ABC recognizes that owners and developers who procure construction services intend to obtain the highest level of quality at the most cost-effective price. Over the years owners have implemented a variety of procurement methods to achieve this objective. Most recently, some owners have begun using a “reverse auction” bidding method to procure construction services.
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ABC's Position on Reverse Auctions Reverse auctions are a form of procurement wherein the buyer posts the project online and contractors respond by "bidding" online. The sealed bidding process is replaced by transparent bidding. The objective of the bidding is to obtain a standard, firm, fixed-price contract.
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U.S. Army Corps of Engineers found that purchasing construction services through reverse auctions did not wield any measurable savings. Instead, reverse auctions encourage "bid-gaming." The reverse auction pilot program, which began in October 2002 and ran through September 2003, was mandated by statute.
In the first phase of the LSU study
"Online Reverse Bid Auctions for Construction Contractors and Subcontractors," authored by James H. Gill, Jr., JD., AIC, and Yilmaz H. Karasulu, PH.D., COSS, the researchers reviewed hundreds of published articles, papers and reports relating to the "auctioning" of commodities and services, with an eye to the use of cost-saving data that could justify the use of reverse auctions.
The review, which excluded advertising materials, revealed primary areas in which online reverse auctions are being used: airline tickets, computers, construction services, cost of utilities, legal services, office furniture, raw materials for manufacturing, removal of nuclear waste, specific machine parts, surgical operations, and U.S. government treasury transactions.
The LSU study's analysis of these published materials exposed a scarcity of information supporting cost-saving claims in all industries, including the construction industry.
The second phase of the LSU study now underway will gauge the impact of online reverse auctions in the construction industry, such as the impact on bidding processes, project relationships and work quality.