(Editor’s Note. Starting April 2000, many federal agencies have conducted online reverse auctions. A wide variety of products have been offered and agencies have been praising the results, quoting up to 30 percent savings under estimated costs. Representatives of Congress, the Department of Defense and other departments are proclaiming support for the auction techniques and position papers are being drafted on how to apply the techniques to more complex products and services. Since it is new there has not been a lot published but we did come across one article in the October 2000 issue of Briefing Papers written by Thomas Burke of the law firm of McKenna & Cuneo. The article defines the process, explores the current regulations governing auctions in the light of how a previously prohibited practice has become not only accepted but praised and suggests a few concerns contractors and agencies that use the new technique need to be aware of. The article also addresses some pricing considerations for vendors offering software and support services for auctions and we decided to summarize it here because it provides some useful advise on how to use new commercial item rules for pricing purposes.)

In a "reverse" auction, prospective sellers bid the price down as they compete to provide the products and services sought by the buyer. Typically, a reverse auction held online is hosted or managed by a private company. Offerors submit proposed prices electronically over the internet, often by means of proprietary software and web-based connections provided by a host company. The software and connections permit sellers to see each others’ bids "real time" while concealing the offerors’ identities. Reverse auctions are another tool being used by the government to adopt commercial buying practices, including electronic buying techniques. Like its other commercial practices, the government hopes the new tool will lower prices and reduce acquisition times.

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