WASHINGTON — The use of a new reverse-auction platform to lower contracting costs associated with General Services Administration (GSA) Schedules for the procurement of products and services is raising concern from the security industry.
Reverse auctions have been used by the federal government for about 15 years, largely through the private company FedBid, to foster competition by having agency buyers solicit bids from multiple sellers. In July, GSA launched its own initiative (reverseauctions.gsa.gov) aimed at the purchasing of common office products, equipment and services, as well as procurement under Schedule 84.
Similar to ongoing criticisms levied against FedBid, rather than saving money the new GSA tool threatens to drive out competition and risks a lowering of quality in the work if applied to complex projects such as video surveillance, access control and other life-safety systems, industry stakeholders say.
Reverse auctions “are based on the delusion” that all other factors that should be considered in a competitive bid are totally equal, thereby enabling price to be the only differentiator, says Jim Henry, executive vice president of Kratos Public Safety & Security Solutions.
“Leveling competition to the point that reverse auctions for integrated systems can work is a fantasy that procurement departments want to believe because it makes their job awarding projects simple,” Henry says. “Neither hope nor reverse auctions are strategies that bring best value to end users.”
Following the launch of GSA ReverseAuctions, Don Erickson, CEO of the Security Industry Association (SIA), wrote a letter to the agency expressing concern on several fronts. Erickson wrote the fundamental tenet of the program conflicts with the goal of ensuring that government end users issue awards based on historical best value.
“If a customer is going to award on a best value determination, there are clearly factors other than price considered,” Erickson wrote. “However, only price is exposed to offerors in the reverse auction program and therefore a reverse auction is not the proper venue for a best value competition.”
In support of GSA’s mission to help manage and support the basic functioning of federal agencies, the new reverse auction tool helps drive competition, provides an efficient process for collection of quotes and maximizes transparency to the vendor community, Cara Battaglini, a GSA spokesperson, tells SSI.
“GSA’s ReverseAuctions tool was developed primarily for purchases that can be made on a low price technically acceptable [LPTA] basis. LPTA is designed for items where price is the determining factor in the award. Therefore, reverse auctions function as an efficient and effective method of collecting quotes from vendors,” she says.
Severe margin erosion and lack of transparency have been common complaints from manufacturers and integrators alike as prices will typically decrease as a competitive auction progresses. In preparing for a reverse auction, Kansas City, Kan.-based integrator Cam-Dex Security Corp. will create a worksheet to follow during the live bidding based on a general project specification.
“That tells us where our margins are and things like that. We use a whiteboard [during the auction] and run the numbers as far down as we can to where this is as low as we will go,” says John Wessling, a Cam-Dex technical sales manager. “Then it is a matter of being online and looking at that bid about every 10 minutes. You can do that over a couple of hours’ time, just watching the bid and seeing if you are in the lead or if you lag, as they refer to it.”
Participants are not provided names of other bidding companies nor a dollar amount that would indicate how much they lead in the auction or lag behind. “Even when the bid closes you do not know. You don’t know how much you left on the table or if you left any. It is a crazy way to do business,” Wessling says. GSA ReverseAuctions may especially affect small installing security contractors that don’t have their own GSA contract, according to Lynn de Seve, president of GSA Schedules Inc., an Annapolis, Md.-based government contract consulting company.
As de Seve explains, GSA used to understand that manufacturers do not sell direct to end users, but instead use integrators as resellers. GSA allowed manufacturers to structure their GSA contracts with “participating dealers.” An agreement would be signed with an integrator that held a GSA contract, as well as an agreement with a local integrator that does business with the government but doesn’t hold its own GSA contract. This allowed smaller installing firms to take orders and bill the government. There is no such workaround under the GSA’s new platform.
“The integrator community is really impacted if GSA and agencies start using the GSA ReverseAuctions program to buy security. It is a potential nightmare,” says de Seve. “They don’t realize there are going to be unintended consequences.”