Construction industry and reverse auction
This article introduces the concept of electronic reverse auction bidding and how it would interact with the construction industry. Reverse auction is a type of auction in which the roles of buyer and seller are reversed. In a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other. In a typical auction, the seller offers an item which she wishes to sell. Potential buyers are then free to bid on the item until the time period expires. The buyer with the highest offer wins the right to purchase the item for the price determined at the end of the auction. The electronic reverse bidding has been used to purchase commodities and proved to be successful on some cases. When Minnesota tries to allow electronic reverse auction on design, engineering and construction, it was resisted by the design and construction communities. While electronic reverse auctions do have a place in the supply chain, they are best suited for goods or commodities. However, it was not fit for construction industry. Construction is a complex and dynamic process thus require considerable analysis during the planning and pricing stage, so it is not adaptable to the rapid price reductions that can occur within a short time during a reverse auction. This system may lead to haphazard bidding procedures in which the bidder lowers its price simply to beat the current low bid. Therefore, it would be harmful for the development of the construction industry.
This article used the theory of auction which we learned on our class. The reverse auction is kind of similar to the ascending auction for the constructor. In an ordinary auction, buyers compete to obtain goods or services by offering increasingly higher prices. In reverse auction, people compete to sell their “value”-service or goods to the owner by offering increasingly lower price. For construction industry, it means constructors continues to offer lower price until it reaches their “value”. When it reaches the value, they have to drop, but some may reduce the quality of construction to keep their value lower, so they can continue to bid. This would definitely causing cutthroat competition thus resist by the construction industry.
The link:
Reverse auction bidding compromises the construction industry