 |
Section Links
|
|
What
is this Chapter about?
Key points
The Detail
What is a Reverse Auction?
What Items are Suitable for a Reverse Auction? |
Advertising
Preparing for a Reverse Auction
EU Legislation
Summary
Who should I contact if I want to find out more?
|
|
What is this Chapter about?
|
[top]
|
This Chapter explains what Reverse Auctions are and what is involved
in undertaking one. It also considers the appropriateness of the
technique for Defence procurement and the legal considerations.
|
Key points |
[top] |
-
Reverse auctions are competitions held “on-line”,
with the bid prices visible to all bidders, unless a ranked
auction is held in which bidders only know their rank
relative to other bidders, but are not privy to actual
bid amounts;
|
|
|
|
|
| |
The Detail |
[top] |
What
is a Reverse Auction? |
Reverse Auctions,
also known as “on-line bidding”, are a means of buying
items or services against a published specification where pre-selected
Industrial partners are invited to bid in an on-line auction. All
bids made during the auction are published anonymously on-line,
in the expectation that competitive pressure, when bidders see the
prices bid, will force prices lower as the auction proceeds. With
the exception of ranked auctions in which the bid amounts are not
known to other bidders. The auction is time limited, but arrangements
maybe put in place to ensure that if a “leading” bid
is made very close to the timed completion of the auction further
time is provided to allow other bids to ensure that the lowest price
is obtained. A contract is then awarded to the lowest bidder based
on the terms and conditions published at the outset, during the
contractor pre-selection phase of the Reverse Auction.
|
| What Items are Suitable for
a Reverse Auction? |
[top] |
Reverse auctions rely on competition driving prices down and it
therefore follows that the less complex or specialised the goods
or service being procured, the greater the chance for a successful
auction. Simple commodity items or services which can be clearly
defined and have a wide range of potential Industrial suppliers
will be best suited to the auction process. However, in considering
the use of reverse auctions, it is important to ensure that the
principles underlying the existing procurement process, namely those
of confidentiality, fairness and equity are maintained.
|
| Advertisings |
[top] |
|
It is essential that adverts for goods or services where a reverse
auction is being considered, clearly state:
|
| |
| |
|
|
|
Preparing for a Reverse Auction
|
[top] |
|
It is necessary to select a service provider to assist in the conduct
of the auction. The MOD is considering establishing a corporate
capability for the conduct of Reverse Auctions, but until this corporate
capability becomes available it will be necessary for MOD teams
undertaking Reverse Auctions to select a service provider on a project-by-project
basis. Therefore in the interim, advice on identifying a suitable
service provider should be sought from DCSA through local IS Sections.
For Industry there are a number of potential service providers,
an example being Exostar which has the capability.
Prior to conducting an auction it is necessary to clearly state
the specification of the goods or services to be acquired and to
pre-select Industrial partners. Pre-selection should cover issues
such as technical ability, financial viability, previous Industrial
supplier history, quality etc. The purchaser must ensure that they
are confident that any Industrial supplier taking part in the auction
will be able to meet their business commitments should they win
the auction. Since it would be unreasonable to conduct further checks
or negotiations once the auction commences this pre-selection process
is crucial and should be undertaken with considerable rigour and
well before the auction is due to take place.
The terms and conditions that will apply to the prospective contract
must be stated at the outset and accepted by all prospective bidders.
For overseas Industrial partners, particular attention will be needed
to deal with the issues of currency and timing. If the bid is not
to be in £ Sterling, the exchange rate will need to be agreed
in advance of the auction using an exchange rate calculated in accordance
with a pre-agreed mechanism.
The auction, when it takes place, should be conducted on the basis
of price only with pre-agreed minimum bid decrements (i.e. reductions
in price) that will apply. Other variables (which must be quantifiable,
capable of being expressed in figures and percentages and agreed
with potential bidders during the preparation for the Reverse Auction)
must be fixed at the point the auction begins, but may contribute
towards the scores awarded to bids. For example, a bidder who can
achieve faster delivery may achieve a higher score, if they bid
the same price, as a bidder who cannot deliver as fast, but these
scores must be visible to bidders, along with bid prices. The way
in which an auction is to be evaluated must be very clearly explained
to prospective bidders before the auction commences.
|
| EU Legislation |
[top] |
|
The current EU Directives do not address electronic reverse auctions
because this concept did not exist as a practical methodology when
the Directives were formulated or even when they were last amended.
However, the EU Directives do not currently permit iterative or
repeat tendering and it is the opinion of some that reverse auctions
fall into this category and are therefore not permitted under the
current UK implementing Regulations. The Directives are in the course
of amendment by the EU and are expected to allow for the auction
process and to facilitate e-Procurement generally. It will be some
time before this change to the Directives takes place and is introduced
into UK by Regulation (likely by mid 2004). Until the law is amended,
the utilisation of a reverse auction process should be considered
on a case by case basis, taking legal advice where appropriate.
|
| Summary |
[top] |
The electronic environment can be used for Reverse Auctions which
can facilitate the procurement of goods and services at highly competitive
prices. Considerable effort is required in the initial stages of
arranging the auction to ensure all those taking part understand
the requirement being auctioned, the processes involved, their various
responsibilities and commitments if they should win and that the
result of the Reverse Auction will lead to a formal contract at
the prices quoted on-line. Reverse Auctions are a new way of selecting
a supplier and are not a replacement for a contract.
|
Who should I contact if I want
to find out more? |
[top] |
Grant Lovett, Principal Directorate Commercial
Tel: (01225) 467593
e-mail: pdc-comm@a.dii.mod.uk
|
|
Are there any background documents?
DCTM 39/2002
See Also Chapter 1
|
