reverse auctioning

8/2/2019 Reverse Auctioning

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REVERSE AUCTIONING

Presented by

P. K. Choudhary

GM/GT, RITES Ltd.



REVERSE AUCTIONING

Auction is a well known tool and is said tohave originated as far back as 500 B.C.(Wikipedia).

In normal auction many buyers compete forpurchase of item(s) put for sale by singleseller (also known as the forward auction).

The prospective buyers compete amongstthemselves by offering multiple quotes, eachhigher in value than previous quote, andhighest bidder purchases the item.

Such auctions are demand driven.



REVERSE AUCTIONING

In Reverse Auction, many sellers of goods and services competeamongst themselves for providing goods and services that abuyer requests for.

Thus it is supply driven.

With the development of internet based online auction tools inmid 1990’s, Reverse Auction started gaining popularity and hasdeveloped into a remarkable purchase tool for the corporateworld and is being used mainly for purchase of articles andgoods.

Its innovative use for finalizing the Civil Works Contract hasproved that this tool can also be successfully used for item-ratecontract jobs and will not only save costs for the buyer but alsosave considerable time in finalizing contracts.

RBI, SBI, IOCL, HPCL, BPCL, EIL, ISPRL and ONGC havealready started Reverse Auctioning and Indian Railways alsoshould not fall behind.



REVERSE AUCTIONING

Traditional Purchase

In traditional purchase the buyer obtains offers from vendors(through single or two bid process) and based on wellestablished corporate procedures, places order on the lowesttechnically acceptable bidder.

In traditional purchase, the price at which the goods and servicesare procured would depend to a large extent on the number ofbidders in the process, the availability of resources and thenegotiating skills of the buyer.

A Vendor is expected to submit his best offer and does not knowwhat the other vendors have quoted and has no opportunity tocorrect his offer after the price-bid submission date, unless post-bid negotiations are resorted to.

In Indian government sector, any post-bid negotiation with otherthan L1 bidder is discouraged by CVC.

The process does not provide the vendor with an instant feedback about the market price for his goods and thus does notcompel him to lower his price in relation to the market.



REVERSE AUCTIONING

Traditional Purchase

In case, all the vendors, on account of variousrisk perceptions (right or wrong), quote a highprice, the buyer is left with no option but to

resort to negotiations with only L1 bidder ingovernment and public sector purchases.

The buyer may or may not have the requisiteknowledge of the market, to conduct thenegotiations.

Thus there is a risk that the buyer could endup paying a price much higher than themarket price for the goods or services sought.



REVERSE AUCTIONING

Reverse Auction

Reverse Auction is a Web-based application forprocurement.

Easy to use, web based tools have been developedto streamline the competitive bidding process.

The bidder can submit his bids from the comfort of hisoffice (within the country or abroad).

The process permits the bidder to remain anonymousbut all bidders have an equal opportunity to see thelowest bid at any particular point of time.

Bidders are permitted to revise their bids any numberof times within a given timeframe. Thus prices are free to move in very competitive and

dynamic conditions.



REVERSE AUCTIONING

Reverse Auction

The vendors begin competing with each other.

This brings about a high level of profitability, control,and simplicity to corporate procurement process.

Negotiations are not required to bring the price downand the buyer can be sure that the price is the mostfavorable that the market can offer.

No single bidder is given an unfair advantage.

Reverse Auction process also speeds up the contract

award process. CVC had vide Office Order No 46/9/03 dated

September 11 2003 given approval to ReverseAuction.



REVERSE AUCTIONING

Reverse Auction

To address the issue of having only one figure against which thebidders would be required to quote, a Detailed Schedule ofRates (SOR) is to be prepared and the same is to be given to

the bidders.

The bidders are then required to quote a decrement on the ‘TotalInitial Contract Price’ and the order would be placed on thelowest bidder with the rates and the lump-sum item apportionedin relation to the price quoted.

There may be concerns that the bidders may not accept an SORprovided to them.

Therefore the SOR must reflect workable rates and cash flow for

the Contractor must be at a comfortable level during theconstruction stage, to make the Reverse Auction a success.

After the SOR is finalized, it may be given to the technicallyacceptable bidders at least 10 days before the Reverse Auctionand their view may be sought.



REVERSE AUCTIONING

Reverse Auction

The Owner (Employer or Client) has the option of modifying the SORrates based on the comments from the bidders.

But the Reserve price for the start of the Reverse Auction should bedecided by the Owner.

The decrement amount is also to be decided by the Owner.

Actions have to be taken to minimize all speculative items ofexpenditure so that bidders can quote competitive rates .

The following decisions have to be taken such as:1. To take care of Geological surprises during execution, if any,Geotechnical Reference Frames may be introduced for determiningrealistic compensation.2. To take care of increase in steel prices after the bid date, formula forenhanced compensation may be prescribed.3. Diesel may be made a free supply item up to a predetermined limit.4. Bids in only Indian Rupees are to be quoted.5. No deviations may be accepted. Need for loading of the quoted pricemay be done away with.



REVERSE AUCTIONING

Reverse Auction

C1 India has conducted Reverse Auction in the past. The credentials ofthe party are impressive as the party has conducted E-Procurement

/Reverse Auction for clients like RBI, SBI, IOCL, HPCL & BPCL, EILand ISPRL. There may be other parties as well.

The Party has to provide all the details with respect to the security

features. They included the following:-1.Two Factor Authentications2.Bid Encryption at the Database3. Online Antivirus Scanning4.128 bit SSL Encryption5.Digital Notarization6.Audit Trail of each activity

7.Privilege based User Access8.Firewall for screening the System Access9.Intrusion detection system



REVERSE AUCTIONING

Reverse Auction

Their processes should be audited by Standard Testing QualityCertification (STQC), an agency under Ministry of InformationTechnology. The website should be secured by Seal andEncryption.

The bidders have to be informed at the pre-bid stage itself, thatthey would be required to participate in a Reverse Auction.

All technically acceptable bidders should be given training onReverse Auction so that they could quote from the comfort of theoffice.

The concerns with respect to failure of the internet duringReverse Auction and the methodology for continuing the processhave to be clarified.

Like, in case of a failure of the internet, the agency would beaccessible through mobile phones and they would have to sendtheir offer by fax and the same would be accepted.



REVERSE AUCTIONING

Reverse Auction

Compliance is to be obtained from the bidders after completion of thetraining and before the start of the Reverse Auction process.

Initially, bidders are required to submit only their techno-commercialbids incorporating their methodology for execution of the project.

These bidders may be from Pre-Qualified list through a separatetender.

Priced bids are not sought from the bidders. After the recommendation and approval of the successful bidders on

evaluation of their techno-commercial offer, SOR is issued to thesuccessful bidders.

After modification of SOR and training of bidders, each bidder is to be

given an identity and a password. Their identities shall not be known to anybody other than the agency

administrator.

Bidder is required to modify the password issued by the administratorto ensure security.



REVERSE AUCTIONING

Reverse Auction

It is to be informed to the bidders that the bidding window is say 2hours but in case a bid is received within the last 5 minutes, thesoftware should be designed to automatically extend the process by 5minutes so that the other bidders have at least clear 5 minutes torespond.

In case another bid is received within the extended time period, thesoftware should automatically extend the time by another 5 minutes.

Thus the process will continue until no bid is received during last 5minutes in the extended time.

On the day of the Reverse Auction, Owners representative should bepresent in the control room of the agency along with the administratorto ensure that the process goes on as planned.

Arrangements may be made to witness the whole process onlinethrough a big screen in the conference room of the Owners premises.

The process generally heats up towards the end of the period.



REVERSE AUCTIONING

Reverse Auction

A representative graph is presented on howthe bidders responded in a particular caseand at what time the process ended.

The competition was so fierce that theReverse Auction continued till 3.27 pm (aperiod of 4 hours 27 minutes).

In all 189 bids were received from the bidders.

A confirmatory fax with respect to the lastprice offered by the bidders may be sentimmediately at the end of the ReverseAuction.



REVERSE AUCTIONING

Reverse Auction



REVERSE AUCTIONING

Conclusion

The Reverse Auction process is a remarkableprocurement tool and can save considerable time andcosts for the buyer.

The process however needs to be handled carefullyand it should be ensured that adequate numbers ofbidders are competing.

Also the possibility of cartelization should be avoided. The buyer needs to ensure that realistic procurement

prices are ascertained before commencing the

Reverse Auction. Speculative items should be reduced to the minimum

and loadings avoided.



REVERSE AUCTIONING

THANKS

reverse auctioning

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