[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
CONTRACTING AWAY ACCOUNTABILITY - REVERSE AUCTIONS IN FEDERAL AGENCY
ACQUISITIONS
=======================================================================
JOINT HEARING
with
Small Business Committee
Subcommittee on Contracting and Workforce
before the
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
WEDNESDAY, DECEMBER 11, 2013
__________
Serial No. 113-48
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Printed for the use of the Committee on Veterans' Affairs
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COMMITTEE ON VETERANS' AFFAIRS
JEFF MILLER, Florida, Chairman
DOUG LAMBORN, Colorado MICHAEL H. MICHAUD, Maine, Ranking
GUS M. BILIRAKIS, Florida Minority Member
DAVID P. ROE, Tennessee CORRINE BROWN, Florida
BILL FLORES, Texas MARK TAKANO, California
JEFF DENHAM, California JULIA BROWNLEY, California
JON RUNYAN, New Jersey DINA TITUS, Nevada
DAN BENISHEK, Michigan ANN KIRKPATRICK, Arizona
TIM HUELSKAMP, Kansas RAUL RUIZ, California
MARK E. AMODEI, Nevada GLORIA NEGRETE MCLEOD, California
MIKE COFFMAN, Colorado ANN M. KUSTER, New Hampshire
BRAD R. WENSTRUP, Ohio BETO O'ROURKE, Texas
PAUL COOK, California TIMOTHY J. WALZ, Minnesota
JACKIE WALORSKI, Indiana
Jon Towers, Staff Director
______
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
MIKE COFFMAN, Colorado, Chairman
DOUG LAMBORN, Colorado ANN KIRKPATRICK, Arizona, Ranking
DAVID P. ROE, Tennessee Minority Member
TIM HUELSKAMP, Kansas MARK TAKANO, California
DAN BENISHEK, Michigan ANN M. KUSTER, New Hampshire
JACKIE WALORSKI, Indiana BETO O'ROURKE, Texas
TIMOTHY J. WALZ, Minnesota
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Veterans' Affairs are also
published in electronic form. The printed hearing record remains the
official version. Because electronic submissions are used to prepare
both printed and electronic versions of the hearing record, the process
of converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
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December 11, 2013
Page
Contracting Away Accountability - Reverse Auctions In Federal
Agency Acquisitions............................................ 1
OPENING STATEMENTS
Hon. Richard Hanna, Small Business Committee..................... 1
Hon. Ann Kirkpatrick, Ranking Minority Member, Subcommittee on
Oversight and Investigations................................... 2
Hon. Grace Meng, Small Business Committee........................ 3
Hon. Mike Coffman, Chairman, Subcommittee on Oversight and
Investigations, Prepared Statement only........................ 35
WITNESSES
Nigel Cary, President, Cox Construction Company.................. 4
Prepared Statement of Mr. Cary............................... 36
Louis J. Celli, Jr., Director, Legislative Division, The American
Legion......................................................... 6
Prepared Statement of Mr. Celli, Jr.......................... 42
Michelle Mackin, Director, Acquisition and Sourcing Management,
Government Accountability Office............................... 17
Prepared Statement of Ms. Mackin............................. 46
William Sisk, Deputy Commissioner, Federal Acquisition Service,
General Services Administration................................ 18
Prepared Statement of Mr. Sisk............................... 52
Major L. Clark, III, Assistant Chief Counsel for Procurement,
Office of Advocacy, Small Business Administration.............. 20
Prepared Statement of Mr. Clark.............................. 53
Jan Frye, Deputy Assistant Secretary, Office of Acquisitions and
Logistics, Department of Veterans Affairs...................... 28
Prepared Statement of Mr. Frye............................... 56
Accompanied by:
Mr. Philip Matkovsky, Assistant Deputy Under Secretary for
Health for Administrative Operations, Veterans Health
Administration
STATEMENTS FOR THE RECORD
FedBid, Inc...................................................... 57
NECA............................................................. 63
COFPAES.......................................................... 66
CONTRACTING AWAY ACCOUNTABILITY - REVERSE AUCTIONS IN FEDERAL AGENCY
ACQUISITIONS
Wednesday, December 11, 2013
U.S. House of Representatives,
Committee on Veterans' Affairs,
Subcommittee on Oversight and Investigations,
Washington, D.C.
The Subcommittees met, pursuant to notice, at 10:11 a.m.,
in Room 334, Cannon House Office Building, Hon. Richard Hanna
[Chairman of the Subcommittee on Contracting and Workforce]
presiding.
Present from Subcommittee on Oversight and Investigations:
Representatives Coffman, Roe, Kirkpatrick, O'Rourke, and Walz.
Present from Subcommittee on Contracting and Workforce:
Representatives Hanna, Bentivolio, Meng, and Chu.
OPENING STATEMENT OF HON. RICHARD HANNA
Mr. Hanna. I will call this to order this morning. Thank
you all for being here. Obviously I am not Mr. Coffman. He is
tied up in a Budget meeting and hopefully he will be here as
soon as he possibly can. And I am going to read my own opening
statement and then we will introduce our witnesses and go from
there.
This morning we are here to talk about reverse auctions,
specifically when they make sense for taxpayers as well as when
they do not. Reverse auctions can be a way to facilitate
competition and increase small business participation, or they
can be a barrier to entry for small businesses and a ways of
evading meaningful competition.
As I have said before no one type of contracting
methodology is inherent good or bad. It is how government uses
these tools that matter. In May my Subcommittee held a hearing
that looked at the use of reverse auctions for construction
services and the testimony we received convinced me that
reverse auctions do not work for these contracts. Therefore, I
introduced H.R. 2751, the Common Sense Construction Contracting
Act of 2013, to restrict the use of reverse auctions for
construction services. However, 90 percent of reverse auctions
are for goods, not services. And today we are going to look at
the other uses of reverse auctions.
On Monday the Government Accountability Office released a
report that suggests that reverse auctions are not being used
properly for other types of goods and services. The GAO found
that last year over one-third of reverse auctions conducted for
agencies had no interactive bidding, the hallmark of reverse
auctions. Yet agencies paid $3.9 million in fees for these
auctions. Furthermore, they found that 24 percent of all
reverse auctions were not awarded to the lowest vendor. And in
27 percent of the cases there was only one vendor bidding.
This raises very serious questions about who is conducting
reverse auctions, how they are conducted, and for what goods
and services they are being used. Despite the fact that reverse
auctions accounted for nearly $1 billion in contracts in year
2012, there is no Federal law or regulation that addresses that
procurement methods. It seems we are making it up as we go
along, and often it seems detrimental to small businesses.
While 95 percent of reverse auctions are less than $150,000,
the amount of small business act reserves exclusively for small
business only reaches 86 percent of reverse auction awards.
This has become so problematic that the Small Business
Administration's chief counsel for advocacy has requested that
the administration at a minimum provide a clear policy
statement to the acquisition community that reverse auctions
must comply with and the requirements that contracts within
this simplified acquisition threshold are to be reserved
exclusively for small businesses.
I am hoping our witnesses today will help us understand the
scope of the problem and what actions we need to take to ensure
that reverse auctions are used in a responsible manner. Our
procurement systems should be efficient, transparent, and
promote competition. That includes small business.
I continue to believe that part of the solution to our
fiscal crisis is finding ways to improve competition, thereby
reducing costs. Small businesses are crucial to being part of
that solution since their participation increases competition,
creates jobs, and encourages innovation. I look forward to your
testimony today, and again I thank you for being here. And I
yield to the Ranking Member Ms. Kirkpatrick.
[The prepared statement of Hon. Richard Hanna appears in
the Appendix]
OPENING STATEMENT OF HON. ANN KIRKPATRICK
Mrs. Kirkpatrick. Thank you, Mr. Chairman, for holding this
hearing today. And I appreciate your vigilance on the matter
that we are examining, the reverse auction process. It is
important to provide oversight on programs and processes at the
Department of Veterans Affairs to ensure the funding Congress
makes available is being spent efficiently and effectively.
I understand that the Government Accountability Office has
recently released a report on reverse auctions where they
looked at what agencies are buying, how agencies are conducting
reverse auctions, and the extent to which the potential
benefits of reverse auctions are being maximized. GAO generally
found that agencies were not always aware of how fees are paid;
agencies do not track the fees; competition and savings are not
always maximized; interactive bidding was absent in over one-
third of fiscal year 2012 reverse auctions; and there is a
general lack of guidance and training on the reverse auction
process.
Mr. Chairman, I am concerned with the findings of the GAO.
I am sure you would agree that lack of guidance, training, and
oversight are very common themes that run throughout the
majority of the report regardless of what GAO is looking at.
While VA's testimony addresses some of the concerns, I am
most interested to hear how they plan to move forward with
reverse auctions and ensure that the process is efficient and
effective. According to the VA the use of reverse auctions has
increased from $78 million in fiscal year 2011 to $305 million
in fiscal year 2012. Because of that increase over a short
period of time, they need to get this right. Veterans expect VA
to do better.
Thank you, Mr. Chairman, for this opportunity, and I yield
back the balance of my time.
[The prepared statement of Hon. Ann Kirkpatrick appears in
the Appendix]
Mr. Hanna. And I yield to Grace Meng, the Ranking Member of
the Small Business Committee.
OPENING STATEMENT OF HON. GRACE MENG
Ms. Meng. Thank you, Mr. Chairman. As the buyer of more
than $500 million in goods and services each year, the U.S.
government represents a major market for small businesses. For
these firms obtaining a Federal contract can take a company to
the next level, allowing it to grow stronger in experience and
add more employees. By having more options to purchase from
agencies can also benefit in terms of quality and price. As a
result, it is critical that small businesses are not left
behind when it comes to Federal contracts.
Over the years a wide range of initiatives have been
enacted to accomplish this. Goals have been established to
measure agencies' small business contracting efforts while the
SBA operates an array of programs to channel contracts to
smaller companies. Among these are initiatives targeted at
increasing opportunities for veterans, women, and minorities,
which together have helped to direct more than $90 million in
total contracting dollars to small firms.
While this sounds like progress, more needs to be done. One
such area that needs greater attention and oversight is
emerging procurement methods. These techniques, such as
multiple award contracts, web-based buying platforms, and
strategic sourcing, are becoming more prevalent, and small
businesses risk being left out.
Today we are going to explore another such method, reverse
auctions, and how agencies are using them, and whether or not
they are benefiting the taxpayer and small firms. Reverse
auctions seem to focus competitive forces on behalf of the
taxpayer. By doing so, prices can be forced lower. Last year
agencies reviewed in the GAO report we will be discussing today
used this method to procure more than $800 million of goods and
services, nearly double their amount from 2008.
However, in part given to the rapid growth concerns have
been raised across a wide range of issues, calling into
question whether reverse auctions are saving money and
providing opportunities for small firms. One such issue was
raised during a hearing held earlier this year in this Small
Business Subcommittee. By driving prices down these auctions
may not be suitable for service contracts, such as
construction, which often depend on overall value.
Unfortunately service contracts continue to be awarded through
this method, potentially shortchanging taxpayers and causing
small contractors to miss out on opportunities.
In its report, GAO has recently brought to light other
issues. This includes a finding that more than one-third of
auctions had only one bidder. One has to question the need for
an auction when there are no competing bidders.
Further concerns were raised that over half of auctions
were used to procure items from preexisting contracts. In many
cases this caused the government to pay fees, one to use the
original contract and another for the reverse auction.
I hope today's auction can shed further light on how these
fee structures operate and if agencies are paying more than
they should be. In theory reverse auctions have the potential
to achieve real savings for the taxpayers, but in practice we
are not there yet. A first step would be incorporating
regulations in the FAR and issuing government-wide guidance as
the GAO has recommended. This could help address many of the
concerns that we will hear about today and help ensure that
reverse auctions maximize the government's value while allowing
small firms to fully participate.
Like other sectors the procurement sector is evolving. Our
job today is to oversee this change and make sure that it is
not doing more hard than good. I want to thank all of the
witnesses who have traveled here today for both their
participation and insights into this very important topic.
I would also like to submit a statement on the record from
the Quality Construction Alliance.
[The statement of Quality Construction Alliance appears on
p. ]
Ms. Meng. Thank you, and I yield back.
[The prepared statement of Hon. Grace Meng appears in the
Appendix]
Mr. Hanna. Thank you, Ms. Meng. We have two witnesses on
our first panel today. Mr. Nigel Cary, President of Cox
Construction Company on behalf of the Association of General
Contractors. Just quickly, you have five minutes. We will be a
little lenient. When you see the yellow light go on you have a
minute left. So thank you, you may begin, Mr. Cary.
STATEMENTS OF MR. NIGEL CARY, PRESIDENT, COX CONSTRUCTION
COMPANY; AND MR. LOUIS J. CELLI, JR., DIRECTOR, LEGISLATIVE
DIVISION, THE AMERICAN LEGION
STATEMENT OF NIGEL CARY
Mr. Cary. Thank you for inviting the Associated General
Contractors of America, AGC, of which I am a member, to
testify. AGC represents over 25,000 construction contractors,
suppliers, and service providers across the Nation.
As you stated, my name is Nigel Cary. I am employed at Cox
Construction Company and was President of the firm for 20
years. We are a Federal small business construction contracting
firm based in Southern California that specializes in work for
government agencies.
Since Cox's founding in 1979 we have been awarded over 150
public projects ranging in size from $25,000 to $30 million.
For our work we have won Construction Contractor of the Year
awards from the U.S. Army Corps of Engineers four times. This
success begins with the need to submit accurate and complete
bids.
Today I will discuss why my company and many other
construction companies, both small and large businesses, do not
participate in reverse auction procurements. Reverse auctions
are a cost only competition suitable for the procurement of
established manufactured goods that have little if any
variation in their design, manufacture, or use. This definition
is confirmed by GSA on their reverse auction Web site.
Frequently asked question number one states GSA reverse auction
is an efficient and cost effective platform for buying non-
complex commodities and simple services.
Construction, however, is a complex service that is project
specific and inherently variable. Each contract is subject to
unique requirements and conditions. No two construction
projects are ever identical in their scope or execution. Thus
from the outset construction services do not belong in the
intended or stated use of Federal reverse auctions.
Furthermore, contrary to their intended use reverse
auctions do not guarantee the lowest price. Each bidder
recognizes that they can provide successively lower bids as the
auction progresses. As a result, a bidder has no incentive to
reveal and subsequently may never offer its best and lowest
price.
Reverse auctions create an environment in which bid
discipline is critical but difficult to maintain. As prices are
lowered a construction contractor could be faced with having to
seek better pricing from subcontractors and suppliers for 20 or
more components of the project. With smaller staffs and
resources, a small business may not be able to keep up with the
fast pace of rapidly changing prices and may inadvertently
underbid a project.
The risk of pricing and judgment errors in the compressed
auction timeframe is huge. For this reason my company, despite
over 30 years of experience, will not participate in any
reverse auction. Many other construction companies take the
same position, that the risk does not justify participating.
Thus the government is receiving bids from a reduced number of
companies, limiting competition to the detriment of the Federal
government and taxpayers.
This should not be news to Federal agencies. Following a
2003 pilot study and report the U.S. Army Corps of Engineers,
the largest and most experienced Federal construction agency,
does not procure constructions services through reverse
auctions.
We find it unfortunate and misguided that each Federal
agency learns the mistake of reverse auction procurement for
construction on its own. This neither benefits the construction
industry, small business, or the American taxpayer. As such,
AGC holds that the only solution is for Congress to enact law
that prohibits reverse auction procurement of construction
services. AGC therefore supports H.R. 2751, the Common Sense
Contracting Act of 2013, since this bill would prohibit Federal
agencies from using reverse auctions for construction contracts
suitable for award to small businesses.
Thank you for this opportunity to provide the views of the
construction industry in this important matter.
[The prepared statement of Nigel Cary appears in the
Appendix]
Mr. Hanna. Thank you, sir. Mr. Louis Celli, Director of
Legislative Division of the American Legion. Thank you for your
service and thank you for being here, sir.
STATEMENT OF LOUIS CELLI, JR.
Mr. Celli. Thank you. As noted in all the opening remarks
the American Legion also recognized that in 2012 more than one-
third of the reverse auctions conducted by FedBid had no
interactive bidding. Seventy-six percent of all auctions went
to the lowest bidder. Government wide, 23 percent of reverse
auction contracts were either the same price or more expensive
than the established GSA price, and for the Veterans Health
Administration that number was as high as 35 percent. In a
significant amount of auctions there was only one bid and the
agency still had to pay the three percent on top of the cost of
the procurement, at a total cost to the government of $4
million for these one off awards which are becoming
increasingly of concern to the Federal government.
Chairman Hanna, Chairman Coffman, Ranking Member
Kirkpatrick, Ranking Member Meng, and distinguished Members of
these Committees, on behalf of Commander Dellinger and the 2.5
million members of the American Legion, I thank you for holding
this hearing and thank you for inviting the American Legion to
share our views and research with you regarding the
government's use of reverse auctions. My complete testimony has
been submitted for the record so I will briefly highlight some
of our findings for you now.
World War II veterans are known as the Greatest Generation.
Not because of what they did during the War, but because of
what they were able to accomplish after the War was over when
they came home. As these veterans came home there were few jobs
and even fewer opportunities. Companies that grew large from
war production were impossible to compete with and were winning
all post-War government contracts. Which is why Congress
introduced the Small Business Act.
The Small Business Act regulates how government interacts
with and protects small businesses. Coming off the Great
Depression of the thirties, the Small Business Act helped the
United States get back on her feet and become the strongest
economic superpower on the planet. Reverse auctions are not in
the Federal acquisition regulation. They were not part of the
Small Business Act. And as a matter of fact, all of the pending
legislation considered before this Congress seeks to restrict
the use of reverse auctions.
The reasons for this are numerous. Yet the only real
argument for using them is to drive down prices. Since small
business accounts for almost 90 percent of all reverse auction
bidders, it is the small businesses who are suffering the most.
Reverse auction advocates claim that reverse auctions save
contracting officers time by as much as eight hours per
procurement. The American Legion is having a difficult time
reconciling those numbers and those claims based on the work
that is involved in purchasing a procurement off the GSA
schedule with a credit card versus going through the reverse
auction process to purchase that same GSA schedule, product, or
service.
The American Legion works with hundreds of veteran business
owners and has consistently received negative reports regarding
the reverse auction process. The most common comment we hear is
that the process is unfair, deceptive, and fraught with
cheaters. This is not a characterization by the American Legion
as to the quality of reverse auction services, it is only
offered as a perspective of what the overwhelming opinion is
regarding reverse auctions in the veteran community. From our
research we found that the number one problem with the reverse
auction system is that it poises the Federal government to be a
predatory position without highly skilled and highly ethical
oversight mechanisms in place to ensure that the government is
not being wrongly enriched by creating an overbearing
procurement process, then places reverse auctions in a
continued recipe for disaster.
Another concern we have is the possibility of
misappropriation of slush funded tax dollars. Congress
appropriates money for specific purchases based on forecasts
submitted by the administration and agencies. If these
purchases are then procured below what is appropriated then any
saved dollars should immediately be returned to the Treasury
and not reprogrammed for wish list items that Congress did not
appropriate funds for in the first place. When these processes
boast savings, what actually happens to that money? If it does
not go back into the Treasury then the American people are not
benefiting from those savings and the professed savings are not
ever actually realized. The only way to make sure that the
process is fair, to guarantee that the Federal government is
statutorily prohibited from purchasing goods or services
through reverse auction process below what is deemed to be fair
market value. It is up to you to protect small business. It is
up to you to help this country wrest itself from the greatest
economic depression since the 1930's. And it is up to you
whether or not you decide to take charge and turn this
generation of returning veterans into a generation that the
Greatest Generation would be proud of. What are you going to
do?
Thank you again for inviting the American Legion to
participate in this hearing, and I look forward to answering
your questions.
[The prepared statement of Louis Celli, Jr. appears in the
Appendix]
Mr. Hanna. Thank you. Thank you very much. Mr. Celli, thank
you. What I get from both of your testimonies is basically
there is no purpose, no good purpose in reverse auctions. We
had somehow assumed that it might work with items that are
commonplace, that are more or less commodities. But even with
what you just said, even in that case, just to reiterate, we
found that even items that there was a price listed, that
oftentimes we are paying more than that in the reverse auction
process. And in fact, just so I can hear it twice, we are
actually paying a fee to do that, to accompany. That is your
understanding, too?
Mr. Celli. That is correct. In the extremely limited
circumstances under which reverse auctions might be
appropriate, is it worth supporting an entire procurement
system based on those few circumstances?
Mr. Hanna. I understand. And is there an overall benefit?
And you think not?
Mr. Celli. We think not.
Mr. Hanna. Mr. Cary, what you said was very clear to me,
having been in construction for 30 years myself. But in your
case, I mean it is effectively, if I could sum it up, you view
this as a race to the bottom in terms of the way the process
unfolds because there are so many elements to bidding on a
construction process that you simply cannot click away at a
computer and lower your own price. You wind up with perhaps the
least qualified, that company that is most desperate, or
looking for cash flow, or whatever it is. The time and the way
the whole process engages, contractors, you are not able to
get, almost by definition, you are unable to get a qualified
response every time there is a new bid. Do you want to speak to
that, if you consider that accurate?
Mr. Cary. Yes, that would be accurate. You know, the way
the construction industry works, as a general contractor we are
reliant on a large number of subcontractors and suppliers who
have to provide pricing for every project, project specific
pricing. To be trying to reach out to, and I picked a number of
20, suppliers or subcontractors, you know, even on a small job,
it is just virtually impossible. Because they are all going to
start at their highest price. They are not going to give you
their best price straight out knowing that they have an
opportunity to get more than their best price.
Mr. Hanna. So this is kind of an example of something that
looks good, sort of smells okay, but just in the real world it
is not practical?
Mr. Cary. Exactly. In the real world this would not work
and is just not practical.
Mr. Hanna. Mm-hmm. You may have subcontractors of 20 or 30
different trades, electricians, plumbers, whatever they are,
and they are not sitting in that room with you lowering your
price to compete with someone from another state, perhaps
another country, I do not know, probably not, who may not know
what they are doing. Or may not be----
Mr. Cary. That is correct. So the opportunity for making
mistakes, or for somebody to, you know, underbid a project on
the false pretense that, well, Company A can do it so I can do
it for $1,000 less.
Mr. Hanna. So there can be a fundamental disconnect between
value, outcome, and the process?
Mr. Cary. Well the reverse auction process totally ignores
value, which is where most Federal procurement is now looking
at, is best value procurement. Which is a combination of price
and prior experience, or specific experience that you bring to
the table for that project. Reverse auction process would
completely ignore that.
Mr. Hanna. I am going to yield to Ranking Member
Kirkpatrick. Thank you.
Mrs. Kirkpatrick. Thank you, Mr. Chairman. Mr. Cary, it is
clear that you do not think the reverse auction process should
be used for construction. Do you see a place for it in other
procurement process outside of construction?
Mr. Cary. I thought I did until I started reading these
reports, yes. I really cannot speak to that. I am only familiar
with the construction industry and our processes. And yes,
certainly on the face of it it seems like a great idea. But as
I read the reports that have been put out here, there is a lot
of problems. And I think it was probably time to put a hold on
this process until it can be thought through and really managed
properly if it is to continue.
Mrs. Kirkpatrick. I am curious about a statement in your
written testimony. On page five you say that the process is
detrimental to the relationship between the buyer and the
supplier. Can you elaborate a little bit on that? What you see
happening there?
Mr. Cary. Yes. That is referring back to the best value
proposition of construction. Where, you know, federally, on the
Federal side and pretty much exclusively in the private sector
a construction contract is awarded on the basis of best value,
where the contractor brings his services, his team, his
experience as well as his price. And it may not necessarily be
the best price that provides the best value to the customer, in
this case the government agency who is buying that service.
Mrs. Kirkpatrick. When did you first interact with the
VISN, with the VA Integrated Services Division? And can you
describe what your experience was with them?
Mr. Cary. I am speaking for AGC, yeah.
Mrs. Kirkpatrick. Yes.
Mr. Cary. We have not been able to really interact with the
VISN. We are talking to their headquarters of procurement for
the VA here in Washington, and they are receptive to talking to
us, and we are trying to arrange a meeting with them in January
to follow up. But it is unclear to us at this point how much
control they have over the VISNs and whether their policy would
get down to that level or those regional offices.
Mrs. Kirkpatrick. Okay, thank you.
Mr. Cary. We hope to resolve that.
Mrs. Kirkpatrick. Okay, thank you. Thank you. I hope you
will keep the Committee posted on that progress. Mr. Celli,
does the American Legion have an official position on reverse
auction process?
Mr. Celli. While we do not have a specific resolution that
specifically addresses reverse auctions, we do have a position
with regard to the way veteran contractors are treated in the
marketplace, which completely covers the scope and dynamic
aspect of reverse auctions, in which we are opposed.
Mrs. Kirkpatrick. Would it be possible for you to provide
that to the Committee?
Mr. Celli. It is mentioned in my written testimony and
there is a link in my testimony which will take you right to
that as well.
Mrs. Kirkpatrick. Okay. To that process?
Mr. Celli. But I can send a copy over as well.
Mrs. Kirkpatrick. Okay. Thank you. You know, the VA has
suspended the use of the reverse auction process. What do you
think is the best next step for the VA to take?
Mr. Celli. Me?
Mrs. Kirkpatrick. Yes, Mr. Celli, yes.
Mr. Celli. No problem. Well just suspending the process to
begin with is the right step to take. If they do plan to
reinstitute the reverse auction process I think there is an
extremely large amount of oversight that needs to happen. And
it needs to be done with a focus on being fair to the small
business and not being in an overbearing manner, squeezing them
down to their last dime. And it also needs to reflect upon
established pricing models that are already accepted throughout
GSA.
Mrs. Kirkpatrick. Would your opinion about reverse auctions
change if as Ranking Member Meng talked about there was a
standard or something put in the FAR that would give guidance
on how they are to be used?
Mr. Celli. You know, I just think that we are putting too
much effort behind a procurement vehicle that really is not
necessary. I think that GSA was primarily established to
provide the best possible price to the government and fair
market value. So if you already have that program in place,
what would be the need then to institute yet another tool to
try to accomplish that same goal? And in addition use the GSA
vehicle as a means to use that new tool? It does not really
make a lot of sense.
Mrs. Kirkpatrick. Okay. I thank the panel for being here
and I yield back.
Mr. Hanna. I yield to Chairman Coffman.
Mr. Coffman. Thank you, Mr. Chairman. And I just want to
thank you for your leadership on this issue, Mr. Chairman, and
Ranking Member as well from both the Small Business Committee
as well as the Veterans' Committee. Mr. Cary, how has the fact
that OFPP has not provided any guidance on reverse auctions
affected how they are implemented?
Mr. Cary. We see that as a big problem. Because agencies as
you get down regionally, you know, to the smaller levels are
going out, seeing no guidance on this, and really nothing from
stopping them to do it, using reverse auctions in situations
where they are just not appropriate, and for complex services
that they do not fit the definition of reverse auctions to
begin with and they create something that is very difficult for
people to propose on and compete in.
Mr. Coffman. Do you think that in terms of VA's procurement
is there anything that they do in terms of procurement that
would fit this current reverse auction system?
Mr. Cary. Speaking outside my expertise, I would assume
simply procurement of materials, supplies would fit. But again,
that is not my expertise. So I am looking at that from the
outside thinking that that is what would work.
Mr. Coffman. Okay. Mr. Celli, how does the Legion's Small
Business Task Force view reverse auctions?
Mr. Celli. Overwhelmingly the American Legion Small
Business Task Force is against small auctions and extreme----
Mr. Coffman. Reverse auctions?
Mr. Celli. Reverse auctions, sorry. And extremely
distraught by them. Overwhelmingly, without fail. We could not
find one business owner who thought that reverse auctions, even
business owners that are in our Small Business Task Force that
have been successful using them do not think that they are a
good use of their time, their effort, their money, or a good
value for the government.
Mr. Coffman. Okay. Thank you, Mr. Chairman. I yield back.
Mr. Hanna. I yield to Ms. Meng.
Ms. Meng. Thank you. Mr. Cary, each construction offers its
own unique set of factors that will help determine the cost of
each project. For example, a company constructing a building in
my district in New York will not face the same conditions as a
firm that has a project in Florida. Do you believe that the
reverse auction process allows the agencies to consider the
variables that construction projects face?
Mr. Cary. No, we do not. Again, being purely price based it
does not take into consideration the experience of the company
proposing and the team that it would bring to that project. And
those are really vital components in the award of an overall
best value award for any construction project.
Ms. Meng. Thank you. Mr. Celli, with the unemployment rate
still hovering around seven percent, it is vital that we use
tool that spur job creation. In your testimony you discuss
concern that reverse auctions will lead to decreased employment
opportunities for veterans. Can you please explain why this
would occur?
Mr. Celli. We would be happy to. The reverse auction
process is probably perfect for that single entrepreneur
sitting in the basement in front of a computer passing goods
and services from the distributor directly to the Federal
government. That does not promote any type of overhead. So the
businesses that thrive are the businesses that are able to hire
more personnel, hire more veterans, and grow their businesses
to such a degree that they can offer a greater scope of
products. So if the government is going to continue to try to
beat small businesses down to their last dollar the result is
not going to be small business growth. It is going to be
decline and therefore they are going to hire less veterans.
Ms. Meng. What are some examples or procurement methods you
believe would allow small businesses to grow and hire more
veterans?
Mr. Celli. You know, the procurement processes that are in
place. And make no mistake about it, there is no simple way to
procure goods and services for the Federal government. You
know, it is an extremely legally difficult process. But those
businesses that are able to get through those hurdles to get a
GSA schedule, to successfully bid on a project, those are
businesses that have been proven that they have a strong
business and a good handle on the procurement process and an
understanding of the way the laws of the Federal government
work, specifically with regard to the Federal Acquisition
Regulation. So you know, the Federal government already has
some very successful tools that they are using. We have not
found the reverse auction process promotes that. As a matter of
fact what it does is it then opens up competition to businesses
that have not been tested, that have not been through that
process. And it possibly opens up the Federal government to
businesses that cannot perform.
Ms. Meng. In your opinion what is the number one challenge
and example of problems that your members are personally facing
when it comes to the process?
Mr. Celli. The reverse auction process?
Ms. Meng. Yes.
Mr. Celli. Specifically that the reverse auction process
can when it is a common item drive the final winning price to
below market value, and in many cases to below the actual cost
of the item for that vendor. That is the single most, the
single largest complaint that we receive and the single largest
challenge. And we see that in many cases disrupting the
relationship between the distributor and the manufacturer. If
it is an open competition and I am a distributor for XYZ Corp.
and I am an authorized reseller, I buy it from the manufacturer
at $10, I have to sell it at at least $10.01 in order to make a
profit. But if the manufacturer is able to compete in that same
process they can easily sell it for $9.99, at which point I
cannot even compete. And if I do, if I compete at the thought
process that I am going to use this as loss leader just to get
some government attention and maybe sell consumables that
support that product later at a higher price, it really becomes
a shell game.
Ms. Meng. Thank you. I yield back.
Mr. Hanna. I yield to Mr. Roe.
Mr. Roe. I thank the Chairman for yielding. I apologize for
being a couple of minutes late. We got some bad intel and
started off in the Rayburn Building this morning hunting for
this meeting, so I apologize for that. And Mr. Chairman, I
would like to submit for the record the statement of the
National Electrical Contractors Association, if I could.
Mr. Hanna. Without objection.
Mr. Roe. I thank the Chairman.
[The statement of National Electrical Contractors
Association appears on p. ]
Mr. Roe. Let me I guess help understand for me a little bit
better. I love Ebay. And I am trying to understand, and I love
buying guitars. So I will bid on some guitars and sometimes you
will see one out there that the price is not right and you will
get no bids. And what I am trying to figure out, and I do
understand there are products out there that you purchase that
have almost no margin, I get that, and that is a tough business
to be in when you are in a very low margin business. And I
guess what I am trying to understand is, in FedBid the concept
I like because it allows you to find the, as you pointed out,
the best product at the lowest price which is what we should be
trying to do. But it is not working. A third of the bids, when
I read the material this morning, only are a single source
bidder, just one bidder. And Ebay you can turn down if you do
not meet a certain value, and I am trying to understand what we
can do. If you do not hit the price that the seller is willing
to sell it for, I mean, obviously you could buy a $4,000 guitar
for $2, I would buy as many of them as I could get. But the
seller is going to say, ``This is worth that, and I am not
selling it below that.'' Is that something you could do in
FedBid?
And just for you all, Mr. Cary you also, how, why is this
not working? Because my instincts tell me, shoot, it works
phenomenal on Ebay. You can find out around the world what
something is worth. You can get the value of it. It might not
be what the seller thinks the value is worth but what the
market will pay for that particular item. Why is that not
working?
Mr. Celli. Well Dr. Roe, I think that you brought up an
excellent analogy. And Ebay, if you remember, those of us who
were around when Ebay first started, it became almost a fever
to bid. And at the beginning of Ebay what you ended up with was
a lot of folks who overbid for products that they ended up
overspending for because they got involved in that emotional
fever bid. So----
Mr. Roe. I have a wife, though. And that usually reduces
that fever a little bit.
Mr. Celli. There are, you know, Ebay has over the years now
become a much more commonplace to purchase new and used goods.
But with Ebay there are safeguards in place because the seller,
as you mentioned, can start a bid at a particular price, or
mention that they will not go below a certain price. And with
the reverse auction process that same, it is new, it looks like
a window of opportunity for businesses that were not previously
in the Federal procurement arena. They may not completely
understand what their responsibilities are once they win that
procurement. There, as Mr. Cary points out, the more complex
procurements are much more difficult to put into the reverse
auction process because there are far more nuances that may
need to be discussed before the winning bid is selected. And if
you were buying only ballpoint pens it might be easier, but
then there is already a mechanism to do that.
Mr. Roe. Is the sealed, what I am familiar with as a public
official, as a local official, is the sealed bid process. Where
you go in, you see what the specification, just like in the
contracting business, Mr. Cary I know you are. You see the
specifications in any particular, whether you are building a
bridge or a building or whatever. And the lowest bidder who
meets those specifications wins the bid. And you do, as you all
have pointed out, you do learn who the good people are. Pretty
soon you figure out who the good people are, and the people who
meet those specifications time after time after time. And I
have not necessarily always accepted the lowest bid, but the
best bid. So sometimes the lowest bid, I mean, you know, the
old adage would you like to go into space on the lowest bid? I
think a lot of times we do not do that and we do it for a
reason, because our experience tells us that the lowest bid may
not be the best bid. Is that a process that could work? Where
you just have a sealed bid, Friday afternoon at 1:00, you open
the bids, the lowest bidder that meets the specifications gets
the contract?
Mr. Cary. That would be the traditional way of procuring
construction services, yes. It has worked for years. Today it
has evolved more to best value. Most agencies are now using
best value, where it is either a combination of your price and
your experience for the project, or technically acceptable low
price. Where the bidders are in a word screened, if they reach
a certain technical bar then those bids are considered and the
low price of the bidders who were deemed above that bar is
accepted. Those work very well. Agencies use them. You know,
over the last ten to 20 years litigation in construction has
vastly decreased. And I think the government is receiving a lot
better value for its construction today than it used to. So
there are established processes that work, yes.
Mr. Roe. Okay, thank you. I yield back.
Mr. Hanna. Ms. Chu?
Ms. Chu. Yes, thank you. Mr. Cary, you talked about
specific examples of where the reverse auction does not work.
In particular types of contracts where it just does not come
down to a simple commodity, commercial item, or maintenance.
You talked about the VA Northern California Healthcare Systems
and the Carl Vinson VA Medical Center in Dublin, Georgia. Could
you elaborate on those examples to show how it does not work?
Mr. Cary. Yes, certainly. You know, not having bid on the
projects I cannot get into all the details. But looking at the
description and knowing what is involved in a construction
project, those were clearly major projects, renovations in
existing, working hospital facilities, that require a large
number of services provided by subcontractors and suppliers.
Technically complex procurements where the experience of the
proposers, you know, needs to be considered alongside the
price. You do not want the low price coming in, as was stated,
building a rocket to go to the moon. You know, you are going to
look at the experience of that contractor. You want someone who
is familiar with infectious disease control, safety
requirements inside a working medical facility. There is a lot
more to it than just the low price.
Ms. Chu. In fact you said for the VA medical center it was
supposed to be a simple repair or alteration of structure but
it was a complete roof replacement.
Mr. Cary. There is a big problem that I did not mention in
my oral testimony today of misinterpretation, yes. And this,
when you look at the GSA schedule also they have a Schedule 56
that allows some construction services. The big problem is that
when you get down to the regional or the local level, those
services can be easily misinterpreted and expanded to what is
really a full on construction project, not a simple supply or
service.
Ms. Chu. Right. Mr. Celli, you did a survey of your members
regarding reverse auctions and they were overwhelmingly
negative. Can you say who participated in the survey and what
was the overwhelming kind of specific thing that they had to
say?
Mr. Celli. I can. I do not have the names right here in
front of me but I can certainly provide that to your staff
afterward because the businesses have agreed to share their
stories with you, so we are happy to do that. And with all the
members, as a matter of fact.
Overwhelmingly again, you know, there is a huge mistrust in
the system. They do not know who they are bidding against or if
they are even bidding against a person. We find out later that
the FedBid system in particular is specifically designed in
such a way that it can be programmed to bid against nobody. It
can be programmed by the buyer to automatically lower the bid
until it gets to a certain level, which is a little big
disingenuous in the bid process. There are some other concerns
about legal bidders, bidders who are providing gray market
products versus authentic products. So there are a lot of
question within the community about the legitimacy of the bid
process.
Ms. Chu. You also had some recommendations for government
if it is going to continue to use reverse auctions. What are
some of those recommendations?
Mr. Celli. Well first and foremost there needs to be a
safety mechanism in place that does not allow government to
purchase an item or a service below market value. There is
really no justification for that. It is a slippery slope for a
small business to get into. They may be willing to risk it at
the cost or in the hopes that they will ultimately get more
business from the Federal government later, but it is not a
good practice for the Federal government to prey on small
businesses in that way. So the first safeguard I would say is
to make sure that good market research is being conducted to
establish what the minimal acceptable price would be. The other
would be to just completely get rid of the leader lag
indicators, as mentioned by Mr. Cary a few minutes ago, almost
as a sealed bid process. If that is going to be your bid, then
that is your bid. And professionals who are in this arena know
what they can afford to bid and that is what their bid is going
to be. More outreach training, I think that if they do plan to
continue this more outreach training for small businesses I
think is critical. And collect the fees directly from the
buyer, not the seller. That is another disingenuous practice.
When you tack three percent onto the final price from the
buyer, show the buyer a three percent increased price, deliver
those funds then to the small business when it is the buyer's
responsibility to pay that fee and then go to collect that
three percent from the small business. Why does a small
business have to be burdened with paying the fees of the buyer
if it is the buyer's responsibility to pay the fees?
Ms. Chu. Thank you. I yield back.
Mr. Hanna. Mr. Bentivolio?
Mr. Bentivolio. Thank you, Mr. Chairman. I am going over
this and it, you know, I represent a constituency that likes to
pay less. They want spending cuts. And it seems to me that a
way to do it is take the lowest bidder. And market value really
is based on the market. If the market is willing to sell it at
one price, I am willing to buy it at that price, that creates
the market, right? Do we agree?
Mr. Celli. No, I actually do not agree. Not necessarily.
Mr. Bentivolio. Okay.
Mr. Celli. And the reason that I disagree is because when
you throw outliers into the equation you then distort and warp
what the true market value actually for most people when you
have one or two that are willing to subvert their own pricing
structures simply to get into the market. And again, it poises
the Federal government as a more overbearing monopolistic type
of buyer. And that is not the responsibility of government.
Mr. Bentivolio. Okay. And I understand and I agree with
you. So how does, Mr. Cary, can you elaborate on how the
private sector deals with this? Because they want to maximize
profits, but at the same time they also want performance,
right?
Mr. Cary. Yes.
Mr. Bentivolio. And that is the big question. Because in my
district, you know, I have people who are, they can build a
better product, or the same product, meeting government
regulations or specifications, but are not necessarily getting
the contract. And then it is that contract in some cases is
going to the lowest bidder, who cannot perform. And
subsequently comes back to the original bidder that can make
the product at a fair price and make a fair profit, and the
government now has to pay more for it because they have to
expedite and pay a, what do you want to call it? Extra fee for
having it done in quicker time. So how does the private sector
deal with those kind of issues?
Mr. Cary. Well actually addressing the Federal side of it
on the construction business, again, the established
procurement methods of best value or technical acceptable low
price screen the contractors who are bidding on the project and
take those factors into consideration. There are other factors,
their experience, their capabilities for this project, their
likelihood of success. One of the screens that the Corps of
Engineers and the Navy both frequently use is called your
likelihood of success, and where they rank those contractors.
They then either weigh that with the price or put those
contractors into a pool of acceptable contractors and take the
low price.
But again to your other point, the contractors also present
their best price one time. You are not hedging that against
where other people are pricing their product. You get those
best prices the first time around. And the government knows it
has got the best prices. Under the reverse auction process we
do not see where that best price is necessarily ever reached.
Mr. Bentivolio. Because they keep underbidding? Do I
understand----
Mr. Cary. Or they never bid down to the best price. The
opposite problem of what seems to be happening more on the
manufactured goods side of the table, in construction everybody
is going to give you the price they would love to get so they
can retire next year. But, and if nobody else comes down to the
price that they could really do it for, you know, and make a
fair small profit, they are going to take it for the higher
price.
Mr. Bentivolio. Very good. Thank you.
Mr. Cary. Does that make sense? We see often, and it has
been related to me by companies who have participated in
reverse auctions, that their winning bid or their winning price
was not the price that they would have bid it if it had been a
sealed bid. It was higher because the price never came down to
their best price.
Mr. Bentivolio. Very good. Thank you very much, I
appreciate it. I yield back.
Mr. Cary. Sorry for the long explanation.
Mr. Bentivolio. No, that's fine. Great. You did great.
Thanks.
Mr. Hanna. Thank you both. If there are no other questions
for this panel, I want to thank you for your time and your
testimony and for traveling such long distances. And I invite
our second panel to be seated.
Thank you. We will hear in a moment from Ms. Michelle
Mackin, Director, Acquisition and Sourcing Management,
Government Accountability Office; Mr. William Sisk, Deputy
Commissioner, Federal Acquisition Service, General Services
Administration; and Mr. Major Clark, Assistance Chief Counsel
for Procurement Policy, Office of Advocacy, Small Business
Administration. Ms. Mackin, you may begin.
STATEMENTS OF MS. MICHELLE MACKIN, DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE; MR.
WILLIAM SISK, DEPUTY COMMISSIONER, FEDERAL ACQUISITION SERVICE,
GENERAL SERVICES ADMINISTRATION; AND MR. MAJOR L. CLARK, III,
ASSISTANT CHIEF COUNSEL FOR PROCUREMENT, OFFICE OF ADVOCACY,
SMALL BUSINESS ADMINISTRATION
STATEMENT OF MICHELLE MACKIN
Ms. Mackin. Chairmen Coffman and Hanna, Ranking Members
Kirkpatrick and Meng, and Members of the Subcommittees, thank
you for having me here this morning to discuss reverse
auctions. My statement today is based on a report we issued
just two days ago and our work focused on the four agencies
that had about 70 percent of the reverse auction activity in
2012. These were the Departments of Veterans Affairs, Homeland
Security, the Interior, and the Army.
First I would like to discuss trends. And you will see from
the chart that clearly trends are on the rise here.
[Chart.]
Ms. Mackin. Over the past five years there has been 175
percent increase in use of reverse auctions for these four
agencies, with over $800 million in contract awards in 2012. In
general reverse auctions are used for simpler supplies and
services, predominantly IT and medical products and equipment.
Importantly, however, some agencies are planning to use reverse
auctions for more complex items and more complex contracts that
can last up to five years.
Secondly, I will address some areas of confusion we found
regarding how reverse auctions work. There is a perception that
the auctions always go to the lowest bidder. But we found that
almost a quarter of the 2012 auctions did not go to the lowest
bidder. Another concern we had was about the extent to which
small businesses are getting reverse auction awards. And we
found that most of the contracts did go to small businesses.
They received over 80 percent of the dollars in 2012.
And then regarding fees. A company called FedBid ran almost
all of the government reverse auctions in 2012. FedBid's fee
for conducting the auctions is capped at three percent of the
winning bid and it cannot exceed $10,000. As you will see in
the chart as an example of how the fee works, in this case the
winning vendor's lowest bid was $10,000. FedBid added its three
percent fee and the government paid the final contract award
price that included the fee. The vendor then remits the fee
back to FedBid.
In some cases we found that FedBid received no fee and this
happened about 20 percent of the time for the 2012 auctions. We
also found cases where agencies are paying two sets of fees,
one to FedBid to conduct the auction and another to use an
existing contract such a GSA or VA schedule contract. But our
main source of concern was that agencies were simply not aware
of the fees they are paying to use these auctions.
And finally I would like to turn to the two key intents of
reverse auctions, competition and savings. Regarding
competition we found two main buckets. What we call interactive
bidding where multiple vendors are bidding against one another
and this happened about 65 percent of the time. However, there
is also what we call ineffective competition where only one
vendor submitted a bid or multiple vendors submitted only one
bid each. This happened about 35 percent of the time and
clearly there are concerns here about if the benefits of
competition are being realized.
And finally FedBid calculates the savings for the agencies
based on the delta between the government's cost estimate, or
the target price, and the final contract price, which of course
includes FedBid's fee. In this example the agency's target
price or government estimate was $11,000 and the calculated
savings on this particular auction was $185 after accounting
for FedBid's fee. In total FedBid calculated $98 million in
savings for the four agencies in 2012 but we have questions
about the accuracy of these savings. For example, if there was
no interactive bidding perhaps agencies could have gotten a
better price using other mechanisms. Also the target price or
government estimate may not be sound. For example, we found
over 1,000 cases where the winning bid actually exceeded the
government's estimate even with interactive bidding.
In conclusion, as we discuss in our report we believe
government-wide guidance and regulations are needed to help
ensure that reverse auctions achieve the intended benefits. We
made recommendations along these lines to the Office of Federal
Procurement Policy and they did agree with the recommendations.
Mr. Chairmen, Ranking Members, this concludes my statement and
I would be happy to answer any questions.
[The prepared statement of Michelle Mackin appears in the
Appendix]
Mr. Hanna. Thank you. Mr. Sisk, you may begin.
STATEMENT OF WILLIAM SISK
Mr. Sisk. Good morning Chairman Coffman, Chairman Hanna,
Ranking Member Kirkpatrick, Ranking Member Meng, and Members of
the Subcommittees for Veterans' Affairs Oversight and
Investigations and Small Business Contracting and Workforce, my
name is Bill Sisk and I am the Deputy Commissioner of the
General Services Administration's Federal Acquisition Service.
I appreciate the opportunity to appear here today to discuss
GSA's recently launched reverse auction platform. This effort
is one of a continuing series of actions that the Federal
Acquisition Service has undertaken in support of GSA's mission
to deliver the best value in acquisition and technology
services to government and the American people.
Based on data since its inception, GSA's reverse auction
platform is one tool that with proper training and use can
provide savings to agencies, help them achieve small business
goals, and provide visibility into spending data that over time
can help agencies make better acquisition decisions. GSA's
reverse auction platform was put into operation July 1, 2013
and is designed to be an efficient and cost effective platform
for buying non-complex commodities and simple services. This
initiative's focus is to drive down the total cost of
acquisitions and increase savings to customers and taxpayers.
GSA's reverse auction platform is an e-tool available to
our government partners to use to facilitate the requests for
and submission of quotes or offers for products and services
through GSA multiple award schedules and blanket purchase
agreements, or BPAs, Veterans Administration schedules, and
Department of Navy BPAs against GSA schedule contracts. GSA
leveraged existing eBuy and GSA auctions.gov IT infrastructure
resources, which reduced development costs and provides users a
familiar look and feel when using the reverse auction Web site.
The GSA reverse auction tool is non-mandatory and available to
agencies to consider as they develop acquisition strategies.
Additionally, by leveraging GSA schedule contracts and
their unique ability to provide a broader array of vendors and
small business set aside capability, GSA's reverse auction
platform improves the government's ability to maintain small
business participation through broad competitions and set
asides to promote agencies' meeting small business goals in a
cost effective way.
There are a variety of potential benefits to agencies of
this platform, including that it displays realtime pricing,
provides customers with level three spend data or historical
pricing data, interfaces with existing systems to verify that
contracts are still valid under the GSA multiple award
schedules program, assist in meeting small business goals, and
facilitates compliance with competition requirements. While
agencies may realize these benefits, it is also important that
the reverse auction platform be used appropriately. GSA
provides training on the reverse auction platform regularly to
both the buyer and vendor communities. GSA offers on average
four training sessions per week in a variety of forums. To date
over 50 sessions have been conducted and over 2,000 individuals
trained on the platform. Additionally, frequently asked
questions and answers are available on the site as a resource
for users.
The data so far has demonstrated savings in price, good
competition from vendors, and support for small businesses. To
date, several Federal agencies, including GSA, have utilized
the platform for 485 auctions, realizing about 6.7 percent
savings on average, with an average of three vendors
participating per auction. 85.53 percent of the total awards
and 87.18 percent of the total value of all contracts have been
made to small businesses.
As the GSA reverse auction platform continues to mature and
evolve with more training and education provided, GSA predicts
an increase in the use of the platform based on the initial
interest in the platform and the overall interest by agencies
in using reverse auction procurement solutions. Additionally we
predict future spend data may provide insight for potential
strategic sourcing opportunities. As we move forward we welcome
insights from Congress, from industry, and from other partners,
Federal agencies, on additional ways to improve the platform
and ensure it is used appropriately. During this time of
continued budget uncertainty and ongoing fiscal pressure, GSA
has launched the reverse auction platform in the hopes that it
will be used by our partners to maximize savings in terms of
both driving competition among vendors to achieve cost savings
and by cutting processing times so that agencies can achieve
resource savings as well. This tool is one offering by GSA to
deliver better value and savings to our partners and ultimately
the American taxpayer.
Thank you again for the opportunity to testify and I am
happy to answer any questions you may have.
[The prepared statement of William Sisk appears in the
Appendix]
Mr. Hanna. Thank you, Mr. Sisk. Major Clark?
STATEMENT OF MAJOR L. CLARK, III
Mr. Clark. Good morning, Chairman Hanna, Ranking Member
Meng, Members of the Small Business Contracting and Workforce
Subcommittee, as well as Chairman Coffman and Ranking
Kirkpatrick and Members of the Veterans' Affairs Subcommittee
on Oversight and Investigations. I am honored to be here today
to present testimony to you on behalf of the Office of Advocacy
of the U.S. Small Business Administration, more specifically on
behalf of Chief Counsel Dr. Winslow Sargeant. Dr. Sargeant
would like me to thank you for the support that you have
provided this office and looks forward to a continued
partnership with you as we mutually strive to improve the
economic climate for our small business stakeholders.
Let me make it very clear that the Office of Advocacy is
not in opposition to reverse auctions in the Federal
marketplace. Today we are advocating for clear reverse auction
guidance from the Office of Federal Procurement Policy.
Mr. Chairman, my name is Major Clark. I am the Assistant
Chief Counsel for Procurement Policy for the Office of
Advocacy. And while my professional career includes both public
and private sector experience, I previously served as the staff
director for the House Small Business Committee under the
chairmanship of the Hon. Parren J. Mitchell of Maryland. So
thank you for having me back for this session.
I ask that this written testimony and two attachments be
included as part of the official transcript of this hearing.
Just as a brief segue, in 1976 Congress created the Office
of Advocacy pursuant to Public Law 94-305 to represent the
views of small entities. Advocacy advances the interests and
concerns of small businesses before you, the Congress, the
White House, Federal agencies, Federal courts, and policy
makers. The Office of Advocacy is an independent office within
the Small Business Administration. So the views expressed by
our office do not necessarily reflect the views of SBA or the
administration. We work with Federal agencies in the rule
making process to implement the requirements of the Regulatory
Flexibility Act. The RFA requires Federal agencies to consider
the effects of their proposed rules on small businesses and
other small entities, including small governments and small
nonprofits. And it is really pursuant to the above statutory
authority that the Office of Advocacy has been involved in the
monitoring of reverse auction activities in the Federal
marketplace since 2006.
There are actually two letters that I asked to be included
as part of the written testimony. The first one is on February
27, 2008 the Office of Advocacy sent a letter to Administrator
Denett of the Office of Federal Procurement Policy with the
recommendation from small stakeholders to better define the
reverse auction process. And again, I ask that that attachment
be included as part of the record for this proceeding.
The second attachment is a more recent letter to
Administrator Lesley Field of the Office of Federal Procurement
Policy dated January 21, 2012 and this letter is from Dr.
Sargeant of the Office of Advocacy. And again this letter
expresses the concerns as conveyed to us regarding some of the
negative impacts of reverse auctions on small businesses and
asking that the Office of Federal Procurement Policy come out
with clearer more defined guidelines so that our small business
stakeholders would clearly be able to understand the process as
they attempt to play in the Federal acquisition marketplace.
Now in addition to those two letters, the Office of
Advocacy held a procurement round table in Seattle, Washington
in which a small business stakeholder very vividly expressed to
us the problems she experienced with the reverse auction
process. And some of those things are stated in the testimony.
And in addition to that we also have been part of a process
with the Office of Federal Procurement Policy in which small
business stakeholders have presented their concerns to this
office. So we are concerned with clear guidance. We think the
guidance should clearly place a definition on what constitutes
reverse auction. We think the guidance should also include a
very clear understanding of how FAR Part 19 applies to these
particular parts. And we also think that the guidance should
include a very clear understanding of the cost parameters that
small businesses incur with this particular process. And these
are the concerns that have been expressed to us by our small
business stakeholders.
Mr. Chairman, this concludes the testimony. I would be
happy to answer any questions that you may have.
[The prepared statement of Major L. Clark, III appears in
the Appendix]
Mr. Hanna. Thank you. Without objection everything you
mentioned will be added to the record.
Ms. Mackin, in your testimony you mention that non-complex
procurements, assuming for the moment that that might be a
construction contract or something like that, do not
necessarily work well. Would you like to elaborate on that?
Because as you know that is what we heard from the previous
testimony.
Ms. Mackin. Actually it is the, a lot of what we found that
was bought in 2012 was IT products, specific types of medical
equipment and so forth. And traditionally that has kind of been
considered appropriate, if you will, for a reverse auction. I
did look at our data and for VA specifically about five percent
of their reverse auction activity was for construction related
contracts in 2012. And as you know there is a whole range of
codes that can relate to construction. So from alterations, and
so forth, to perhaps more complex items.
Mr. Hanna. Well actually I mentioned that wrong,
incorrectly. It is complex do not work well, but thank you for
answering the question. Do you, FedBid earned $13.4 million in
fees in 2012 for reverse auction work by the four agencies GAO
reviewed. I understand that GAO found cases where agencies were
paid fees even though there were no savings. Clearly FedBid,
you could argue, did their work. But what about that and the
fact that there are many cases where they actually paid more
than the posted or GAO quoted price? How can you rationalize
that? And why do averages matter, as Mr. Sisk said when you get
three or four bidders, when we know that there was only one
bidder, there may have been only one bidder on a whole host of
projects, hundreds as we know. And so averages do not, are not
really relevant in my mind. I guess the question is how do you
justify paying three percent out when you actually end up
paying more at the end, and do you?
Ms. Mackin. Frankly we have concerns about some of these
scenarios. If agencies paid FedBid's fee but got no savings
from that particular reverse auction, that is a concern. And
the scenario where that happens is for example the agency
contracting officer establishes the government estimate for
example, picks a schedule price for a certain vendor. That
vendor submits a bid and actually gives the government a
discount. But that discount is eaten away because the agency
still pays FedBid's three percent fee. So that is not a good
situation in our view.
The other main concern we would have is the one bid
scenarios, which happened, as was mentioned, over a third of
the time. In those cases we really think going straight to the
schedules or using other mechanisms would probably result in a
better price.
Mr. Hanna. Mm-hmm. So you would agree with Major Clark that
rules that, rules need to be much better defined, or defined at
all in this case?
Ms. Mackin. Absolutely. We think there need to be cross
references in the FAR so contracting officers know how to use
these reverse auctions. And so the vendor community can be
clear as well about how they should be working.
Mr. Hanna. I think we are about to put a slide up. Thank
you.
[Slide.]
Mr. Hanna. This is the Web site. It shows that FedBid is a
contracting office of the Department of the Army. It is
confusing at best, but we can all agree that that is not
accurate? This is from Fed Biz Ops. So maybe it is just a
technical thing that needs to be corrected but clearly it is
not part of the Department of the Army.
Ms. Mackin. It is not part of the Department of the Army.
Mr. Hanna. You may want to look at that. I am going to
yield to Ranking Member Fitzpatrick, thank you.
Mrs. Kirkpatrick. Kirkpatrick.
Mr. Hanna. Kirkpatrick.
Mrs. Kirkpatrick. Thank you. Ms. Mackin, you heard Mr. Cary
in the first panel say that he did not think that reverse
auctions were appropriate for construction services. But you
say that they were only used five percent of the time. Can you
tell the Committee what your opinion would be going forward in
terms of using reverse auctions for construction services?
Ms. Mackin. I think it really goes back to the
requirements, which of course come from the buying agency. And
this I believe would not apply only to construction but for
anything that could be considered more complex. If the
requirements are not clearly stated and represented to the
vendor community you cannot be sure you are going to get what
you paid for. I know there is a lot of concern about
construction per se, and maybe that is something that OFPP
could address when they issue the guidance that we have
recommended.
Mrs. Kirkpatrick. It seems that getting the target price is
really essential to the savings. What recommendations do you
have about what would fine tune that process so we can get a
better target price?
Ms. Mackin. Well as I mentioned the target price is the
contracting officer's government cost estimate. And you know,
it is not just the reverse auction issue. This is more of a
general contracting concern we see in a lot of our work across
the Federal government, is how sound is the market research?
How robust is the market research? If they are just contacting
one vendor and getting a quote and using that as the target
price, that may not be adequate depending on what is being
procured.
Mrs. Kirkpatrick. Do you think guidelines addressing the
target price should be included in whatever guidelines are
generated to improve the reverse auction process?
Ms. Mackin. I think that would be very helpful. And you
know, probably the main concern I would have is what do you do
when you only get one bid in a reverse auction? Do you proceed
as we saw and just award the contract at that price? Or do you
maybe reconsider that maybe a reverse auction is not the best
bet here for various reasons?
Mrs. Kirkpatrick. I have a concern that in your testimony
that the agencies are not tracking this process. What needs to
be put in place so that they can track? Why is that happening?
Ms. Mackin. Yes, we were frankly a bit surprised to find
that agencies did not know how much they were paying FedBid in
fees. They did not know much in duplicative fees, for lack of a
better word, they were paying when they were using a schedule
contract, for example, through a reverse auction. And so some
agencies, and VA is one of them, have taken steps to get that
information. So now on a case by case situation contracting
officers at VA are documenting how much they paid in fees. And
sometimes it is a loss, if you will, when the target price is
exceeded. But at least they are getting that information. I do
not think any agency, however, is looking at it from a macro
point of view, in total how much are we paying to use reverse
auctions and is it always the best way to go?
Mrs. Kirkpatrick. So maybe that is also something that
should be put into the guidelines. We saw that they were doing
that at the macro level. Would you agree with that?
Ms. Mackin. Yes, absolutely.
Mrs. Kirkpatrick. Now if you had to prioritize your top
three next steps for the Committee, what would that be?
Ms. Mackin. Well I think, you know, the key thing here is
putting something into the FAR, and obviously the VAR, and all
the different agency regulations. And OFPP has taken some steps
to do so over the past ten years, but it has never actually
materialized into the regulation. So I think that is critical.
But even before that happens, because that could take some
time, some government wide guidance, best practices, when does
this make sense, when does it not make sense, I think would be
very helpful. Each agency has guidance but they are not always
the same and I think that is part of the concern from the
vendor community.
Mrs. Kirkpatrick. Major Clark, would you agree with Ms.
Mackin's top priorities in terms of making this process better?
Mr. Clark. In general, I would agree. I am not necessarily
sure at this point in time as to whether or not the guidance
needs to actually be put into the FAR. I do think that the
Office of Federal Procurement Policy needs to come out with
some very clear guide points, guidelines for the acquisition
community. I am still not totally convinced that they need to
be put into the FAR at this point because the whole process of
reverse auction as an acquisition tool is continuing to evolve.
Much of the testimony here this morning, including the very
recent GAO report, as well as the testimony from GSA, clearly
indicates to me that there is this evolution which has been
occurring since 2006, when we first got involved in the Office
of Advocacy. So I am not totally convinced that it needs to be
put into the FAR at this point in time. But clearly yes, I
agree that there needs to be clear guidelines coming out of
Office Federal Procurement Policy.
Mrs. Kirkpatrick. Thank you, panel, for answering my
questions. And I yield back.
Mr. Hanna. Thank you. Chairman Coffman?
Mr. Coffman. Thank you, Mr. Chairman. I want to ask you all
to comment on this. It seems to me maybe under the narrowest of
circumstances the reverse auction process would work. But I
remember when I was State Treasurer for Colorado and I
initiated a program where I would sell these tax and revenue
anticipation notes, and you know, we would do it
electronically, and everybody could see the bid process as it
was ongoing, the window that it would be open. And so the
objective was clearly to get the lowest rate we could in those
for the benefit of the taxpayers of Colorado. But that was, I
mean, it was so simple that, you know, there were no variables
other than the interest rate. But the amount of money was the
amount of money that we were going to put out in these tax and
revenue anticipation notes.
And so here you have a lot of variables in terms of
certainly you know what the quantity is but there's a lot of
qualitative measures. How do you account for those in a reverse
auction process? Ms. Mackin, why do we not start with you?
Ms. Mackin. Well I think again it goes back to the agency
contracting officer. They are really the lynchpin to making
sure this works properly. And so in their solicitation, in
their requirements which are then posted on the reverse auction
site, they need to make those variables very clear. And if it
does not seem appropriate for a reverse auction because it does
seem like it is getting too complex, maybe they need to
reconsider. That is one concern we have. Some agencies are
perhaps not mandating use but strongly encouraging reverse
auctions to be used. And I think it needs to be more considered
depending on what is being procured.
Mr. Coffman. Yes?
Mr. Sisk. Ultimately I think it is up to the warranted
contracting officer that makes the decision. Our objective at
GSA is to provide an e-tool that gives them the option for
commodities and very simple services to go out to the vendor
community that is available through multiple award schedules to
get the best price for the taxpayers. But ultimately it is up
to the warranted contracting officer to make the decision.
Mr. Coffman. Mr. Clark?
Mr. Clark. I would agree that it is up to the warranted
contracting officer to make that decision. I would however
continue to place a caveat that that decision has to be couched
within the context of the existing FAR and statutory provisions
that deal with small business. And again, I am specifically
referring to FAR Part 19 that deals with awarding and reserving
contracts for small businesses at certain dollar thresholds.
And I would hope that the warranted contracting officer would
actually take this into consideration when that decision is
being made. But that is the benchmark of everything as we see
it, and that is, you know, how are they complying with the
various small business provisions?
Mr. Coffman. Okay. Ms. Mackin, on March 5, 2012, FedBid
informed O and I that they trained, they had trained 2,100 VHA
contracting personnel in the use of reverse auctions. In lieu
of OFPP's lack of guidance, does this concern GAO?
Ms. Mackin. We did hear from different agencies that FedBid
was doing training, and that that did increase in the fourth
quarter when of course spending tends to go up. It depends on
what the training was. If it is just the mechanics of how to
use this reverse auction tool, that is one thing. But I think
that, again to avoid crossing into that inherently governmental
realm, the agency contracting officer needs to be completely in
charge of writing the solicitation, determining the pool of
vendors that will compete for the reverse auction, and making
the final award determination.
Mr. Coffman. Ms. Mackin, according to VHA Health News
article a government employee brought the reverse auction
process, ``with her when she transferred to VA from another
agency.'' According to her, ``it is free to the government.
Everybody wins.'' Is that an accurate statement?
Ms. Mackin. I would not characterize it as free to the
government. As was discussed in some cases the government is
paying a fee and not getting any savings as a result. So again,
it really goes back to the government agencies tracking this
information and knowing what they are paying and what the cost
benefits are of using this tool.
Mr. Coffman. Thank you, Mr. Chairman. I yield back.
Mr. Hanna. Thank you. Ms. Chu? Meng? I'm sorry.
Ms. Meng. Thank you. A question for Mr. Sisk, GSA schedule
contracts are negotiated with the intent of achieving the
contractor's most favored customer pricing, the vendor's best
possible price for the goods or services. However, schedule
holders routinely offer lower prices than their contract price
when competing in reverse auctions. How are vendors allowed to
offer conflicting prices?
Mr. Sisk. Well the multiple award schedule price that has
been determined to be fair and reasonable, you can always
negotiate down from there. And so that is permissible within
the multiple awards schedule program, for vendors to offer a
cheaper price.
Ms. Meng. Do you think it should raise a red flag as to the
ability of the vendors to fulfill a requirement when their bid
is below the most favored customer pricing?
Mr. Sisk. Our mission is to always get the best price that
we can for the government. Sometimes vendors get a better price
from their distributor. Sometimes they have been able to lower
their overhead. And so the schedules price that is established
when we negotiate that contract initially is that the price is
fair and reasonable to put sort of a ceiling price in place.
But again, if we have competition amongst the schedules holders
and we can get a better price for the government, then that is
our goal.
Ms. Meng. And your agency recently unveiled its own system
for conducting reverse auctions. There are those that have
voiced concerns about the current systems out there and the
ability of vendors to use them. How does it compare to those
that are available through private sector contractors?
Mr. Sisk. A couple of things that are a little bit
different about our program. First, it is run by a government
agency so we have government contracting officers looking at
what is available through that program. It is also based on the
platforms that we have available for our E-Buy system, which is
a system for government contracting officers to go out and get
quotes from schedule holders. So they can use their same sign
in information to get into our reverse auctions platform as
well. So it is another tool that is available for them. In
addition to that we also have visibility over all the prices
paid through the system and so we hope that that information
can help us educate government contracting officers in a better
way going forward to get the best price for the taxpayers.
Ms. Meng. Mr. Clark, in recent legislation Congress added a
type of bid listing protection in limited circumstances for
subcontractors who are used by prime contractors in their bid
proposal. What the language does, it requires that the name
subcontractor cannot be replaced with the contracting officer's
approval. And if it does happen subcontractor's who are
replaced without cause can now complain to the contracting
officer. Do you agree that it would be good to implement major
subcontractor bid listings for all Federal contracts if it
would protect subcontractors from post-award substitution
without cause?
Mr. Clark. Would you mind repeating that for me, please?
Ms. Meng. Do you agree that it would be helpful to
implement major subcontractor bid listings for all Federal
contracts if it would protect subcontractors from post-award
substitutions without cause?
Mr. Clark. The answer to your question is yes, the Office
of Advocacy has over a period of years expressed concern with
the process in which small business subcontractors have had to
endure in the Federal marketplace. So if this provision
actually provides that level of protection, just one more level
of protection that our small businesses need, that type of
protection is much needed.
Ms. Meng. Thank you. I yield back.
Mr. Hanna. Dr. Roe?
Mr. Roe. I thank the Chairman for yielding. And also, I
failed to mention thank you for holding this hearing today.
Also, just a couple of quick questions. One, do you think that
the FedBid reverse auction should continue in its current form?
And if not, what would you replace it with?
Ms. Mackin. I guess from our point of view there is not a
problem per se with how FedBid is conducting these auctions.
The issue is really with how the government agencies are using
them and what information they have, and more importantly do
not have, about competition, about the fees they are paying,
and about what is appropriate to go through an auction.
Mr. Roe. I think the, and Ms. Mackin I am going to stay
with you for just a second, and Mr. Sisk, I want him to chime
in also on that question. But I think you made a very important
point and so did Mr. Clark about the simplicity. In other words
if you are bidding out, with my medical background, tape, IV
solutions, gauze, you know, those kinds of things, splints,
whatever, that's pretty simple stuff. I mean, you know what it
is, you know you have got to have it, and you want to get the
lowest price. It makes absolute sense. But when you are bidding
out complex, like a construction project, that seems an
inappropriate use to, for me, for a reverse, let me give you
just an example of what happened yesterday with the VA. And the
question is why would the VA award a contract for autopsy
services December 10th on a reverse auction. I mean, I do not
guess at that point it matters to the patient but it might to
the information you get that you get the best, most qualified
person. To me that is a very complex problem to deal with,
would you agree with that?
Ms. Mackin. I would agree it sounds complex. I would just
add that 90 percent of the auctions in 2012 were for products,
but ten percent were for services. And I think when you get
into the realm of services it can get complex fairly quickly.
Mr. Roe. I think maybe that is something, and I think
basically Mr. Clark pointed out the parameters should be really
narrow. And I think Mr. Sisk also what you have done, is you
have some very narrow parameters in what you are using reverse
auction for. But I can certainly see where it would work. But
when you then expand it to something as complex as an autopsy,
that does not seem appropriate to me. Mr. Sisk?
Mr. Sisk. Thank you. Certainly when we set up or tool it
was envisioned to be for commodities and for very simple
services, for multiple award schedule vendors to compete for
the business. And we set the system up with our existing
resources based, you know, funded out of our industrial funding
fee. But it is for, you know, commodities and very simple
services, yes.
Mr. Roe. I yield back, Mr. Chairman.
Mr. Hanna. Thank you. Thank you for your testimony today. I
appreciate your time and energy, and the travel, although most
of your are local folks, I assume. And I invite Mr. Coffman to
take his place as Chairman, and he will introduce the third
panel.
Mr. Coffman. [Presiding.] I thank the panel for stepping
forward. On this panel is Mr. Jan Frye, Deputy Assistant
Secretary, Office of Acquisition and Logistics, Department of
Veterans Affairs. Mr. Frye is accompanied today by Mr. Philip
Matkovsky, Assistant Deputy Under Secretary for Health for
Administrative Operations, Veterans Health Administration. Mr.
Frye, you are now recognized for five minutes.
STATEMENT OF MR. JAN FRYE, DEPUTY ASSISTANT SECRETARY, OFFICE
OF ACQUISITIONS AND LOGISTICS, DEPARTMENT OF VETERANS' AFFAIRS;
ACCOMPANIED BY MR. PHILIP MATKOVSKY, ASSISTANT DEPUTY UNDER
SECRETARY FOR HEALTH FOR ADMINISTRATION OPERATIONS, VETERANS
HEALTH ADMINISTRATION
STATEMENT OF JAN FRYE
Mr. Frye. Good morning, Chairman Coffman, Chairman Hanna,
Ranking Member Kirkpatrick, and Ranking Member Meng, and
distinguished Members of the Committees, we are pleased to
appear here this morning to discuss VA's process for
establishing and maintaining accountability in its use of
reverse auctions. I am accompanied today by Mr. Philip
Matkovsky, Assistant Deputy Under Secretary for Health for
Administrative Operations.
Reverse auctions currently represent less than five percent
of VA's simplified acquisition transactions. VA supports the
use of reverse auction tools when appropriate. When used
properly they can result in both time and dollar savings,
benefiting both the department and the American taxpayers.
As the senior procurement executive I have policy and
oversight responsibilities for the department's procurement
activities. My office has issued policy outlining appropriate
use of reverse auction tools and performed compliance reviews
on reverse auction transactions. Since VA's procurement
activities operate under a decentralized organization
structure, implementation and executive of reverse auctions
falls to the heads of contracting activities for the various
administrations and staff offices.
VHA's HCA has also conducted oversight reviews of reverse
auction transactions, which resulted in similar findings to
those performed by my office. The non-compliant issues
identified in these reviews are the same as those found when
reviewing other contracting methods.
With a few years of experience behind us and the data
associated with these transactions available for analysis, VA
is evaluating the value proposing of reverse auctions.
Specifically VHA is crunching the numbers in an effort to
evaluate whether the dollar, time, and process efficiencies
estimated by the advocates of these tools are being realized.
Efficiencies alone cannot be the only measure of value. The
reverse auction process is also being evaluated to ensure
compliance with regulation and policy.
VA is aware of the concerns voiced by some small businesses
about reverse auction service providers. Meeting small business
goals are a priority for the department. This is evidence in
the results. In fiscal year 2012 VA conducted 7,587 reverse
auctions representing approximately $305 million in total
dollar volume. Seventy-nine percent of that total went to small
businesses. The department has exceeded goals for small
businesses since fiscal year 2010 with the total reaching from
35 to 37 percent of total obligations. In fiscal year 2013
alone over $6.5 billion was committed to small business.
VA continues to monitor the efficacy of reverse auctions
and adjust our policies and processes to be in line with the
results of our reviews and business outcomes. Through this
monitoring process VA will refine its use of reverse auctions
and enable it to identify when to use it more effectively. As a
result of these actions VA established and is maintaining a
culture of accountability with regard to the reverse auction
process.
I appreciate the opportunity to testify today and I am
happy to answer any questions the Committee may have.
[The prepared statement of Jan Frye appears in the
Appendix]
Mr. Coffman. Thank you, Mr. Frye. Mr. Matkovsky, are you
and VHA required to follow the reverse auction policies and
guidance released by Jan Frye as VA's senior procurement
executive?
Mr. Matkovsky. Yes sir, we are.
Mr. Coffman. Okay. Mr. Matkovsky, the employee who brought
the reverse auction process to VA stated in an email that VA
pays nothing for reverse auctions. But, ``a fee of up to three
percent is paid by the firm winning the bid and is included in
their bid price.'' Now does that not indicate that up to three
percent will be added to the contract and therefore VA pays up
to three percent for the use of reverse auctions?
Mr. Matkovsky. I think it is a two-part answer, sir, if I
may. The annual fee we pay to the firm that hosts that reverse
auctions is $1. The reverse auction process itself, as I
understand it, the bidders will have a published price.
Contained in that price is the fee to the reverse auction
contractor. So when in effect we find that final price it
contains the fee. To say that we do not pay a price for that is
technically inaccurate. The price for that reverse auction is
built into the price we see.
Mr. Coffman. All right. Mr. Frye, did anyone ever bother to
validate reverse auctions when they were introduced to VA?
Mr. Frye. Could you repeat that again? I am sorry.
Mr. Coffman. Did anyone ever bother to validate reverse
auctions when they were introduced to VA?
Mr. Frye. With regard to prices paid, savings?
Mr. Coffman. Savings.
Mr. Frye. One of the things that we noticed in 2012 when we
put a moratorium in place, in March of 2012 to be exact, was
that the prices that were touted as savings, or the savings
values, were being provided by the reverse auction firm,
FedBid. We did not think that was probably the way to go and so
one of the things that we required as we put a new policy in
place and promulgated that policy was that for VA or
specifically VHA contracting officers were then required to
calculate the savings and to document the file with regard to
those savings.
Mr. Coffman. Okay. Why does VHA not take advantage of
reverse auctions conducted by VA, like those of the technology
acquisition center?
Mr. Frye. Well first of all, Chairman, the technology
acquisition center has run very few reverse auctions. They have
run several and the reports that I have received are that they
have saved some money, there have been some cost avoidances.
But they have done it on a very small basis, very small scale.
VHA made the conscious decision to use a third-party provider.
They could have gone another route but it was their decision to
use a third-party provider to assist them instead of running in
house reverse auctions.
Mr. Coffman. So Mr. Matkovsky, let me refer back to you
again, to explain to me why you went with FedBid? It does not
make sense.
Mr. Matkovsky. At the time we did not have another
alternative, and believe a competitive procurement was
initiated. There were four invitations to submit, I think there
were two bidders, and there were a couple of different models
available at the time. One of them was a purchase outright of
the licenses and would involve a large capital expense on the
front end. Another alternative, as Mr. Frye alludes, would be
to have an in house capability to set up that infrastructure.
We did not have that at the time in VA. And then there was
software as a service, which was the offer from FedBid. It
offered very small capital outlays, one dollar. And effectively
you are using a service that is hosted externally. It appeared
risk averse at the time.
Mr. Coffman. Three percent seems excessive, at this point.
Mr. Matkovsky. Correct. So that is one of the things I
think has been alluded. We have done an internal review again,
based on some of the internal reviews, we saw the GAO report.
And one of the things we looked at was can we quantify the
nature of the return, and does that three percent make it
unattractive for us to use this? And until we can feel
comfortable with that, we have asked to pause these. There are
some existing procurements that will be completed. We have
asked to add no new ones to our reverse auction process.
Mr. Coffman. Mr. Hanna?
Mr. Hanna. So FedBid, no one bids against FedBid, they are
out there three percent, you either hire them or you do not.
And Mr. Frye, it seems patently obvious, what you said is that
it does not necessarily make sense. And that you may not always
earn their money and you may not always need them, if that is
fair.
You have heard the testimony up to this point from
everyone. Most of it has been fairly negative overall. Do you
believe either of you that you are capable of doing what was
done through Fedbid on your own, by yourselves?
Mr. Frye. Well I think we are. Maybe not at the scale that
FedBid is able to offer. If we were to do it at the scale that
is currently being used, for instance by VHA, we would have to
build that capability within our workforce. But it could be
done. It would not be done at no cost at all. There would be
some overhead cost, and there would be some stand up cost, and
perhaps some costs for software licensing and that type of
thing. But it could certainly be done and it could be scaled,
but it would cost something to scale it.
Mr. Hanna. And you are using them currently for
construction services?
Mr. Matkovsky. Before I answer the question sir, Mr.
Chairman, on the construction, on additional item. We use
reverse auctions with the General Services Administration as
well for our energy procurements. So natural gas, electricity,
etcetera, we use other than FedBid for some of our reverse
auction purchases. I just wanted to clarify that.
For construction we use them for what we consider our
local, not complex construction services. Those would be
typically roof repair, replacement of flooring, etcetera. But
not where you would consider a design/build contract for a
stand alone facility, for an operating room, or something of
that sort.
Mr. Hanna. So for commodities, oil, gas, electricity, it
works okay for you, even with the three percent you say. And
for simple, basic construction repair, maintenance, those kinds
of things, it has worked okay for you?
Mr. Matkovsky. Reasonably okay. I mean, the few examples we
have, we have a starting price that we estimated a target of
roughly $700,000. Starting bids came in at over $1 million, and
the final award price was under $250,000.
I would actually agree with some of the prior testimony and
feedback from some of the panel. That you want to make sure
that you have a pool of qualified contractors for construction.
And in some areas where we have used it, it has been where you
have a multiple award contract already in place, so you have
taken care of the technical competency and you are using the
auction process to drive down price.
Mr. Hanna. And have you seen circumstances where you have
one or none----
Mr. Matkovsky. We have.
Mr. Hanna. And how do you approach that? What do you say
when you see a single bidder on a project that you may know
there are many providers that did not apply through this
program?
Mr. Matkovsky. Well even in the case of some of the utility
contracts, we will see a single bidder come in, but the price
per unit of energy that we are purchasing is lower than our
initial estimate. And we find it to be nonetheless a fair and
reasonable price.
Mr. Hanna. Do you feel comfortable rejecting a price that
you think is not fair and reasonable if there is only a single
bidder?
Mr. Matkovsky. I believe the contracting officer is
comfortable rejecting the price if they get a single and only
one bidder. If they are starting sometimes from an existing
contract, they may know the schedule price and see the
reduction in the as quoted price.
Mr. Hanna. And so part of the take away of what I hear from
you is that in complex cases it is not practical? Unless maybe
as you said you have an existing overriding general contractor
or something like that?
Mr. Matkovsky. Personal opinion, as a general rule, I think
that this is less appropriate for highly complex technical
proposals where you have to do considerable trade off analyses.
Mr. Hanna. Thank you. I yield back.
Mr. Coffman. Ranking Member Ann Kirkpatrick, Arizona?
Mrs. Kirkpatrick. Thank you, Mr. Chairman. Thank you, Mr.
Frye, for your testimony and your appearance today before the
Committee. My first line of inquiry is back to construction. I
know that has only been five percent of your use of the reverse
auctions. But it appears to me there was a significant use
increase from fiscal year 2011 to fiscal year 2012. Can you
explain that increase?
Mr. Frye. Actually, I will defer to Mr. Matkovsky on that
since it is an operational question.
Mrs. Kirkpatrick. Okay.
Mr. Matkovsky. It had only started in fiscal year 2011 as a
pilot process. And then in fiscal year 2012, it had extended
use into most of our operating locations. That is really the
driver behind that change.
Mrs. Kirkpatrick. You heard our first panel. Mr. Cary said
that he does not think that reverse auctions should be used at
all in procuring construction services. Would you agree with
that?
Mr. Matkovsky. Once again, I think that if you are able to
establish the technical competency of the bidder pool, and it
is for lower complexity items, I think it can make sense. I
would agree with Mr. Cary, that for higher complexity, major
construction projects, it does not make sense. Price, lowest
price, technically acceptable, is not the evaluation factor you
want to apply to a major complex construction project.
Mrs. Kirkpatrick. Thank you. And back to you, Mr. Frye.
What prompted the 2012 moratorium on the use of the reverse
auctions? Was that an internal decision?
Mr. Frye. That was an internal decision. There were a
number of issues. Perhaps you have seen the issues that I
enumerated in my memo to the procurement workforce. Amongst
those were perturbations in our supply chain. We have a supply
chain in the VA. The underlying principle is a just in time
system. This just in time system is supported by large
strategic contracts. Using open market contracts, in this
thousands of them, is perpendicular to that system. We want to
continue to use, and as a matter of fact we have been directed
by the Secretary, to expand the use of these large strategic
contracts. So that was one of the factors that prompted us to
put a moratorium in place and halt so that we could
recalibrate. There were other issues as well. Frankly, and I
think it was brought up today in some of the testimony, we
really want to look at our suppliers. We want the best and
brightest to serve the VA. We serve veterans. We provide health
care. And we want the best suppliers there. Naturally we want
the best value, we want a good price. We do not want to beat
our suppliers down to the point where they cannot sustain low
margins. And we were getting some input from a number of
suppliers, especially small businesses, telling us that we were
beating them down to the point where they could not make an
appropriate profit. I do not believe that there are many firms
that will survive in the long run if they do not operate where
marginal cost equals marginal revenue. In other words, I do not
think there are firms out there that are going to offer a price
below their break even point and stay in business. So I am not
sure that happened. But we did hear on many occasions that we
were effectively beating them down. And for that reason some of
our better suppliers were departing and did not wish to serve
the VA. So that was a concern as well.
Mrs. Kirkpatrick. Thank you very much, and I yield back.
Mr. Coffman. Thank you. Congresswoman Meng?
Ms. Meng. Thank you. When setting a target price in a
reverse auction contracting officers base the number on the
government's cost estimate or market research. Are purchases
made through the reverse auction process being used to set
market research pricing standards for future purchases of like
items? If so, how does that conflict with schedule holders of
similar items?
Mr. Frye. Well let me make sure, and I think I understand
your question. It is absolutely incumbent upon the contracting
officer working with the requiring activity, the organization
that needs the product, to develop a target price or an
independent government estimate. And that independent
government estimate is of course critical when you purport
savings. And in many cases we find that we have faulty
independent government estimates. That is a function of time in
many cases. The requiring activity or the contracting officer
in many cases are rushed to get requirements in place and
probably do not do, as a matter of fact do not do in many
cases, a sufficient job in developing the government's
estimate. I think in the future we have to get better at that.
We have been working in that not only in the VA but across the
government for many, many years. You will see in non-complex
buys, buys for commodities, that we sometimes do not hit the
mark for the independent government. And you will see in
complex buys we often do not hit the mark for the independent
government estimate. So someone said earlier in testimony here
that the independent government estimate is the key because
that is the baseline we use to declare whether we have saved
any money or not. So if we have got a faulty baseline, our
declared savings are not accurate.
Ms. Meng. And in general the lack of guidance in the
reverse auction process has caused some to question the
fairness of the system. Vendors are especially concerned with
the fact that even after they go through the process the
contracting officer is not required to select the lowest bidder
for award. How are your agencies ensuring that the process is
fair and transparent?
Mr. Frye. I would respond to that by saying that the
contracting officer is always responsible for source selection,
except in major, high dollar programs. But in everything we do
using reverse auctions the contracting officer is the source
selection authority. They are required to determine the winner.
They are required to declare a fair and reasonable price. They
are declared to document the file accordingly. So I have heard
these allegations that this third party, in this case FedBid,
was actually awarding the contracts. That is not the case
because the contracting officer is the person who executes the
contract, signs the face of the contract, and obligates the
government.
Ms. Meng. Thank you. I yield back.
Mr. Coffman. Thank you. Our thanks to the panel. You are
now excused. I would like to recognize Chairman Hanna for his
closing remarks.
Mr. Hanna. Thank you, Chairman Coffman, and thank you to
all our witnesses today. As we have heard, the way reverse
auctions are currently structured does not promote competition
as we intend and would like within the Federal procurement
area. My bill, H.R. 2751, takes a critical step to solve some
of these unfair competitive issues. I look forward to working
with my colleagues on the Veterans' Affairs Committee on ways
to further develop and expand this bill. And again, I thank you
all for being here, and yield back.
Mr. Coffman. Thank you, Mr. Hanna. It is important to note
that this hearing was the product of a lengthy investigation
into the inappropriate use of reverse auctions by Federal
agencies. We referred to a reverse auction provider named
FedBid throughout the hearing due to its use by many Federal
agencies and repeated reference in the GAO report. But our
focus was entirely on problems within the government, not with
the operations of a private contractor.
VA has begun reconsidering the circumstances in which it
conducts reverse auctions. In March, 2012 Jan Frye, VA Deputy
Assistant Secretary for the Office of Acquisition and
Logistics, suspended all use of FedBid due to a ``groundswell
of complaints from VA suppliers, at least one protest
potentially increased cost, small business programs anomalies,
and violations of our VA contract hierarchy.'' The suspension
in 2012 lasted only one month because use of reverse auctions
was reinstated due to significant political pressure. We have
been notified today that VA's use of reverse auctions again has
been suspended.
Clearly the use of reverse auctions is a matter of
procurement policy sorely in need of additional guidance. GAO
has made recommendations in this regard, and OMB has indicated
agreement. However, follow through is necessary. Unfortunately
given VA's persistent failure to independently validate the use
of reverse auctions, I hope that VA does not do anything to
make matters worse.
I ask unanimous consent that all Members have five
legislative days to revise and extend their remarks and include
extraneous material. Without objection, so ordered.
I would like to once again thank all of our witnesses and
audience members for joining in today's conversation. With
that, this meeting is adjourned.
[Whereupon, at 12:10 p.m., the Subcommittees were
adjourned.]
A P P E N D I X
----------
Prepared Statement of Hon. Mike Coffman, Chairman
Good morning. I would like to welcome everyone to today's joint
hearing titled ``Contracting Away Accountability - Reverse Auctions in
Federal Agency Acquisitions.''
I am pleased to host Chairman Richard Hanna and his fellow Members
of the Subcommittee on Contracting and Workforce for the House
Committee on Small Business, for this joint hearing.
Reverse auctions are a contracting process used by the Federal
government since the late 1990s theoretically to promote competition in
the acquisition of goods and services. In a reverse auction, a buyer
solicits bids from multiple sellers, in contrast to a standard auction
where a seller solicits bids from multiple bidders.
Over the course of a two year investigation by my Subcommittee, it
became readily apparent that the use of reverse auctions by the VA has
been problematic casting doubt on the extent of competition and the
claims of cost savings. In a report issued two days ago, the Government
Accountability Office (GAO) substantiated deficiencies with reverse
auctions as used by VA. The House Committee on Small Business
Subcommittee on Contracting and Workforce has similar issues more
broadly with reverse auctions as a procurement method at other Federal
agencies.
It is important to note that this hearing is the product of a
lengthy investigation into the inappropriate use of reverse auctions by
Federal agencies. We will refer to a reverse auction provider named
FedBid throughout the hearing due to its use by many Federal agencies
and repeated reference in the GAO report, but our focus will be
entirely on problems within the government, not with the operations of
a private contractor.
VA's sole reverse auction contractor is FedBid. In choosing FedBid
to conduct its reverse auctions, VA did not solicit offers from any
other contractors, contradicting the spirit of the Competition in
Contracting Act of 1984, which requires that agencies fully compete
contracts except in limited circumstances. Of the $828 million in
Federal agency reverse auctions awarded in FY2012, GAO reported that
99% were conducted by the same contractor, FedBid, and VA awarded the
greatest dollar value of these - over $200 million.
VA has signed three contracts with FedBid, each contract containing
an action obligation of just one dollar. FedBid's real compensation
comes from the fee (up to 3 percent) it adds onto the final award price
of vendor contracts. Accordingly, some advocates have concluded from
this arrangement that FedBid's service is free to the government.
However, it is obvious that when FedBid's fee is tacked onto the final
award price of a contract, the seller is effectively passing on the fee
to the government.
Of the $1.7 billion in Federal and commercial auctions conducted by
FedBid in FY2013, FedBid claims to have saved its customers $159
million - savings of about 8.5 percent, including fees. GAO has
cautioned that all information related to fees and savings is provided
by FedBid itself. According to FedBid, it calculates its savings
against the government's estimated target price. Unfortunately, this
calculation assumes the government is thoroughly researching its cost
estimates, when for commercial items, the government frequently just
reviews list prices. As such, for commercial items, simply relying on
published list prices is unlikely to result in the best price since
volume discounts are frequently available. Significantly, until April
2012, VA did not attempt any independent assessment of those savings,
although guidance issued by VA now requires independent confirmation.
In theory, reverse auctions are intended to promote competition.
However, in practice, this competition is too often absent. According
to GAO, in FY2012, over one-third of reverse auctions conducted by
FedBid for Federal agencies had no interactive bidding, where vendors
engage in multiple rounds of bidding against each other to drive prices
lower. In 27 percent of auctions, there was only one bidder. Further,
in eight percent there were multiple bidders but only one round of
offers. Agencies paid $3.9 million in fees for these procurement
services. Perhaps even more problematic is the fact that for over 3,600
reverse auctions, $1.7 million in fees was paid even though only one
offer was received from one bidder - thus the government paid extra to
award a sole source contract.
Another issue raised is whether VA contract specialists have
delegated inherently governmental functions to FedBid. According to the
FAR, an action should be undertaken only by a Federal employee if it
could ``[b]ind the United States to take or not to take some action by
contract,'' ``[d]etermine, protect, and advance United States . . .
interests by contract management,'' or ``[e]xert ultimate control over
the acquisition, use, or disposition'' of property or funds. While
FedBid does not itself award contracts, it is in a position of exerting
significant influence on who gets the award. For example, some vendors
have complained that when they have posed a question to a VA contract
specialist, they are being refused and referred to FedBid instead. In
this regard, it is also significant that FedBid keeps independent past
performance records on vendors which it shares with the government,
including information regarding the creditworthiness of vendors, but
does not share this information with the vendors. In some cases, it
appears that the only function of the VA contractor is to sign off on
an actual award.
VA has begun reconsidering the circumstances in which it conducts
reverse auction. In fact, in March 2012, Jan Frye, VA Deputy Assistant
Secretary for the Office of Acquisitions and Logistics, suspended all
use of FedBid due to a ```ground swell' of complaints from VA
suppliers, . . . at least one protest, potential increased costs,
small-business program anomalies, and `violations of our VA contract
hierarchy.'' The suspension in 2012 lasted only one month, because use
of reverse auctions was reinstated due to significant political
pressure. We have just been notified that VA's use of reverse auctions
again has been suspended.
Clearly, the use of reverse auctions is a matter of procurement
policy sorely in need of additional guidance. GAO has made
recommendations in this regard that OMB has indicated agreement.
However, follow through is necessary.
Two additional points should be included. Reverse auctions may be
appropriate for best price but not best value contract awards. Second,
the Army Corps of Engineers has repeatedly found the use of reverse
auctions for construction-related contracts and services to be
improper. Given the VA's horrible track record with regard to major
construction projects, I wholeheartedly agree that VA should not do
anything to make matters worse.
Prepared Statement of Nigel Cary
Chairmen Coffman and Hanna, Ranking Members Kirkpatrick and Meng,
and members of the Subcommittees, thank you for inviting the Associated
General Contractors of America (AGC) to testify on federal agency use
of reverse auctions to procure construction services. AGC represents
over 25,000 construction contractors, suppliers and service providers
across the nation.
My name is Nigel Cary. I have been a member of AGC for over 30
years and currently serve as vice-chair of the Federal & Heavy
Construction Division. I have worked at Cox Construction Co., since
1981 and was president of the firm from 1991 to 2011. We are a federal
small business construction contracting firm based in San Diego County,
California that specializes in work for government agencies. Since the
Cox Construction's founding in 1979, we have constructed over 150
public projects, ranging in size from $25 thousand to $30 million. Cox
Construction has bid or proposed on hundreds of projects for federal
agencies and completed projects for the U.S. Army Corps of Engineers
(USACE), Naval Facilities Engineering Command (NAVFAC), the Air Force
Civil Engineer Center (AFCEC), and United States Postal Service (USPS),
among others. For our work, we have won Contractor of the Year
accolades from USACE four times--in 1991, 1998, 2007 and 2008.
Today, I will discuss:
I. Why my company and many other construction companies--both small
and non-small businesses--do not participate in reverse auction
procurements;
II. Why the U.S. Army Corps of Engineers--the largest and most
experienced federal construction agency--no longer procures
construction services through reverse auctions;
III. How the Department of Veterans Affairs and General Services
Administration, among other agencies, continue to use and to push
reverse auctions for construction services; and
IV. Why Congress should enact measures prohibiting reverse auctions
for federal construction services contracts, like H.R. 2751, the
Commonsense Contracting Act of 2013.
I. The Problems with Reverse Auctions for Construction Services
Contracts and How Reverse Auctions Limit Competition
AGC strongly supports full and open competition for contracts
necessary to construct improvements to real property. This includes
competition among general contractors, specialty contractors, suppliers
and service providers. Over the years, it has been established that
such competition energizes and improves the construction industry to
the benefit of the industry and the nation as a whole, especially
taxpayers. As Congress considers the changing the federal procurement
landscape, we offer the following points for consideration during your
evaluation of reverse auctions.
a. Reverse Auctions Do Not Provide Benefits Comparable to Currently
Recognized Selection Procedures for Construction Contractors
Vendors promoting online reverse auctions are selling technology
for which there may be legitimate economic justifications for some
types of procurements. However, those vendors have yet to present
persuasive evidence that reverse auctions will generate real savings in
the procurement of construction or will provide benefits of ``best
value'' comparable to currently recognized selection procedures for
construction contractors, which have been carefully and specifically
tailored for all types of construction. Manufactured goods are
commodities subject to little or no variability or change in
manufacture or application. In comparison, construction services are
project-specific and inherently variable. Each construction services
contract is subject to the unique demands of the project, including:
the geography--including but not limited to site conditions, the
seasonality of certain construction activities, project proximity to
major suppliers, and site ingress and egress in conjunction with other
landowners--the needs, requirements, personnel and budgetary criteria
of the owner, specific and unique design features, construction
requirements and parameters, and the composition of the project team.
Federal procurement laws recognize that construction stands apart
from commodities or manufactured goods. AGC contends that vendors that
promote reverse auctions for construction services misuse a procurement
process originally designed for commodities. It ignores the unique
nature of construction. Construction contractors, specialty
contractors, subcontractors and suppliers offer and provide a mix of
services, materials and systems. They do not ``manufacture'' buildings,
highways, or other facilities. In fact, the construction process is
fundamentally different from the manufacturing process.
b. Reverse Auctions Do Not Guarantee Lowest Price
In the context of construction, AGC believes that most of the
claims of savings are unproven and that reverse auction processes may
not lower the ultimate cost of construction. For example, ``winning''
bids may simply be an established increment below the second lowest bid
not the lowest responsible and responsive price. Moreover, in reverse
auctions, each bidder recognizes that he or she will have the option to
provide successively lower bids as the auction progresses. As a result,
a bidder has no incentive to offer its best price and subsequently may
never offer its lowest price--as opposed to during low price
technically acceptable procurements and other contracting approaches.
In addition, savings from reverse auctions can be one time occurrences.
c. Reverse Auctions May Encourage Imprudent Bidding
Reverse auctions create an environment in which bid discipline is
critical yet difficult to maintain. The competitors have to deal with
multiple rounds of bidding, all in quick succession.
The process may move too quickly for competitors to accurately
reassess either their costs or the way they would actually do the work.
If competitors act rashly and bid imprudently, the results may be
detrimental to everyone, including the owner. There are even reported
cases in which owners actually step in to keep an overzealous supplier
from obtaining an order that would potentially jeopardized the business
viability of the supplier. Absent such steps, imprudent bidding may
lead to performance and financial problems for owners and successful
bidders, which may have the effect of increasing the ultimate cost of
construction as well as the cost of operating and maintaining the
facility.
During reverse auctions, small construction businesses are most
likely to fall victim to such imprudent bidding and experience the
greatest harm. Small construction businesses have less cash flow and
reduced ability to handle risk than non-small construction businesses.
Federal construction spending is down over 20 percent since August 2011
according to the U.S. Census Bureau. And, the outlook for public
construction remains grim as agencies at all levels of government
continue to cut construction spending. Given this reality, small
business contractors may simply bid a job below cost to maintain some
form of cash flow to remain in businesses. Additionally, some may fall
victim to the auction's time restraints and consequent knowledge gap.
Under pressure to win the job, a small business may unwittingly
underbid, thinking that the subcontractors it has lined up would
perform at that low of a price. Unable to have subcontractors perform
the work, the prime small business may not have the capability to
actually perform all of the work on its own and default. And, to add
insult to injury, the federal government can even file a claim against
the contractor when it underbids a contract under the False Claims Act.
\1\
---------------------------------------------------------------------------
\1\ In the case of Hooper v. Lockheed Martin Corp., the U.S. Court
of Appeals for the Ninth Circuit ruled for the first time that
underbidding or making false estimates in bids or proposals submitted
in response to federal government solicitations may constitute
violations of the False Claims Act. In a situation where a bidder needs
a contract to maintain cash flow, the reverse auction can serve as an
easy way for some contractors to do that. However, as this case
reflects, there can now be legal liability for doing so that could
further endanger the company. For more information see http://
www.mckennalong.com/media/site--files/1979--FCA%20Article.pdf
d. Reverse Auctions Do Not Allow Thorough Evaluation of Value,
---------------------------------------------------------------------------
Unlike Negotiated Procurements
Where price is not the sole determinant, federal owners
increasingly have utilized processes focused on negotiation to expand
communication between the owner and prospective contractors for the
purpose of discussing selection criteria such as costs, past
performance and unique project needs. These processes recognize the
value and quality of project relationships that share expertise to
promote greater collaboration among the owner and project team members.
These processes also consider quality, safety, system performance, time
to complete and overall value that can, in fact, outweigh the lowest
price to arrive at the best value for the owner. Such an approach also
offers both the owner and contractor the opportunity to discuss and to
clarify performance requirements of the project.
On the other hand, reverse auctions do not promote communication
between the owner and bidders. Rather, they promote a dynamic in which
bidders repeatedly attempt to best each other's prices. In fact,
reverse auctions between buyers and suppliers often have a deleterious
effect on the relationship between buyer and seller. Non-price factors
of consequence to the owner, such as quality of relationship, past
performance, scheduling, long-term maintenance and unique needs, are
deemphasized in the auction. As a result, reverse auctions do not offer
owners an opportunity to evaluate non-price factors.
e. Sealed Bidding Assures that the Successful Bidder is Responsive
and Responsible
Where price is the sole determinant, the sealed bid procurement
process is well-established to ensure integrity in the award of
construction contracts. Under sealed bid procurement each proposer
offers its best price and bids are evaluated through the use of
objective criteria that measure responsiveness of the bid to the
owner's articulated requirements and the responsibility of the bidder.
In this manner, sealed bidding ensures fairness and value for the
federal owner. On the other hand, reverse auctions ignore this
tradition. The pressure and pace of the auction environment removes any
assurance that initial and subsequent bids are responsive and material
to the federal owner's articulated requirements. These auctions expose
federal owners to the real possibility that they may award contracts to
what would otherwise be non-responsive bidders. In addition, reverse
auctions ignore the protections of the sealed bid procurement's laws,
regulations and years of precedent that address critical factors and
ensure the integrity of the process.
f. Reverse Auctions Limit Competition
My company--as well as many AGC members of all sizes--choose not to
participate in reverse auctions for all of their risks and faults
articulated above. Again, AGC strongly supports full and open
competition for contracts necessary to construct improvements to real
property. We contend that reverse auctions create an environment where
competition is unnecessarily limited to the detriment of the federal
government and taxpayers. In fact, we contend that no objective public
or private study, including a U.S. Army Corps of Engineers (USACE)
study on the issue, has provided persuasive evidence that reverse
auctions generate the best cost, or best value for the procurement of
construction services.
II. Federal Agency--USACE--Report, Experience and Policy on Reverse
Auctions
We have reviewed the findings of a federal agency--USACE--study,
published in 2004 entitled ``Final Report Regarding the U.S. Army Corps
of Engineers Pilot Program on Reverse Auctioning'' (see enclosure). The
report determined that although reverse auctioning had potential in the
purchase of ``simple commodities'' where variability is exceedingly
small or nil (identical products under identical conditions), its use
for the purchase of construction services where the dynamics and
variables are just too diverse ``should be the very rare exception and
not the rule - if used at all.'' The USACE report further states that
on the rare occasion reverse auctioning may be considered as an
acquisition method, such consideration should only be made after sealed
bidding has failed.
On March 6, 2008, Major General Ronald L. Johnson, former Deputy
Commanding General of USACE, testified before the House Committee on
Small Business on this very issue. MG Johnson testified that ``[t]he
Corps, through our pilot study, found no basis to claim that reverse
auctioning provided any significant or marginal savings over a
traditional contracting process for construction or construction
services.'' MG Johnson also testified that ``[w]hile this tool may be
appropriate and beneficial in more repetitive types of acquisition, we
did not find it to be a useful tool for our construction program and do
not currently utilize it today to any great extent.''
Most recently, on May 23, 2013, USACE Engineering and Construction
Chief James C. Dalton, P.E., also testified before the House Committee
on Small Business on a similar topic. Mr. Dalton noted that reverse
auction procurement ``provides a benefit when commodities or
manufactured goods procured are of a controlled and consistent nature
with little or no variability. Construction is not a commodity.'' He
went on to state that ``procuring construction by reverse auction
neither ensures a fair and reasonable price nor a selection of the most
qualified contractors.'' As a result of its experiences, USACE does not
procure construction services using reverse auction procurement.
Furthermore, the federal government has elsewhere acknowledged that
construction services stand apart from commodities or manufactured
goods. In a July 3, 2003 memorandum from Office of Federal Procurement
Policy Administrator Angela Styles, the government states that ``[n]ew
construction projects and complex alteration and repair, in particular,
involve a high degree of variability, including innumerable
combinations of site requirements, weather and physical conditions,
labor availability, and schedules.'' This memorandum was sent to all
federal procurement executives to encourage them not to treat
construction as a commodity for government procurement purposes.
III. Reverse Auctions in the Department of Veterans Affairs and the
General Services Administration
Over the years since USACE's first-hand insight on reverse auction
procurement of construction services, AGC has found that some
agencies--including the Department of Veterans Affairs (VA) and the
General Services Administration (GSA)--continue to use or push this
acquisition tool for construction. By no means are these two agencies
alone. AGC has also brought the inappropriate use of reverse auctions
to the attention of the National Parks Service and other agencies
within the Department of Interior. For the purposes of today's hearing,
we will address our concerns with the VA and GSA.
a. Department of Veterans Affairs
The VA construction program separates into two appropriation
accounts: (1) minor construction, for projects of $10 million or less;
and (2) major construction, for projects over $10 million. Similarly,
the VA structures its construction program into two organizations, one
where the 22 regional Veterans Integrated Services Network (VISNs)
offices procure minor construction contracts and the other in the
Office of Construction and Facilities Management (CFM) that handles
major construction contracts.
In AGC's experience, the inappropriate use of reverse auction rests
with the VISNs and not with CFM. AGC has tried to reach out to VISNs
that utilize this acquisition tool to inform them of prior federal
agency experience and the inherent risks they bring. However, they have
not been responsive. As such, AGC recently reached out to CFM about
minor construction project awards procured through the reverse auction
process since 2011. Those awards included the following 14 examples:
1. VA261-13-B-0854, Renovation Support - Facility Space
Realignment, San Francisco VA Medical Center, California; Award:
$888,508.80
2. VA247-13-R-1355, Floor Maintenance and Repair, Central Alabama
Veterans Health Care System (CAVHCS), Montgomery and Tuskegee, Alabama;
Award: $727,924.10
3. VA247-13-Q-1567, Place Ductwork and Equipment, Atlanta VA
Medical Center, Decatur, Georgia; Award: $283,250.00
4. VA247-13-B-1655, Auditorium Upgrades, Ralph H. Johnson VA
Medical Center, Charleston, South Carolina; Award: $224,540.00
5. VA2417-13-R-0228, Stairwell Repairs, Carl Vinson VA Medical
Center, Dublin, Georgia; Award: $208,352.52
6. VA247-13-R-1560, Fall Protection Installation, Atlanta VA
Medical Center, Decatur, Georgia; Award: $101,053.30
7. VA262-12-Q-0950, Construct Concrete Slab Parking Pad with
Security Fence, VA Medical Center, North Las Vegas, Nevada; Award:
$86,700.66
8. VA262-13-Q-0514, Install/Replace Flooring, VA Medical Center,
North Las Vegas, Nevada; Award: $82,297
9. VA247-12-R-1390, Floor Restoration Building 802, Charlie Norwood
VA Medical Center in Augusta, Georgia; Award: $81,267.00
10. 542-11-4-5306-0076, Retaining Wall Repair, VA Medical Center,
Coatesville, Pennsylvania; Award: $75,639.08
11. VA247-12-R-1396, Floor Restoration, Charlie Norwood VA Medical
Center in Augusta, Georgia; Award: $52,009.85
12. VA247-13-Q-1348, Medical Air Compressor Installation, VA
Medical Center, Fort McPherson, Georgia; Award: $51,685.40
13. 561-13-4-503-0021, Remodel of Homeless Services Domiciliary,
Lyons, New Jersey; Award: $47,728.71
14. VA247-13-Q-0604-01, Roof Repairs, Carl Vinson VA Medical
Center, Dublin, Georgia; Award: $25,000
All of the solicitations previously mentioned were small business
set-aside projects, many of which were for Service-Disabled, Veteran-
Owned small businesses. AGC holds that the VA should not jeopardize the
financial stability of these veteran small businesses, whose
development and well-being is within the VA's mission, for a short-
sighted and unproven construction services procurement method already
abandoned by the largest federal construction agency.
Additionally, these VA contract awards were for the procurement of
professional construction services and not for the purchase of a simple
commodity, commercial item or mere maintenance. AGC holds that the VA
misclassified these contracts, often as some form of simple maintenance
rather than as professional construction services. For example, the VA
Northern California Health Care System awarded a nearly $900,000
contract (VA261-13-B-0854) for ``numerous interior renovations
throughout multiple buildings at the San Francisco VA Medical Center. .
. [for which] [t]he contractor shall provide all labor, materials, and
equipment.''
Here, the VA sought to solicit construction services under the
guise of simple maintenance of structures and facilities. However,
under no circumstance were the tasks equivalent to cleaning bathrooms.
In fact, the solicitation called for over 20 rooms to be renovated in
some fashion, including but not limited to work on flooring, plumbing,
mechanical and electrical installation. The solicitation also included
construction services calling for the use of fire-stopping construction
practices and construction operations occurring during business hours
in a hospital facility. Additionally construction services contractors
were responsible for worksite safety for the contractor workforce and
the VA facilities employees and patients.
For another example, the Carl Vinson VA Medical Center in Dublin,
Georgia, awarded a $25,000 ``roof repair'' contract (VA247-13-Q-0604-
01) as a simple ``repair or alteration of structures and facilities.''
However, this project was not merely a roof repair; it appears to be a
complete roof replacement. Roof replacement is a complex construction
service. It should not be procured through a game-like, online reverse
auction process in which price is the only factor.
Whatever the cost of the total project, construction requires
professional expertise. It is subject to, among other things, weather
conditions, rapidly changing diesel fuel and material prices, as well
as conditions that introduce an extreme degree of variability to
construction, like changing labor supply, workforce safety, and
equipment costs and time. Additionally, construction projects can
include unforeseen site issues, such as the existence and necessary
safe removal of hazardous materials that were not disclosed to the
contractor or known to the owner.
The complexities of these processes simply do not compare to the
purchase of an off-the-shelf commercial item or mere maintenance. The
reverse auction process ignores the expertise of the contractor or the
unique nature of construction. Construction contractors, specialty
contractors, subcontractors and suppliers offer and provide a mix of
services, materials and systems. Again, they do not ``manufacture''
buildings, highways, or other facilities.
b. General Services Administration
Earlier this year, GSA launched an online reverse auction platform
(http://reverseauctions.gsa.gov/) that enables any federal agency to
procure construction services through a reverse auction. AGC notified
GSA that it should remove from its Reverse Auction Platform the
construction services options outlined in Schedule 56--noted below.
Specifically, the Reverse Auction Platform enables federal agencies
to procure ``Buildings and Building Materials, Industrial Services &
Supplies'' through Schedule 56. Schedule 56 includes ``Ancillary Repair
and Alteration requiring minor construction (includes Davis Bacon and
construction clauses); and Installation and Site Preparation requiring
Construction, which is necessary for Roof Repair or Replacement, to
install a Pre-Engineered or Prefabricated Building or Structure, to
install an Above Ground Storage Tank or to Install Alternative Energy
and Power Distribution Solutions (includes Davis Bacon and construction
clauses) '' and construction of foundations. \2\
---------------------------------------------------------------------------
\2\ General Services Administration, ``Buildings and Building
Materials, Industrial Services and Supplies Schedule 56: Frequently
Asked Questions (FAQs),'' available at: http://www.gsa.gov/graphics/
fas/FAQs-Buildings-Schedule56.pdf
---------------------------------------------------------------------------
While GSA may intend for the procurement of what is misclassified
as ``simple,'' ``ancillary'' or ``preparatory'' construction services
through a reverse auction, in practice, such undefined terms could
allow for federal agency misuse of the Reverse Auction Platform,
costing the federal government--and tax-payers--more in the long run.
Determining which contractor is the most qualified at the lowest price
to clear and improve land for construction, construct a building
foundation, install prefabricated buildings, and repair roofs, among
other things in Schedule 56, demands that a procurement agency
evaluates a host of source selection factors together, which reverse
auctions do not consider. For example, installation of prefabricated
buildings can require a degree of design-build project delivery
expertise that varies among contractors. However, a reverse auction
only evaluates price, whereas established federal procurement practices
allow for the consideration of this expertise.
To GSA's credit, it met with AGC in September on this issue. At the
meeting, GSA showed its willingness to consider AGC's input as to why
specific construction services items in Schedule 56 should not be
procured through reverse auctions. In addition the agency was open to
feedback on how to prevent contract misclassification.
IV. Congress Should Prohibit the Use of Reverse Auctions for
Construction Services Contracts and Support Measures Like H.R.
2751.
As our testimony and the record evidence, the experiences of one
federal agency do not necessarily mean another federal agency will
learn from them. Rather, we find that each federal agency learns the
mistake of construction services reverse auction procurement on its
own. This will neither benefit competition and the construction
industry--especially small businesses--nor the American taxpayer. \3\
---------------------------------------------------------------------------
\3\ As noted previously noted, the federal construction marketplace
has retracted by over 20 percent since August 2011. This has come as a
direct result of budget cuts--including sequestration--and the
prevalence of continuing resolutions that prohibit necessary new
project starts, which push back projects to outlying years. Some
contractors have, in part, shifted resources towards competing on more
private contracts, as that market has slowly improved, than they did
previously. As such, competition for federal construction projects may
decrease, impacting the price to the government. And, in relation to
reverse auctions, those contractors that depend on federal work may
become more desperate to win awards and imprudently bid on reverse
auctions. Again, as previously noted, this can lead to possible
contract defaults that cost federal agencies and taxpayers precious
time and resources. In addition, such imprudent bidding can cause
desperate prime contractors to put undue pressure on subcontractors,
jeopardizing their businesses.
---------------------------------------------------------------------------
As such, AGC holds that the only solution is for Congress to enact
a law that prohibits reverse auction procurement of construction
services. To the credit of Chairmen Graves, Hanna and Ranking Member
Meng, they recently introduced H.R. 2751, the Commonsense Contracting
Act of 2013. This bill would prohibit federal agencies from bidding
construction contracts suitable for award to a small business through
reverse auctions.
AGC previously testified in support of such a measure earlier this
year and echoes its support for H.R. 2751 today. However, this bill
will not completely prevent federal agencies from using reverse
auctions to procure all construction services contracts. Consequently,
AGC would support additional legislative efforts to prohibit reverse
auctions for all construction services federal contracts.
Thank you for this opportunity to provide the views of the
construction contractor industry in this important matter.
Prepared Statement of Louis J. Celli, Jr.
To ``aid, counsel, assist and protect, insofar as is possible, the
interests of small business concerns'' \1\ (Original charter of the
U.S. Small Business Administration)
---------------------------------------------------------------------------
\1\ 15 U.S.C. Sec. 631 : US Code - Section 631: Declaration of
policy - See more at: http://codes.lp.findlaw.com/uscode/15/14A/
631#sthash.y4mlz3Oa.dpuf
In 1953 the Small Business Act was signed into law, and created the
Small Business Administration (SBA) we know today. The act was created
to encourage and promote small business growth, and foster free market
competition. In 1945 and 1946 millions of Americans took off their
uniforms after WWII and came home to a job market that was shrinking
because the war no longer provided economic stimuli. True to their very
nature, American patriots turned to entrepreneurship. Still, large
firms which grew powerful as a result of war production had a
tremendous advantage over smaller, and start-up companies, so Congress
created the SBA to help level the playing field.
The Small Business Act applies government wide, not just to the
SBA. Government has a fiduciary responsibility and legal obligation to
treat small business fairly, and to not take advantage of its buying
power and become predatory, or act as a monopolistic powerbroker.
Over the past 10 years The American Legion has worked closely with
hundreds of small business owners, and has established a Small Business
Taskforce that is comprised of successful small and medium sized
veteran owned businesses. Additionally, we have thoroughly researched
numerous reports and articles both extolling the benefits of the
reverse auction, and the disadvantages of them. Much of the research we
reviewed was gathered from the Reverse Auction Research Center which is
located in the Department of Management at Southeastern Louisiana
University, and through senior leadership at Fed Bid, one of the major
online reverse auction services used by the federal government.
The American Legion appreciates the goal of the government
contracting community to lower federal exposure through competitive
contracting initiatives, but is concerned that misuse of extra-
governmental tools that have not suffered the scrutiny of the
appropriations process, is putting veteran owned small businesses at
risk and could also be serving to undermine the entire procurement
process.
According to the Institute for Supply Management, reverse auctions
are ``a type of e-auction that is conducted online, in real-time,
between a single buying organization and pre-qualified suppliers.
Suppliers compete in presenting bids to the buyer for the supply of
goods or services whose specifications for design, quantity, quality,
delivery, and related terms and conditions have been clearly defined'';
and David C. Wyld, Executive Director of the Reverse Auction Research
Center reports in his 2011 report, Reverse Auctioning: Saving Money and
Increasing Transparency, ``The reverse auction acquisition tool is not
appropriate for all spending categories. In fact, there are ``sweet
spots'' for the use of reverse auctioning, namely in the areas of
commodity-type buys of goods and services and in goods that are readily
specifiable.'' \2\
---------------------------------------------------------------------------
\2\ See David C. Wyld, ``Reverse Auctioning: Saving Money and
Increasing Transparency'' (July 2012), available at
www.businessofgovernment.org/report/reverse-auctioning-saving-money-
andincreasing-transparency.
---------------------------------------------------------------------------
The American Legion also notes that all of the evidence, both for
and against reverse auctions consistently use the term ``when used
correctly, reverse auctions can be an effective purchasing tool''.
However, ``when used correctly'' turns out to be the default phrase
that places the responsibility for proper use squarely on the customer,
in this case - the federal government. Contracting officers who are not
formerly trained to use these tools have ended up taking unfair
advantage of small businesses, and because these tools are not
government tools, the oversight for structure and use lacks proper
implementation.
Wyld's article also discusses a 2004 memo from Robert A. Burton,
then the associate administrator of the Office of Federal Procurement
Policy (OFPP), The OFPP urged each federal agency, in the interest of
``maximizing productivity gains from technology ...to explore
increasing the use of commercially available online procurement
services''. One tool specifically mentioned in the Burton memo was
reverse auctions, and the OFPP noted at the time that: ``If used
correctly, the reverse auction approach can ensure that the government
receives competitive prices''. \3\
---------------------------------------------------------------------------
\3\ Ibid
---------------------------------------------------------------------------
Reverse auctions are not necessarily bad, any more than firearms
are bad, when used properly by trained professionals. But while largely
unregulated and improperly utilized, reverse auctions pervert the
federal procurement system and skew the economic marketplace by
encouraging awards made through an unnatural procurement process that
ultimately preys on weak businesses, rather than promote strong
businesses. This process ends up giving a false valuation of fair
market product pricing, and will eventually create a disparity between
more thorough procurement vehicle processes where value is made part of
the decision matrix, and the reverse auction where value or added value
is often omitted from bid consideration. Further, reverse auctions
appear to undermine the Government Services Administration's (GSA)
application process that requires the government be offered the best
possible price in the first place. If that is true, then how can GSA
contract holders consistently compete in the reverse auction process at
offers lower than their established GSA contract?
An example of added value would be a printer and copier vendor
that, through their negotiated license agreement with the manufacturer,
is required to provide training and technical support on the products
they sell. This added value increases the market price of the product,
but may not be reflected in the sterile environment of the reverse
auction bid process. Reverse auctions create a disproportionate
disparity in the federal procurement industry while American Legion
resolution 321 \4\ specifically calls for equal parity in federal
procurement, and according to the Federal Acquisition Regulation (FAR);
````Fair market price'' means a price based on reasonable costs under
normal competitive conditions and not on lowest possible cost''. \5\
Further, Fair Market Price is mentioned in nearly every part of the FAR
and that exact term can be found more than 30 times.
---------------------------------------------------------------------------
\4\ Resolution No. 321: Support reasonable set-aside of federal
procurements and contracts for business owned and operated by veterans,
American Legion. National Convention August 2012 http://
archive.legion.org/handle/123456789/2190
\5\ Federal Acquisition Regulation, March 2005, http://
www.acquisition.gov/far/current/pdf/FAR.pdf
---------------------------------------------------------------------------
In the FAR we also find FAR part 19 Sec. 807 giving a definition of
Estimating Fair Market Price;
``(c) In estimating a fair market price for a repeat purchase, the
contracting officer shall consider recent award prices for the same
items or work if there is comparability in quantities, conditions,
terms, and performance times. The estimated price should be adjusted to
reflect differences in specifications, plans, transportation costs,
packaging and packing costs, and other circumstances. Price indices may
be used as guides to determine the changes in labor and material costs.
Comparison of commercial prices for similar items may also be used.''
And FAR part 15 Sec. 404-1 discusses proper Proposal Analysis
Techniques;
``(a) General. The objective of proposal analysis is to ensure that
the final agreed-to price is fair and reasonable.'' \6\
---------------------------------------------------------------------------
\6\ Ibid
And finally FAR part 19.1405 outlines Service-Disabled Veteran-
---------------------------------------------------------------------------
Owned Small Business Set-Aside Procedures;
``(b)(2) Award will be made at a fair market price.'' \7\
---------------------------------------------------------------------------
\7\ Ibid
While reverse auctions may have a place in federal procurement, in
a limited capacity, The American Legion believes that the federal
contracting office has the primary responsibility to ensure that every
product that the government spends tax payer dollars on, is purchased
at fair market value. This assurance protects the tax payer, the small
business, and the market.
Generally, reverse auctions are not popular in the commercial
marketplace because the buyer doesn't always know what they are
getting. Another example of reverse auctions is the online travel
auction site Priceline. In these auctions the buyer knowingly
understands that they are probably going to sacrifice comfort,
convenience and quality for a lower price. Our federal government is
not authorized to and should not be willing to forfeit those
necessities, and congress does not fund government with the
understanding that they must purchase marginally acceptable equipment
and services, just as there is no pending legislation requiring federal
travelers to use Priceline for their travel needs in an effort to save
money. Also, Congress appropriates funds through an analytical process
based on funding projections. If the government under spends the
appropriated amount because they are thwarting the procurement process,
then they should be mandated to immediately return the unobligated
funds to the treasury, not obligate them for another purpose.
The American Legion is extremely concerned that reverse auctions
will lead to decreased quality and decreased employment opportunities
for veterans, which is in direct violation of American Legion
resolution number 50 \8\ that supports more hiring opportunities for
veterans. Reverse actions will encourage vendors to learn how to
provide the cheapest product and service in order to maintain profit
margins, and government will be stuck purchasing poor quality because
they will have no ability to shop for best value, only best price.
These types of business models favor home-based business that primarily
operate online and have no other employees than the owner, and no
customer support. Businesses of this type end up relying solely on
federal procurement as their only source of income, and this type of
business model severely disadvantages businesses that hire veterans
because businesses that hire employees have increased overhead
expenses.
---------------------------------------------------------------------------
\8\ Resolution No. 50: Support legislation that bolsters the hiring
of veterans in the public and private sectors, American Legion.
National Convention, August 2012 http://archive.legion.org/bitstream/
handle/123456789/2212/2012N050.pdf?sequence=1
---------------------------------------------------------------------------
Businesses that have used reverse auctions successfully include
very large businesses like Wal-Mart, Target, and Home Depot, who are in
business for the sole purpose of making a profit. Purchasing at the
lowest possible price is a core tenet for businesses like this as they
have no legal, civic responsibility to protect small business like the
federal government does, which is probably one reason our military
isn't outfitted with products from Wal-Mart.
An article in Contract Management magazine points out a case study,
conducted on The Department of State, reveals reverse auctions are
already losing market share and have dropped 30 percent between 2007
and 2010, despite an increase in bid notifications of more than 225
percent. \9\
---------------------------------------------------------------------------
\9\ Contract management Magazine, Reverse Auctions: Turning Winners
into Losers, October 2012 http://www.nxtbook.com/nxtbooks/ncma/cm--
201210/index.php#/4
---------------------------------------------------------------------------
There will be plenty of testimony presented today that will offer
evidence of billions of dollars in savings - but at what cost? The
American Legion has been able to find no evidence that this process
contributes to business innovation, economic growth, or positive
partner relationships between government and industry. The American
Legion has found reverse auctions fosters resentment between sellers
and buyers and leaves the seller with the attitude of not wanting to
provide anything more than exactly what was paid for, thus obliterating
any harmonious relationship that should be developed between buyer and
seller.
Guy Frankling, e-sourcing and implementation manager at Royal Dutch
Shell, argues that specificity is key across all procurement methods.
``If you are not clear on your specification, you won't be successful
doing it (procuring the good or service) either manually or
electronically''. \10\
---------------------------------------------------------------------------
\10\ Reverse Auctioning: Saving Money and Increasing Transparency,
2011, http://www.businessofgovernment.org/sites/default/files/
Reverse%20Auctioning.pdf
---------------------------------------------------------------------------
The American Legion also learned that businesses answering
solicitations for services find that customers rarely, if ever, include
all necessary requirements in the original solicitation. What is wanted
versus what was asked for continues to be a source of frustration
between contractors and vendors. The American Legion has received
numerous complaints from veteran business owners who routinely argue
that their customer is dissatisfied based not on the work that was
performed, but more importantly, based on the work that wasn't
preformed because it wasn't specified in the original solicitation.
The American Legion has worked with businesses that have gotten
into trouble with reverse auction wins. In some cases they fail to
realize the true expense required to deliver on a bid and have sold at
such slim margins that they weren't able to sustain a viable business
model - In other cases they bid based on agreements from other
manufacturers or vendors, who, after the bid was won, chose not to
perform on the agreement because the profit margins were too low and
they subsequently diverted their manufacturing efforts to more
profitable projects.
A survey of our members found that opinions regarding reverse
auctions were overwhelmingly negative. Some of the more common
complaints included;
Lack of trust in the system - not knowing who they are
bidding against, no idea if automated systems are in place of live
bidders.
Lack of federal compliance oversight
Federal government's use of a commercial service that has
not been properly competed through the procurement process, or gone
through the federal design build process.
Buyer funded fees that are charged to the buyer, but paid
by the seller. This creates a false sense of inflated receipts and
places unnecessary burdens and expenses on the seller.
Fear of grey market products being sold illegally
Promotes direct competition between manufacturer and
authorized reseller
Creates unreasonable pressure on small businesses to
engage in loss leader pricing strategies
Quality is unsustainable as this process subverts a
healthy and profitable industrial base
Ultimately, higher quality and more successful businesses
are going to walk away from the reverse auction vehicle, leaving only
bottom feeders
If the government is to continue to use reverse auctions, The
American Legion recommends;
1. More outreach training for small veteran owned businesses.
2. Eliminate the LEAD or LAG indicators. This creates an
unrealistic stressor for the seller and can be extremely detrimental
for the nascent business.
3. Collect fees directly from customer (buyer).
4. Build a fair market price list into the process for commonly
purchased items, and prevent sellers from going below the established
fair market price.
5. Make buyers attest that they have conducted proper and adequate
market research to determine fair market price.
6. Eliminate the ability of the buyer to set a minimally acceptable
price, or clearly state to the seller what the starting price is.
7. Requests for debrief, protests, and any other dispute resulting
between the seller and the federal government needs to be handled
directly by the federal government, not handled through a civilian
commercial company who has no authority to represent the federal
government.
8. Exact Match Bids need to be more interactive. Government has
unique needs and requirements, and even items issued under the same
National Stock Numbers provide variation that can cause end user
difficulties.
The Honorable Mike Coffman, Chairman
Subcommittee on Oversight and Investigations
House Veterans Affairs Committee
335 Cannon House Office Building
Washington, D.C. 20510
The Honorable Richard Hanna, Chairman
Subcommittee on Contracting and Workforce
House Committee on Small Business
2361 Rayburn House Office Building (RHOB)
Washington, D.C. 20515
December 9, 2013
Dear, Chairman Coffman, and Chairman Hanna;
Neither The American Legion nor I have received any federal grants
or contracts, during this year or in the last two years, from any
agency or program relevant to the December 11, 2013, Subcommittee on
Oversight and Investigations House Veterans Affairs Committee and the
Subcommittee on Contracting and Workforce House Committee on Small
Business hearing on the Contracting Away Accountability Reverse
Auctions In Federal Agency Acquisitions.
Sincerely.
Louis J. Celli Jr.
Prepared Statement of Michele Mackin, Director
Chairmen Coffman and Hanna, Ranking Members Kirkpatrick and Meng,
and Members of the Subcommittees:
I am pleased to be here this morning to discuss the federal
government's use of reverse auctions. In recent years, federal agencies
have been using this mechanism--in which sellers compete against each
other in an online venue to sell their products or services--as a tool
to reduce the price they pay for certain types of items. In theory, a
reverse auction leverages competition, enabling agencies to obtain
lower prices and reduce acquisition costs. We found that government
agencies were increasingly using reverse auctions as a means to drive
down prices but without adequate guidance to ensure that the potential
benefits were maximized.
My remarks today are primarily based on our recently issued report
on agencies' use of reverse auctions. Accordingly, this testimony
addresses (1) what agencies are buying through reverse auctions and
trends in their use; (2) how agencies are conducting reverse auctions;
and (3) the extent to which the potential benefits of reverse auctions
are being maximized. \1\ My testimony today will summarize our findings
from that report.
---------------------------------------------------------------------------
\1\ GAO, Reverse Auctions: Guidance Is Needed to Maximize
Competition and Achieve Cost Savings, GAO-14-108 (Washington D.C.: Dec.
9, 2013).
---------------------------------------------------------------------------
To conduct our work, we used fiscal year 2012 contract award
information from Federal Business Opportunities (FedBizOpps.gov) to
identify the Departments of the Army (Army), Homeland Security (DHS),
the Interior (DOI), and Veterans Affairs VA) as the primary users of
reverse auctions, representing approximately 70 percent of the
activity. Because the agencies did not maintain the level of detailed
information needed for our review, we obtained reverse auction data
from FedBid, Inc., the company that conducted almost all of the
government's reverse auctions in fiscal year 2012, according to
FedBizOpps.
In addition, we reviewed, where applicable, government-wide and
agency policies and guidance regarding reverse auctions at these
agencies; interviewed government acquisition officials and officials
from the Office of Management and Budget's Office of Federal
Procurement Policy (OFPP); spoke with organizations representing
government contractors; and reviewed a sample of contract files where a
reverse auction was used. This work was performed in accordance with
generally accepted government auditing standards. Our report provides
further details on our scope and methodology.
Reverse Auctions Have Increased and Have Been Used Primarily to Buy
Commercial Products and Services
Across the four agencies representing the bulk of reverse auction
activity in fiscal year 2012, use of reverse auctions increased almost
175 percent between fiscal years 2008 and 2012. Figure 1 summarizes the
growth in use of reverse auctions in dollars and number of auctions.
[GRAPHIC] [TIFF OMITTED]
Of the $828 million in fiscal year 2012 contracting actions that
resulted from reverse auctions at these agencies, $746 million--or 90
percent--was for products. Services, in contrast, constituted about 10
percent. Reverse auctions were used to purchase a variety of commercial
products, primarily for information technology (IT) and medical
equipment and supplies. While to date most reverse auctions have been
used for commercial products, some agency officials told us that the
use of reverse auctions to acquire services is increasing and that they
are also being used for more complex contracts.
Our analysis of the data also identified some common
characteristics among contract awards resulting from reverse auctions.
We found the following:
About 95 percent of the reverse auctions resulted in
awards of $150,000 or less.
About 86 percent of the reverse auction awards--
representing 80 percent of the dollars--went to small businesses.
Figure 2 shows a breakdown of small business dollars among the four
agencies.
[GRAPHIC] [TIFF OMITTED]
Further, almost 50 percent of the reverse auctions were
conducted to place orders under existing contracts. In some cases, the
use of these contract vehicles includes a fee that the ordering agency
must pay.
And we also found that almost 60 percent of reverse
auction awards were in the last quarter of the fiscal year. Agency
officials told us this can occur due to the timing of when funds are
released and that reverse auctions can facilitate the timely award of
contracts late in the fiscal year.
Agencies Use the Same Fee-Based Contractor and Are to Follow
Established Contracting Procedures to Conduct Their Reverse
Auctions
All four agencies contracted with FedBid, a fee-based contractor,
to conduct their reverse auctions during fiscal year 2012. Agency
officials stated that contracting officers are required to follow
established contracting procedures and rules. The contracting officer
must also establish the basis for award. For example, the contracting
officer can make the award to the lowest bidder or make the award based
on a cost/technical trade-off process where it is in the best interest
of the government to consider other than the lowest price. In fact, on
the basis of our analysis of a random sample of auctions, we estimate
that 24 percent of all reverse auction contracts awarded by the four
agencies in fiscal year 2012 were not awarded to the lowest bidding
vendor. \2\
---------------------------------------------------------------------------
\2\ This estimate has a 95 percent confidence interval that extends
from 17 to 33 percent.
---------------------------------------------------------------------------
Contracting officers can determine reverse auction features, such
as the length of an auction, the amount of information available to
bidders about each other's bids, and whether to set a target price,
which may be based on a government cost estimate or market research. If
a target price is in effect, or ``active,'' a vendor must bid below
that price and have submitted the lowest bid in order to be identified
as the leading vendor. The leading vendor has the lowest price (below
the target price) at any given time during an auction. However, a
contracting officer can still award a contract even if no submitted
bids meet the target price, that is, when no vendors were identified as
the leading vendor. These strategies or features can affect the
competitive environment of the auction and affect the magnitude of cost
savings.
Vendors must register with FedBid and agree to the requirements
established by the contracting officer before submitting a bid in an
auction. Vendors can use FedBid's system to submit questions about
requirements during the auction, and the system notifies the
contracting officer via e-mail. It is up to the contracting officer to
decide whether to answer them. Several vendors stated that FedBid's
interface creates an additional layer between the vendor and the end
user that can inhibit their efforts to clarify details in the
solicitation--such as the type of material an agency requires--that are
important in setting a bid price.
As part of our review, we gained an understanding of how reverse
auction fees are paid. When a vendor submits a bid, FedBid
automatically adds its fee and ranks the adjusted bid (i.e., the
vendor's bid plus the fee) against adjusted bids submitted by other
vendors. When the reverse auction ends and the contracting officer
receives the results, the bids, which already include FedBid's fee, are
ranked from lowest to highest. Then, when the agency receives the goods
or services, it pays the entire bid amount to the selected vendor,
including the fee. FedBid then sends an invoice to the selected vendor,
who remits the fee to FedBid directly.
Agency officials and some vendors were confused about FedBid's
fees. What we found is that FedBid caps its fee at 3 percent of the
winning vendor's bid (though the fee is not to exceed $10,000), but the
fee may be less depending on the specifics of FedBid's contract with
the agency. In addition, FedBid may reduce its fee or charge no fee in
specific circumstances. In fact, we found that FedBid received no fees
in 20 percent of fiscal year 2012 reverse auctions.
In July 2013, the General Services Administration (GSA) launched
its own reverse auction tool to allow agencies to use reverse auctions
with the GSA Schedule without using a separate contractor to conduct
the auctions. GSA does not intend to charge a reverse auction fee for
awards made to GSA Schedule holders, but agencies would still pay the
0.75 percent GSA Schedule fee. We did not conduct a detailed review of
GSA's reverse auction tool.
Competition and Savings Are Not Always Maximized, in Part Due to Lack
of Comprehensive Guidance
Competition and savings--two of the key benefits of reverse
auctions cited by the agencies we reviewed--are not always being
maximized. Both have been limited because not all reverse auctions
involve what we refer to as interactive bidding, where vendors engage
in multiple rounds of bids against each other to drive prices lower. We
found that over a third of the fiscal year 2012 reverse auctions had no
interactive bidding--and agencies paid $3.9 million in fees for these
auctions. Figure 3 shows the percentage of FedBid's fiscal year 2012
auctions for the agencies in our review that had interactive bidding
among multiple vendors, versus those that did not, and the fees the
agencies paid to FedBid.
[GRAPHIC] [TIFF OMITTED]
In addition, agencies cite savings as one of the benefits of
reverse auctions. Although the agencies in our review stated that they
do not publicly report the savings, they use the information--provided
by FedBid--to assess the potential costs and benefits of reverse
auctions. Using FedBid's approach of calculating savings based on the
delta between the agency's target price and the winning bid, savings
from fiscal year 2012 reverse auctions for the selected agencies
totaled about $98 million.
However, it is unclear whether these savings are accurate. We found
that
the $98 million in estimated savings may be too high
since it includes $24 million in savings from auctions without
interactive bidding, which in theory would help drive prices lower, and
1,111 auctions that had interactive bidding resulted in
an award price higher than the agency's target price, which may
indicate that the contracting officer set the target price too low.
We also found that agencies
rely on FedBid to identify their reverse auction
activity,
generally do not track how much they pay in reverse
auction fees, \3\ and
---------------------------------------------------------------------------
\3\ While agencies generally do not track the reverse auction fees
they pay, pursuant to FedBid's GSA Schedule contract, federal agency
buyers utilizing FedBid's reverse auction services reserve the right to
pay the transactional fee directly to FedBid. We found that the VA in
some instances asked FedBid for information regarding the fees paid on
specific reverse auctions.
---------------------------------------------------------------------------
sometimes pay two sets of fees when using an existing
contract vehicle in conjunction with a reverse auction. For example, 47
percent of acquisitions using reverse auctions were ordered under pre-
existing contracts. Agencies paid $6.5 million in fees to FedBid in
these cases in addition to paying a separate fee to use some of the
existing contracts..
However, we found that VA in particular has taken steps to gain
greater insight into its use of reverse auctions. In 2012, the agency's
senior procurement executive temporarily halted use of reverse auctions
while an assessment was made of their effect on VA acquisitions. The
reverse auctions were subsequently resumed, requiring collection of
savings and fee calculations, which we found evidence of in the
contract files we reviewed.
The Federal Acquisition Regulation (FAR) does not specifically
address reverse auctions. Agencies have developed their own guidance,
though most do not provide information on what to do in certain
situations--for example, when only one vendor submits a bid. In our
discussions with agency officials and vendors, we found they were
uncertain about how reverse auction fees are paid and that confusion
exists about how reverse auctions are managed. We believe that the lack
of government-wide guidance addressing the use of reverse auctions and
the confusion within the vendor community about the process may limit
the potential benefits of reverse auctions.
GAO Recommends that Office of Federal Procurement Policy Take Actions
to Address the Use of Reverse Auctions
Given the clear trends showing that reverse auctions are on the
rise and the lack of government-wide guidance on their use, we made
several recommendations in our report. We recommended that the FAR be
amended to address reverse auctions from a regulatory standpoint, and
also recommended that the Office of Management and Budget (OMB) issue
guidance addressing competition and fees and to share agency best
practices.
OMB generally agreed with our recommendations.
Chairmen Coffman and Hanna, Ranking Members Kirkpatrick and Meng,
and Members of the Subcommittees, this concludes my prepared statement.
I would be pleased to respond to any questions that you may have at
this time.
Contacts and Acknowledgments
If you or your staff have any questions about this statement,
please contact Michele Mackin at (202) 512-4841 or [email protected]. In
addition, contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this statement.
Individuals who made key contributions to this testimony are Katherine
Trimble, Assistant Director; Russ Reiter; Carl Barden; Virginia (Jenny)
Chanley; Dayna Foster; Kristine Hassinger; Georgeann Higgins; Julia
Kennon; Kenneth Patton; Roxanna Sun; Bob Swierczek; and Jocelyn Yin.
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Prepared Statement of Bill Sisk
Good morning, Chairman Coffman, Chairman Hanna, Ranking Member
Kirkpatrick , Ranking Member Meng, and members of the Subcommittees for
Veterans' Affairs Oversight and Investigations and Small Business
Contracting and the Workforce. My name is Bill Sisk and I am the Deputy
Commissioner of the General Services Administration's Federal
Acquisition Service.
I have spent over twenty years at GSA. I started in GSA's Regional
office in Atlanta in 1990 and have served in numerous management
positions including Assistant Regional Administrator and Regional
Commissioner. In my capacity as Regional Commissioner, I represented
GSA's Assisted Acquisition Services, Network Services, and Personal
Property. I have also served as Assistant Commissioner in the Office of
General Supplies and Services within the Federal Acquisition Service
and was appointed to the U.S. AbilityOne Commission which is a unique
program that provides employment opportunities for individuals who are
blind or have other significant disabilities.
I appreciate the opportunity to appear here today to discuss GSA's
recently launched Reverse Auction Platform. This effort is one of a
continuing series of actions the Federal Acquisition Service has
undertaken in support of GSA's mission to deliver the best value in
acquisition and technology services to government and American people.
Based on data since its inception, GSA's Reverse Auction Platform is
one tool that, with proper training and use, can provide savings to
agencies, help them achieve small business goals, and provide
visibility into spending data that, over time, can help agencies make
better acquisition decisions.
GSA's Reverse Auction Platform was put into operation July 1st,
2013 and is designed to be an efficient and cost effective platform for
buying non-complex commodities and simple services. This initiative's
focus is to drive down the total cost of acquisitions and increase
savings to customers and taxpayers. GSA's Reverse Auction Platform is
an eTool available to our government partners to use to facilitate the
request for and submission of quotes or offers for products and
services through GSA Multiple Award Schedules and Blanket Purchase
agreements (BPAs), Veterans Administration's schedules, and Department
of Navy BPAs against GSA schedule contracts. GSA leveraged existing e-
Buy and GSAAuctions.gov IT infrastructure resources which reduced
development costs and provides users a familiar look and feel when
using the Reverse Auction website. The GSA Reverse Auction tool is non-
mandatory and available to agencies to consider as they develop
acquisition strategies.
Additionally, by leveraging GSA Schedule contracts and their unique
ability to provide a broad array of vendors and small business set-
aside capability, GSA's Reverse Auction Platform improves the
government's ability to maintain small business participation through
broad competitions and set-asides to promote agencies' meeting small
business goals in a cost effective way.
There are a variety of potential benefits to agencies of this
platform, including that it:
Displays real-time pricing
Provides customers with level III spend data (historical
pricing data)
Interfaces with existing systems, i.e., eBuy / eLibrary
enabling vendor authentication to verify that contracts are still valid
under the GSA Multiple Award Schedules program
Assists in meeting small business goals
Facilitates compliance with competition requirements
While agencies may realize these benefits, it is also important
that the Reverse Auction Platform be used appropriately. GSA provides
training on the Reverse Auction platform regularly to both the buyer
and vendor communities. GSA offers on average four training sessions
per week in a variety of forums. To date, over 50 sessions have been
conducted and over 2000 individuals trained on the platform.
Additionally, frequently asked questions and answers are available on
the site as a resource for users.
The data so far has demonstrated savings in price, good competition
from vendors, and support for small businesses. To date, several
Federal Agencies, including GSA, have utilized the platform for 485
auctions, realizing about 6.7 percent savings on average with an
average of three vendors participating per auction. 85.53 percent of
the total awards and 87.18 percent of the total value of all contracts
have been made to small businesses.
As the GSA Reverse Auction Platform continues to mature and evolve
with more training and education provided, GSA predicts an increase in
the use of the platform based on the initial interest in the platform
and the overall interest by agencies in utilizing reverse auction
procurement solutions. Additionally, we predict future spend data may
provide insights for potential strategic sourcing opportunities. As we
move forward, we welcome insights from Congress, from industry, and
from partner Federal agencies on additional ways to improve the
platform and ensure it is used appropriately.
During this time of continued budget uncertainty and ongoing fiscal
pressure, GSA has launched the Reverse Auction platform in the hopes
that it will be used by our partners to maximize savings in terms of
both driving competition among vendors to achieve cost savings and by
cutting processing times so that agencies achieve resource savings as
well. This tool is one offering by GSA to deliver better value and
savings to our partners and ultimately the American taxpayer.
Thank you again for the opportunity to testify and I am happy to
answer any questions you may have.
Prepared Statement of Major L. Clark, III
Chairman Hanna, Ranking Member Meng, Members of the Small Business
Contracting and Workforce Subcommittee as well as Chairman Coffman and
Ranking Member Kirkpatrick and Members of the Veterans' Affairs
Subcommittee on Oversight and Investigations, I am honored to be here
today to present testimony to you on behalf of the Office of Advocacy
of the U. S. Small Business Administration and more specifically, on
behalf of Chief Counsel Dr. Winslow Sargeant.
Dr. Sargeant would like me to thank you for the support that you
have provided this office, and he looks forward to a continued
partnership with you as we mutually strive to improve the economic
climate for our small business stakeholders.
The Office of Advocacy is not in opposition to reverse auctions in
the federal marketplace. Today, we are advocating for clear reverse
auction guidance from the Office of Federal Procurement Policy.
My name is Major L. Clark, III, and I am the Assistant Chief
Counsel for Procurement Policy for the Office of Advocacy. While my
professional career includes both public and private sector experience,
I previously served as the Staff Director for the House Small Business
Committee under the chairmanship of the Honorable Parren J. Mitchell of
Maryland so thank you for having me back.
I ask that this written testimony and two attachments be included
as part of the official transcript of this hearing.
In 1976, the Office of Advocacy was established pursuant to Public
Law 94-305 to represent the views of small entities. Advocacy advances
the interests and concerns of small business before Congress, the White
House, federal agencies, federal courts, and policymakers. The Office
of Advocacy is an independent office within the Small Business
Administration, so the views expressed by this office do not
necessarily reflect the views of SBA or the Administration. We work
with federal agencies in the rulemaking process to implement the
requirements of the Regulatory Flexibility Act (RFA). The RFA requires
federal agencies to consider the effects of their proposed rules on
small businesses and other small entities, including small governments
and small nonprofits.
Pursuant to the above statutory authority, the Office of Advocacy
has been involved in the monitoring of reverse auction activities at
the federal level since around 2006.
On February 27, 2008, the Office of Advocacy sent a letter to
Administrator Paul Denett of the Office of Federal Procurement Policy
with a recommendation from small business stakeholders to better define
the reverse auction process. I have submitted this document as
Attachment one.
Attachment two is a more recent letter to Acting Administrator
Lesley Field of the Office of Federal Procurement Policy dated January
21, 2012 from Dr. Sargeant of the Office of Advocacy. This letter
expresses additional concerns regarding the negative impact of reverse
auctions on small businesses.
In the fall of 2012, we held a procurement roundtable in Seattle,
Washington. During this roundtable, we heard from a woman-owned small
business. The owner explained her recent experience with the reverse
auction process where she lost an important contract. Moreover, when
she tried to understand why she lost the contract, she could not
receive a clear explanation for losing her bid. As a result, the
inability of the contracting officer to explain clearly why she lost
the auction was as frustrating to her as losing the bid. After our
listening session, Advocacy conveyed this experience to the Office of
Federal Procurement Policy.
In response to Advocacy's concerns, the Office of Federal
Procurement Policy convened a small business stakeholder session in
Washington, D.C. in which the attendees conveyed their concerns with
the reverse auction process. Some of the concerns included a lack of
clear guidance to agencies, conflicts with Federal Acquisition
Regulation Part 19, the role and responsibilities of the third party
providers, and finally, the fees required to participate in the reverse
auction process.
More recently, small business associations that represent small
architectural, engineering and surveying companies have reached out to
the Office of Advocacy about reverse auctions with the same concerns as
other small business stakeholders. It would appear that some agencies
are attempting to use reverse auctions for these types of services.
In conclusion, Chief Counsel Sargeant would like to make it
perfectly clear that the Office of Advocacy is not in opposition to
reverse auctions in the federal marketplace. The intent of this office
is to make sure that our small business stakeholders have a voice. We
are advocating for clear reverse auction guidance from the Office of
Federal Procurement Policy.
Thank you and I look forward to your questions.
Attachment One of Major L. Clark III's Testimony:
February 27, 2008
The Honorable Paul A. Denett
Administrator
Office of Federal Procurement Policy New Executive Office Building
Washington, DC 20501
Subject: ``Two Existing FAR Rules/Policies'' on Advocacy 's 2008 r3
Top 10 List
Dear Administrator Denett:
The Office of Advocacy is charged with monitoring compliance with
the Regulatory Flexibility Act (RFA) and works with federal agencies to
ensure that they analyze the impact of their proposed regulations on
small business. Under the RFA, agencies are required not just to review
proposed rules, but to review existing rules -as mandated by section 61
0 of the RFA. In an effort to increase compliance with section 610 and
to ensure that agencies conduct transparent reviews in general, the
Office of Advocacy developed the Regulatory Review and Reform (r3)
initiative.
This r3 initiative was designed to identify and address existing
federal rules that should be reviewed and may need reforming. r3 is a
tool for small business stakeholders to suggest needed reforms to
regulations that are outdated, ineffective, duplicative, or otherwise
in n need of review. After a call for nominations, over 80 existing
rules were submitted by small businesses and their stakeholders
identifying potential rules ready for review and reform. Following
significant review and analysis of those nominations. I have selected
the 2008 Top l0 rules for Review and Reform .
The purpose of this letter is to inform you that your office has
two regulatory initiatives that appear on our 2008 r3 Top 10 list. This
first is a rule on Retainage for Fix Priced A&E contracts and the other
item is the OFPP initiative on reverse auctions. Advocacy will be
announcing the 2008 r3 Top 10 Rules for Review and reform and releasing
its annual report on agency compliance with the RFA on Thursday,
February 28, 2008 at the National Press Club. A list of the r3 Top 10
rules can be found in the attached summary report. Additional
information on the r3 initiative is available on our website: www
.sba.gov/advo/r3. In addition, a six-month status report will be placed
on our website to update the public regarding Advocacy and agency
progress on the r3 Top 10 Rules for Review and Reform.
Advocacy has been working with staff in your office on these
regulatory initiatives and we see this Top 10 list as an opportunity
for both of our offices to accomplish burden reduction for small
business and to be responsive to the regulated public.
We look forward to working with your office on these important
reviews. If you have any questions or concerns, please do not hesitate
to contact me or Major L. Clark, III on my staff at 202-205-7150 or
[email protected].
Sincerely,
Thomas M. Sullivan
Chief Counsel for Advocacy
Enclosure
Attachment Two of Major L. Clark III's Testimony:
January 21, 2012
Lesley Field
Acting Administrator
Office of Federal Procurement Policy
New Executive Office Building Washington, DC 20501
Re: Impact of Reverse Auctions on Small Businesses
Dear Administrator Field:
The Office of Advocacy (Advocacy) of the U.S. Small Business
Administration submits this request for a review of current acquisition
policies and practices regarding the acquisition tool of reverse
auctions and the impact of such policies and practices on small
businesses.
Office of Advocacy
Advocacy was established pursuant to Pub. L. 94-3051 to represent
the views of small entities before federal agencies and Congress.
Advocacy is an independent office within the U.S. Small Business
Administration (SBA), so the views expressed by Advocacy do not
necessarily reflect the views of the SBA or the Administration.
Background
In 1997, the Federal Acquisition Regulations (FAR) were changed to
allow for reverse auctions in the acquisition process. In Fiscal Year
2006, the National Defense Authorization Act required the Office of
Management and Budget to study and develop a report on all types of
commercially available online procurement services, including reverse
auctions. In response to this request from Congress, the Office of
Federal Procurement Policy established an inter-agency working group to
review regulations, policies, and business considerations related to
the use of online procurement services. The Office of Advocacy
participated in many of the discussions of the working group.
On February 27, 2008, the Office of Advocacy submitted to
Administrator Dennett of the Office of Federal Procurement Policy a
recommendation from small business stakeholders regarding the need for
better policies and/or regulations on the use of reverse auctions. This
recommendation for action came as a result of this office seeking input
from small business stakeholders across the country on regulations and
policies that were negatively impacting their ability to obtain a level
playing field in Federal acquisitions. A copy of the letter to
Administrator Dennett is Attachment 1.
New Developments
On July 15, 2010 former OFPP Administrator Daniel Gordon testified
before the Committee on the Budget of the United States Senate that
reverse auctions have had some positive impacts on improving the
Federal acquisition process and in this regard, some small businesses
have been beneficiaries of multi-million dollar awards. We commend
these results.
Notwithstanding these successful uses of reverse auctions, the
Office of Advocacy continues to receive concerns from small business
stakeholders regarding the lack of clarity in the application of
reverse auctions from agency to agency. In this regard there is a
current protest before GAO in which the small business alleges that the
Army used the reverse auction acquisition tool but did not comply with
the Small Business Act, (15 USC644). This case is: GAO PROTEST B-
406329. SBA has filed a letter in support of the small business. A copy
of the SBA letter is Attachment 2.
We believe this case raises concerns that some Federal agencies
using reverse auctions may not be complying with the simplified
acquisition threshold requirements for contracts to be reserved for
small businesses. The Small Business Act (15 USC 644) states,
``simplified acquisitions shall be reserved exclusively for small
business concerns.''
Recommendations
Small businesses have stated that because of a lack of uniform
clarity in policy or regulations they find an uneven hand in the
application of reverse auctions to micro purchases. We recommend:
1. That the Office of Procurement Policy at a minimum provide a
clear policy statement to the acquisition community that reverse
auctions must comply with the requirements that contracts within the
simplified acquisition threshold are to be reserved exclusively for
small businesses.
2. That the Office of Federal Procurement Policy make a clear
policy statement that reverse auctions are best when used for commodity
acquisitions and not for service contracts.
Conclusion
We commend the efforts of the Federal acquisition community in its
commitment of a level playing field for small businesses. We believe
that the type of clarity being requested above will be of tremendous
assistance to the federal acquisition workforce as it continues to meet
the acquisition mission of their agencies. Thank you for your prompt
consideration of this request.
Please contact me or my Assistant Chief Counsel Major Clark at 202-
205-7150 should you have any questions.
Best regards,
Winslow Sargeant
Chief Counsel for Advocacy
Major Clark III
Assistant Chief Counsel for Advocacy
Cc: The Honorable Cass Sunstein, Administrator, Office of
Information and Regulatory Affairs
Footnote:
1. 5 U.S.C.Sec. 601 et seq. \1\
1 Attachment 1: Letter of Chief Counsel for Advocacy Thomas M.
Sullivan to The Hon. Paul A. Dennett, February 27, 2008
Attachment 2: Letter of SBA Associate General Counsel John W. Klein
to Pedro Briones, Esq., January 5, 2012
Prepared Statement of Jan Frye
Chairman Coffman, Chairman Hanna, Ranking Member Kirkpatrick,
Ranking Member Meng, and distinguished Members of the Committees, we
are pleased to appear here this morning to discuss VA's process for
establishing and maintaining accountability in its use of reverse
auctions. I am accompanied here today by Philip Matkovsky, Associate
Deputy Under Secretary for Health for Administrative Operations.
Reverse auctions is a type of electronic tool in which the roles of
buyer and seller are reversed. Unlike the traditional auction in which
the seller accepts the highest price, reverse auctions result in the
buyer accepting the lowest price. VA issued guidance in 2003 on the use
of this electronic tool.
Since 2004, the Office of Management and Budget (OMB) Office of
Federal Procurement Policy (OFPP) encouraged increased use of
commercially available online procurement tools, including reverse
auctions. In a September 2010 memorandum, OMB's Federal Chief
Performance Officer encouraged senior executives to reform contracting
through the continued implementation of innovative procurement methods
such as the use of Web-based electronic reverse auctions.
VA supports the use of reverse auction as an acquisition tool. Use
of this tool was primarily limited to contractor support for VHA.
However, early in fiscal year (FY) 2012, concerns surfaced regarding
management of the reverse auction process. As a result VA senior
procurement executives made the decision to invoke a moratorium and
conduct a comprehensive evaluation of VA's current compliance with
policy and regulations. The moratorium was put in place on March 3,
2012. VA analyzed randomly selected files and determined that some
contracting actions did not fully comply with VA policy and procedures.
Since procuring activities had alternatives for obtaining the required
supplies and services, invoking the moratorium had no effect on VA's
delivery of health care to Veterans.
The Senior Procurement Executive released the new policy and
rescinded the moratorium on the use of reverse auctions on April 3,
2012. The VA policy provides specific guidance for VA warranted
contracting officers regarding the use of reverse auctions. It directs
each Head of Contracting Activity (HCA) to develop internal controls
including mandatory training, file documentation and reviews, and
standard operating procedures to establish oversight of reverse auction
procurements. It further directs that each HCA ensure the savings
realized through using reverse auction techniques are auditable and
transparent, independent of any reverse auction service provider.
Further, each award file must be documented with the savings realized
through the use of reverse auction techniques as well as the reverse
auction fee paid. VA oversees the procurement process, including
reverse auctions through its compliance review process.
VHA leadership requested an internal quality assurance group to
conduct a focused review of select procurements that employed reverse
auctions as the vendor solicitation method. Results of these internal
reviews were briefed to VHA senior management, and based on these
reviews, VA is pausing further utilization of our reverse auction tool.
We are assessing the degree to which we can ensure a consistent
application of this solicitation method, which includes thorough
documentation, and conforms to all aspects of VA policy. The Department
will continue to procure products and services through other
procurement methods.
The Department conducted 2,261 reverse auctions in FY 2011
representing over
$78 million in total dollar volume; 60 percent went to small
business. In FY 2012, VA conducted 7,587 reverse auctions representing
approximately $305 million in total dollar volume; 79 percent of that
total went to small business.
The Department has exceeded goals for small business since FY 2010.
The Department's small business accomplishments have ranged from 35-37
percent against goals of 33-34 percent.
Conclusion:
The Department continues to monitor the efficacy of reverse
auctions and adjust our policies and processes to be in line with the
results of our reviews and business outcomes. I appreciate the
opportunity to testify today and am happy to answer any questions the
Committees may have.
Statements For The Record
FedBid, Inc.
Chairman Coffman, Chairman Hanna, Ranking Member Kirkpatrick,
Ranking Member Meng, and Members of the committees, thank you for the
opportunity to provide written testimony on the topic of reverse
auction use within the Federal Government and provide commentary
regarding the recently published Government Accountability Office (GAO)
report GAO-14-108 on reverse auctions (GAO Report).
1. INTRODUCTION
What is a reverse auction? A reverse auction is a competitive
process in which a buyer solicits bids from sellers during a period of
time set by the buyer. During the reverse auction, sellers have the
opportunity to submit a single bid or multiple bids that decrease in
price. Unlike a forward auction, like eBay, in which a seller is
selling a product or service and buyers submit competing bids, thereby
driving the price up, a reverse auction involves sellers submitting
competing bids and driving the price down. An online or electronic
reverse auction creates considerable process efficiencies, as seller
bids and rebids can be submitted quickly, with real-time information
provided to sellers regarding their relative competitive position. In
the case of FedBid, sellers are notified whether they `lead' or `lag'
to the low bid or buyer target price, and are not shown the identity or
pricing of competitors.
It is important to note that, in the case of FedBid, buyers are not
required to make award to the lowest bid or even to make award at all.
If they have opted to apply best value award criteria, buyers can make
award to any seller whose bid, based on the stated award criteria
(which can include past performance, technical capability, delivery,
etc. in addition to price) provides the most advantageous terms. In
addition, at the close of any buy, the buyer can decide to make award,
cancel the buy, or repost the buy with different requirements or under
a different acquisition scenario.
Although reverse auctioning currently addresses only a very small
percentage of Federal spending, it provides an important alternative to
traditional procurement methods. With the continuing contraction of the
Federal procurement workforce and ongoing budgetary pressures, many
agencies have come to realize that traditional means of sourcing,
competing and procuring everyday goods and simple services needed to
support agency operations just do not work well enough.
How groundbreaking is the government's use of reverse auctioning?
As a commercial best practice used by almost all Fortune 500 companies,
online reverse auctioning has been around for decades. The Federal
government finally removed its prohibition on reverse auctioning as
part of the 1997 Federal Acquisition Regulation (FAR) re-write, and
then, in 2004, Office of Management and Budget's Office of Federal
Procurement Policy (OFPP) issued a memorandum asking Federal agencies
to ``explore increasing the use of commercially available online
procurement services'', including reverse auctions. In 2005, both the
GAO (MTB Group, Inc., B-295463 (February 23, 2005)) and the Court of
Federal Claims (MTB Group, Inc. v. United States, 65 Fed. Cl. 516, 523-
24 (2005)) determined that reverse auctions are permissible methods of
procurement. To date, agencies have used online reverse auctions to
purchase billions of dollars worth of commercial goods and services,
from IT products to tattoo removal machines and from lawn care to lab
rats.
In fact, when looking at the overall process of online reverse
auctioning in comparison with the traditional buying process, the
dramatic differences occur in the process and data automation and NOT
within the procurement process itself. As with traditional acquisition
methods, the agency buyer using reverse auctions works within
established contracting procedures and maintains complete control over
the purchasing process, including what to compete, which acquisition
scenario to use, which award criteria to use (including other than low
price technically acceptable, or LPTA) and to which seller to make
award. When using FedBid to conduct reverse auctions, agencies
typically use simplified acquisition procedures, as the vast majority
of auctions on FedBid are for requirements below the simplified
acquisition threshold (SAT) of $150,000.
What makes reverse auctioning so attractive as an alternative
procurement method? Because of the high degree of process automation,
information access and uniformity and ease of use inherent in this form
of electronic commerce, reverse auctions provide a number of advantages
over traditional procurement methods for firm-fixed price purchases of
commercial item goods and simple services. These advantages include
cost savings, operational efficiencies, increased small business
utilization, and better transparency, accountability and control over
agency spend.
2. SAVINGS
a. Cost Savings through Dynamic Competition
The aspect of reverse auctions that seems to attract the most
attention is cost savings, and promoting competition is universally
regarded as the key to driving high-quality purchasing results,
including lower cost. The FAR recognizes this dynamic, providing as one
if the guiding principles for the Federal Acquisition System to
``Satisfy the customer in terms of cost quality, and timeliness of the
delivered product or service, by, for example . . . [p]romoting
competition'' (FAR 1.102(b)). It also cites promoting competition in
the acquisition process as a means of satisfying the customer in terms
of cost, quality, and timeliness of the delivered product or service as
a ``performance standard'' within the Federal Acquisition System (FAR
1.102-2).
As a commercial best practice, reverse auctioning is particularly
effective in promoting competition through the concept of dynamic
bidding, which enables sellers to not only submit an initial bid, but
also to submit multiple re-bids - either through an automated re-
bidding function or manually - based on some indicator of relative
pricing. In FedBid, sellers can re-bid manually or use an automatic
rebidding feature that enables them to establish a bid range, including
a minimum bid price. The system does not display competitor names or
pricing, but simply indicates relative price positioning through a
`lead' or `lag' notification, enabling a seller to rebid if it lags to
another seller or the buyer's target price. The relative pricing
indicator approach helps protects against collusion and ``winner's
curse'' situations by encouraging sellers to rebid, but to do so by
reviewing their own pricing structure rather than that of another
party.
Even with the built-in competition aspect of reverse auctioning,
the process in and of itself certainly does not guarantee competition
in every circumstance. Rather, the nature of the purchase must provide
a reasonable expectation of competitiveness, or the reverse auction
process will have minimal, if any, impact on cost of the purchased
item. For example, if the purchase is for a specific brand name
product, there must be multiple manufacturers or authorized resellers.
If a buyer is purchasing a product manufactured by one company and a
direct sales model, there will be no competition, regardless of the
acquisition method employed. As another example, specific to the
Federal market, if the purchase is being made through a certain
contract vehicle, there must be multiple suppliers under that contract
that actually sell the required item as opposed to just being in the
general item category. Not infrequently, a contract may include
multiple sellers in a product category but provide little overlap of
specific products. As yet another example, if a particular brand of
product is being purchased through a contract vehicle using an economic
set-aside, the combination of multiple limiting factors may easily
restrict competition to a single supplier.
Although the average Federal buy on the FedBid marketplace during
FY13 resulted in push notifications to 3,447 sellers with profiles
matching the buy requirements, the appropriate seller community is
determined by each buyer. Depending on the characteristics of the buy,
the size of that seller community can be reduced or expanded
accordingly. The GAO Report mentions an example of a Department of
Homeland Security contracting officer using multiple successive
acquisition scenarios to increase the number of potential bidders in an
auction. In that example, the buyer's first posting of auction
solicited from among a small group of multiple award contract holders;
the first repost of the auction increased the potential pool to GSA
Schedule holders; and the second repost broadened the potential pool
still further to include all sellers eligible for Federal award. The
result of this approach was increasingly robust competition, which
ultimately provided the best price after 21 bidders submitted 74 bids.
The advantage of using an online reverse auction tool in this case was
that the buyer was able to quickly and easily repost the buy to broaden
the eligible seller community after evaluating the results of the prior
posting, literally with a couple of clicks of the mouse.
b. The Role of the FedBid Fee in Achieving Savings
FedBid's 100% performance-based transactional fee structure plays a
key role in validating buy results, including savings. FedBid receives
a transactional fee, consisting of not more than 3% of the transaction,
but only if the buyer: 1) determines that the reverse auction has met
the competition, savings and other buyer generated criteria for the
procurement and 2) selects a winning seller. Once the buyer selects a
seller, it issues an order to the selected seller for delivery of the
commodity or service. When the buyer receives the procured items or
services, it pays to the selected seller the total bid amount, which
includes the transactional fee. FedBid then collects from the selected
seller the transactional fee. There are no fees for buyers or sellers
to register, view, or post/bid on an auction, and sellers incur no out-
of-pocket costs to use FedBid.
FedBid's 0-3% fee structure enables FedBid to adjust its fee
downward to address situations in which the buyer has met its
competition and other procurement goals through FedBid but the fee has
caused the selected seller's bid to exceed a target price based on an
actual market research quote or official published contract price. In
such cases, FedBid reserves the right to reduce or remove its fee so
that the awarded price will not exceed the target price. Accordingly,
the fee can be as low as 0% on a given transaction. Because FedBid is
only paid upon award and the buyer can cancel the buy or repost at any
time, FedBid's fee model is risk-free for the buyer - effectively
guaranteeing that the buyer will not pay more using FedBid than if they
purchase offline. In addition, FedBid limits fee cost to Federal
agencies, capping fees per auction at $10,000, so that fee is never a
primary factor in considering whether to use reverse auctioning - even
for larger procurements.
The GAO Report raises an issue of a transaction being subject to
two fees if an agency uses FedBid in conjunction with, for example,
Schedule contracts. However, FedBid's performance-based fee structure
means that no fee is incurred unless the agency realizes true value in
using the reverse auction process. As part of the FedBid Terms of Use,
FedBid specifically guarantees that it will reduce or remove its fee if
it is notified that the fee causes the total price to exceed the
seller's published contract price. Government-wide FedBid receives no
fee on approximately 20% of all awarded buys. In the Veterans Health
Administration (VHA), which employs a more restrictive competitive
approach through its contract hierarchy, FedBid receives no fee on
approximately 35% of actions, regardless of cost savings or
competition. In fact, for the average GSA/Federal Supply Schedules
(FSS) buy, FedBid collects a $414 fee, but yields an average of $5,072
in savings, providing a 12x return on investment. Overall, FedBid helps
Federal agencies save nearly 10%, including $121 million in FY12 and
$160 million in FY13.
Finally, it is important to emphasize that the FedBid fee is the
only way FedBid gets paid on Federal purchases. Because it is 100%
performance-based, FedBid does not get paid on canceled, reposted or
zero fee buys, even though it has performed all services required to
compete the buy on FedBid. Those services include provision, operation
and management of the FedBid online marketplace and its reverse auction
and related functionality; buyer training (in-person, remote and
online) and onsite and remote support; seller sourcing, recruitment,
training (in-person, remote and online) and support; market support;
helpdesk services; quality assurance; reporting; marketplace
application feature development and site enhancements; system
development, operations, maintenance and upgrades; and, applicable
customer system interface development. In other words, FedBid doesn't
just promise results; it delivers.
c. Operational Efficiencies through Managed Automation
The GAO Report mentions that ``agency officials stated that using
reverse auctions reduced some of the time that would otherwise be spent
on the acquisition'' \1\ and that ``[a]gency acquisition officials told
us that using a contractor for their reverse auctions reduced some of
their administrative duties and allowed senior contracting officers to
spend more time on complex acquisitions.'' \2\ This aspect of savings -
operational savings through improved process efficiencies - in fact, is
often a major driver of agency use of reverse auctions, and the FedBid
marketplace in particular. Studies conducted by Department of State,
Navy, and Customs and Border Protection (CBP) have all validated both
the direct impact on time savings for procurements conducted through
FedBid as well as secondary impact of improving operations by being
able to utilize that time savings to better negotiate complex
procurements, perform contract due diligence and closeout, or conduct
training. The study conducted by CBP found that, on average, buyers
could save approximately 8 hours per buy competed through the FedBid
marketplace. This time savings is particularly critical during the
fourth quarter of the government's fiscal year, when most procurement
is conducted. As mentioned in the GAO Report, ``According to agency
officials, reverse auctions, which can take as little as an hour for
uncomplicated purchases, can facilitate the timely award of contracts
at the end of the year.'' \3\
---------------------------------------------------------------------------
\1\ GAO Report at 18.
\2\ Id. at 12.
\3\ Id.
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Why does reverse auctioning through FedBid save so much time? The
platform effectively automates the communication and competition and
documentation aspects of the procurement process through an intuitive
web-based interface. Accordingly, buyers across the government can
process thousands of auctions simultaneously, each involving multiple
sellers submitting multiple bids on multiple items. Buyers simply
perform market research as usual, post requirements according to the
acquisition scenario of their choice, then review bid results, perform
due diligence and make award. Buyers can access all of their reverse
auction activity 24 hours a day, without any practical limitation on
the number of requirements posted on the site or the number of auctions
running through the site, and all marketplace data is reportable to the
buying agency. In addition to the automation, FedBid provides
comprehensive support services to both buyers and sellers and complete
management of the marketplace.
3. SMALL BUSINESS UTILIZATION
Although the FAR requires a fair and open procurement process that
encourages maximum participation by sellers, traditional procurement
techniques available to the government buyer make that a difficult
standard for buyers to achieve and maintain. Actively notifying sellers
of appropriate opportunities and ensuring that minimum response goals
are met is time consuming, and traditional offline bid and proposal
processes are cumbersome. In fact, even with the advent of FedBizOpps,
which serves as the online publication site (or governmentwide point of
entry) for Federal procurements, access issues remain. Publication to
FedBizOpps is generally not required for awards under FSS or other
authorized multiple award contracts, and while the site provides static
notification, sellers must still actively search the site for
opportunities corresponding with their offerings.
Traditional process limitations and inefficiencies, coupled with an
increasing workload and decreasing numbers of procurement personnel,
typically mean that most competitive commodity procurements involve a
relatively small number of sellers. It also means that sellers who
would like to participate in those procurements have a more difficult
time tracking them and competing for award. For small businesses, with
limited sales and marketing budgets, participation in Federal
acquisitions is even more difficult. Thus, even in spite of the
government's ambitious set-aside programs and small business
utilization mandates, Federal agencies continue to fall short of their
goals to increase small business participation.
a. FedBid's Impact on Small Business Utilization
FedBid helps buyers meet the challenge of finding and engaging
small businesses, with instant access to thousands of small businesses
across every socio-economic, product and service category. The GAO
Report finds that reverse auctions provide ``high rate of awards to
small businesses.'' \4\ In fact, about 86% of FY12 acquisitions using
reverse auctions--16,906 of 19,688--went to small businesses, in
keeping with the FAR requirement that acquisitions of supplies or
services with expected values of more than $3,000 but not over $150,000
are reserved for small businesses, with some exceptions. \5\ These
acquisitions accounted for $661 million (80%) of the dollar value of
all reverse auction awards.'' \6\ During FY12, Federal agencies awarded
$1.03 billion to small businesses through FedBid, with 18% ($240
million) to VOSBs, including 14% ($181 million) to SDVOSBs. During
FY13, the small business award volume number grew to $1.25 billion,
with 27% ($333 million) to VOSBs, including 21% ($259 million) to
SDVOSBs.
---------------------------------------------------------------------------
\4\ Id. at 5.
\5\ FAR Sec. 19.502-2(a) states each acquisition of supplies or
services that has an anticipated dollar value exceeding $3,000, but not
over $150,000 is reserved for small business concerns and shall be set
aside for small business unless the contracting officer determines
there is not a reasonable expectation of obtaining offers from two or
more responsible small business concerns that are competitive in terms
of market prices, quality, and delivery.
\6\ GAO Report at 9.
---------------------------------------------------------------------------
These statistics have been remarkably consistent year-over-year for
more than a decade. FedBid attributes this to three primary attributes
of the marketplace: i) relatively low dollar size of the buys,
including an average buy size of $44,825 during the study timeframe of
FY12, which means more reseller participation and reduced need for
commercial financing; ii) ease of access - the opportunities are
readily available and simply aggregated without access costs; and iii)
ease of use - the marketplace is relatively simple and efficient to
use.
FedBid is completely free for sellers to register and use and
provides a central location for businesses to filter, search and bid on
tens of thousands of solicitations from Federal, state and local and
commercial buyers. Federal buyers are able to automatically post
combined synopsis/solicitations to FedBizOpps as required by
regulation, and FedBid proactively contacts sellers when opportunities
arise, using seller-selected profile criteria to communicate complete,
detailed information for each procurement. This approach minimizes
seller resources required to pursue each opportunity and compete for
business, increasing opportunity awareness while lowering sales costs.
In addition, because the services are web-based, there is no software
to load, and sellers need only Internet access and a browser to
participate. Automated bidding and other time-saving features enable
sellers to compete on multiple simultaneous opportunities with fewer
resources and fewer costs.
b. FedBid's Impact on VHA's Small Business Utilization
As today's hearing focuses on use of reverse auctions by the VHA,
it is notable that FedBid has had a materially positive impact on VHA's
utilization of small businesses - particularly with respect to VHA
purchases below the SAT of $150,000, which makes up the vast majority
of VHA's purchases through FedBid. The chart, below, compares all VHA
awards for purchases below the SAT with VHA awards for purchases below
the SAT made using FedBid during FY12, which was the time period under
review by GAO. The data shows that VHA's use of FedBid resulted in:
A higher share of awards and dollars to small businesses,
including VOSBs and SDVOSBs;
Greater FSS utilization pursuant to agency policy; and
Broader supplier utilization, with most awards to other
than top 5% of suppliers.
Incidentally, the data for FY13 shows very similar results, albeit
with a higher comparative percentage of awards and dollar volume
through FedBid
FY12 Purchases by VHA $3,000-$150,000
----------------------------------------------------------------------------------------------------------------
Metric All VHA Purchases as Reported in FPDS \7\ VHA Purchases Using FedBid
----------------------------------------------------------------------------------------------------------------
Total Number of Awards 136,043 6,994
----------------------------------------------------------------------------------------------------------------
Total Amount of Awards $2,747,165,200 $171,817,992
----------------------------------------------------------------------------------------------------------------
Awards to top 5% of Suppliers $1.73B (63%) $81.83M (48%)
(%)
----------------------------------------------------------------------------------------------------------------
FSS Contract Utilization (%) $854.6M (31%) $78.80M (46%)
----------------------------------------------------------------------------------------------------------------
Large Business Volume $405.6M (47%) $18.74M (24%)
(%)
----------------------------------------------------------------------------------------------------------------
Small Business Volume $449.0M (55%) $60.05M (76%)
(%)
----------------------------------------------------------------------------------------------------------------
VOSB Volume (%) $128.6M (15%) $18.35M (23%)
----------------------------------------------------------------------------------------------------------------
SDVOSB Volume (%) $80.80M (10%) 12.15M (15%)
----------------------------------------------------------------------------------------------------------------
Non-FSS Contract Utilization (%) $1.89B (69%) $93.02M (54%)
----------------------------------------------------------------------------------------------------------------
Large Business Volume $1.015B (54%) $10.15M (11%)
(%)
----------------------------------------------------------------------------------------------------------------
Small Business Volume $876.9M (46%) $82.87M (89%)
(%)
----------------------------------------------------------------------------------------------------------------
VOSB Volume (%) $361.9M (19%) $30.97M (33%)
----------------------------------------------------------------------------------------------------------------
SDVOSB Volume (%) $285.4M (15%) $25.63M (28%)
----------------------------------------------------------------------------------------------------------------
\7\ The Federal Procurement Data System (FPDS) data also includes purchases conducted using FedBid.
4. TRANSPARENCY, ACCOUNTABILITY AND CONTROL
Beyond the benefits of the reverse auction process, reverse auction
platforms are data rich tools that can provide agencies with real-time
controls over the purchasing process and comprehensive data that can be
used to manage their organizations better and make smarter procurement
decisions.
With respect to tactical operations, FedBid provides agency
contracting officials and management with real-time access to all
procurements utilizing the marketplace. Through the Supervisor
Dashboard, agency management can review and manage each step of the
purchasing process for every buy - before the buy is posted to the
marketplace for competition, during the competitive process, after the
buy closes but before award, and after award. The dashboard enables
them to review and comment on, transfer, or take direct control of the
buy. If there are policies related to contract hierarchies, set-aside
preferences or other acquisition strategies, management can confirm
that those are followed for each buy.
Whereas platform features help improve operations on the individual
buy level, it is the data that can provide a significant impact on
agency acquisition strategy. Not surprisingly, the basis for the GAO
Report on use of reverse auctions is data provided by the reverse
auction services provider, FedBid. In fact, the breadth and depth of
the procurement data processed and provided through FedBid to agency
customers provides those organizations with a tremendous resource by
which they can analyze their spend - what they are buying, when and how
they are buying it, from whom, for how much - down to the unit pricing
of each line item. This type of centrally accessible granular
information regarding agency spend is available nowhere else in
government procurement. Notably, the GAO Report mentions that another
agency using a different reverse auction platform was unable to provide
the data necessary for reviewing its reverse auction activity because
``the agency collected only summary level information . . . providing
the data for each auction would require them to review all contract
files to determine whether a reverse auction had been used.'' \8\ This
lack of data access and reporting capability is not limited to a single
agency and a specific platform; it simply reflects the normal state of
informational limitations within the typical agency procurement
environment.
---------------------------------------------------------------------------
\8\ Id. at 1.
---------------------------------------------------------------------------
In contrast, FedBid prepares and electronically distributes to
customers weekly, monthly and/or annual reports summarizing and
detailing procurement activities for the previous desired time period,
including, but not limited to, all posted, awarded, and cancelled
procurements with the date of action, total dollar amount, name of
buyer including buying division, and for awarded buys, the name of
selected seller, business size, contract vehicle utilized, and
percentage savings based on a total target price set by the buyer. An
example of a reporting deliverable is an Agency Operations Report,
which provides a detailed purchase history (monthly, annual, and multi-
year) of the purchasing activity of the agency, division and/or
individual buyers. Standard data fields include: FedBid ID Number,
Description, Contract Type, Internal Reference Number, Start Date, End
Date, Target Price, Final Price, Selected Seller, Number of Bidders,
Number of Bids, Number of No Bids, Socioeconomic data, and Savings.
FedBid also provides buyers with all acquisition related data necessary
for addressing seller issues and disputes, including those involving
bid protests, alternative dispute resolution or other legal action.
Reports themselves can be customized at the agency request, or
agencies can consume raw data from FedBid and create their own reports.
In either case, the available data can help agencies perform valuable
analysis to determine the most effective acquisition scenarios for
specific item types, the most advantageous timing for purchasing
certain goods and services, whether the agency is meeting its socio-
economic utilization goals, or whether a contract vehicle provides
adequate competition for particular goods and/or services. That
information can then inform agency action to adjust purchase timing,
increase or adjust use of set-asides, or award additional contracts
under a contract vehicle.
5. CONCLUSION
Reverse auctioning is not a cure-all for government procurement;
rather, it is proven method for purchasing the types of commercial
goods and simple services that Federal agencies use every day to
support their operations. Its effectiveness as a procurement method is
dependent on the circumstances of each purchase, and it should be
approached with the same care and professionalism expected of any other
government procurement. The FAR has laid out the both general
principles and specific processes that apply not only to traditional
procurement methods, but also to use of innovative methods such as
online reverse auctions. With proper use of reverse auctions,
procurement professionals can maximize competition and savings and
increase small business utilization. And just as critically, agency
management can use the comprehensive data from those reverse auctions
to improve transparency of its procurement processes and actions,
better gauge the effectiveness of its procurement strategies and
practices, and craft specific means of improving agency performance.
Respectfully submitted,
Luther D. Tupponce
Chief Administrative Officer and General Counsel
FedBid, Inc.
8500 Leesburg Pike, 6th Floor
Vienna, VA 22182
703-738-6886
National Electrical Contractors Association (NECA)
The National Electrical Contractors Association (NECA) appreciates
the opportunity to submit a statement for the record ahead of the joint
hearing entitled ``Contracting Away Accountability - Reverse Auctions
in Federal Agency Acquisitions.'' NECA commends the Committees for
holding a joint hearing conducting oversight over this important
subject to examine the effects of this procurement tool and the
negative effect its utilization will have in the procurement of
construction services.
Over a decade ago, advances in high-speed internet computer
technology led to the introductory use of a new method of construction
contract bidding - the internet reverse auction. Under this technique
bidders send relevant project data, specifications, projected
construction timetables and price. Owners would ask bidders to later
gather around computers at a set time and compete for work by further
whittling down their bid against the other competitors. The lowest bid
is posted for all bidders to see - but the name of the current lowest
bidder is withheld. The bidding continues with additional rounds of
bidding. After each round of bidding the new low price is posted for
all bidders to see. This continues until the lowest price is reached,
at which time the bidding is closed and the winner declared.
This scenario paints a clear picture of exactly why NECA and
virtually every element of the construction industry has been united in
its opposition to misguided attempts by federal agencies to treat
construction as a commodity on grounds of efficiency or presumed cost
savings--in particular, the use of internet reverse auctions for the
procurement of construction services. Construction projects are not
commercial commodities, mass-produced in a factory. The differences
between even seemingly identical projects can be enormous.
We strongly urge the Department of Veterans Affairs, as well as all
of the federal construction agencies, to refrain from using internet
reverse auctions or any other procurement tool that would treat
construction as a commercial commodity. In fact, we urge Congress and
the Administration to revise the Federal Acquisition Regulation (FAR)
to expressly prohibit the use of reverse auctions for the procurement
of construction-related services. This change in procurement policy
would clearly establish that construction is not a commercial item, or
commodity, and that Federal agencies shall not have the authority to
procure construction-related services by reverse auction.
Reverse Auctions Do Not Serve the Interests of Owners or Construction
Contractors Well
Reverse auctions have proven to be an unreliable procurement tool
for the selection of construction contractors, specialty contractors,
subcontractors, and suppliers. Software vendors promoting reverse
auctions have not presented persuasive evidence that reverse auctions
generate savings in the procurement of construction or provide benefits
of ``best value'' outweighing currently recognized selection procedures
for construction contractors. However, industry experience demonstrates
that reverse auctions seldom provide benefits comparable to currently
recognized selection procedures for construction contractors.
As we have previously stated, the procurement of construction
services cannot be treated like procurement of mass-produced
commodities. Unfortunately, that is what reverse auctions accomplish.
Every construction project and contract is unique and requires special
knowledge, skill and training. Each project design and location is
comprised of unique conditions that have to be met in a specific
climate and location. Reverse auctions do not allow consideration of
those variables.
Electrical contractors spend substantial time, money and effort in
preparing their bids. The price they submit is not arbitrary, but based
upon the best prices they have been able to obtain from any
subcontractors and suppliers they may utilize and their best estimate
of the price at which they can bring in a project and still make a
reasonable profit. Reverse auctions do not allow for consideration of
those very important differences.
For the owner, reverse auctions never guarantee the lowest price.
Vendors claim that reverse auctions significantly reduce the cost of
construction and save substantial amounts of time. In the context of
construction, most of these claims have not been proven and the reverse
auction processes do not lower the ultimate cost of construction. In
reverse auctions, each bidder recognizes that he or she will have the
option to provide successive bids as the auction progresses. As a
result, a bidder has little incentive to offer its best and
subsequently may never offer its lowest price. Ultimately, best-price
sealed bidding is still the most effective way to obtain the highest
quality construction at the lowest price. Sealed bidding ensures that
competitors have only one opportunity to price the work, encouraging
each bidder to present his or her best price.
Where price is not the sole determinant, owners increasingly have
utilized processes focused on negotiation to expand communication
between the owner and prospective contractors for the purpose of
discussing selection criteria such as costs, past performance and
unique needs. Unfortunately, reverse auctions do not allow for a
contract to be awarded based on ``best value,'' but on driving the
price to an absolute minimum and awarding the contract to the lowest
bidder. This is a poor use of taxpayers' money. Reverse auctions
actually deprive taxpayers the full benefits of fair competition,
quality construction and consideration of life-cycle costs. Reducing
one's original bid price (as a contractor is forced to do when someone
comes in with a lower bid during the reverse auction process) cheats
the government by creating cost-value disparity in the finished
product. Reducing a bid price requires cutting costs in the areas of
materials and/or labor, which is significant in determining a
structure's overall quality and value. Reverse auctions do not promote
communication between the parties, they promote a dynamic in which
parties repeatedly attempt to best each other's prices. As a result,
reverse auctions do not offer owners a good way to evaluate non-price
factors.
Reverse Auctions Upend Well Established Bidding Practices
Reverse auctions create an environment in which bid discipline is
critical, yet difficult to maintain. The competitors have to deal with
multiple rounds of bidding, all in quick succession. The process may
move too quickly for competitors to accurately reassess either their
costs or the way they would actually do the work. If competitors act
rashly and bid imprudently, the results may be detrimental to everyone,
including the owner. Imprudent bidding may lead to performance and
financial problems for owners and successful bidders, which may have
the effect of increasing the ultimate cost of construction as well as
the cost of operating and maintaining the structure. Some contractors
who have learned to ``game'' reverse auctions inflate their initial
bids to allow room to move their price downward. Should other bidders
do the same, owners may actually end up paying more than they would
have under a sealed bid system. In fact, responsible estimating
practices dissolve during the reverse auction process and drives out
the most responsible bidders in favor of those who are willing to cut
corners and/or squeeze subcontractors to get at a lower price.
It is clear that the sealed bidding process ensures that the
successful bidder is both responsive and responsible. The sealed bid
procurement process was established to ensure integrity in the award of
construction contracts where price is the sole determinant. In a sealed
bid, each bid is evaluated through the use of objective criteria that
measure responsiveness of the bid to the owner's articulated
requirements and the responsibility of the bidder and ensuring fairness
and value for the owner. Reverse auctions ignore and upend this
paradigm. The pressure and pace of the auction environment removes any
assurance that initial and subsequent bids are responsive and material
to the owner's articulated requirements. These auctions expose owners
to the real possibility that they may award contracts to what would
otherwise be non-responsive bidders. In addition, reverse auctions
ignore the protections of the sealed bid procurement's laws,
regulations and years of precedent that address these critical factors
and ensure the integrity of the process.
Federal Policy Has Not Supported Reverse Auctions for Construction
Services
While reverse auctions may demonstrate some value to the government
in the purchase of commodities, no public or private studies have
presented persuasive evidence that reverse auctions will generate
savings in the procurement of construction when compared to currently
recognized selection procedures for construction contractors. Upon the
advent of the use of reverse auctions, the federal government took
careful and decisive action to study this critical issue. First, the
Office of Federal Procurement Policy issued a policy memorandum on July
3, 2003 recognizing that construction services cannot be equated to
commodities or manufactured goods when it acknowledged, ``new
construction projects and complex alterations and repairs . . . involve
a high degree of variability.'' The policy went on to state
unequivocally that ``FAR Part 12, which addresses the acquisition of
commercial items . . . should rarely, if ever, be used for new
construction acquisitions or non-routine alteration and repair
services.'' Second, the Department of Defense tasked the U.S. Army
Corps of Engineers (USACE) to examine the use of reverse auctions. A
subsequent report issued by USACE in 2004 found that there was no proof
that reverse auctions provide any significant or marginal edge in
savings over the sealed bid process for construction services for the
following reasons:
There was no proof that a consistent, reliable and valid
measurement method for projecting savings could be established from
reverse auctioning;
Absent any specific price history for an identical
project under identical conditions, there was no practical way to
measure or compare any projected savings by reverse auctions over
sealed bidding; and,
There was no proof reverse auctions provided any
significant or marginal savings in comparison to the government
estimate.
Finally, NECA argues that the use of reverse auctions with respect
to construction services may violate procurement laws at the federal
and state level. The FAR, as well as other current procurement statutes
reflect a clear policy of not disclosing contractor price information.
This is especially true once one realizes that price disclosure is a
core characteristic of the reverse auction process and violates current
federal procurement law.
Concluding Remarks
It is for these reasons we reiterate our recommendation that
Congress and the Administration take action and implement what we
believe is an appropriate and responsible solution that will meet the
acquisition needs of the federal government. The federal agencies need
flexibility in the acquisition process and should have all tools
available to them to allow for optimized savings. While reverse
auctions can be a tool in the acquisition toolbox for mass produced
commodities, it is clear that they should not be utilized for the
acquisition of construction services. Congress and the Administration
should finally codify this policy recommendation and we hope you will
support this change. Lastly, we appreciate the time the Committees have
taken to examine this complex issue and offer our assistance and
expertise to help this process move forward.
COFPAES
Since its inception in 1966, the Council on Federal Procurement of
Architectural & Engineering Services (COFPAES) has provided the design
community with a common voice on federal procurement law and
regulations. COFPAES continues to serve the American public as a well-
known and respected forum for the consideration of policy and
operational changes in the selection procedures for design
professionals. Because of its emphasis on professionalism in the
procurement process, COFPAES assists the federal government in assuring
that the design of projects to satisfy the building, infrastructure,
resource, and program management needs of our Nation are conducted in
an efficient and quality manner. Throughout its history, COFPAES has
focused on ensuring quality and competence in the procurement of
professional architectural and engineering (A/E) services, including
surveying and mapping services. COFPAES serves the American public by
assisting Congress and federal agencies with policies to ensure that
projects to satisfy the building, infrastructure, resource, defense,
and security needs of the Nation are conducted in an efficient and
quality manner. The member organizations of COFPAES are the American
Institute of Architects, American Society of Civil Engineers, MAPPS -
the association of private geospatial firms, National Society of
Professional Engineers, and National Society of Professional Surveyors.
COFPAES is pleased to submit this statement for the record of the
December 11, 2013 hearing of the House Committee on Small Business,
Subcommittee on Contracting and Workforce, on ``Contracting Away
Accountability-Reverse Auctions in Federal Agency Acquisitions''.
Over the past decade or more, the federal government's in-house A/E
capability has been reduced. Retirements, attrition, recruitment and
shifting priorities have all contributed to changes in the federal
personnel structure that has resulted in fewer federal employees
trained, qualified and actually engaged in evaluating, awarding and
managing Federal A/E contracts. Notwithstanding this workforce
reduction, the federal government's demand and expenditures for A/E
services has remained steady or in some cases increased.
The loss of an A/E acquisition workforce has caused a number of
undesirable trends in A/E procurement. Federal contracts for A/E
services have become larger in dollar value, longer in duration,
bundled with other services, and less competitive. The advantages of
QBS are being diminished. Moreover, given that the private A/E market
is overwhelmingly comprised of small businesses, the trend has resulted
in the creation of a virtual oligopoly. There are now fewer A/E
contracts. They are now for longer time periods, with some potentially
lasting 15 years when options are exercised. The use of design-build
procedures, once reserved for rare and unique projects, has become more
common. And the advent of GSA Federal Supply Schedules for services has
resulted in rampant abuse of such schedule contracts in violation of
the QBS law. And the rise of reverse auctions has threatened the public
health, welfare and safety when applied to services that are considered
A/E services under the Brooks Act 940 U.S.C. 1101 et. seq. and part
36.6 of the Federal Acquisition Regulation (FAR). None of these trends
favor the government, and the taxpayer, and they certainly put small
business A/E firms at a disadvantage.
The reason for this trend is simple - - supply and demand - -
within the federal government. Fewer government A/E professionals
experienced in acquisition are responsible for awarding more work. The
decline in the federal A/E acquisition workforce led Congress to enact
section 1414 of Public Law 108-136 and a provision in the 2008 National
Defense Authorization Act, - 41 USC 1704(h).
For purposes of federal procurement, A/E services are defined in
federal law (40 U.S.C. 1101) as:
(A) professional services of an architectural or engineering
nature, as defined by State law, if applicable, which are required to
be performed or approved by a person licensed, registered, or certified
to provide such services as described in this paragraph;
(B) professional services of an architectural or engineering nature
performed by contract that are associated with research, planning,
development, design, construction, alteration, or repair of real
property; and
(C) such other professional services of an architectural or
engineering nature, or incidental services, which members of the
architectural and engineering professions (and individuals in their
employ) may logically or justifiably perform, including studies,
investigations, surveying and mapping, tests, evaluations,
consultations, comprehensive planning, program management, conceptual
designs, plans and specifications, value engineering, construction
phase services, soils engineering, drawing reviews, preparation of
operating and maintenance manuals, and other related services.
Unlike many products, for which the government awards contracts to
the lowest bidder, or other services, which are awarded based on the
``best value'', A/E services have long been recognized as having a
significant impact on public health, welfare and safety. Moreover, A/E
services amount to 1/10th of 1 percent of the life cycle cost of a
project or program, but the quality of the A/E services determines the
price and efficiency of the other 99.9 percent. As a result, Congress
has long recognized the efficiency and economy of selecting firms for
A/E services ``on the basis of demonstrated competence and
qualification for the type of professional services required'', and
negotiating a fee with the most qualified firm only after the firm's
credentials have been established. This process, which is commonly
known as qualifications based selection, or QBS, is codified in 40
U.S.C. 1101 et.seq. and is implemented in the Federal Acquisition
Regulation in 48 CFR 36.6. The definition in the FAR closely follows
the statutory definition above and provides further clarification of
the application of QBS to surveying and mapping, in subpart 36.601-4:
(a) Contracting officers should consider the following services to
be ``architect-engineer services'' subject to the procedures of this
subpart:
(1) Professional services of an architectural or engineering
nature, as defined by applicable State law, which the State law
requires to be performed or approved by a registered architect or
engineer.
(2) Professional services of an architectural or engineering nature
associated with design or construction of real property.
(3) Other professional services of an architectural or engineering
nature or services incidental thereto (including studies,
investigations, surveying and mapping, tests, evaluations,
consultations, comprehensive planning, program management, conceptual
designs, plans and specifications, value engineering, construction
phase services, soils engineering, drawing reviews, preparation of
operating and maintenance manuals and other related services) that
logically or justifiably require performance by registered architects
or engineers or their employees.
(4) Professional surveying and mapping services of an architectural
or engineering nature. Surveying is considered to be an architectural
and engineering service and shall be procured pursuant to section
36.601 from registered surveyors or architects and engineers. Mapping
associated with the research, planning, development, design,
construction, or alteration of real property is considered to be an
architectural and engineering service and is to be procured pursuant to
section 36.601.
COFPAES is deeply concerned that reverse auctions have been
attempted by federal agencies. We know of three instances in which such
a process, which COFPAES believes to be in violation of the Brooks Act,
was attempted.
In once such instance, Solicitation Number 0040073949, issued on
April 5, 2013, the U.S. Geological Survey, Department of the Interior,
announced its intention ``to conduct an online competitive reverse
auction to be facilitated by the third-party reverse auction provider,
FedBid, Inc.'' This reverse auction was for an aerial geophysical
survey, using the standard NAICS code (541360), which the federal
government defines as ``Geophysical Surveying and Mapping Services.
This industry comprises establishments primarily engaged in gathering,
interpreting, and mapping geophysical data. Establishments in this
industry often specialize in locating and measuring the extent of
subsurface resources, such as oil, gas, and minerals, but they may also
conduct surveys for engineering purposes. Establishments in this
industry use a variety of surveying techniques depending on the purpose
of the survey, including magnetic surveys, gravity surveys, seismic
surveys, or electrical and electromagnetic surveys.''
The solicitation was set aside for small business, with a small
business size standard of $14 million. These are the NAICS Code and
size standard for such surveying and mapping services ordinarily
subject to the Brooks Act. The Solicitation was released on April 5
with the reverse auction to be conducted on April 9. For a professional
service such as a geophysical survey, this is insufficient time for a
firm, particularly a small business, to investigate, analyze and
develop a proposal.
The scope of work is consistent to the requirements of the Brooks
Act. It required the aerial geophysical survey, including GPS
elevations, precise XYZ positions of observed field measurements, and
positions computed using the WGS-84 datum and the NAD27 datum. This is
clearly a surveying service.
This procurement was executed in such secrecy and haste that
COFPAES nor its member organizations were aware of it in time to lodge
a protest or attempt to advise the contracting agency of its violation
of the law.
Solicitation G13PS00201 was issued by the USGS in August of 2013
for 4-band (true color and near infrared) digital orthoimagery at 0.05
meter ground sample distance, and stereo imagery for select portions of
the Edwin B. Forsythe National Wildlife Refuge in coastal New Jersey.
This included aerial photography, airborne GPS, rectified image maps,
and elevation data. This is clearly a professional surveying and
mapping service, yet was proposed to be carried out by FedBid, Inc. as
a reverse auction. Fortunately, the public was protected as MAPPS, a
COFPAES member organization, contacted the USGS officials responsible
for such services and the auction was canceled. The work was assigned
as a task order to a firm already under a USGS Geospatial Products and
Services (GPSC) contract, a Brooks Act-compliant ID/IIQ contract.
On December 28, 2012, the U.S. Army, Fort Benning, Georgia, issued
Solicitation Number: 001025774 for a reverse auction for digital
orthophoto mapping, through FedBid, Inc. The response date was January
11, 2013. Officials at Fort Benning were advised by MAPPS that the
scope of work was for engineering-related surveying and mapping
services as defined by the Brooks Act, the FAR, Corps of Engineers
regulations, and applicable Comptroller General decisions. Moreover,
such services are the practice of land surveying, as defined by the
State of Georgia, Sec. 43-15-2, Code of Georgia, requiring compliance
with 40 USC 1101 and FAR 36.6, requiring performance by a Georgia
licensed surveyor. Finally, any Georgia licensed surveyor who responds
to the solicitation with a price quote would be in violation of state
conduct regulation 180-6-.06.1. The Army did not require a surveyor
licensed in Georgia.
COFPAES is deeply concerned about this flagrant disregard for the
law. The public health, welfare, and safety are jeopardized when
reverse auctions are used in lieu of the statutory requirements of the
Brooks Act and the FAR, as well as when state licensing law is ignored.
Moreover, such processes put law abiding small business architecture,
engineering, surveying and mapping firms at a competitive disadvantage.
COFPAES looks forward to working with the Committee on Small
Business, other committees of Congress with jurisdiction over this
matter, and the relevant federal agencies to assure that reverse
auctions are no longer inappropriately applied to A/E services.