Auditor-General discounts reverse auction concerns

In 2008 Auditor-General advised against 'Dutch auctions'

The Office of the Auditor General has discounted fears that the Ministry of Economic Development may be flouting OAG procurement guidelines in looking at reverse auctions for government procurement.

MED is seeking software to assist online reverse auctions — where bidders compete to offer the lowest price. They are being considered only a part of an overall evaluation process, where the price is not the only determining factor, says the Ministry for Economic Development (MED).

MED is looking at software to facilitate reverse auction bidding — commonly known as a Dutch auction — for the purchase of goods including computer and multifunction printer-scanner-copier hardware as well as vehicles.

An experienced tender negotiator, Steven Heath, said last week this appears to run against advice by the Auditor-General in a 2008 report on state-sector procurement.

Having evaluated the merit of several potential suppliers, the OAG says, the agency should as a general rule negotiate first with the highest ranked participant. If the outcome is unsatisfactory, it will then negotiate with the next highest ranked participant, and so on down the list until a satisfactory outcome is achieved.

“Concurrent negotiations may be required in limited circumstances [but] must be approached with care to ensure that they remain fair.

“Playing one participant off against another (that is, a ‘Dutch auction’) should be avoided.”

MED spokeswoman Emilia Mazur says the reverse-auction procedure envisaged does not fall under this definition of a Dutch auction.

“A key aspect of e-auctions, as opposed to a Dutch auction is that the lowest bid price is not the only determining factor in procurement decision making,” she says. “An e-auction requires both an assessment of quality and cost prior to an award decision being finalised in an open and fully transparent manner.”

OAG spokeswoman Anna Will says the stage of the process at which MED is considering reverse auctions is earlier than the stage at which OAG advises against them.

“As we understand the type of process MED is currently considering, there is likely to be some kind of pre-qualification process, followed by an online system that is effectively a transparent process for submitting competitive quotes and having them evaluated,” Will says.

“The paragraph in the OAG procurement guidelines is talking about contract negotiations after a market process and any evaluation has been completed. The paragraph is a general warning against concurrent negotiations, and against playing one party off against the other, as this risks creating some unfairness.”