A reverse auction is a procurement method where suppliers are invited to bid on specified goods or nonprofessional services through real-time electronic bidding, with the award being made to the lowest responsive and responsible supplier. Suppliers must be prequalified to participate in a reverse auction. During the bidding process, suppliers' prices are revealed and suppliers have the opportunity to modify their bid prices for the duration of the time period established for bid opening. (Refer to §2.2-4301 of the Code of Virginia.)
In a reverse auction, something is purchased from the lowest responsive and responsible supplier (which is the "reverse" of a normal auction, wherein something is sold to the highest bidder). A reverse auction is typically conducted via the Internet (usually through an e-procurement site) where prequalified suppliers anonymously bid against each other for an item or group of items for which an agency has a requirement. Bidding takes place at a specified date and time and continues for a specified amount of time to allow suppliers to reduce their bids during the auction period until no more bids are accepted.
Reverse auctions can allow agencies to minimize the cost of IT goods and services purchased while maximizing the value received. Reverse auctions provide an unbiased method to procure IT as it avoids the appearance of unethical or compromising practices in relationships, actions and communications. Reverse auctions also provide benefits through automating the sourcing process and increasing the agency's purchasing efficiency.
To begin the reverse auction process, an agency will post a procurement opportunity for suppliers to qualify to participate in the reverse auction event. Suppliers will submit a summary of their products and/or services as well as their qualifications without prices. This prescreening of suppliers is done carefully to ensure that the agency does not contract with irresponsible suppliers offering lower quality products. Suppliers who prequalify are invited to participate in the reverse auction event. Suppliers who were not selected to participate in the reverse auction should be notified by the purchasing agency. The selected suppliers will be contacted and trained on set-up and use of the selected auction tool.
During the course of the auction, suppliers submit progressively lower prices electronically until the lowest bid is submitted. After the lowest price is obtained, the agency reviews the suppliers' submittals for responsibility, starting with the supplier who submitted the lowest price until the lowest responsible supplier is selected for award.