Bid transparency will save money for taxpayersBy BRAD LANDERS,
On October 26, 2017, Northside Sun ran an article Procurement Reform authored by an equipment supplier, Mr. Hastings Puckett. In the interest of presenting a balanced viewpoint, I hope to present a valid counter-argument. My name is Brad Landers, and I am the co-founder of a company that sells reverse auction software and services. I won't mention my company name, because I am not interested in promoting my business. Achieving savings for governmental entities was a major driver in our decision to found a reverse auction company, and I feel it is important that supplier objections not go unanswered.
In his article, Mr. Puckett presents two contradictory arguments: A) that reverse auctions don't always achieve the lowest price, and B) lowest price isn't always best. So which is it? I would argue that when combined with a well defined specification, lowest price is exactly what municipal governments should seek to achieve. No one wants to read stories about government purchase of $600 hammers and $300 packages of paper towels.
Even if we accept these independent arguments as their own, there are massive holes in his reasoning. Mr. Puckett asserts that a competitive bidder only needs to lower their price enough that it will outperform the second place bidder. That is true. However, what he fails to incorporate is that the newly founded second place bidder has every opportunity to respond, driving the price even lower. This is the fundamental downward price mechanism of reverse auctions: competition.
I understand Mr. Puckett's frustrations. It can be jarring to come from the private sector, where relationships and salesmanship can win business, to find yourself competing only on price in the municipal procurement environment. However, I firmly stand by the assertion that vendor frustrations cannot be put before the public good.
Even still, reverse auction technology has advanced to a point that the industry is able to address concerns over price-driven purchasing. Not everything is a commodity, and so price-only competition can drive poor decisions. The mandate for public procurement though is to prevent corruption and maintain an ethical procurement environment. The tool most procurement departments use to balance these concerns is RFP scoring.
With RFP scoring, the ranking of suppliers considers two factors: price factors and non-price factors. Price factors are obvious; they are established by a suppliers' price. Non-price factors consider everything that isn't a price. This includes service ratings, resale value, and supplier business standing.
To establish a score for non-price factors, suppliers answer a set of questions that are individually scored. Pricing is collected and assigned its own score. These two scores, combined together, are the vendor's RFP score. Modern reverse auction platforms are able to conduct this scoring in real-time as suppliers revise their pricing in the auction format.
The argument Mr. Puckett presents is, ultimately, anti-market. If we value the free market, then we must accept that the best price is the one that incorporates the most information. But you don't have to take my word for it. Independent research published by CAPS Research found that, "The development and use of e-RAs has created competitive 'relatively efficient' markets for many goods and services where none previously existed." If we can hope to achieve nothing else, I hope we can agree that everyone benefits from more efficient markets in the municipal sector.
Brad Landers is the co-founder of a company that sells reverse auction software and services.