Report: Reverse auctions have limited effect on IT procurement

States are finding that reverse auctions are not as effective for purchasing IT goods and services as other commodities, according to a new report by the market research firm Input Inc., Reston, Va.

"Reverse auctions are effective when buying goods that have standard specifications such as office supplies and raw materials," said Marcus Fedeli, Input's manager of state and local opportunity products. "However, when dealing with IT systems and professional services whereby specifications vary greatly from vendor to vendor, reverse auctions are often not cost effective or efficient."

Input's report, released this week, shows that state spending through online reverse auctions will grow 300 percent over the next three years from $151 million in fiscal 2004 to more than $450 million in fiscal 2005.

But only 8 percent to 10 percent of reverse auction spending in 2004 was for IT goods and services, and the percentage is not expected to increase dramatically in the coming years, Input said.

Government agencies use reverse auctions as a way to cut procurement costs. In a reverse auction, sellers bid increasingly lower prices as they compete to become the government's supplier. The bidding process is conducted live on the Internet for a set period of time.

The states considered to be the early adopters of the reverse auction procurement process include Massachusetts, Minnesota, Pennsylvania, Texas and Wisconsin. Overall, states have learned that they must be selective when deciding what to purchase using these auctions since the process may be more costly than the competitive solicitation process, Input said.

To download a copy of the report, go to http://reverseauction.input.com.