselor.