Federal agencies continue to expand their use of online reverse auctions as a procurement vehicle. Online reverse auctions differ from traditional auctions in that bidders bid down the price at which they are willing to provide a particular product or service. Agencies have found that reverse auctions streamline the procurement process and result in significant cost savings to the Government. Online reverse auctions also increase competition and the transparency of the bidding process. MTB Group, Inc. recently filed a GAO protest alleging that the Department of Housing and Urban Development's (HUD) proposed use of online reverse auctions to procure inspection services violated the Office of Federal Procurement Policy Act (the "Act"). The Act prohibits government officials from disclosing contractor proposals or quotation information prior to award.
HUD annually inspects the rental housing units for which it is responsible to ensure that the units are fit for habitation. HUD recently proposed the use of online reverse auctions to procure inspection services and notified potential participants of its decision. HUD informed the potential participants that those who chose to participate would submit quotations to an auction Web site. The auction Web site would display the properties to be inspected, the current lowest quotation and the time remaining in the auction. The auction Web site would not display the names of the vendors or the time at which quotations were submitted. MTB Group protested HUD's proposed use of online reverse auctions arguing that the proposed auction would violate the Office of Federal Procurement Policy Act by disclosing or requiring vendors to disclose their quoted prices.
The GAO noted that it had not previously considered the general question of whether agencies are permitted to conduct procurements using online reverse auctions. The GAO noted that although the FAR does not expressly recognize reverse auctions as a permissible procurement vehicle, it does not expressly prohibit the use of auctions. The GAO did find, however, that HUD's proposed use of reverse auctions is fully consistent with FAR Part 13 which advises agencies to streamline the process of procuring goods and services below the simplified acquisition threshold by using innovative procedures - including electronic purchasing techniques.
The GAO also did not object to HUD's proposed use of online reverse auctions on the grounds that it would result in the public disclosure of each bidder's quoted price prior to award. MTB Group argued that the reverse auctions proposed by HUD violated the Act because the Act prohibits government officials from knowingly disclosing contractor proposals or quotation information prior to award. The GAO found that the Act does not restrict a contractor from disclosing its own quote or proposal information. As applied here, vendors will invoke that exception to the Act by choosing to participate in an auction knowing in advance that their quoted prices will be disclosed to other auction participants. Therefore, HUD's use of online reverse auctions will not violate the Act.
Michael Tuite contributed to this advisory.