You’ve Got Questions – We’ve Got Answers

Posted on April 07, 2014 by Ted Leonsis

A New York Times story out today reported that critics of a Revolution Growth backed company – FedBid – are “raising questions” about it.  That’s fair.  So let’s have some answers.

FedBid runs “reverse auctions,” mostly for federal agencies.  What does that mean?  It means that a federal official whose job it is to buy something for the federal government – uniforms for the border patrol, or tongue depressors for a VA clinic, or desk chairs for the GSA – can list that contract on FedBid’s marketplace, and invite bidders from all over the country to bid on meeting that need.  Like “E-Bay in reverse,” the bids are open and public (but go down, not up), as prospective sellers bid on the opportunity to sell to the federal government.  FedBid is transparent, accessible, and only gets paid if the government awards the contract on a “best value” basis and gets its goods at less than the expected price.

The results have been very strong. Tens of thousands of sellers have sold billions of dollars worth of goods to the federal government through FedBid, achieving a major savings for the taxpayers.  And because selling to the government this way requires no special connections in Washington, or insider access, the winning sellers are often small businesses:  about 80% of the winners on FedBid are small businesses, and almost 30% of those were owned by veterans.  No wonder a study by the Brookings Institution found that “Reverse auctions represent a way to save money and improve the ability of small companies to compete for government contracts.”

Do reverse auctions have limitations?  Yes.  They cannot be used for buying complex things – like a B-1 bomber – where many, many factors need to go into the decision making about who should be the contractor.  But each year, the federal government buys tens of billions of dollars of simple goods where a reverse auction can provide a money-saving, transparent means for small businesses to sell to the government.

A recent GAO study raised some questions about reverse auctions – noting that it was hard to calculate the exact amount of savings they generated, and that federal contracting officials need more and better guidance on how to maximize the benefits.  Fair points.  But the bottom line is clear:  reverse auctions give small businesses a fair shot at winning government contracts, in a process that is transparent and open.  Over two thirds of the reverse auctions the government has run have had multiple bidders participate – a more than 30% improvement in seller participation.  And the GAO noted that Fed Bid collects only a reduced fee if the government savings is modest (and no fee if the bids are too high or rejected by the agencies).

It’s no surprise that some well-entrenched Washington contractors are unhappy with reverse auctions, because they like it the old way:  an insider network where the big companies sell to federal agencies on a “who you know” basis.  They are trying to talk the agencies out of using reverse auctions, and trying to stir controversy.

Revolution Growth invested in FedBid shortly after we launched in late 2011, and I’ve been a Board member ever since.  I’ve seen its work first hand, and helped expand its reach into serving state and local government, and private companies as well.  I’ve also seen this scenario before – where disruptive change brings pushback from the incumbents, and those who favor non-transparency and old-methods try to persuade decision makers that “they way it’s always been done is the way it should be done.” 

But openness and competition and technology win out over time, and that is what FedBid is all about.  So bring on the questions, let’s have a real debate over reverse auctions and government contracting.  And may open competition win!

next up:

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