Sheet metal & Air Conditioning Contractors’ National Association

Issue Briefs

Reverse Auctions for Federal Construction Services

Position:

SMACNA supports H.R. 1444, The Commonsense Contracting Act of 2015, sponsored by Rep. Richard Hanna (R-N.Y.) to prohibit federal agencies from procuring construction services through reverse auctions.  The bill is a reasonable and important legislative improvement for contractors who bid on federal construction work and provide good, quality construction work at an equitable price to the taxpayer.

Issue:

A reverse auction is often described as “e-Bay” in reverse.  For federal government construction contracting, it means a Request for Proposal (RFP) is placed on the internet and anonymous bidders make consecutively lower bids over a set period of time.  This contrasts with e-Bay’s system where the price goes up; with reverse auctions, the price goes down, as contractors steadily underbid each other in an open process (i.e. everyone on the internet can see the bids as they occur).

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 services. This is especially evident when reverse auctions are compared to current procedures for selecting contractors.  The reverse auction generates ill-considered bidding at the prime contract level which then has to be made up on the job by substitutions in materials, change orders, claims and disputes.  The project most often suffers and so do the project participants.

Nevertheless, Federal agencies, including the Department of Veterans Affairs and Department of the Interior, are using reverse auctions to procure construction services for complex and multifaceted building renovations. The General Services Administration has also established a reverse auction website through which ANY federal agency can procure construction services. This is a harmful trend that H.R. 1444 is designed to prevent before it grows and damages the construction industry economy, its workforce and project quality.

 

Key Points:

  • Reverse auctions are not appropriate for procuring construction services, especially those involving complex projects under variable conditions;
  • Sealed bids, whereby a bidder puts forth their best proposal and price, are a recognized, proven process and cost-effective;

  • Reverse auctions encourage imprudent, often irrational bidding which later has to be remedied on the job by substitutions in materials, change orders, claims and disputes;
  • Experienced contractors frequently avoid reverse auctions thereby limiting competition and the highest quality services of the most responsible contractors and skilled craftsmen;
  • The U.S. Army Corps of Engineers (USACE) has banned reverse auctions for construction citing the fact construction projects are unique projects with many variables;
  • The Office of Federal Procurement Policy (OFFP) stated unequivocally in 2003 that reverse auctions should rarely, if ever, be used for new construction or non-routine, alteration and repair services;
  • Negotiated procurements allow a far better evaluation of construction service values;
  • Reverse auctions are a harmful electronic form of bid shopping by prime contractors.

Status:

 

H.R. 1444, The Commonsense Contracting Act of 2015, unanimously passed the House Small Business Committee as part of H.R. 1481, The Small Contractors Improve Competition Act of 2015.

H.R. 1444 will be considered by the full House as a Hanna Amendment to the National Defense Authorization Act of FY 2016, H.R. 1735.

Sponsors:

Rep. Richard Hanna (R-NY-22)
Rep. Steve Chabot (R-OH-01)
Rep. Grace Meng (D-NY-06)
Rep. Stephen Knight (R-CA-25)


As of May 12, 2015