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December 18, 2013 By AMK

Many agencies unaware of fees incurred from reverse auctions, says GAO official

The use of reverse auctions by agencies is on the rise, but the Government Accountability Office is concerned that many agencies simply aren’t aware of the fees they’re paying to use auction tools, said Michelle Mackin, GAO’s director of acquisition and sourcing management.

For example, FedBid, a Vienna, Va.-based company that offers the most popular tool, charges a fee of 3 percent of the winning contract, not to exceed $10,000, Mackin said Dec. 11 during a joint hearing of the House Small Business subcommittee on contracting and workforce, and the Committee on Veterans Affairs subcommittee on oversight and investigations.

“We were, frankly, a bit surprised to learn that agencies didn’t know how much they were paying FedBid in fees. They didn’t know how much duplicative fees–for lack of a better word–they were paying when they were using a schedule contract, for example, for a reverse auction,” said Mackin.

Keep reading this article at: http://www.fiercegovernment.com/story/many-agencies-unaware-fees-incurred-reverse-auctions-says-gao-official/2013-12-12

Filed Under: Government Contracting News Tagged With: FedBid, reverse auctions, SBA

December 17, 2013 By AMK

GAO finds agencies need guidance on use of reverse auctions

In a study released on December 11, 2013, the Government Accountability Office (GAO) found that the potential benefits of reverse auctions–competition and savings–have not been maximized by federal agencies.

Key findings include:

 

  • Over one-third of fiscal year 2012 reverse auctions had no interactive bidding, where vendors bid against each other to drive prices lower.
  • Almost half of the reverse auctions were used to obtain items from pre-existing contracts that in some cases resulted in agencies paying two fees–one to use the contract and one to use the reverse auction contractor’s services.
  • There is a lack of comprehensive government-wide guidance and the Federal Acquisition Regulation (FAR), which is the primary document for publishing uniform policies and procedures related to federal acquisitions, does not specifically address reverse auctions. As a result, confusion exists about their use and agencies may be limited in their ability to maximize the potential benefits of reverse auctions.

The Departments of the Army, Homeland Security, the Interior, and Veterans Affairs used reverse auctions to acquire predominantly commercial items and services–primarily for information technology products and medical equipment and supplies–although the mix of products and services varied among agencies. Most–but not all–of the auctions resulted in contracts with relatively small dollar value awards–typically $150,000 or less–and a high rate of awards to small businesses. The four agencies steadily increased their use of reverse auctions from fiscal years 2008 through 2012, with about $828 million in contract awards in 2012 alone. GAO was not able to analyze data from a fifth agency, the Defense Logistics Agency (DLA), because it collected only summary level information during fiscal year 2012. DLA guidance states that the reverse auction pricing tool should be used for all competitive purchases over $150,000.

Four agencies used the same commercial service provider to conduct their reverse auctions and paid a variable fee for this service, which was no more than 3 percent of the winning bid amount. DLA conducts its own auctions through a purchased license. Regardless of the method used, according to agency officials, contracting officers are still responsible for following established contracting procedures when using reverse auctions.

More details on this GAO study may be found at: http://www.gao.gov/products/GAO-14-108

Filed Under: Government Contracting News Tagged With: Army, DHS, DLA, GAO, Homeland Security, Interior, reverse auctions, VA, Veterans Affairs

July 29, 2013 By AMK

Proposed reform law will change the way government acquires and manages technology

If the top 26 federal agencies have 250 CIOs between them, is that a problem?

Rep. Gerry Connolly, (D-Va.), one of the sponsors of the Federal Information Technology Acquisition Reform Act (FITARA), said the number reflects a growing diffusion of accountability and decision-making.

Speaking at a gathering of the federal acquisition community, Connolly said it also shows an urgent need for reform. FITARA, he said, will not only clean up federal IT management redundancies, but will also help harness technology to take charge of what he sees as a dangerously declining number of federal contracting managers in the federal workforce.

Connolly, ranking member of the House subcommittee on government management, organization and procurement, made his remarks at the Multiple-Award Government and Industry Conference July 11 in Alexandria, Va. The conference brought together members of the federal acquisition community to discuss the changing nature of the government’s acquisition landscape.

The federal government’s ability to acquire and manage technology is at risk as experienced contracting managers leave and demand increases for technology and technological expertise, according to Connolly.

“I think we’re sliding back,” he said, describing the government’s ability to handle the influx of complex technology and to stave off redundancy and growing costs. The government wants to reduce the number of data centers, he said, but the opposite has happened. “In 1998 the government had 432 data centers. It now has 6,000. What happened?”

Keep reading this article at: http://fcw.com/Articles/2013/07/11/magic-acquisition-davie-baitman-connolly.aspx?Page=1

Filed Under: Government Contracting News Tagged With: acquisition strategy, acquisition workforce, FITARA, GSA, HHS, IT, reverse auctions, technology

March 22, 2012 By AMK

VA launches probe of reverse auctions

Acquisition officials at the Veterans Affairs Department are drafting a report for top VA officials on how the department has managed its use of reverse auctions, a spokeswoman said March 8.

On March 3, a senior VA acquisition official ordered the Veterans Health Administration to stop using reverse auctions, due to several possible problems. Now, top officials have asked the Office of Acquisition, Logistics and Contracting for an in-depth examination of reverse auctions. Acquisition officials are currently reviewing the VA’s use of the unusual procurement technique by checking 25 randomly selected reverse auction contract files for the report.

“VA acquisition officials have to learn more about the issue, which is why we stopped the reverse auctions, but we are still looking at how wide and deep the problem is, including whether or not any violations occurred in managing the program,” said Jo Schuda, a spokeswoman for the department.

The technique was “causing significant perturbations in the VA supply chain,” Jan Frye, VA’s deputy assistant secretary for acquisition and logistics, wrote in the memo ordering the halt. The disruptions are “at least one protest, potential increased costs, small-business program anomalies, violations of our VA contract hierarchy, and a ground swell of complaints from our suppliers.”

He also wrote that contracting officers, when conducting reverse auctions, have handed over too much of the rein to FedBid, the company that hosts the reverse auctions for the VA, without proper oversight by “cognizant contracting officers.”

“We simply did not think through all of the unintended consequences of reverse auctions when we recently made the decision to allow their use,” Frye also wrote.

A source close to the situation said Frye took an unusual approach in halting the auctions in his memo. Under ordinary circumstances, an agency would conduct a review or an audit and then decide how to proceed.

“Frye has unilaterally violated this governmental best practice by summarily suspending all contract activity without grounds to do so,” the source said.

In a reverse auction, companies bid to sell their products to the government and the price goes down with more competition for an agency’s bid. According to FedBid, small businesses win more than 80 percent of the dollars competed through the auctions.

Frye’s memo’s applies only to the VA, but it could get federal officials elsewhere to think about how their offices manage reverse auctions, experts said.

Even if agencies don’t follow the VA and immediately stop the use of reverse auctions, “it is likely to at least raise an alarm in the contracting offices of other agencies to make sure the use and procedures surrounding reverse auctions are appropriate,” said Gunjan Talati, senior associate at the Reed Smith law firm.

Larry Allen, president of the Allen Federal Business Partners, said the VA’s decision sends a message to all the other agencies. The message is, reverse auctions won’t meet all your acquisition needs, especially for complex procurements. The auctions are best for simple commodities.

“I liken it to using a Phillip’s head screwdriver when you need a flat-head screwdriver instead,” he said.

The effects on industry won’t be fully measurable until the review is done and VA decides how to proceed, Talati said. Nevertheless, Allen said many companies are happy with the VA’s decision. Proponents of reverse auctions have made federal officials see only the potential savings, not the limitations, of using the approach.

He said industry isn’t against reverse auction, but just want it used where it fits best.

“Using reverse auctions for complex procurements tend to drive legitimate suppliers to the sidelines,” he said.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week.  This article appeared on Mar. 8, 2012 at http://washingtontechnology.com/articles/2012/03/08/va-reverse-auctions-followup.aspx?s=wtdaily_090312.

Filed Under: Government Contracting News Tagged With: complaints, reverse auctions, should cost, small business, VA

December 14, 2011 By AMK

Reverse auctions: A bid for budget-conscious business

Sometimes a good idea gets even better with the passage of time.

Ten years ago, shaving nearly 15 percent off the cost of a procurement by using a novel approach to the bidding process was a good idea. A decade later, as agencies across the government are seeing programs cut and discretionary funding dry up, it seems like a great idea.

In 2002, Cathy Read, director of acquisitions management at the State Department, gathered her most forward-thinking contracting specialists — the ones who “were always looking for a better way to save money and do it faster” — and asked them to try a new approach to buying commercial IT products.

Rather than soliciting quotes from companies and then picking the one with the best value, the department invited companies to bid against one another, driving the price lower and lower until one bidder emerged as the winner. It’s like an auction, except instead of bidding to buy products, companies are bidding to sell them — hence the name “reverse auction.”

The approach has paid off. State officials estimate they saved $33 million on more than 3,000 purchases in fiscal 2011, based on an independent government estimate. That’s a savings of more than 14 percent.

Proponents say other agencies could achieve similar savings, for a governmentwide total of billions of dollars a year. Given the current budget crisis, those experts say reverse auctions deserve a closer look.

“You can’t always do things the way you’ve always done them,” Read said. “You have to be lean on your feet, and you have to make do with what you have.”

Start small, think big

Reverse auctions are appealing because it’s easy to test the approach and see immediate savings — and imagine how much more savings they could bring to bigger projects.

In the beginning, Read had State auction off a few items to test the new method, and when she consistently found that the approach was saving money, she turned to reverse auctions more often over the years and with a wider array of commodities.

As time went on, the savings continued to increase and the competition for solicitations improved.

Even the department’s inspector general took note of the savings from reverse auctions in a report on spending under the American Recovery and Reinvestment Act of 2009. After reviewing a $13 million program to replace desktop workstations, the IG estimated that the reverse-auction approach had saved the department 7 percent, with greater savings being seen on other projects.

David Wyld, professor of management at Southeastern Louisiana University, has done extensive research into the benefits of reverse auctions. He has determined that $74.5 billion in federal acquisitions could be competed through reverse auctions, and his analysis of auctions conducted across the government demonstrated a savings of 11.9 percent. That means the auctions could bring an annual savings of $8.9 billion across the federal government, with $6.1 billion saved on Defense Department spending alone.

“To me, the real-world benefit is the cliché ‘faster, better, cheaper’ way of doing business,” said Wyld, whose findings were published by the IBM Center for the Business of Government in a report titled “Reverse Auctioning: Saving Money and Increasing Transparency.”

Saving more than money

However, this isn’t just about saving money.

Time is an equally precious commodity in government offices, and many federal officials and acquisition experts say the acquisition workforce doesn’t have enough hours in a day to do all that it needs to do. Both Wyld and Read said reverse auctions save employees the non-renewable resource of time.

Wyld studied how much time State saved by using reverse auctions and found that the department shaved off nearly a full workday from each procurement it conducted using reverse auctions. Specifically, the department saved an average of 475 minutes — or 7.92 hours — whenever it conducted an acquisition through reverse auctions rather than traditional procurement methods.

“If you’re going to be a buying shop today when budgets are being cut by 15 to 20 percent because money is an issue, then as a buyer, you have to look for better, faster, more creative ways to get your program office what it needs,” Read said.

Agency officials must consider tools like reverse auctions or they won’t be able to adjust to the ongoing need to reduce the cost of government operations, she added.

Nevertheless, the auctions are not simply a way to save a little time and money here and there. The approach also streamlines the negotiation process. Reverse auctions simplify communication and collaboration between buyers and sellers, Wyld wrote in his report. “The competitive bidding processes that took weeks or even months to complete can be compressed into days or even hours,” he said.

All those factors help increase competition and bring agencies closer to the true fair-market value of a purchase. State’s IG wrote that reverse auctions “have been found to be significantly less expensive per item than buying the items from comparable General Services Administration schedules.”

The flip side of reverse auctions

Reverse auctions do have their limitations. For one thing, “the expedited form of procurement won’t work without oversight,” said Robert Burton, former deputy administrator of the Office of Federal Procurement Policy (OFPP) and now a partner at Venable law firm.

Furthermore, procurement offices cannot turn over all solicitations to reverse auctions. The approach only works when the terms of the contract are clearly defined and there is little — or no — room for flexibility. In other words, it is best for common products. Burton warned against buying services through a reverse auction because such contracts have far too many variables.

However, Read said she believed it was possible to buy certain basic services through reverse auctions.

Furthermore, Wyld said the auctions could change the nature of the relationship between buyers and suppliers. Instead of establishing long-term partnerships, relationships might only last until the next competition. The potential for switching suppliers is a cost of doing business, and for basic items, it won’t matter much, he said.

“Copy paper is copy paper,” Wyld said. “Toilet paper is toilet paper.”

However, a reverse auction also might affect the dynamic between buyers and suppliers, with the suppliers feeling coerced into lowering their prices in order to join an auction, Wyld wrote.

Jaime Gracia, president and CEO of Seville Government Consulting, said the reduction in procurement spending has the potential to make competition fierce, which, in turn, forces companies to lower their prices to win contracts.

To succeed with reverse auctions, Gracia said agency officials must determine which procurements are appropriate for reverse auctions — and which are not — and they must make sure that those solicitations have very clear requirements.

Making the case for innovation

Experts say now is the time to sell agencies on reverse auctioning because senior officials are desperate to find ways to conserve their resources.

“Agencies are looking under trees and in the couch for any spare change,” Gracia said.

OFPP has issued memos calling for agencies to use innovative procurement tools, including reverse auctions. Recently Dan Gordon, outgoing OFPP administrator, urged agencies to consider the approach.

To make the case to their bosses, Read said procurement officials should start small and document the results. From the beginning, she kept detailed notes on the reverse auctions that State conducted. She can cite dollar amounts, volumes and percentages by fiscal year.

“You can see the metrics are very important to really understand if we have savings and success,” she said.

However, she said that although innovative contracting specialists will likely embrace reverse auctions, instituting the approach agencywide will take time. “Change management issues in a federal government agency are always a bit of a challenge,” Read said.

Wyld, too, said reverse auctions should be implemented with care. However, he added, “hill by hill, staffer by staffer, people will change after hearing firsthand stories of savings.”

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. Published Dec. 12, 2011 at http://fcw.com/articles/2011/12/12/feat-reverse-auctions.aspx.

Filed Under: Government Contracting News Tagged With: acquisition strategy, acquisition workforce, competition, cost savings, OFPP, reverse auctions, spending, State Dept.

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