March 9, 2009 By Andy Opsahl
Before stimulus money in President Barack Obama's $787 billion American Recovery and Reinvestment Act flows to local governments, they might want to deploy an "online reverse auction" purchasing tool that has saved Norton, Ohio, an estimated $400,000 after only two procurements.
Stimulus money could buy more for local governments with that kind of savings. Using a reverse auction, vendors compete online to offer the cheapest price for whatever the government seeks to buy.
In 2008, Norton used a reverse auction for the first time using a vendor called BidBridge, which hosts the auctions on its Web site. The city sought materials for underground pipelines, and the winning bid for those materials was 40 percent cheaper than the city's engineer predicted. Norton recently made a second purchase of underground pipes using the reverse auction, which came in 20 percent cheaper than the engineer predicted.
Purchasing through BidBridge is free for the buyer because BidBridge takes a commission from the winning bid. The company declined to specify the exact commission, but said it was less than 3 percent.
The auction begins as a half-hour bidding session. Vendors submit their opening prices and watch where those prices rank among competing vendors.
"Over the course of a half-hour auction, they're allowed to adjust their prices and see how it changes their positions. If anyone places a bid during the last three minutes remaining, the clock sets back for three minutes again," said Richard Ryland, city administrator for Norton. That's why auctions frequently last up to two hours, Ryland explained.
He selects the top-five lowest-bidding vendors and examines their offers closely before awarding the contracts. Among other things, he checks the vendors' references to ensure quality. The lowest bidder doesn't always win the auction after this process.
Online Auction Gives More Choices
Ryland said using a reverse auction gave him more access to prospective vendors than the city's traditional process of open bidding. BidBridge sends word out to its list of vendors, which attracts more competition than local advertising, explained Ryland. Last spring, he did a procurement process the traditional way, which attracted four vendors. By contrast, the reverse auction drew 26 vendors. Local laws require Ryland to advertise the projects in publications. Those advertisements direct vendors to the reverse auction.
Ryland is considering buying on BidBridge the city's road salt that is uses to melt snow -- possibly a $2 million purchase. "We use roughly 6,000 tons of road salt a year," Ryland explained.
He also might select a builder for Norton's new fire station using the reverse auction. "There will be a process where [the builders] will have to send some things in to make them compliant -- no outstanding debt with the state. References are checked. All of that will be done prior to the bid," Ryland said.