Every once in awhile we write about concerns with ways the Government is purchasing products and services from industry. Our latest issue is with the reverse auction craze, or as we like to call it, “The Race to the Bottom”.
It’s simple really. An Army unit wants to purchase 860 triple mag pouches. But…instead of just buying them, they decide to use a reverse auction. What’s that you might ask? Quite simply, a service provider makes money to run a sort of bizarro world version of eBay. Instead of vendors offering products and customers upping the bid in order to win the prize, a client posts a requirement and businesses try to underbid each other in order to “win”. It’s kind of like, “Name That Tune”, as in “I can make that at a profit of 3%”. A legitimate business can’t keep the lights on at that rate. Investment in R&D as well as using Berry compliant, Mil-Spec materials is too costly. Consequently, those who win may have problems delivering on time if at all, or building to spec. When this happens, Service members lose and so does the taxpayer.
Sure, it sounds great from the tax payers point of view, when it works. Pay less right? Well, maybe. The problem is that when a vendor under delivers, the equipment has to be purchased again. This wastes time and money.
What’s more, there’s no requirement to have a business history to win a reverse auction, nor is someone going to check and make sure the product delivered is actually what the customer ordered. They aren’t going to make sure it was Berry compliant or Made in USA either.
Is it possible for an unscrupulous vendor to win a reverse auction? Absolutely.
Is it possible for a unit to NOT get what they were looking for in the first place? Absolutely.
Does this practice hurt legitimate businesses who invest in R&D and follow the rules? Absolutely.
Should reverse auctions be abolished? You tell us.
It absolutely hurts industry–especially one where there isn’t that much margin to play with. In addition, i believe there is a very high risk that a) the winner will not be able to deliver or b) the company delivers, but ultimately goes out of business. I do believe in competition — that is Best Value — where facets of past performance, quality of the PDM, and price are all factored in. The bidders then put in their bids and at worst case the contracting officer could have the leeway for further negotiations. This click of a button reverse e-auction will invariably lead to major issues — i’m sure you will write more articles on this over the next couple years.
It has always reassured me to know that my rifle, ammunition and protective equipment is made by the lowest bidder.
But even the tax payer, the poor sod who is working hard to pay for it all all should know that the lowest bidder doesn’t always offer the best value for money.
“Lowest bidder” grossly over simplifies the very complex process that Congress created in Government Procurement. Procuring a rifle is vastly more complex than “low bidder.”
Reverse e-auction is fine for non-complex products and it is the way that most people buy products. Go to Google, eBay, Amazon and buy the lowest price. I can buy Magpul, GGG, Bravo Company, Galati Gear, Voodoo, Blackhawk, etc. and pay the lowest price. Why shouldn’t the Government get the same kind of deal a taxpayer can?
Lanny – this is exactly the problem, mis-guided people mis-apply business models that work in one carefully planned and diligently executed and controlled environment to a completely different and unrelated situation and think it will work. It doesn’t.
This is EPIC FAIL waiting to happen…
The reverse auction model is one of the key reasons the domestic automobile industry collapsed. As you erode margin you further erode the capital to invest in advancing technology.
It is a short sighted mentality that looks great on your end of year P&L. Fast forward 5 years and see your sales drop off because you buying the same old crap that no one has improved upon.
Of course the supplier could continue to innovate and just sell to your competitors or charge a significant premium for any updated product, therefore making all of the money back.
The Gov’t should really be focused on Value. Find out what the user needs and wants and source the appropriate item competitively.
Look at it the other way, what does a triple mag pouch actually cost? As in material and time used, as well as other factors (Q&A, salary, electricity, wear and tear on equipment etc.).
I’ll ballpark it, and say that the cost to the company, per pouch, would probably be no higher than $8. Then they could give their lowest bid at $10, and still make $1720 on a “small” project.
While it would be little room for error, and probably not that large of a profit, it could still be done.
But then again, they could make those 860 pouches and sell to dealers for $20, which would double their profit… So the company would probably have to decide on how low they can go without actually loosing money compared to selling their product to retailers.
I have no problem with the reverse auction system for things like triple mag pouches as long as the government tests all of the auction participants ahead of time and validates the quality of operation and manufacturing capacity of their products.
Now for things like armor and weapons…. I think if the product is stopping or sending bullets, cost should be less of a deciding factor. You can add boots to this as well.
Boots, chow/water systems, armor and guns = Don’t skimp.
This is the problem Mark. The reverse auction is a cost cutting measure. There is no certification of the participants to ensure QA or Berry compliance.
As an example of this process, compare the adoption of a military specification version of the Beretta 92F vs. the Sig Sauer P226 as the M9 9mm pistol. Despite the total lower cost (pistol, magazines and spare parts) of the Baretta pistol, the U.S. Navy Special Warfare personnel (SEALs) use the Sig pistol because it is the better pistol and represents a better value despite the higher cost. Among problems encountered with the Beretta M9 were slide failures that forced a redesign following several severe injuries and later reliability problems with “lowest cost” magazine manufacturer supplied magazines. Other U.S. forces also use the M11, a Sig Sauer P228 which is a more compact version of the P226 that can also the P226’s magazines. The U.S. Coast Guard progressed from using the M9 to the Sig Sauer P229 DAK, also a more compact version of the P226 which shares a frame design with the P228 but fires .40 S&W rounds. The P229 uses a slightly heavier machined stainless steel slide instead of the P228’s stamped carbon steel slide to accommodate the more powerful round. Some U.S. forces still use variants of the M1911A1, as that represents the “better value” that suits their needs.
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