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Savvy or Unethical? Should the Federal Government be a Phantom Bidder in Reverse Auctions?
Posted by Don Acquisition,
13 January 2012
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2,725 views
I recently heard from a contractor regarding an experience he had with reverse auctions. A federal agency was conducting a reverse auction using FedBid and he decided to compete (FedBid, Inc., provides a service whereby federal agencies can conduct reverse auctions). Although he submitted several bids, he ultimately lost the reverse auction. When he checked to see who had won, he was surprised to see that the federal agency that was in need of the required items was the low bidder. In other words, the federal agency was submitting bogus bids in an effort to get the contractor to reduce his bid price. The federal agency then contacted him and offered to purchase the items from the contractor at his lowest bid price. Feeling that he had been duped, he told them to get lost.
The tactic employed by the federal agency, called phantom bidding, is not new. Many view the practice as unethical while others see it as a legitimate tactic. In regular auctions, the legality of seller participation in bidding varies from state to state. For those states that allow it, sellers typically must disclose that they reserve the right to participate in the bidding.
In any case, should the Federal Government be allowed to place phantom bids in reverse auctions? Would your answer be different if the disclosure of the practice was required prior to the reverse auction?
The tactic employed by the federal agency, called phantom bidding, is not new. Many view the practice as unethical while others see it as a legitimate tactic. In regular auctions, the legality of seller participation in bidding varies from state to state. For those states that allow it, sellers typically must disclose that they reserve the right to participate in the bidding.
In any case, should the Federal Government be allowed to place phantom bids in reverse auctions? Would your answer be different if the disclosure of the practice was required prior to the reverse auction?
The Federal government should procure goods and services at a fair and resonable price, while permitting contractors to make a reasonable profit. Using phantom bids to drive down prices below what the market offers through legitimate competition is wrong, wrong, wrong.