New GAO Report Shows Agencies Can Do More to Increase Contract Savings with Reverse Auctions

(WASHINGTON, D.C.) – Senate Homeland Security and Governmental Affairs Committee Tom Carper (D-Del.) and Ranking Member Tom Coburn, M.D. (R-OK), today highlighted a new report from the Government Accountability Office (GAO) entitled, “Reverse Auctions: Guidance Is Needed to Maximize Competition and Achieve Cost Savings.”  In the report, GAO found that agencies can save money by better utilizing reverse auction services, a tool that, when used properly, can increase competition and drive down prices. While GAO found that 65% of the auctions conducted by the Army, Department of Homeland Security, the Department of the Interior, and Department of Veterans Affairs involved some level of interactive bidding where multiple vendors submitted multiple bids, GAO also found one third of the reverse auctions did not have fully interactive bidding, meaning that the potential benefits of competition weren’t fully realized. For example, the report also shows agencies conducted 3,617 auctions costing $1.7 million in service fees where only one vendor participated and submitted only one bid.

“Reverse auctions are a promising, innovative way for agencies to save taxpayer dollars. As with any tool, though, there is a right way and a wrong way to use it,” said Chairman Carper. “Today’s Government Accountability Office (GAO) report makes it clear that agencies need better, government-wide guidance to eliminate confusion on when reverse auctions should be used and to ensure that reverse auctions are used properly to maximize competition and savings.  I look forward to working with the Office of Management and Budget to see that it implements GAO’s recommendations and issues guidance in a thorough and timely manner.”

“Today’s report shows that while reverse auctions are one of the many valuable tools available to assistant agencies in saving taxpayers millions of dollars when awarding contracts, much more work is needed to ensure this tool is used the right way,” Dr. Coburn said.  “Agencies should always weigh the potential savings benefits against the cost of tools like reverse auctions to determine how to get the best deal for the taxpayer. I hope that the Office of Management and Budget (OMB) implements GAO’s recommendations to help federal agencies make better use of this innovative approach to saving money.”

Additional highlights of the GAO report include:

  • GAO calculated savings from reverse auctions in 2012, defined as the difference between the target price set by the agency at the beginning of the auction and the final award price of the contract, of $98 million.
  • GAO also noted that, in some cases, agencies are actually paying two fees to use reverse auctions. When agencies buy goods and services under the GSA Schedules contracts, for example, they pay a 0.75% fee that is built into the pricing. If they use a reverse auction to buy off the Schedules, they may also pay an additional fee to the reverse auction vendor. For example, agencies paid a total of $1.3 million to GSA and VA in fees to use their contracts, and an additional $2.8 million in reverse auction fees.
  • GAO found that agencies are also not analyzing the full costs and benefits of reverse auctions effectively and identified a lack of guidance on how to use this tool effectively. As a result, GAO recommended that OMB update federal acquisition regulations and issue guidance to federal agencies to improve their use of reverse auctions.