Navy, Army find savings in initial reverse auctions

By Bill Murray

GCN Staff

Pricing dropped more than 28 percent for the Navy during a 51-minute online reverse auction among three pre-approved vendors last month, officials said.

The sale, one of the federal government's first reverse auctions, was a success despite network connectivity problems, Navy officials said.

Meanwhile, the Army Communications'Electronics Command made two small buys in mid-May through reverse auctions. CECOM officials from both services said such sales are consistent with the Federal Acquisition Regulation (FAR) and let the Navy make buys based on best value rather than just low price.

In a reverse auction, sellers bid their prices for specified items and the lowest bidder generally, though not always, wins.

FreeMarkets Inc. of Pittsburgh, which hosted the auction, holds real-time Web-based auctions, said Karen Kovatch, a company spokeswoman. Through FreeMarkets' Web-based BidWare software, bidders' names were protected from one another, but Navy officials could see the names of all the companies, she said.

In addition to names or aliases for the companies, BidWare lists the scheduled closing time for the auction, as well as lots, if the auction has been broken down into components, she said. Auction participants can find out through BidWare which parts or services each auction requires, as well as any special delivery data, Kovatch said. The software lets them know if the auction is closed, open or pending, meaning it's about to close. Bidders can also find the price the Navy has historically paid for the parts, she said.

Hi-Shear Technology Corp. of Torrance, Calif., won a $2.37 million Naval Inventory Control Point (NAVICP) delivery order for 756 recovery sequencers used in B-1, F-15, F-16 and F-117 aircraft ejection seats, said David McCormick, public-sector business president at FreeMarkets, which collects a percentage of each auction made through its site.

Although the government typically awards a contract after weeks of reviewing sealed competitive proposals, Hi-Shear Technology won its contract within an hour after the reverse auction's closing.

Bidding down

Bidding started at around $3.2 million, said Dan Porter, the Navy's chief information officer. NAVICP officials prequalified the bidders, who could see other vendors' prices, but not their names, he said.

When working with FreeMarkets, buyers issue a request for quotations, in which they give a description of products and services they plan to purchase, including the terms of purchase, according to the company. The RFQ also includes the remaining schedule for purchase, required steps for inclusion in the reverse auction, required agreements and contact information.

FreeMarkets hosted the auction on a password-protected Web site with user identification and Secure Sockets Layer protection, Porter said. The company calls the invited bidders on the day of the auction to confirm identity.

Participating companies download Free-Markets' BidWare software from the Free- Markets Web site or from CD-ROMs. They need Pentium PCs with at least 28.8-Kbps V.34 mo-dems and 32M of RAM to run the software, and they can access the auction through FreeMarkets' leased network or through their own connection.

FreeMarkets monitors each auction and helps solve any problems.

Army CECOM officials said they saved about 20 percent last month from General Services Administration Information Technology Schedule contract pricing when purchasing a Ricoh Corp. secure fax machine from Video and Telecommunications Inc. of Springfield, Va. The company beat Ricoh's bids in the 45-minute event, said Edward G. Elgart, CECOM acquisition center director at Fort Monmouth, N.J.

In a 45-minute reverse auction witnessed by Kenneth J. Oscar, deputy assistant Army secretary for procurement, ComTeq Federal Inc. of Rockville, Md., beat Daly Computers Inc. of Gaithersburg, Md., and MicroWarehouse Inc. of South Norwalk, N.J., with a $3,280 bid for two IBM Corp. ThinkPad PCs, said Tom Clarkson, a CECOM spokesman.

The price was 50 percent below the GSA IT Schedule contract prices, Oscar said. On each reverse auction, CECOM officials had invited 10 to 12 bidders, he said.

The NAVICP reverse auction was designed to last for 30 minutes. But after the initial bids, there were no bids submitted for 25 minutes, Porter said. Due to last-minute bids, the auction was extended for about five minutes when NAVICP officials thought they had a winner.

But when they checked with FreeMarkets officials to determine whether all three vendors were connected to the system for the entire auction, they found that one vendor had lost connectivity. FreeMarkets officials in Pittsburgh confirmed the problem, and they reopened the market for five minutes, with ordering extended another five to seven minutes as bidding continued, Porter said.

The FAR, in its Contracting by Negotiation section, lets bidders see competitors' prices if the companies give prior consent, and each seller's identity is not revealed, according to a CECOM announcement.

A reverse auction can 'drive the prices down, but it can still be a best-value deal' because contracting offices can prequalify certain vendors to enter into the competition based on their delivery record, expertise and quality of service, Porter said.

Commodity products, but not custom services, fit well into the reverse auction schema, he said.

More to come

The May 5 delivery order was the first of three or four such purchases NAVICP officials plan to make through FreeMarkets over a three-month period, Porter said.

CECOM officials are planning to make $100,000 to $1 million in purchases through reverse auctions, Elgart said. CECOM uses software from MOAI Technologies of San Francisco, which lets users conduct reverse auctions, as well as software from Frictionless Inc. of Cambridge, Mass., which helps officials weigh factors such as transmission speeds and warranty length.

Later this month, NAVICP officials plan to use the service for a $15 million delivery order for beds on ships, McCormick said.