Lowest bidder wins this auction
By Gil Dominguez, Air Force Center for Environmental Excellence
/ Published August 02, 2002
BROOKS CITY-BASE, Texas (AFPN) -- It is similar to any other auction, but with a twist. In the Air Force Center for Environmental Excellence's version, the lowest bidder wins, not the highest.
The environmental center is trying out a "reverse auction" procedure that allows contractors to bid on some center work via the Internet.
It is called a reverse auction because firms try to outbid each other by lowering, not raising, the amount of their bids.
An initial auction involved a small number of companies competing for a job constructing a motorized security gate at an installation in Niagara Falls, N.Y.
The competition began at 9 a.m. and was finished by about 9:48, with the lowest bid coming in at $39,000.
AFCEE people involved in the program's development said they were happy with the way the event turned out.
"I thought it was great," said Roger Wilkson, technical program manager for the environmental minor construction and operations and services, or EMCOS, contract. "We knew what to expect because we had already done in-house testing and conducted some training for the contractors."
The bidding reached its peak toward the end of the auction, which also was expected.
"Most people held their cards close to their chests until the very last," Wilkson said. Contractors were notified in advance that an auction was being held. They were issued a login identification and password so they could access the auction Web site and see all the pertinent contract information, such as the "statement of work."
Contractors who were interested in taking part were asked to submit technical proposals, which were reviewed by Wilkson, the project engineer. "I reviewed the proposals to check for technical acceptability," he said. "Those contractors that had acceptable proposals were free to participate in the auction."
The Web site has been designed with administrative controls that lockout those companies whose proposals did not meet technical requirements and, thus, are ineligible to participate.
"We were extremely pleased at how the auction was organized, coordinated and executed," said Pat McMullen, program manager with Cape Environmental, the firm that submitted the winning bid. "Both the contracting and technical staff did an excellent job of putting it together. The auction went off exactly as they indicated it would."
With only minor modifications, future auctions will operate in the same way. AFCEE officials will set up a date and time for the auction and eligible contractors will login and bid against one another.
"What they are able to see on their end is whether they are or not the current low bidder," said Wilkson. "But throughout the process they are not able to see who the other contractors are. They have no idea who they're bidding against."
In the future, companies will be able to create and change their own passwords, instead of receiving them from AFCEE people. This ability should enhance contractor confidentiality, officials said.
EMCOS contracting officer Gerardo Villarreal, of the environmental contracting directorate, said that the size of the contract will determine the bid decrement; that is, the dollar amount that each company may lower its bid to win the competition.
"Each job will vary as to what that decrement will be," he said. "In this particular contract the decrement was $500. We decided that would be an appropriate amount given the dollar amount for that job."
The auction continues as long as there is bidding going on. If there are no new bids within five minutes of the previous one, the auction stops. A new bid, however, extends the process for another five minutes.
"That keeps someone from coming in with one second left in the auction, submitting a bid and not giving someone the opportunity to respond," Wilkson said.
In another improvement of the auction site, a virtual clock that counts down will be added to show bidders how much time is remaining in the auction.
The company that enters the winning bid is announced as the "apparent low bidder" and is required to send AFCEE an actual cost proposal, which is evaluated by AFCEE officials. If the proposal passes muster, the contractor then submits a confirmation of negotiation letter and is awarded the job.
But if the cost proposal is not acceptable to AFCEE, the government reserves the right to reject that contractor and go to the next lowest bidder.
"That's why when the bidding closes we announce the 'apparent low bidder,'" Villarreal said.
The idea to conduct an auction for AFCEE work was born two years ago during the development of the EMCOS contract. It was suggested by Gary Erickson, AFCEE director.
As its name indicates, the environmental minor construction and operations and services contract is meant to primarily support small-dollar, noncomplex projects on bases in the continental United States.
EMCOS is also a firm fixed-price contract, which means that the price is not subject to adjustments by the contractor. A company agrees to do the work at a particular price and cannot change that amount afterward if it finds that it is costing more to do the work than anticipated.
Center contracting officials emphasize that reverse auction is being tried out on a limited basis on EMCOS only and there are currently no plans to use it outside this contracting tool.
For more information, visit the center's Web site.