Reverse Auctions in Awarding of Government Contracts
ttps://www.nytimes.com/2014/04/07/business/reverse-auctions-draw-scrutiny.html
Reverse auctions are a great tool for buyers to force sellers to bid down in order to help them get the lowest price. An interesting use of this is in the case of government contract auctions. In order to save money for taxpayers, the federal government hosts reverse auctions to ensure that they will have to pay the lowest price possible on these contracts. These auctions are often hosted through the site FedBid, an online marketplace designed specifically for this purpose.
In theory, reverse auctions like these are very intriguing. The buyer should benefit the most from this style of betting. However, in practice, this presents a major problem when dealing with multi-million dollar auctions for government contracts. It is hard to guarantee the government is getting good quality work for what they are paying. Some companies undercut the other bidders but in the process, are forced to make sacrifices in order to get around a smaller budget. Contracts that go to contractors that produce lower quality work end up wasting taxpayer money and time. For government contacts in general, auctions are not always the best way to decide who these go to. Reverse auctions do not account for factors like previous work and reputation. Reverse auctions are great for ensuring that the government saves the most possible taxpayer money upfront, but since it only considers price in selecting a winner, it means that the contracts awarded through this method have the potential to actually hurt government spending if the project is not completed as well as if it had been done by a company with a higher bid that had more experience or some other factor that would help them to a better job on the project.