State Purchasing Reverse Auction Information
Pursuant to Texas Government Code, §2155.062(a)(4), Purchase Methods, the Comptroller of Public Accounts may use the reverse auction procedure to procure goods and services.
Based upon this authority, the CPA contracts with third-party service providers for specialized software to host online reverse auction purchasing events.
What is a reverse auction?
The state of Texas uses electronic reverse auctions (e-RAs) as one method for statewide procurement in which the roles of the buyer and seller are reversed to drive purchase prices down. In a forward auction, buyers compete to acquire a good or service by making successively higher bids. In an e-RA, sellers compete to supply a good or service by entering successively lower bids. The key components of an e-RA are:
- an online, real-time dynamic auction between a buying organization and a group of pre-qualified suppliers,
- competition among sellers who enter successively lower bids during a previously scheduled time and Internet location which usually lasts one hour or up to two weeks, depending on the reverse auction format – either real time or standard – and on the last-minute bid extensions, and
- use of a third-party service provider to organize, host and ultimately manage supplier bidding with proprietary e-procurement software during the online auction event.
By facilitating a real-time online auction market between purchaser and sellers, e-RAs enhance competition, drive prices downward and thus can provide best value to the state for purchasing standardized goods or services from the lowest cost supplier.
Who should consider using the reverse auction procurement method?
Any state agency, university, or local governmental entity may consider using the reverse auction procedure for goods and services. Statutory procurement methods authorize municipalities and school districts, for example, to use the e-RA procedure for purchases in excess of certain thresholds when it provides the best value to the end user.
When does the use of e-RAs make sense for strategic sourcing?
Texas Government Code, Sec. 2155.085(a)(1) requires the CPA to use reverse auction procedures whenever (A) the procedure provides the best value to the state; or (B) all purchasing methods provide equal value to the state.
Not all commodity types are a good fit for reverse auctions. The Texas Procurement and Support Services (TPASS) division of the CPA reviews solicitation requests from its client agencies to determine whether the requested commodity is a good candidate for a reverse auction. The TPASS review analyzes the number of bidders in previous similar solicitations; the competitive volume; the effectiveness of prior reverse auctions for the same or a similar commodity; the number of potential suppliers registered on the Centralized Master Bidders List (CMBL); the number of delivery locations; and other factors that may be specific to a particular commodity.
Which commodities does the CPA purchase with the reverse auction procedures?
Specific commodities that are readily available in the marketplace, highly standardized, whose selection depends solely on price, and can be supplied by a reasonable number of qualified competitors are good candidates for reverse auctions. High-volume or high-value commodities or solicitations that require a short turn-around time may be procured via reverse auctions, but TPASS staff customarily uses Invitations for Bid (IFB) or Requests for Proposal (RFP) procurement methods. From July 2006 through August 2008, the state used reverse auctions to purchase approximately $32.7MM, including but not limited to the following commodities: food items for the youth and adult correctional marketplace ($23.5MM), food processing and packaging supplies ($1.9MM), medical and dental supplies ($807K), supplies for state and municipal law enforcement agencies ($1.11MM), emergency generators ($1.47MM), and highway construction and worker supplies for state transportation needs ($602K).
Which third-party service provider offers e-procurement software for CPA reverse auctions?
Commodities selected by TPASS for a reverse auction solicitation are forwarded to Orbis Online, a third-party service provider selected through competitive solicitation to provide outsourced reverse auction services for the state of Texas. Orbis Online analyzes the solicitation request, gathers market data and recommends whether the e-RA procedure is appropriate. As part of the state’s strategic sourcing initiative, TPASS evaluates the Orbis Online recommendation in deciding which procurement method provides the best value possible.
As a vendor, how can I participate in reverse auctions held by CPA?
If your business has Internet access and an email account, you are able to participate in the CPA's reverse auctions.
Further, pursuant to Texas Government Code, Section 2155.085(a)(2),(3), the CPA offers historically underutilized businesses (HUBs) assistance and training in reverse auction procedures and advice on contracts available through the reverse auction method.
By registering your business on the Centralized Master Bidder List (CMBL), all vendors will automatically receive solicitation announcements for their specific area of supply chain expertise.
Who should I contact for assistance and training or general questions regarding reverse auctions?
1Tex. Loc. Gov't Code §252.021 (as amended by Texas House Bill 3517 and Senate Bill 1765, 80th Legislature, Regular Session (2007))
2Tex. Educ. Code Ann. §44.031(a)(8) (Vernon 2006)