After defining reverse auctions, the key is also to provide clear steps in the procedure so such process can be used at its best efficiency. As such, although each state has particularities in their reverse auction legal systems, six common steps can be observed in the different regulations.
First of all, most regulations require a certain form of procurement planning where the use of reverse auctions must be determined in advance by the public body and the latter set forth in writing that it is in its best interest. Such requirement can notably be found in Virginia, Connecticut and Utah.
Second, the State agency must publish the solicitation – also called “notice,” “invitation to bid” or “invitation for bids” in the different regulations. Some states such as Ohio require that such notice be given to persons producing or dealing with the goods and an Alabama agency must notify all Alabama persons, firms or corporations who have filled a request in writing that they be listed for solicitation on bids for the particular items set forth in the request. As to the support of publicity, some states chose a paper publication while others favor electronic publication. The time of the publication varies from state to state; Colorado requires the solicitation to be published fourteen days before reverse auction date and Kentucky requires a minimum of seven days. As to the content of the solicitation, most regulations require the mention of an opening and closing time. Some regulations are very vague about the content like Iowa that require “Bid Information” to be contained in the solicitation. On the contrary, some regulations like Ohio’s require at a minimum that the solicitation contains seven precise information such as precise instructions on the qualification, submission of auctions, questions and answers, detailed specification on the product being purchased etc. The amount of information contained in the regulation is critical for bidders and suppliers to fully understand the reverse auction system. In addition to that, the information contained in the solicitation permits prevention against corruption as stated by article 9 of the United Nations Convention against Corruption. One of the requirements of the Convention is to prepare and distribute sufficient information relating to procurement procedures. Thus, greater transparency ensues less risk of corruption in a reverse auction process.
The third major common step in most regulations is the assessment of qualification of contractors, such as California or South Carolina. As such, Ohio defines “qualification summary” to include “documents required to be submitted by the bidder in order to determine responsibility.” Utah requires the vendor to agree to“(a) the specifications, and contractual terms and conditions, of the procurement; and (b) be trained in, and abide by, the procedure that the division or the procurement unit with independent procurement authority will follow in conducting the reverse auction.” Sometimes, such step is so crucial that it must happen before the publication of notice of procurement like in South Dakota. The prequalification step is essential in a reverse auction because most of States will award the contract to the lowest bidder. As stated previously, prequalification serves as a tool to assess the technical acceptability of the offer.
Fourth, after the solicitation publication but before the opening of reverse auctions, some states allow questions and answers like Ohio, clarifications like South Dakota and even a pre-bid conference in Utah. For instance, the regulation of Ohio states “bidders shall submit questions electronically through the state's designated web site. Responses to questions shall be posted on the web site in a timely manner. As such, such step seems necessary since it can render the procedure more effective for the comprehension of the procurement requirements as well as ensuring transparency.
Fifth, as to the heart of the procedure, reverse auctions are conducted online as mentioned before. Some states allow that the procedure be conducted by a third party such as Nebraska, North Carolina or Connecticut. In such case, the state agency “contract with a third party to prepare and manage any such reverse auction.” On that record, outsourcing a procedure always bears certain risks. As to ethics issues, just like outsourcing the drafting of specifications, giving the private sector the task to manage the reverse auction process can be a source of conflict of interest, which is “where an entity plays two or more roles that are, in some sense, at odds with one another.” There can also be inefficency issues such as in the federal level. Federal agencies rely principally on “FedBid”, a third party contractor that runs and manages the reverse auctions of the agencies. Relying on “FedBid” does not always benefit the government since a fee is required to use FedBid but agencies sometimes won’t conduct multiple bidding rounds which leads to the same result as a traditional sealed bidding but including an additional fee.
After the companies send their initial bids electronically, most states regulations require Bidders to allow their price below the lowest bid posted on the Internet or bid down their prices such as South Carolina and California, and vendor must update their bids on a real time basis. In such process, States require Bidder’s prices to be revealed but not their identity, the bidders must remain anonymous such as South Dakota and Indiana. Since pre-qualification is crucial in South Dakota, the regulation adds that if a qualified bidder cannot bid, the auction must be suspended/cancelled and rescheduled. This requirement could be explained by the fact that fake-bidders could be working in collusion and registering to the reverse auction but not participating in order to manipulate the prices. Such fake bidders would act as straw men in order to create an impression that the market price should be higher and that the contract is highly desirable.
Finally, the last step is the award. As such, in most states, the award is made to the lowest responsive and responsible bidder like in Iowa or Virginia, which seems similar at first sight to the traditional sealed bidding. Responsiveness of the bid is important because sometimes the prices are driven so low that they are not realistic anymore. Some states regulations require the award to be made to the responsive and responsible bidder whose bid offers the best value like in Kentucky. Such states chose the same reasoning as the European Union’s directive on Public Procurement which authorizes the assessment of auctions either on the basis of the price or on the basis of both price and technical elements when the assessment must follow a “best value strategy.” Following the award, some states like Ohio and North Carolina require that notice of award be made available to public.
These six simple steps found by harmonizing the different states regulation can serve as an inspiration for improving an existing e-RA system or creating one in order to correct the flaws seen in practice at the Federal level.