Reverse Auctions: Guidance Is Needed to Maximize Competition and Achieve Cost Savings

What GAO Found

GAO found that government agencies were increasingly using reverse auctions as a means to drive down prices but without adequate guidance to ensure that the potential benefits were maximized. GAO's analysis of the data also identified some common characteristics among contract awards resulting from reverse auctions.

GAO found the following:

(1) About 95 percent of the reverse auctions resulted in awards of $150,000 or less.

(2) About 86 percent of the reverse auction awards--representing 80 percent of the dollars--went to small businesses. Figure 2 shows a breakdown of small business dollars among the four agencies.Further, almost 50 percent of the reverse auctions were conducted to place orders under existing contracts. In some cases, the use of these contract vehicles includes a fee that the ordering agency must pay.

(3) And GAO also found that almost 60 percent of reverse auction awards were in the last quarter of the fiscal year. Agency officials told us this can occur due to the timing of when funds are released and that reverse auctions can facilitate the timely award of contracts late in the fiscal year.

Why GAO Did This Study

This testimony discusses the federal government's use of reverse auctions. In recent years, federal agencies have been using this mechanism--in which sellers compete against each other in an online venue to sell their products or services--as a tool to reduce the price they pay for certain types of items. In theory, a reverse auction leverages competition, enabling agencies to obtain lower prices and reduce acquisition costs.

This testimony addresses (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.

For more information, contact Michele Mackin at (202) 512-4841 or MackinM@gao.gov.