Business & Labor
New Guidelines May Take Some Pain Out of Reverse Auctions
(enr.construction.com - 11/24/03)
By William
Krizan in Naples, Fla.
Some contractors
have been cursing Internet-based reverse auction bidding as
a tool of the devil designed to help owners drive down contract
margins. But owners who increasingly are using the device
to save money have developed a set of guidelines that they
believe may help smooth out some of the rough spots while
preserving the positive aspects.
Reverse auctions have their roots
in commodity purchases, not services, and that is part of
the rub. The core of the guidelines developed by the Construction
Users Roundtable, Cincinnati, emphasizes that "all bidding
should be based on sound engineering and procurement process"
and that reverse auctions should not be used as a shortcut
around proven processes.
Essential elements of reverse auctions
include prequalifying bidders before the auction, clearly
defining the bid scope so that all bidders understand it and
clearly defining non-price items that affect performance,
such as safety, qual-ity, training and schedule, say the guidelines.
They were unveiled at CURT’s annual meeting Nov. 10-12
in Naples, Fla., and will be available on CURT’s Website,
www.CURT.org.
"This particular technology
…has stirred up a lot of feelings in the industry–more
than any other," said Earl F. Massner, global construction
technologies manager for Procter & Gamble, Westchester,
Ohio, and co-chairman of the committee that developed the
guidelines. "The purpose is to provide thoughts for consideration,"
he said. "At the end of the day, reverse auctions are
a tool. Like any other tool, you can use it appropriately...or
use it inappropriately."
"All parties really have to
know how the game is being played," added Michael G.
Conley, engineering manager for DuPont, Wilmington, Del.,
and co-chairman of the committee. He said non-price performance
items can account for half of the weight in contract awards,
even for commodities.
Big owners clearly are ramping
up reverse auctions. In procurement, Target Corp. tends to
"look at the total cost of ownership" rather than
per-unit costs, said Tom Drapac, regional construction manager
for Target in Minneapolis.
In 2001, it developed a plan to
use e-procurement and this year had 1,000 events. The goal
is to use it for 70% of construction, he said.
Target’s auction process is
constantly reviewed and refined. "We have a regular review
of process" and invite qualified contractors to provide
input and feedback, said Drapac. Target typically negotiates
with general contractors for a construction program of multiple
stores and the e-sourcing events are between those firms and
subcontractors and suppliers, he said.
"I am a convert. I didn’t
believe reverse auctions would apply to construction services,"
said Tom Weise, facilities materials and services manager
for Intel Corp., Chandler, Ariz. The key to making it work
is to improve the project scope at the front end. In the past,
Intel’s scope "was a lot of garbage" that tended
to change and "we were giving money away," he said.
Intel is planning about 100 projects
in six countries and will use e-bidding on all of them, said
Weise. It is closed bidding with approved contractors and
Intel will "pull the contractors together and get them
trained [in reverse auctions] because this is going to be
a way of life." With the improved scope clarification,
e-bidding has produced "the lowest levels of claims in
the history of the corporation," said Weise. He adds,
"You must do both. I couldn’t go out and capitalize
on e-bidding without the scope."
CURT took up the issue at the request
of Associated Builders and Contractors. "Drawings and
specs need to be complete–that can save a lot of time
and effort," said Chairman Edward L. Rispone.
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