Reverse Auctions and the Changing Competition Climate

On July 9^th, 2013 the General Services Administration (GSA) launched a new website platform for government-managed reverse auctions, reverseauctions.gsa.gov. This program, available through the National Information Technology Commodity Program (NITCP) of GSA’s Federal Acquisition service (FAS) marks the beginning of a change in the way businesses will compete for government contracts.

A reverse auction is an auction process where sellers of products or services compete for business by reducing prices until the auction is over and one firm finishes with the lowest price. As a buyer, this process offers many benefits to the government. Including improving efficiency of acquisitions by reducing processing time and costs; driving competition, which leads to lower prices; increasing transparency and helping small businesses compete with larger firms. The new reverse auction approach can be used through select Multiple Award Schedules and Blanket Purchase Agreements. As of now, the platform is mainly being used for the acquisition of commonly used products and services, including office supplies, laptops, training and installation.

As a business, this new program and the increased competition it creates means one thing: significant price reductions. In the past, the reverse auction process has allowed the government to save as much as 17% on procurement costs. With this new GSA process which, through the BPAs, uses the pre-negotiated discounts as a starting point, business will have to slash prices even further to compete. Before entering into a process like this, it is important to understand the costs associated with the project, and how bottom line profits will be affected as prices and revenues decrease.

There is a fine line between competing to win, and competing to lose. Make sure you understand which side you fall on before your company loses profits in order to win a government bid. If you have any questions, feel free to contact us.