Reverse auctions turn sellers into bidders and drive competition.
by Ms. Stacy Watson
In January 2016, Computer Hardware Software and Solutions (CHESS) launched its reverse auction capability through the CHESS IT e-mart website, designed to drive down the total cost of acquisition and increase savings to the buyer. A reverse auction is a method of procurement where the roles of the buyer and seller are reversed to lower prices by increasing competition among vendors. In a traditional auction, buyers compete with each other by offering higher prices to purchase an item from a seller. In a reverse auction, the sellers compete with each other by offering lower prices to sell an item to the buyer. When the market is booming and demand is high, vendors will be competing more directly for the ability to sell to the government. When the market is slow and there are fewer opportunities, vendors will be battling each other to offer the lowest bid each time. This approach to the procurement process supports Better Buying Power and the Army’s initiative to increase competition and drive costs down.
CHESS, part of the Program Executive Office for Enterprise Information Systems, is the Army’s designated primary source for commercial off-the-shelf (COTS) information technology (IT), leveraging the buying power of the Army to offer streamlined acquisition vehicles open to DOD, federal and Army customers. CHESS provides a no-fee flexible procurement strategy through which an Army customer may request quotes or proposals for COTS IT hardware, such as laptops and desktops; software products, from desktop office applications to modeling and simulation software for engineering projects; and IT services, such as program management and database administration. All of this is hosted on the CHESS IT e-mart (https://chess.army.mil/).
Ordering on all CHESS contracts is decentralized, meaning CHESS does not initiate or develop delivery orders. These functions are carried out by the requiring activities, or their local contracting office, who submit requests and place orders directly with vendors based on their own unique needs. CHESS acts as a mediator and provides guidance to the contracting office, the vendors and the customers as needed.
Say a customer needs to order 100 printers for the office. The CHESS IT e-mart serves as the marketplace for the customer and vendor to meet. The customer submits a request for quote (RFQ) or request for proposal (RFP) to CHESS vendors through the “RFx tool” on the IT e-mart. CHESS vendors then respond to the RFQ or RFP with a bid: the price at which they are willing to sell 100 printers.
This is where a reverse auction becomes a valuable tool for obtaining the best prices on commodities. In a conventional auction, a seller places an item for sale and buyers place higher and higher bids until the close of the auction, at which time the item goes to the highest bidder. A reverse auction does the opposite. The buyer submits an RFQ for an item required, and the sellers place bids for the price at which they are willing to sell that item. Rather than submitting only one bid in a regular RFQ, offerors are given the opportunity to lower their prices based on new bids from the other vendors in a competitive bidding process until the auction closes, creating a dynamic RFQ. The reverse auction process offers the ability to conduct robust, real-time price competitions. Rounds of bidding typically start out with slow response rates, but as the bid deadline draws closer, bidding activity increases. This type of bidding leads to continuous price reduction and strengthens competition.
BOX OUT OFFICIAL POLICY ENCOURAGES USE OF REVERSE AUCTIONS
The Army is increasingly encouraging the use of reverse auctions while giving contracting offices reverse auction spend goals for simple, fixed-price supplies and commercial services procurements, as reverse auction policy recently issued by the Office of Federal Procurement Policy (OFPP) and the deputy assistant secretary of the Army for procurement (DASA(P)) policy shows. The Government Accountability Office published a report in December 2013 noting the increased use of reverse auction at a number of agencies, leading to the recommendation that the OFPP issue guidance to help ensure agencies capture savings. In accordance with OFPP and DASA(P), an Army Contracting Command (ACC) memo released in February 2013 outlined reverse auction goals for contracting offices at the following levels:
- 25 percent use of reverse auction for continental United States (CONUS) actions that are firm fixed price supplies and commercial services that have a dollar value greater than $15,000 and less than or equal to $150,000.
- 10 percent of CONUS actions for supplies and commercial services that have a value greater than $150,000 and less than or equal to $6.5 million.
END BOX OUT
Prior to the January 2016 launch of CHESS’s reverse auction capability, there were only two platforms for Army users to conduct reverse auctions: one operated by a commercial vendor, FedBid, and one by the General Services Administration. Their platforms are designed to help contracting officers and agencies identify the proper contract vehicles for their requirements and receive the best value possible for their procurement needs. These platforms serve a wide variety of supplies and services for the federal government—not just IT requirements.
With reverse auction spend goals established for Army users and the popularity of reverse auction as a procurement method continuing, CHESS vendors already were competing for IT requirements, but on third-party platforms that assessed a fee. Seeing a need for more direct Army oversight of IT reverse auctions previously conducted through a third party, and to further cut procurement costs, CHESS stepped in to the reverse auction field. CHESS’s reverse auction capability focuses on IT hardware and software and complements existing platforms. The CHESS reverse auction capability makes possible real-time price competitions for IT hardware and software, without any CHESS fees, and is hosted on the same website as the IT contracts themselves.
CHESS saw an opportunity for cost savings for the Army in the increasing number of RFQs flowing through the IT e-mart. The RFQ tool hosted on CHESS, designed with the decentralized ordering on CHESS’s contracts in mind, allows customers to submit RFQs to vendors on specific contracts and view the requirement description, vendor responses, and any questions in one place. The selection menus and options route a customer to the appropriate contract and require that the information typically needed for a legitimate quote be filled out. For example, a customer who needs to order printers would select the “Printers” category from the “Product Category” drop-down menu. The RFQ tool would then direct the customer to the Army Desktop and Mobile Computing-2 contract, which covers commodity purchases of COTS hardware like printers, and select all vendors from the contract.
The CHESS technical team developed the reverse auction platform using the existing framework of the CHESS RFQ tool familiar to Army customers, providing customers with the same user-friendly experience as submitting an RFQ. Through the reverse auction process, users can solicit quotes from vendors to compete with alternating lower-priced bids from the CHESS contracts. Products available include commodity IT hardware such as laptops, desktops, monitors, printers and a wide variety of software, such as multimedia and design tools, that are guaranteed to have a certificate of networthiness granting approval to run on the Army network.
The ability to provide an efficient, cost-effective, IT-focused alternative to Army customers sets the CHESS reverse auction apart from other reverse auction platforms. Because there’s no fee for using CHESS’s reverse auction capability, Army customers using CHESS to meet their reverse auction goals have received significant savings. From its deployment in January 2016 through September 2016, the CHESS reverse auction capability has processed 153 auctions resulting in cost avoidance estimated over $2.5 million (calculated by comparing the initial bid to the lowest bid; this number does not take into account fee savings).
In addition to cost avoidance, the advantage of using CHESS’s reverse auction capability is direct Army oversight of the entire reverse auction from submission to auction close, leading to reduced lead time from solicitation to award. Contracts available through the CHESS reverse auction capability are managed by CHESS product leaders (contracts experts in the field who know the market and the customer and directly manage the administration of the contracts and relationships with both customers and vendors) and CHESS’s contracting office, ACC – Rock Island. Customers have direct access to the product leaders that oversee each contract should any issues arise.
CHESS’s reverse auction capability is a prime example of making acquisition more efficient and economical. It provides continuous vendor competition for best value to maximize cost avoidance and support the Army’s buying power. It is a cost-effective procurement method for Army customers to meet their reverse auction goals and lower COTS IT procurement costs. The reverse auction capability continues CHESS’s dedication to innovation and capability advancements, and to providing competitive contracts that offer economical, value-added and networthy IT products.
For more information on CHESS and Reverse Auction, visit the CHESS IT e-mart at https://chess.army.mil/ or contact the CHESS Customer Support Center at firstname.lastname@example.org or 1-888-232-4405.
MS. STACY WATSON is the Enterprise Solutions Division director for CHESS at Fort Belvoir, Virginia. She previously served as the Women-Owned Small Business (WOSB) program manager for the Army Office of Small Business. She holds a B.S. in business administration with a concentration in procurement and logistics from Alabama Agricultural and Mechanical University in Huntsville, Alabama. She is a member of the Army Acquisition Corps and is Level III certified in contracting and Level II in program management.
This article will be published in the January – March 2017 issue of Army AL&T Magazine.
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