While there is no requirement to limit  reverse auctions to commercial items, agencies generally used them to  acquire commercial products and services—primarily for information  technology (IT) products and the lease or rental of equipment. DLA’s guidance, issued in  June 2012, states that the reverse auction pricing tool should be used for  all competitive purchases over $150,000. However, we found that about 95 percent of the acquisitions using  reverse auctions resulted in awards of $150,000 or less. About 86 percent of fiscal year 2012 acquisitions using reverse  auctions—16,906 of 19,688—went to small businesses, in keeping with  the FAR requirement that acquisitions of supplies or services with  expected values of more than $3,000 but not over $150,000 are reserved  for small businesses, with some exceptions.accounted for $661 million (80 percent) of the dollar value of all reverse  auction awards. Most Agencies Use the Same Fee-Based Contractor and Are to Follow Established Contracting Procedures to Conduct Their Reverse Auctions

Four of the five agencies included in our review used the same service  provider, FedBid, to conduct their reverse auctions. Agencies pay a  variable fee to conduct reverse auctions through FedBid, which is no  more than 3 percent of the winning bid. Four of the Five Selected Agencies Used the Same Reverse Auction Contractor

The Army, DHS, DOI, and VA contracted with a company called FedBid  to conduct their reverse auctions during fiscal year 2012. DOD, in its September 2010 Better Buying Power initiative memorandum,  referred to competitive procurements for which only one offer was  received as “ineffective competition.”
Over a third of the fiscal year 2012 reverse auctions conducted by FedBid  for the agencies in our review had no interactive bidding—where vendors  engage in multiple rounds of bids against each other to drive prices lower. Accordingly, the federal government publishes uniform policies and  procedures for federal acquisitions in the FAR, which provides guidance  to federal agencies and that the public, to include vendors, may read to  better understand the federal acquisition process. However, as noted  above, the FAR does not specifically address reverse auctions. In addition, factors that could be considered in government-wide guidance  to help ensure that the intended benefits of reverse auctions are  maximized include:  steps, if any, contracting officers should take when only one bid is  received;  factors contracting officers should consider when deciding whether to  use a reverse auction to place orders under certain contract vehicles,  such as the GSA Schedule; and whether contracting officers should be urged to examine whether the  lowest price, plus any applicable fee(s), actually results in a savings  below the target price when deciding to follow through with an award. Recommendations for Executive Action

To help mitigate confusion about the use of reverse auctions in federal  acquisitions, we recommend that the Director of the Office of  Management and Budget take the following two actions:  (1) Take steps to amend the FAR to address agencies’ use of reverse  auctions. (2) Issue guidance advising agencies to collect and analyze data on the level of  interactive bidding and, where applicable, fees paid, to determine  the cost effectiveness of using reverse auctions, and disseminating best practices from agencies on their use of reverse  auctions related to maximizing competition and savings. They indicated  that, before taking concrete steps to amend the FAR, they would discuss  our findings and conclusions with the FAR and Chief Acquisition Officers  Councils. Appendix I: Scope and Methodology

Our objectives were to determine (1) what agencies are buying through  reverse auctions and trends in their use; (2) how agencies are conducting  reverse auctions; and (3) the extent to which the potential benefits of  reverse auctions are being maximized. We were not able to perform detailed  analysis of DLA data for fiscal year 2012, because the agency collected  only summary level information. To determine to what extent agencies are maximizing the potential  benefits of reverse auctions, we analyzed the data obtained from FedBid,  identifying the government’s target price for the product or service, the  number of vendors and bids for each auction, the lowest bid submitted,  the savings estimated from the use of reverse auctions, and the type of  contract used to acquire the products and services.
Why GAO Did This Study

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. GAO was asked to review issues related to agencies' use of reverse auctions. This report examines (1) what agencies are buying through reverse auctions and trends in their use; (2) how agencies are conducting reverse auctions; and (3) the extent to which the potential benefits of reverse auctions are being maximized. GAO identified five agencies conducting about 70 percent of government reverse auctions. GAO analyzed available data and guidance and interviewed agency officials and contractors. GAO also reviewed a random sample of contract files to understand agency procedures; the results of this analysis are generalizable to all reverse auctions for four of the five agencies in our review.

What GAO Found

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 was not able to analyze data from a fifth agency, the Defense Logistics Agency (DLA), because it collected only summary level information during fiscal year 2012. DLA guidance states that the reverse auction pricing tool should be used for all competitive purchases over $150,000.
Four agencies used the same commercial service provider to conduct their reverse auctions and paid a variable fee for this service, which was no more than 3 percent of the winning bid amount. DLA conducts its own auctions through a purchased license. Regardless of the method used, according to agency officials, contracting officers are still responsible for following established contracting procedures when using reverse auctions.
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. There is a lack of comprehensive governmentwide guidance and the Federal Acquisition Regulation (FAR), which is the primary document for publishing uniform policies and procedures related to federal acquisitions, does not specifically address reverse auctions. As a result, confusion exists about their use and agencies may be limited in their ability to maximize the potential benefits of reverse auctions.

What GAO Recommends

GAO recommends that the Director of the Office of Management and Budget (OMB) take steps to amend the FAR to address agencies' use of reverse auctions and issue government-wide guidance to maximize competition and savings when using reverse auctions. OMB generally agreed with GAO's recommendations, noting that FAR coverage should be considered and that, before taking concrete steps to amend the FAR, they would discuss GAO's findings and conclusions with the FAR and Chief Acquisition Officers Councils.