Reverse auction: it really doesn’t have to be just about price

I’ve seen a lot of auctions that take into account price and non price factors in the uk public sector. This is because since January 2006 public sector buyers who use auctions must award the contract to the person who comes first in the auction.

Whether it’s Consultancy workers on a 35% price / 65% non-price basis, or electricity on a 90% price / 10% non-price or temporary workers on a 60% price / 40% non-price, these kinds of auction have become pretty much business as usual in the UK public sector.

The private sector has been very slow to adopt this kind of methodology. Private sector buyers prefer to run auctions just on price and then to work out the details of how to make the award afterwards.

There are strong arguments on both sides of considering non price attributes during an e-auction. The significant benefit is that it levels the playing field amongst suppliers, letting them compete at what they are best at and producing a result that (in theory at least) is more easily implementable. Yet it is more work up front. And there does seem to be a perceived “lack of control” amongst some buyers of letting suppliers know this much information.

So it’s noteworthy when a private sector buyer chooses to build in non price factors. We had one such example a few weeks ago, for rental cars.

The potential suppliers were adamant that they would not take part in a reverse auction because they felt competing purely on price was not appropriate.

So the buyer built a dynamic rfp that weighted the participants 80% on price and 20% on non price.

In contrast to a price only auction that typically lasts about 1.5 to 2 hours, this was left open over a 24 hour period.

The potential suppliers could log in at any time to see their overall ranking, taking overall value for money into account. Value for money included other elements of the suppliers’ offers, for example: the percentage of hybrid vehicles in the fleet, the number of on-airport locations, reporting capability, percentage of cars with GPS, number of VIP memberships available, etc.

The result: the openness generated sufficient competition to achieve greater savings than the buyer had thought possible.  Don’t be surprised with this result. Many of this kind of auction I’ve seen have helped the buyer achieve increased savings.

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