Government Eyes Auction System for Infotech Purchases

By Nick Wakeman, Staff WriterCommodity buying of information technology products via an auction might be the next step in the General Services Administration's quest to bring more commercial buying practices to the federal government.Taking a page out of the books of successful online auction operations such as Freemarkets Inc. of Pittsburgh and Mercata Inc. of Bellevue, Wash., GSA is exploring the possibility of letting agencies use auctions to buy everything from paper clips to desktop computers."We are looking at auctions as another form of a negotiation strategy," said Manny DeVera, director of GSA IT Solutions Regional Services Center. GSA is considering auctions where a single buyer could look for the lowest price on a product, and at aggregated auctions where several buyers with similar needs band together to get the lowest prices, DeVera said at a briefing sponsored by the market research firm Federal Sources Inc. of McLean, Va."They have been doing these kinds of auctions in the commercial world," he said. An auction system for the government could be launched within several months.If the government goes with a system that allows agencies to use auctions to make small volume purchases, "that will put extreme pressure on the resellers and the smaller mom and pop shops" and will favor large manufacturers, Maryann Hirsch, senior vice president for consulting at Federal Sources, told Washington Technology.But the second type of auctions ? aggregate auctions ? deal with larger volumes and resellers should be able to compete better, she said.DeVera said that GSA has not determined what the structure of the auction system will be. GSA is looking for input from industry and the agencies, he said."We have several questions we are looking at," he said. Among them are: whether procurement laws will allow an auction, are agencies interested in using auctions, and, does it make good sense for the government to hold auctions? "The most important question for us is, will our customers support it?" he said.Whatever form the auction process takes, the reseller community must be ready and flexible, said Dendy Young, president of Government Technology Services Inc. of Chantilly, Va., a $600-million-a-year reseller of IT products and services.Electronic commerce initiatives, which include auctions, are changing the way the government purchases products, he said. "This is no time to be asleep," he said.Auctions could create opportunities for companies such as GTSI, if GTSI were to run the auction for an agency, Young said. "Someone has to watch over the auction, make sure the right products are being offered and make sure the products get delivered," he said.Young also said he doubted that the government would buy large quantities of different products and not have a contractor to integrate them together and provide support services. "We still expect to see complex system purchases," he said.At Freemarkets Inc., which runs the auction Web site, Freemarkets.com, company executives said they have been fielding inquiries from several federal agencies about using the site to conduct auctions for a wide variety of products.Sam Kinney, senior vice president and co-founder, declined to name the agencies, but said the products have covered low-tech and high-tech items.Freemarkets has conducted auctions for the state of Pennsylvania to buy such things as aluminum for license plates, along with coal, rock and salt. The state also bought a $3.2 million telephone system for a state agency building, said Dave McCormick, vice president of public sector for Freemarkets. And the system cost 10 percent less through the auction than through a traditional procurement, he said. For an auction to operate properly, the buyer's purchase must be defined very specifically, there must be a competitive base of suppliers and the size of the purchase must be large enough to attract attention, McCormick said.Bidders in Freemarkets' auctions are prequalified and must show they can deliver what is up for auction before being allowed to bid, McCormick said. During an auction, bidders can see what the bid prices are but cannot see who is bidding what price, he said.Auctions also can be designed around making a best-value decision rather than a decision based on the lowest price, Kinney said. The key is defining up front and clearly how the buying decision will be made."You have to spend more time on preparation than on the actual auction," he said.