Back in 2000, Professor David C. Wyld published an initial report on the potential of reverse auctions as a government cost-saving tool. Reverse auctions enable sellers to “bid down” prices for their goods and services, and have become an increasing method for federal procurement. In his second report on the topic, Professor Wyld estimated that use of these procurement techniques would result in as much as $8.9 billion in savings across the federal government. Aware of these potential savings, multiple federal agencies expanded their use of online reverse auctions, and the Department of Veterans Affairs (VA) was no exception.
On June 9, 2003, the VA issued an information letter on reverse auctions. This document provided guidance on the procedures contracting officers must follow in order to acquire goods and services using this auctioning technique.
On March 7, 2012, news broke that the VA has issued a memorandum ordering its contracting officials to suspend the use of reverse auctions as a procurement method. The memorandum, dated March 3, 2012, appears to be in response to numerous complaints by long-time VA suppliers about the application and oversight of this procurement technique. In addition to the memorandum, the VA is currently conducting a detailed examination of reverse auctions, and is drafting a report on how these techniques have been managed by the agency.
While the recent memorandum only applies to the VA, its impact may be far reaching. Experts agree that the existence of the memorandum has put other agencies on notice of the potential problems with this procurement technique. Only time will tell whether other agencies put the brakes on their approaches toward reverse auctions, or increase competition through these techniques.