Online Reverse Auctions

If you say yes to either of the following questions you are likely to come across electronic reverse auctions soon, if you haven't done so already.

Are you involved in tendering for high value contracts?

Do you contract with any central government department, local government authority or charity?

Sarah Staines explains the process and identifies the legal issues.

The Idea

Electronic Reverse Auctions "eRA" are a procurement methodology using a secure internet platform to enable competing suppliers to bid in real time for specific contracts.

There is no restriction on the size or purpose of a contract suitable for eRA but the average cost of using the facilities of an eRA platform supplier is said to be between £8k and £10k so it is unlikely to be used for smaller sized procurements.

eRA works best when used for contracts which have high level specifications attached to the tender and where there are a number of potential suppliers. It is also useful where a fixed number of potential suppliers are already "approved" by the purchaser or have a previous relationship with them. It is especially useful where bidding transparency is important, particularly where value for money is required to be demonstrated (as in the public sector or for charities).

The Process

All those approved to bid will be given passwords to access a secure auction platform. At the start of the auction an initial market price will be set to start the bidding. Thereafter supplier bids will be placed on the platform on the secure website for all (or all approved bidders) to see, but the identity of the bidders will be kept secret. Each bidder will be invited to bid below the last price posted until only one bidder is left. The auction can be timed; once the time for bidding has closed or at a fixed end time of the auction (just like e-Bay) the successful tenderer will know that they have given the final accepted bid.

If you are not certain the bidders have provided enough evidence of suitability then the auction result can be suspended or delayed. If you want final say on selection then you can build that into the process.

Often the process will include prior evaluation of the bidder and its technical response to a tender. Technical specifications can be converted into a price equivalent using a previously disclosed formulae.

Alternatively, all aspects of the tender and bids can be processed on-line. This is really only suitable for bids which are structured by price...