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Gas prices had gone down a lot in December 2008 when Maricopa County, Ariz., asked its vendor of bulk flour to lower its price of 38.5 cents a pound. A previous spike in gasoline prices had driven up the flour price because much of the commodity's price is tied to the cost of transporting it. But the price had not come down to reflect the now-lower fuel costs. The county uses almost 2 million pounds of flour a year to provide bread to about 8,000 county jail inmates, and Matthew Bauer of the county procurement office contended that lower gas prices should translate into a lower flour price. However, the supplier would not budge on the price.

Maricopa County decided to re-bid the contract using an online reverse auction, a strategic outsourcing tool that reverses the roles of buyers and sellers. Multiple pre-qualified suppliers openly bid against one another electronically in an allotted time frame, prices decrease as the auction progresses, and suppliers are allowed to see each other's bids. Reverse auction solicitation is gaining popularity as a creative solution to help government agencies in tight economic times. Bidding on Maricopa County's flour contract was slow at first, but a flurry of activity in the final hours - eight different prices from four vendors - concluded with a winning bid of 20.5 cents per pound. Ironically, the winning bid came from the same supplier who had earlier refused to budge on price.

The county has repeated the reverse auction for bulk flour every six months since then, thus allowing the changing market to dictate the low bidder and the price. In three years, Maricopa County has saved $976,000 on bulk flour through reverse auctions. "Reverse auctions keep the price competitive so we know we are getting the right price for the flour," says Bauer, who is now procurement supervisor for Maricopa County.

Maricopa County has also begun using reverse auctions for other products ranging from on-site drug testing kits to inmate shoes and canned fruit and beans. Bauer estimates the county has saved more than $2 million in the last year and a half using reverse auctions instead of competitive sealed bids, which only give vendors one chance to provide the lowest bid without knowing what any competitors are bidding. Bauer says that Arizona's procurement code is conducive to using reverse auctions although codes governing other localities might need to be modified to allow use of the tool.

"We have used reverse auctions for commodities when it is easy to bid apples to apples," said Bauer. "It's not the best type of procurement for specifications that are not well-defined or if there are many different products out there to fit your needs." For example, Maricopa County tried unsuccessfully to use a reverse auction to buy inmate mattresses to supply its six jails and detention facilities. The range of products and varied specifications made it impossible for vendors to compete fairly.

Reverse auctions take about the same amount of time as using sealed bids, except the system tabulates the bids automatically, which eliminates the need for a formal bid tabulation. The BidSync software system used by Maricopa County to administer the reverse auctions includes a database that can extend the number of competing vendors. Maricopa has about 20,000 vendors registered in its vendor database, but only about 2,000 or 3,000 usually bid. In the case of bulk flour, Maricopa County had 52 possible vendors in their database and BidSync had another 175. In the reverse auction that followed, all but one of the participants had already been listed in Maricopa County's current vendor list.

Successful use of the BidSync reverse auction technology led Maricopa County to invest in the BidSync eProcure complete e-procurement tool, and the cost was more than offset by savings from the reverse auctions, said Bauer.

A surge in interest

Periscope Holdings provides a reverse auction function as part of its e-procurement solution BuySpeed. The company reports a surge of interest in reverse auctions among public entities looking for innovative ways to lighten their budget burdens. Using BuySpeed, auctions can be conducted online in real time, thus enabling suppliers to track and bid down against competitors. The process ensures the best possible price and lowest cost to government agencies. Reverse auctions can also be conducted online by third-party vendors such as BidBridge.

Brittany Devine, product marketing and client relations specialist for Periscope Holdings, reports that, although costs are the primary driving force, reverse auctions also offer other benefits, such as:

• a shorter solicitation cycle (eliminating the weeks needed to score and evaluate responses);
• greater price competition (vendors can track competition in real-time and have the flexibility to submit multiple bids);
• opportunity to demonstrate vendor diversity (by showing a willingness to use different suppliers); and
• fewer protests.

Two users of BuySpeed Online have realized first-hand many of the benefits of reverse auctions to provide measurable savings for public agencies. Knox County, Tenn., recently led a multi-agency auction in the joint purchase of 164 police vehicles, and the Arizona Departments of Transportation, Game and Fish, and Education have also seen tangible savings from reverse auctions.