Reverse Auctions:

Additional Guidance Could Help Increase Benefits and Reduce Fees

GAO-18-446: Published: Jul 18, 2018. Publicly Released: Jul 18, 2018.

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Timothy J. DiNapoli
(202) 512-4841
dinapolit@gao.gov

 

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To buy goods or services, the government sometimes uses "reverse auctions" where vendors bid against each other with lower prices to win a contract.

We found reverse auctions often led to a vendor bidding more than once with a lower price, and may have saved the government up to $100 million in 2016. They also were easy to use.

However, most contracting officers we interviewed did not fully understand the fees they paid to use reverse auctions. Agencies we reviewed indirectly paid $3 million in fees when a free alternative was likely available.

We made 21 recommendations, including that agencies inform contracting officials about fees.

Example of Indirect Fee Payment Process for Reverse Auctions

This graphic shows how fees are added to bids and paid in reverse auctions.

This graphic shows how fees are added to bids and paid in reverse auctions.

Additional Materials:

Contact:

Timothy J. DiNapoli
(202) 512-4841
dinapolit@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

Federal agencies' use of reverse auctions—a process where vendors bid against each other with lower prices to win government contracts—declined between fiscal years 2013 and 2017, from about 34,000 to 19,000 auctions valued at about $1.9 billion and $1.5 billion, respectively. In fiscal year 2016, the year GAO studied in detail, nearly three-quarters of auctions at the agencies GAO reviewed resulted in iterative bidding—when there are multiple bidders and at least one bidder submits more than one bid during the auction (see figure).

Extent of Reverse Auction Competition for Selected Agencies in Fiscal Year 2016

Extent of Reverse Auction Competition for Selected Agencies in Fiscal Year 2016

Contracting officers said reverse auctions reduce administrative burden, especially during peak contracting times. Reverse auctions data indicate that selected agencies may have saved more than $100 million in 2016.

The five agencies GAO reviewed indirectly paid about $13 million in fees to reverse auction providers through awardees in 2016. However, 28 of the 30 contracting officials GAO interviewed did not fully understand how fees were set. Further, in 2016, agencies GAO reviewed indirectly paid approximately $3 million in fees for reverse auctions for which a fee-free alternative was likely available. None of the guidance GAO reviewed provided sufficient information for contracting officers to assess the appropriateness of these fees (see table). Without better information, contracting officials may be offsetting potential savings by paying more in fees than necessary for the level of services required.

GAO Assessment of Reverse Auction Guidance at Selected Agencies

Agency

Addresses contracting officials' role in understanding and assessing fees

Details fee structure for reverse auction platforms used by the agency

Requires or suggests consideration of fee-free options when appropriate

Army

Navy

Homeland Security

Interior

State

Legend: ● = addressed in agency guidance; ◒ = partially addressed in agency guidance or addressed only for one or more agency components; ○ = not addressed in agency or component guidance

Source: GAO analysis of agency guidance. | GAO-18-446

Why GAO Did This Study

Reverse auctions are intended to result in enhanced competition, lower prices, and reduced acquisition costs. GAO has previously found that agencies did not maximize these benefits.

GAO was asked to review federal agencies' use of reverse auctions. This report examines (1) the use of reverse auctions and the extent to which selected agencies achieved benefits, such as competition; and (2) the extent to which selected agencies had insight into reverse auction fees.

GAO collected and analyzed data on federal agencies' use of reverse auctions from fiscal years 2013 to 2017. For five of the largest users of reverse auctions—the Departments of the Army, Homeland Security, Interior, Navy, and State—GAO reviewed documentation for 40 auctions that resulted in contract awards in fiscal year 2016 (the most recent data available when the review began), and that were selected to obtain a mix of dollar values and levels of competition, among other factors. GAO also interviewed contracting officials and analyzed agency guidance.

What GAO Recommends

GAO is making a total of 21 recommendations to the five agencies in GAO's review, including that agencies inform contracting officials about fees to better compare available provider options. Defense, State, and Interior concurred with this recommendation. DHS did not, stating that contracting officials should obtain this knowledge during market research. GAO believes managing this information centrally could eliminate confusion and minimize duplicate efforts.

For more information, contact Timothy J. DiNapoli at (202) 512-4841 or dinapolit@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: DOD agreed with this recommendation and stated that the department expected to complete actions to address it by the end of calendar year 2018.

    Recommendation: The Secretary of the Army should: assess why reverse auctions that are conducted using existing contract vehicles have only one bidder at higher rates than reverse auctions conducted on the open market; determine what factors indicate that conducting reverse auctions is appropriate when using existing contract vehicles; and provide this information to contracting officials so that they can consider it when developing their acquisition strategies. (Recommendation 1)

    Agency Affected: Department of Defense: Department of the Army

  2. Status: Open

    Comments: DOD agreed with this recommendation and stated that the department expected to complete actions to address it by the end of calendar year 2018.

    Recommendation: The Secretary of the Army should: document and provide information to contracting officials that describes available reverse auction providers and platforms, and any associated fee structures; and provide guidance, as appropriate, to contracting officials to ensure that they compare the options that are available to them when considering whether to use reverse auctions. (Recommendation 2)

    Agency Affected: Department of Defense: Department of the Army

  3. Status: Open

    Comments: DOD agreed with this recommendation and stated that the department expected to complete actions to address it by the end of June 2018.

    Recommendation: The Secretary of the Army should clarify with FedBid how fees apply when contract option years are exercised. (Recommendation 3)

    Agency Affected: Department of Defense: Department of the Army

  4. Status: Open

    Comments: DOD agreed with this recommendation and stated that the department expected to complete actions to address it by the end of calendar year 2018.

    Recommendation: The Secretary of the Navy should: assess why reverse auctions that are conducted using existing contract vehicles have only one bidder at higher rates than reverse auctions conducted on the open market; determine what factors indicate that conducting reverse auctions is appropriate when using existing contract vehicles; and provide this information to contracting officials so that they can consider it when developing their acquisition strategies.(Recommendation 4)

    Agency Affected: Department of Defense: Department of the Navy

  5. Status: Open

    Comments: DOD agreed with this recommendation and stated that the department expected to complete actions to address it by the end of calendar year 2018.

    Recommendation: The Secretary of the Navy should review the agency's current guidance to assess whether it adequately addresses contracting officer responsibilities to consider the cost of any fees associated with reverse auction options they may be considering when developing their acquisition strategies, and revise its guidance as appropriate. (Recommendation 5)

    Agency Affected: Department of Defense: Department of the Navy

  6. Status: Open

    Comments: DOD agreed with this recommendation and stated that the department expected to complete actions to address it by the end of calendar year 2018.

    Recommendation: The Secretary of the Navy should: document and provide information to contracting officials that describes available reverse auction providers and platforms, and any associated fee structures; and provide guidance, as appropriate, to contracting officials to ensure that they compare the options that are available to them when considering whether to use reverse auctions. (Recommendation 6)

    Agency Affected: Department of Defense: Department of the Navy

  7. Status: Open

    Comments: DOD agreed with this recommendation and stated that the department expected to complete actions to address it by the end of calendar year 2018.

    Recommendation: The Secretary of the Navy should clarify with FedBid how FedBid's fee cap will be calculated. (Recommendation 7)

    Agency Affected: Department of Defense: Department of the Navy

  8. Status: Open

    Comments: DHS agreed with this recommendation and stated that the department expected to complete actions to address it by the end of November 2018.

    Recommendation: The Secretary of the Homeland Security should: assess why reverse auctions that are conducted using existing contract vehicles have only one bidder at higher rates than reverse auctions conducted on the open market; determine what factors indicate that conducting reverse auctions is appropriate when using existing contract vehicles; and provide this information to contracting officials so that they can consider it when developing their acquisition strategies.(Recommendation 8)

    Agency Affected: Department of Homeland Security

  9. Status: Open

    Comments: DHS did not agree with this recommendation, stating that there is limited value in centrally collecting and updating this information, and noting that it is the contracting officer's responsibility, as part of market research, to be knowledgeable about reverse auction providers and structures. DHS stated that the department would remind contracting professionals of these responsibilities by the end of November 2018. Given the pervasive confusion GAO found among contracting officials about the fee structures of reverse auction providers, GAO continues to believe that DHS should document and provide information to contracting officials, which could help eliminate confusion and minimize the duplication of individual reverse auction users repeatedly collecting the same information.

    Recommendation: The Secretary of Homeland Security should: document and provide information to contracting officials that describes available reverse auction providers and platforms, and any associated fee structures; and provide guidance, as appropriate, to contracting officials to ensure that they compare the options that are available to them when considering whether to use reverse auctions. (Recommendation 9)

    Agency Affected: Department of Homeland Security

  10. Status: Open

    Comments: DHS agreed with this recommendation, stating that it has conducted an assessment in 2016 to determine whether to have an department-wide reverse auction capability, and decided not to. However, the intent of GAO's recommendation was not to suggest that DHS consider whether to mandate a certain provider be used agency-wide. Rather, GAO recommended that DHS assess whether agency-level contracts with reverse auction providers-be it one or several different providers-are desirable to protect against the risk that individual contracting officials may be agreeing to fees or other terms that have not been reviewed and approved by agency acquisition and legal offices. It is unclear whether DHS's 2016 assessment considered these issues.

    Recommendation: The Secretary of Homeland Security should determine if it would be advantageous for the agency to enter into contracts with third-party reverse auction providers. (Recommendation 10)

    Agency Affected: Department of Homeland Security

  11. Status: Open

    Comments: DHS did not concur with this recommendation, stating that aggregating fee data at the department level would require systems changes or manual collection that would not inform DHS as to whether reverse auctions were used correctly or the fee was too high. In this case, however, GAO found that reverse auction providers have this data available upon request. As such, in lieu of making changes to systems or attempting to have contracting officers manually collect this information, GAO believes DHS could obtain this information from its reverse auction provider and use this information to help DHS understand what it pays for reverse auction services.

    Recommendation: The Secretary of Homeland Security should obtain timely information on how much the agency is paying for reverse auction services. (Recommendation 11)

    Agency Affected: Department of Homeland Security

  12. Status: Open

    Comments: Interior agreed with this recommendation, stating that the department will implement policy regarding the use of reverse auctions with existing contract vehicles. Interior did not provide information as to when it expected these actions to be completed.

    Recommendation: The Secretary of the Interior should: assess why reverse auctions that are conducted using existing contract vehicles have only one bidder at higher rates than reverse auctions conducted on the open market; determine what factors indicate that conducting reverse auctions is appropriate when using existing contract vehicles; and provide this information to contracting officials so that they can consider it when developing their acquisition strategies.(Recommendation 12)

    Agency Affected: Department of the Interior

  13. Status: Open

    Comments: Interior agreed with this recommendation, stating that the department will review and update guidance to provide contracting officials with current and relevant information on available reverse auction providers, platforms, and any associated fee structures. Interior did not provide information as to when it expected these actions to be completed.

    Recommendation: The Secretary of the Interior should: document and provide information to contracting officials that describes available reverse auction providers and platforms, and any associated fee structures; and provide guidance, as appropriate, to contracting officials to ensure that they compare the options that are available to them when considering whether to use reverse auctions. (Recommendation 13)

    Agency Affected: Department of the Interior

  14. Status: Open

    Comments: Interior did not concur with this recommendation, stating that it would be more efficient to provide guidance to contracting officials so that they can make the best business decision. Interior officials told GAO verbally that they have already considered whether or not to enter into contracts with reverse auction providers and determined that it is not to the department's advantage to do so. Interior officials told GAO they would provide information about the factors considered in making this decision, but GAO did not receive this information before issuing the final report in July 2018.

    Recommendation: The Secretary of the Interior should determine if it would be advantageous for the agency to enter into contracts with third-party reverse auction providers. (Recommendation 14)

    Agency Affected: Department of the Interior

  15. Status: Open

    Comments: Interior agreed with this recommendation, stating that the department will obtain timely information on fees paid for reverse auction services. Interior did not provide information as to when it expected these actions to be completed.

    Recommendation: The Secretary of the Interior should obtain timely information on how much the agency is paying for reverse auction services. (Recommendation 15)

    Agency Affected: Department of the Interior

  16. Status: Open

    Comments: State agreed with this recommendation, stating that the Office of Acquisition Management would conduct a review of current guidance and revise it as appropriate. State did not provide information as to when it expected these actions to be completed.

    Recommendation: The Secretary of State should review the agency's current guidance to assess whether it leads contracting officials to use reverse auctions in situations where there is not a highly competitive marketplace, and revise its guidance as appropriate. (Recommendation 16)

    Agency Affected: Department of State

  17. Status: Open

    Comments: State agreed with this recommendation, but did not provide information as to what specific actions it would take or when it expected these actions to be completed.

    Recommendation: The Secretary of State should: assess why reverse auctions that are conducted using existing contract vehicles have only one bidder at higher rates than reverse auctions conducted on the open market; determine what factors indicate that conducting reverse auctions is appropriate when using existing contract vehicles; and provide this information to contracting officials so that they can consider it when developing their acquisition strategies. (Recommendation 17)

    Agency Affected: Department of State

  18. Status: Open

    Comments: State agreed with this recommendation, stating that the Office of Acquisition Management would conduct a review of current guidance and revise it as appropriate. In addition, this office plans to increase contracting officer awareness through training and policy guidance. State did not provide information as to when it expected these actions to be completed.

    Recommendation: The Secretary of State should review the agency's current guidance to assess whether it adequately addresses contracting officer responsibilities to consider the cost of any fees associated with reverse auction options they may be considering when developing their acquisition strategies, and revise its guidance as appropriate. (Recommendation 18)

    Agency Affected: Department of State

  19. Status: Open

    Comments: State agreed with this recommendation, stating that the Office of Acquisition Management would conduct a review of current guidance and revise it as appropriate. In addition, this office plans to increase contracting officer awareness through training and policy guidance. State did not provide information as to when it expected these actions to be completed.

    Recommendation: The Secretary of State should: document and provide information to contracting officials that describes available reverse auction providers and platforms, and any associated fee structures; and provide guidance, as appropriate, to contracting officials to ensure that they compare the options that are available to them when considering whether to use reverse auctions. (Recommendation 19)

    Agency Affected: Department of State

  20. Status: Open

    Comments: State agreed with this recommendation, stating that the Office of Acquisition Management would engage FedBid to better understand the fee cap and how the feels apply in future option periods. State did not provide information as to when it expected these actions to be completed.

    Recommendation: The Secretary of State should clarify with FedBid how FedBid's fee cap will be calculated and how fees apply when contract option years are exercised. (Recommendation 20)

    Agency Affected: Department of State

  21. Status: Open

    Comments: State agreed with this recommendation, stating that the Office of Acquisition Management would engage FedBid to review required reporting on fees and would seek to obtain timely reporting on fees for the use of any other reverse auction service. State did not provide information as to when it expected to complete these actions.

    Recommendation: The Secretary of State should obtain timely information on how much the agency is paying for reverse auction services. (Recommendation 21)

    Agency Affected: Department of State

 

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