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.
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 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.Read the full report