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Do Reverse Auctions Violate FAR 15.307 (b)?

by Robert Antonio

July 24, 2000

  Currently, federal contracting activities work in an environment where regulation and legislation are not keeping pace with current events.  As federal agencies innovate, they attempt to work within the framework of this existing policy.  However, lagging policy often catches up with the innovator.  For example, the legal forums--including the Comptroller General and U. S. Court of Federal Claims--will use current policy to arrive at any required decisions.  

Recently, our contracting world has been introduced to the online reverse auction.  Under an online reverse auction, suppliers compete electronically in a real-time environment for the government requirement.  The reverse auction was applied using the negotiation method of contracting in Part 15 of the Federal Acquisition Regulation (FAR).  Although negotiation is a forgiving method of contracting, it still has its policies.  So, can the negotiation procedures in FAR Part 15 peacefully coexist with reverse auctions?  

The following table highlights the focus of this article.  That is, when do "discussions" end and when are "final proposal revisions" requested and received in the reverse auction?  The table below provides excerpts from the FAR and the solicitations used in reverse auctions.  Underlined italics are provided to add emphasis.  

Comparison of FAR and Reverse Auction

FAR excerpts

Reverse Auction excerpts

FAR 15.306 (d)  When negotiations are conducted in a competitive acquisition, they take place after establishment of the competitive range and are called discussions.  After receipt of initial proposals and establishment of the competitive range, the Contracting Officer intends to conduct a competitive, anonymous, on-line reverse auction ("auction").  FreeMarkets refers to such an auction as a Competitive Bidding Event (CBE).  This CBE shall constitute discussions with the offerors.  
FAR 15.307 (b)  At the conclusion of discussions, each offeror still in the competitive range shall be given an opportunity to submit a final proposal revision.  The contracting officer is required to establish a common cut-off date only for receipt of final proposal revisions. During the CBE, Offerors may revise their initial pricing proposal through submission of electronic offers during the anonymous CBE.  The final such revision during the CBE will be considered the Offeror's Final Proposal Revision (FPR).  If an offer is submitted within the last minute of the time period, the time period shall be extended for an additional minute beyond the time of that offer (provided the offer was the lowest offer received.)  The time period shall be extended for additional one minute periods if a lower offer is submitted within the last minute.  The end of the last minute during which revised offers are permitted as addressed in this paragraph, shall be considered the close of discussions.

As seen in the table, the reverse auction constitutes discussions.  During these discussions, the final proposal revision is received.  However, this is not consistent with the FAR.  The FAR requires an opportunity for final proposal revisions at the conclusion of discussions.  Additionally, the FAR requires the contracting officer to establish a common cut-off date for receipt of final proposal revisions.  In the reverse auction, the contracting officer neither requests a final proposal revision nor states a specific cut-off time.  That is left to the offerors during the heat of the reverse auction and an offeror may not realize that it has submitted its final proposal revision until after it observes a bid that underbids its offer.  As a result, an offeror determines its own cut-off point during discussions.  Often, that determination is made after it has submitted its final proposal revision.

As used, the reverse auction does not comply with the specific requirements of FAR 15.307(b).  Should reverse auctions be stopped and should this innovation be abandoned?  No!  They should continue through the deviation process or on a designated test basis.  Finally, reverse auctions should be evaluated to determine if they successfully supply the government's requirement and if they are fair to offerors.  If the reverse auction proves successful, it should be incorporated into federal contracting policy.  

 
Copyright 2000 by Robert Antonio

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