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Larry Allen

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Posted: 1/23/2012 - 5 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

The recent announcement in The Washington Post that Revolution Growth, the equity firm owned by Steve Case and Ted Leonsis, made a significant investment in online reverse auction tool FedBid should be met with a wary eye by government contractors. The move signals that FedBid will get a nice infusion of cash, and some well-connected investors who have publicly stated that they want the company to become an online marketplace for billions of dollars in government procurement. The timing of the acquisition coincides with a drive already underway in many Federal agencies to use low price, technically acceptable procurement standards as the sole standard for conducting all of their procurements.

Many contractors have long been uneasy with FedBid as the company aggressively marketed its reverse auction tool to Federal agencies for all sorts of procurement actions. It is not so much a concern with the company’s sole emphasis on low price, as it is that the firm encourages the use of reverse auctions in situations that aren’t suitable for its use. Additionally, FedBid fees have in the past been less than transparent, making it difficult for a winning contractor to know what its own net price was.

While reverse auctions can be well-suited to commodity purchases and other simplified acquisitions, the format does not lend itself well to the acquisition of professional services or to projects such as enterprise-wide IT solutions. When reverse auctions were first used in government in the early 1990’s, both buyers and sellers sometimes realized after the fact that they had either awarded or won a procurement that was not executable because the reverse auction format had not allowed for consideration of multiple variables. The result was either a re-procurement or a significant and costly adjustment to the original award price.

FedBid is already big business. Last year the company assisted with 20,000 procurement actions valued at more than $1.4 billion. Agencies using FedBid can conduct open market procurements, or use existing IDIQ contracts like GSA Schedules or Alliant. As such, an agency decision to use existing contracts does not preclude them from using FedBid as well. 

Ted Leonsis will become FedBid’s new Chairman. Among those serving on the board will be retired Army Chief of Staff George Casey. It seems clear that FedBid will have easy access to the top echelons of government and be able sing the siren song of lower costs into the ears of those who may not understand that no customer, even the Federal government, should always purchase based on cost alone. 

Any advocate for common sense acquisition – contractor or government buyer – needs to be prepared to show that reverse auctions have their place, but are only one option that the government should examine. The commercial sector uses this mechanism for certain purchases, but not all. The reasons why this is so should be made clear. Similarly, not every procurement action should be solely evaluated on price alone.

The message from common sense acquisition advocates needs to be clear, concise, and frequently heard. You can be sure that the message from Revolution will be.

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