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Reverse Auctions: An Inappropriate Procurement Method for Design and Construction Services

On Friday, February 5, 2021, ASA, along with the members of the Construction Industry Procurement Coalition (CIPC), submitted comments to the Reverse Auction Federal Acquisition Regulation (FAR) Request.  They claimed the following in their comments:

Due to the complexities of design and construction projects, the procurement of these services using the reverse auction method fails to take into account the unique mix of services and systems tailored to individual owner needs and budgets, site requirements and the changing composition of the project team, while products and commodities are manufactured with little or no variability. The reverse auction procurement method often favors businesses offering the lowest price, rather than those that are most qualified, which will compromise quality, overlook small businesses, or even require a new bidding process down the road, eliminating any initial savings. Reverse auctions are ultimately inappropriate platforms for procurement of construction services, which require design concepts, key personnel, and technical solutions to be incorporated into any successful final decision.

“Best Value” selection methods are increasingly becoming the norm among federal procurement.  Where price is not the sole determinant, owners are increasingly relying on selection criteria such as costs, past performance, qualifications and unique needs. Reverse auctions do not promote this dynamic. Instead reverse auctions promote an approach in which parties focus only on price. As a result, reverse auctions do not offer federal owners a good way to evaluate non-price factors. Reverse auctions do not guarantee any proven savings over competitive bidding.  Software vendors and other similar industries promoting reverse auctions have not proven that reverse auctions will generate savings in the procurement of construction or will provide benefits of “best value” comparable to currently recognized selection procedures.

Where price is the sole determinant, the sealed bid procurement process ensures integrity by assuring that the successful bidder is the most responsive and responsible competitor with the best price. Reverse auctions ignore this tradition. The pressure and pace of the auction environment removes any assurance bids will be responsive and material to the owner’s needs.

Congress has recognized the significant draw backs of procurement by reverse auctions and has recently enacted further restrictions on its use.  On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act of 2021 (Public Law No: 116-260) which included further prohibition of reverse auctions in federal construction services and directs the FAR to amended within 180 days.