Center for Local and State Solutions
Neal Peirce Column

Category: Article (Journal or Newspaper)
Jurisdiction: State Government, City/County Government
Management Issues: Competitive Government, Comprehensive Change, Contracting-Out, Cost-Cutting, Enterprising Government, Information Systems, Information Technology, Internet, Market Oriented Government, Procurement
Policy Area: Trade
State: TX
City: San Antonio

NEAL PEIRCE COLUMN
February 4, 2001

INTERNET "REVERSE AUCTIONS" -- BONANZA FOR LOCAL GOVERNMENTS?

By Neal R. Peirce

SAN ANTONIO -- Imagine a city out to buy anything from computers
to fire trucks using the Internet to stage a real-time, globally
accessible bidding process -- a "reverse auction" to get the lowest
prices anywhere.

San Antonio made the move recently. Accessing software of a
locally-headquartered high tech firm -- Orbis Online http://www.eorbisb2g.com/ -- the city attracted low-cost bids from
sellers far and wide.

Indeed, as Orbis and city officials watched an Internet screen,
a new and highly economizing purchasing method unfolded before their
eyes.

On one side of the screen were names of pre-qualified bidding
companies, with their developing bid prices. On the other side, a graph
showed bids plotted against time -- starting high on the left, dropping
dramatically to the right.

Bidders get to see the same screen, except that names of their
competitors are masked.

It would be hard to conceive of a more open, transparent (and
probably corruption-free) system.

Or, a more obvious way to use the Internet to save money. San
Antonio, for example, was able to purchase 40 Motorola police radios for
$70 a piece -- down a remarkable 86 percent from the prior best price of
$500 a unit.

Ten Tempest Ventmaster saws -- the kind firefighters use saving
people -- came in at $3,903, 25 percent less than the price the city
paid before. Only the bidding for 20 Compaq Pocket PC's barely undercut
earlier prices.

Orbis Online has run similar experiments for commercial buyers,
for the Texas Legislature, and, most recently, the U.S. Air Force (104
on-line bids for 833 computers).

Experience is showing that governments can expect to save 25
percent to 30 percent off earlier prices, says the firm. Even counting
Orbis' commission -- in San Antonio it was half the city's per unit
savings -- the net savings are impressive.

"We are absolutely thrilled with the money the city saved
through these reverse auctions," says Tim Bannwolf, city councilman and
high tech advocate. "It means a corresponding saving for taxpayers. It
enables cities to do more for less."

So far Texas law limits on-line auctions to transactions up to
$15,000 --an antiquated legalism that backers hope the legislature will
soon scuttle. "Just imagine the savings we can realize," says Bannwolf,
"if we can put items like police cruisers, costing thousands of dollars
each, up for reverse auction."

A big way reverse auctions save money is their virtually
universal reach. A firm like Orbis Online or its competitors (Arriba
and Commerce One, for example) can use the Internet to scour not just
the U.S., but the entire world for potential bidders and lowest prices.
The method's called an "RFQ" -- Request for Quotes, or detailed request
to sell large product quantities.

"Now we can go to Europe, Asia, literally almost anywhere in the
world, accessing distant suppliers that a municipality's normal requests
for proposals would never reach. It's an almost perfect market," says
Bannwolf.

The government agency gets a chance to check on suppliers'
qualifications. If it wants, it can make special stipulations, such as
small or minority-owned businesses.

The big excitement, though, comes with the real-time reverse
auction. As Orbis Online executive Dan Hair explains the process, the
bidding normally runs 30 to 60 minutes. If there's activity between two
players in the last five minutes, a five-minute extension is granted.
"But we have a maximum of three extensions," explains Hair. "We
learned-- we had one auction that went on three hours!"
With the proprietary Internet-adapted software it's invented,
Orbis Online not only provides a graphical representation of the
real-time bidding but can stream it onto a client's web site, so the
reverse auction seems to be occurring right there.

Result: "atmospherics" suggesting professionalism in a
subscriber government. The bidding screen can even feature a picture of
a mayor or governor.

It's not hard to imagine our politicos loving that!
Clearly, reverse bidding also is feasible for national
governments or corporations with large procurement needs.
Orbis Online, for example, is establishing a joint venture with
the Rayes Group of Shenzhen, China's third largest business-to-business
Internet service. Object: to create reverse auction procurement
processes for the Chinese market, starting with the Rayes Group's
300,000 clients.

One can easily imagine governments around the world clamoring
for reverse auctions.
The only real opponents may be formerly favored local suppliers,
suddenly discovering they face world-wide competition.
But it's fair to ask, what will governments do with the savings?

Just maybe, government could take some of the savings to pay for
the very real costs they're encountering in another use of the Internet
-- development of on-line e-government systems that help citizens and
businesses speed and automate dealings with officialdom.
The Internet is opening exciting frontiers. But it will help us
(and our governments) a lot more if breakthroughs like reverse auctions
pay for the big development costs being incurred.


Contact Info: Neal Peirce; npeirce@citistates.com
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Source: Neal Peirce Column; Washington Post Newspaper