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Office Pioneers Reverse Auctions at NIH
A branch of the Office of Administration has successfully conducted several "reverse auctions" in the last 2 years. A reverse auction is a live, online bidding process used to lower the price of goods and services required by the government. But it is only a pricing tool. The acquisition requirements and processes are otherwise unchanged all regulations and procedures must still be followed. While a regular auction drives the price up until the highest bidder "wins," a reverse auction drives the price down so that the government is able to capture the best price the market can bear at auction time.
Prior to participating in a reverse auction, a vendor must either attest to submitting a brand-name product or provide samples of the product it intends to supply if awarded a contract. Once samples are approved, these vendors, along with those submitting a brand-name product, are invited to participate in the reverse auction. The reverse auction takes place over the Internet. Qualified vendors are allowed to bid as often as they wish during the auction period, which ranges from 30 minutes to an hour, with overtime periods. The savings are generally in the range of 10-24 percent of the independent government cost estimate prices. The OA's Acquisition Planning and Specifications Branch is the first and only HHS operating unit to use reverse auctions.
The branch conducted its first two reverse auctions for utility wipes and pipette tips for the NIH Self Service Stores on May 10, 2001, resulting in savings of $395,400, which was 20 percent less than the cost estimate. On Dec. 14, 2001, APSB conducted its third reverse auction, in partnership with the Clinical Center. This was a 5-year consolidated buy of restroom hygiene products. The overall savings was $505,099, or 25 percent less than the estimate.
As a result of the savings, knowledge and experience gained from the previous five auctions, HHS asked APSB to take the lead on an HHS-wide reverse auction. This led to a partnership with HHS and all of its operating divisions. Secretary Tommy Thompson was familiar with reverse auctions from his tenure as governor of Wisconsin, and was very encouraging of this effort. He was aware of the savings that could result through consolidating requirements, and was eager to see the technique used as part of his "one department" initiative.
Last September, APSB conducted the first HHS-wide reverse auction for a commodity used by all agencies: copy paper. There was full participation by all OPDIVs. The total savings for a 1-year contract, with one option year, was $1,300,088, or 34 percent less than the estimate.
On Jan. 9, 2003, ASPB, again in partnership with the Clinical Center, conducted its fifth reverse auction. The commodity was trashcan liners. The overall savings was $114,820, or 35 percent less than the estimate.
APSB has identified shipping boxes (HHS-wide), surgical gloves (NIH) and surgical masks (NIH) as targeted commodities for the next three auctions. The branch will continue its efforts to conduct auctions on equipment and supplies that are a good fit for the reverse auction process. "Good fit" items are those that are bought in a significant quantity or at a significant price, and that have some pricing flexibility in the market. With savings of $2,315,407 from the five auctions conducted to date, it's worth the time to see which procurements would be appropriate for reverse auctions. So far, APSB has only done reverse auctions for supply/equipment requirements, but it is open to doing them for services, too.
There is an acquisition cost associated with this process. However, the track record of savings from all previous auctions far exceeds any cost. For more information on reverse auctions, contact William Brown, Jr., chief, APSB, 435-3916, or email firstname.lastname@example.org.
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