Reverse Auctions: Guidance Is Needed to Maximize Competition and Achieve Cost Savings
Highlights
What GAO Found
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.
GAO found that the potential benefits of reverse auctions--competition and savings--had not been maximized by the agencies. GAO found that over one-third of fiscal year 2012 reverse auctions had no interactive bidding, where vendors bid against each other to drive prices lower. In addition, 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 governmentwide 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.
Why GAO Did This Study
Reverse auctions are one tool used by federal agencies to increase competition and reduce the cost of certain items. Reverse auctions differ from traditional auctions in that sellers compete against one another to provide the lowest price or highest-value offer to a buyer. GAO was asked to review issues related to agencies' use of reverse auctions. This report examines (1) what agencies are buying through reverse auctions and trends in their use; (2) how agencies are conducting reverse auctions; and (3) the extent to which the potential benefits of reverse auctions are being maximized. GAO identified five agencies conducting about 70 percent of government reverse auctions. GAO analyzed available data and guidance and interviewed agency officials and contractors. GAO also reviewed a random sample of contract files to understand agency procedures; the results of this analysis are generalizable to all reverse auctions for four of the five agencies in our review.
Recommendations
GAO recommends that the Director of the Office of Management and Budget (OMB) take steps to amend the FAR to address agencies' use of reverse auctions and issue government-wide guidance to maximize competition and savings when using reverse auctions. OMB generally agreed with GAO's recommendations, noting that FAR coverage should be considered and that, before taking concrete steps to amend the FAR, they would discuss GAO's findings and conclusions with the FAR and Chief Acquisition Officers Councils.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of Management and Budget | To help mitigate confusion about the use of reverse auctions in federal acquisitions, the Director of the Office of Management and Budget should take steps to amend the FAR to address agencies' use of reverse auctions. |
On July 30, 2024, the Federal Acquisition Regulation (FAR) Council issued a final rule, amending the FAR with guidance for using reverse auctions. This guidance includes factors that indicate when the use of reverse auctions is appropriate and will help improve the transparency and understanding of reverse auction service provider fees.
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| Office of Management and Budget | To help mitigate confusion about the use of reverse auctions in federal acquisitions, the Director of the Office of Management and Budget should issue guidance: (1) advising agencies to collect and analyze data on the level of interactive bidding and, where applicable, fees paid, to determine the cost effectiveness of using reverse auctions, and (2) disseminating best practices from agencies on their use of reverse auctions related to maximizing competition and savings. |
The Office of Federal Procurement Policy in the Office of Management and Budget released a memorandum in June 2015 that outlined the benefits of reverse auctions and key considerations when using them.
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