When suppliers benefit from online auctions

At least if they are hoping to break into selling to public sector bodies in the European Union.

As we approach the anniversary of the implementation of the new EU directive on public procurement it’s worth reflecting on some experiences under the new regime.

In a nutshell the new regulations force buyers who are using auctions to build all the weightings for non-price attributes (delivery, quality, service, etc) into the auction. So the auction is no longer just about price, but the supplier in 1st place is the supplier with the best overall value for money.

Why is this good news for suppliers?

1. To win the business a supplier does not need to have the best price. To win the business a supplier needs to offer best value for money.
2. And what the buyer means by “best value for money” is made completely transparent in an auction scenario.

Any supplier who has received a vague debrief after failing to be awarded a contract (or who received no debrief at all) will recognise the benefit of knowing, up front, exactly what the buyer means by “best value for money”.

Feedback from suppliers that I have seen so far is positive towards these kinds of auctions as compared against the traditional price-only auction. But what is now becoming clear is that suppliers are actually better off going through this auction than by not going through this kind of auction.

With these new kinds of auction (jargon: “multi attribute” and “weighted” – the difference is subtle and not important for now, but it’s as well to know the terms) each supplier knows exactly where they stand at any one time. Exactly where they stand means just that: at any point you know whether your offer is the best value for money or whether it is not, and if it is not you will know exactly how much more “value” you will need to add in order to be best value for money.

Any new supplier who is trying to break into a market will recognise the benefit in knowing exactly what the buyer wants and being able to compete against the incumbent on a completely level playing field.

So while incumbent suppliers will never want to encourage competition, new suppliers would be well advised to encourage buyers to run these kinds of auctions.

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