Background How Reverse Auctions  Work In a traditional auction, the intent is for multiple buyers to bid against one  another by submitting bids to purchase a good or service that is for sale.  Generally speaking, the bidder offering the highest price receives the item  for sale and the seller benefits from receiving more money due to  competition. In contrast, reverse auctions are intended to encourage  multiple vendors to compete against one another to win a contract from  the government by lowering the price for which the vendor is willing to sell  a particular good or service. The buyer—typically a contracting official—then evaluates the technical proposals and bids, and selects a winning  vendor—generally the bidder who submitted the lowest price bid with an  acceptable proposal—to meet the government’s need. Figure 1 compares  these two types of auctions. Reverse auctions can be opened to any vendor on the open market or  can be limited to vendors that hold contracts on existing contract vehicles,  such as indefinite-delivery vehicles under which the government has  already determined that a specific group of vendors is qualified to sell  specific goods or services. Existing vehicles provide a simplified way to  procure commercial products and services. Agencies can use reverse  auctions as a tool to further promote competition and lower prices, among  other potential benefits. Agencies can use reverse auctions to order from  various existing contract vehicles, including: The Army’s CHESS program. CHESS is the Army’s primary source  for commercial information technology hardware, software, and  services. DHS’s First Source II. First Source II is a 100 percent small business  contract vehicle, specifically designed as a preferred source to  acquire commercially available information technology commodities,  solutions, and value-added vendor services to support DHS  programs. GSA’s Federal Supply Schedules program. The Federal Supply  Schedules provide federal agencies a simplified method of purchasing  commercial products and services off of multiple schedules, from  numerous vendors, at prices associated with volume discount buying. National Aeronautics and Space Administration’s Solutions for  Enterprise-Wide Procurement (SEWP). SEWP allows federal  agencies government-wide to purchase from over 140 vendors and  offers a wide range of commercial advanced technology products and  product-based services. Reverse auction providers can be private companies or offices within  federal agencies, and the providers may provide reverse auction services  across the government or to specific agencies. Since we last reported on  this issue in December 2013, two federal agencies developed platforms  to facilitate reverse auctions through existing contract vehicles, by  adapting existing electronic platforms. In July 2013, GSA’s Federal  Acquisition Service launched its platform, GSA Reverse Auctions, which  was built off its e-Buy tool and initially offered reverse auctions for a  limited number of GSA and VA Federal Supply Schedule contracts,  expanding to additional schedule contracts and agency-specific multiple  award contracts over the following 2 years. In November 2015,  GSA Reverse Auctions expanded further to offer open market auctions. In  January 2016, Army’s CHESS program launched a capability using its IT  e-mart to run reverse auctions on certain CHESS contracts. Similarly to  when the private sector builds a platform, new government capabilities  have costs associated with development and ongoing maintenance.  According to GSA officials, development of the reverse auction capability  cost approximately $2 million, and operations and maintenance costs are  expected to total about $650,000 over the next 3 fiscal years. According  to CHESS officials, its capability was developed at no additional financial  cost under the fixed-price contract for the IT e-mart, although there were  opportunity costs because other lower priority actions were delayed.  Table 1 includes information about the reverse auction providers we  identified in our review. Reverse auction providers offer differing levels of service, ranging from  simply providing a web-based reverse auction platform to a full-service  model. Full-service providers may offer services such as creating draft  auctions, soliciting vendors to participate, helping create a marketplace of  vendors, and encouraging vendor participation for low-bid-count auctions.  Agency buyers can select which additional services, if any, to use. FedBid  is an example of a full-service provider, whereas Army CHESS provides a  self-service web-based reverse auction platform, the IT e-mart. While the government pays some reverse auction providers directly, other  reverse auction providers, including FedBid and GSA, collect reverse  auction fees through an indirect payment process. Generally, in the  indirect payment process, the reverse auction provider adds a fee onto  the winning vendor’s bid. Then, the agency pays the winning vendor this  total amount. In turn, the reverse auction provider collects the fee from  the winning vendor (see figure 2). Prior GAO Work In December 2013, we reviewed the use of reverse auctions at four  agencies—Army, DHS, Interior, and VA—and found that these agencies  steadily increased their use of reverse auctions (in number and dollar  value) from fiscal years 2008 to 2012. For auctions in 2012 across the  four agencies, we found: Agencies awarded about 95 percent of reverse auctions for  $150,000 or less. Information technology goods and services were among the top  categories purchased. Products made up about 90 percent of total dollar value of awarded  reverse auctions. 47 percent of reverse auctions were for orders from existing contracts. 80 percent of reverse auction dollars and about 86 percent of reverse  auctions were awarded to small businesses. In addition, we found that the four agencies in our review did not  maximize the potential benefits of reverse auctions—competition and  savings. We found that over one-third of reverse auctions in 2012 had no  iterative bidding and that it was unclear whether savings calculated for  reverse auctions were accurate because cost estimates developed before  the auction may have been set too low or too high. In addition, we found  that almost half of the reverse auctions were used to obtain items from  existing contracts. We further noted that there was a lack of comprehensive  government-wide guidance and that the Federal Acquisition Regulation  (FAR) did not specifically address reverse auctions, resulting in confusion  about their use. We recommended the Director of the Office of  Management and Budget (OMB) take steps to amend the FAR to address  agencies’ use of reverse auctions and issue government-wide guidance  to maximize competition and savings when using reverse auctions.  OMB’s OFPP subsequently issued guidance in June 2015 on reverse  auctions, and the proposed FAR changes are currently being reviewed  prior to being published for public comment. Government-wide  Regulations and Guidance Prior to 1997, the FAR prohibited agencies from using auctioning  techniques. In 1997, the FAR was revised to eliminate these prohibitions  as part of an overall effort to make the source selection process more  innovative, simplify the acquisition process, and facilitate a best value  acquisition approach. In June 2015, OFPP issued guidance to federal agencies on the effective  use of reverse auctions. This memorandum reviewed the benefits of reverse auctions, offered a set of reminders to help contracting offices  maximize the value of this tool, and asked agencies to work with OFPP in  identifying and collecting data that can be used to evaluate and improve  results. Specifically, the memorandum noted that some of the benefits of  reverse auctions are price reductions, enhanced competition, and  significant small business participation. In addition, the memorandum  noted that reverse auctions are not a “one size fits all” solution and are  likely to be most effective in the following circumstances: are steady and relatively simple and might otherwise be acquired  using either a sealed bid or achieving best value through “low  price technically acceptable” source selection criteria; and  result in fixed price agreements. Typically, these circumstances exist in acquisitions for commercial items  and simple services that often fall under the simplified acquisition  threshold. The memorandum reminds agencies that, as with any procurement,  market research must be conducted to understand the marketplace and  to determine if it is reasonable to assume that the potential benefits of a  reverse auction can be achieved. It also notes that agencies should  regularly evaluate their experiences with reverse auctions and the  effectiveness of existing practices and policies as part of procurement  management reviews so that refinements can be made as necessary.  The issues addressed in the OFPP memorandum have not yet been  incorporated into the FAR. While the FAR does not specifically address  reverse auctions, several provisions facilitate agencies’ use of them, such  as allowing the use of innovative strategies and electronic commerce. Federal Agencies’  Use of Reverse  Auctions Decreased  between Fiscal Years  2013 and 2017 We found the value of awarded reverse auctions decreased  approximately 22 percent across the government between 2013 and  2017, from about $1.9 billion to about $1.5 billion. Although the number  of auctions consistently decreased each year from 2013 to 2017, the  dollar value of auctions increased after 2015, indicating that some  individual reverse auctions have been for larger dollar values in the past  couple of years (see figure 3). During this same period, the overall trend in federal contract obligations  initially decreased from 2013 through 2015 and then increased overall  through 2017—from about $490 billion in 2013 to $508 billion in 2017.  Hence, since 2013, contracts awarded through reverse auctions have  consistently represented less than 0.5 percent of federal contract  spending. In addition, almost all auctions and the vast majority of the  dollars agencies awarded between 2013 and 2017 resulted from the use  of the FedBid reverse auction platform. We also found that the dollar value of awarded reverse auctions varied  from 2013 to 2017 across the six agencies we reviewed, with total  reverse auction value greater in 2017 than in 2013 for half of the agencies  (DHS, Navy, and State) (see figure 4). Our analysis indicates that agencies’ and components’ policies may  influence the use of reverse auctions. Specifically, two agencies that  experienced substantial reductions in their use of reverse auctions  changed their policies so that contracting officers would no longer be  required to use reverse auctions. For example, Interior’s August 2015  policy rescinded a previous requirement to first consider using reverse  auctions for commercial items using simplified procedures above the  micro-purchase threshold and below the simplified acquisition threshold.  The revised policy encouraged contracting officials to use procurement  tools as appropriate, allowing for the use of reverse auctions at  contracting officials’ discretion. VA’s Veterans Healthcare  Administration—formerly one of the largest users of reverse auctions— revised its procurement manual in February 2014 to suspend the use of  any reverse auction platform to conduct new reverse auctions. The  Veterans Healthcare Administration amended its procurement manual  again in October 2015 to lift the suspension of GSA Reverse Auctions,  but kept in effect the suspension of all other reverse auctions platforms.  VA and Veterans Healthcare Administration officials stated that they  revised their policies following investigations about the use of reverse  auctions at the Veterans Healthcare Administration by the VA Office of  Inspector General. Other agencies and components we reviewed have policies that  encourage the use of reverse auctions. For example: State’s May 2015 policy memorandum established a requirement that  contracting officials first consider using reverse auctions conducted  through FedBid for all noncomplex commodities. DHS’s Customs and Border Protection’s August 2014 standard  operating procedure required that reverse auctions conducted through  FedBid be given priority consideration when acquiring non-complex  commodities. A Naval Supply Systems Command’s November 2014 policy letter  required use of reverse auctions for commercial off-the-shelf supply  items valued from $25,000 to the simplified acquisition threshold. The Army’s Mission Installation Contracting Command Desk Book has  generally required use of reverse auctions for all acquisitions above  the micro-purchase threshold for commercial supplies in certain  categories. Overall, of the almost 15,000 reverse auctions conducted and awarded in  2016 by the five agencies for which we reviewed detailed data, we found  that about 94 percent were for contracts valued below $150,000.  However, we found that nearly two-thirds of the dollar value of awarded  reverse auctions was for purchases above $150,000 (see figure 5). Further, we found that reverse auctions valued at more than $1 million in  2016 accounted for less than 1 percent of the number of auctions and  32 percent of the dollar value. Most (about 80 percent) of these higher- dollar-value auctions were for information technology-related products  and services, while the remainder included hand tools, cabling  equipment, radios, uniforms, air rifles, and vehicle trailers. Our analysis also found that the selected agencies generally used  reverse auctions with fixed-price contracts, commercial items, products,  and to promote small business participation—a few of the effective uses  outlined in the June 2015 OFPP memorandum. For example, in terms of  award value, 87 percent was for products and 13 percent for services. In  addition, 60 percent of auction award value was for information  technology-related purchases. Further, 83 percent of auction value was  for awards made to small businesses. Agencies Obtained  Benefits of Enhanced  Competition and  Reduced  Administrative  Burden, but Savings  Estimates Should be  Viewed with Caution The agencies we reviewed obtained iterative bidding, indicating enhanced  competition between multiple vendors, in nearly three-quarters of reverse  auctions, and contracting officials cited reduced administrative burden as  another key benefit, but determining the actual amount of savings is  challenging due to data issues. Overall, in fiscal year 2016, the agencies  we reviewed achieved iterative bidding for 75 percent of reverse auctions.  However, in 20 percent of auctions only one bidder participated. Auctions  representing nearly half of the value of State’s reverse auction awards  had only one bidder, driven by large dollar value procurements, in part  due to State’s requirement to use reverse auctions for all non-complex  commodities without regard to expectations for competition. Contracting  officials we spoke to cited reduced administrative burden, particularly at  the end of the fiscal year, as a key factor in the decision to use reverse  auctions. Based on data from reverse auction providers, reverse auctions  that took place in 2016 resulted in contract awards that were an estimated  $100 million below the government’s pre-auction estimate, though the  extent to which this figure represents actual savings is difficult to  determine. Three-Quarters of 2016  Auctions Resulted in  Enhanced Competition  through Iterative Bidding,  But Competition Results  Varied by Agency and  Other Factors Reverse Auctions Generally  Resulted in Iterative Bidding We found the agencies we reviewed achieved iterative bidding on  75 percent of auctions in fiscal year 2016, accounting for 68 percent of  dollars spent. However, in 20 percent of the auctions, only one bidder  participated (see figure 6). OFPP’s June 2015 guidance states that  reverse auctions are likely to be most effective in highly competitive  marketplaces. We found that auctions with iterative bidding resulted in award prices that  were, on average, about 12 percent lower than pre-auction cost  estimates, which generally reflect the government’s independent cost  estimate. In contrast, this difference was about 6 percent among those  auctions without iterative bidding. Of the 40 auctions we selected for  in-depth review, we reviewed 29 auctions with iterative bidding. Review of  the bid history for some of these auctions demonstrated the potential  benefits of iterative bidding. For example: State awarded an approximately $4.3 million contract for night vision  goggles following an open market reverse auction that got 110 bids  from 16 vendors. The winning vendor bid 17 times and lowered its  price by roughly 30 percent over the course of the auction, not  including the reverse auction provider’s indirect fee. DHS’s Customs and Border Protection awarded an approximately  $268,000 contract, including an option period, for tires following an  open market reverse auction that got 35 bids from 13 vendors. The  winning vendor bid three times and lowered its bid by roughly  25 percent over the course of the auction, not including the reverse  auction provider’s indirect fee. Army National Guard Bureau awarded an approximately  $14,000 contract for ice climbing equipment following an open market  reverse auction that got 20 bids from 7 vendors. The winning vendor  bid six times and lowered its price by roughly 10 percent over the  course of the auction, not including the reverse auction provider’s  indirect fee. About One-Fifth of Reverse  Auctions Had Only One Bidder Although three-quarters of 2016 auctions achieved iterative bidding for  the agencies we reviewed, we found that in 20 percent of the awarded  reverse auctions only one bidder participated, representing 27 percent of  the dollars awarded. This percentage is higher than the percent of  obligations on all 2016 competitive procurements for which there was only  one offer received across the government (14 percent). However, this  varied by agency. Four of the five agencies we reviewed had higher  proportions of only one bidder participating on reverse auctions, by dollar  value, than for their competitive procurements in general, particularly at  State. The other agency, Interior, had a lower proportion of only one  bidder participating in reverse auctions. Table 2 describes differences in  competition for selected agencies in 2016. Our analysis indicates that requiring the use of reverse auctions through  agency or component-level guidance may contribute to agencies  obligating more money through reverse auctions that attract only one  bidder. Specifically, State’s percentage of dollar value for auctions with  one-bidder—almost 40 percent—was substantially higher than other  agencies in our review and more than twice State’s percentage of dollars  obligated on competitive procurements in general when only one offer  was received. This was driven by the results of reverse auctions for larger  dollar value contracts. In 2016, State awarded more auctions valued over  $1 million than any of the other agencies we reviewed. Of 36 State  auctions valued at more than $1 million, 13 had only one bidder— accounting for 27 percent of the total dollar value of State’s reverse  auctions in 2016. State’s May 2015 guidance requires contracting officials  to first consider using FedBid’s reverse auction platform for the  acquisition of non-complex commodities, but does not mention  competition or its benefits. While the policy allows contracting officers to  seek waivers in certain circumstances, none of the potential exceptions  listed in the policy include the expectation of a lack of robust competition.  Some State contracting officials we spoke to said that the requirement  encourages the use of reverse auctions even if there is not a reasonable  expectation of competition. We reviewed four State auctions valued at more than $1 million where  there was only one bidder. Contracting officials responsible for three of  the four auctions cited the guidance as a reason they used a reverse  auction. For example, State awarded a $12 million contract for brand  name computer and storage infrastructure equipment following a 2-day  reverse auction at the end of the fiscal year open to National Aeronautics  and Space Administration SEWP vendors. The contracting official  responsible for this auction told us that market research indicated that two  SEWP vendors could meet their needs, but only one vendor had  responded to inquiries during market research. However, she said that  she used a reverse auction because State policy required it for contracts  of this type. In the fourth instance, State officials acknowledged that other factors,  including poor acquisition planning that resulted in tight timeframes, led  them to use a reverse auction as a “crisis management tool”. State  awarded a $19 million contract, including option periods, for construction  support services in Afghanistan following a 17-hour reverse auction  among Federal Supply Schedule vendors, although only one vendor had  responded to market research inquiries. Officials said that they had  sought to combine this contract with another set of services for which the  same vendor was the only identified source likely to respond, but  coordinating with the customers took too long, and they ultimately ran out  of time before the predecessor contract was set to expire and services  would stop. Under tight timeframes that risked the program losing critical  services, contracting officials said they used a reverse auction because it  allowed them to make a contract award quickly while still opening the  requirement to multiple vendors, even though there was little chance of  multiple vendors bidding. OFPP’s June 2015 reverse auctions guidance states that market  research—the process used to collect and analyze data about the  capabilities in the market to satisfy agency needs—must be conducted to  understand the marketplace and to determine if it is reasonable to  assume that the potential benefits of reverse actions can be achieved.  State’s requirement to first consider using FedBid’s reverse auction  platform for all non-complex supplies, even with exceptions, may  contribute to State using and paying for reverse auctions when a different  approach could garner more competition and potentially a better price. Competition Rates Were Lower  When Agencies Used Existing  Contract Vehicles For the almost 15,000 auctions the five selected agencies conducted in  2016, nearly $590 million—about 65 percent—of total awarded reverse  auction value was for orders on existing contract vehicles. We found  that, in comparison to open market auctions, reverse auctions using  existing contract vehicles had 1) higher rates of only one bidder  participating, and 2) were less likely to have iterative bidding (see  table 3). The 40 auctions we reviewed in-depth included 24 auctions that used  existing contract vehicles, including 5 in which only one bidder  participated—4 awarded by State and 1 by DHS’s Customs and Border  Protection. However, our review of these examples did not identify clear  reasons why auctions on existing contract vehicles have lower  competition rates overall than open market auctions. Agency procurement  officials told us that they are aware of variations in the competition  obtained for particular existing vehicles more generally than when reverse  auctions are used, and suggested that it would be useful to examine the  competition dynamics for reverse auctions vehicle by vehicle. None of the agency guidance we reviewed comprehensively addressed  how to use reverse auctions effectively when ordering from existing  contract vehicles. Further, none of the five agencies we reviewed have  collected data on or assessed why the number of reverse auctions with  only one bidder on existing contract vehicles was significantly higher than  reverse auctions using open markets. OFPP’s June 2015 reverse  auctions guidance states that agencies should be evaluating their  experiences with reverse auctions and the effectiveness of existing  practices and policies so that refinements can be made as necessary.  Standards for internal control require management to periodically review  policies and procedures for continued relevance and effectiveness in  achieving the entity’s objectives. Without understanding what factors  indicate that conducting reverse auctions using existing contract vehicles  is appropriate and providing this information to contracting officials so that  they can consider it when developing their acquisition strategies,  agencies may be using and paying for reverse auctions when another  approach might yield better competition and pricing. Decreased Workload and  Ease of Use Are Key  Reasons Officials Use  Reverse Auctions Similar to what we found in December 2013, of the 35 contracting officials  we interviewed, 29 cited ease of use and reduced administrative burden  as key reasons why they chose to use reverse auctions, particularly at the  end of the fiscal year. Officials noted that certain reverse auction  providers, such as FedBid, offer acquisition support services in addition to  the reverse auction platform itself that can decrease the workload for  contracting officials. In particular, contracting officials noted the following  as ways that reverse auctions assisted them in performing their  responsibilities: The reverse auction provider performed functions such as  building complex auctions and following up with vendors to  encourage participation. In some instances, such as at State or  Customs and Border Protection, FedBid provides support personnel  on-site at agencies. Contracting officials told us that this is helpful  because they are able to obtain in-person support for troubleshooting  and time-sensitive purchases. Officials said that they used these  additional services for 7 of the 29 FedBid auctions about which we  interviewed contracting officials. Reverse auction platforms produced auction documentation that  decreased the administrative burden of producing a contract file.  For example, Army officials responsible for a $14,000 award for ice  climbing equipment explained that the summary document produced  by the FedBid platform includes much of the competition information,  such as auction participants and bids, needed for the contract file. The reverse auction platforms enabled contracting officials to  replicate past auctions for similar items, then update  auction-specific information. For example, a DHS Immigration and  Customs Enforcement contracting official responsible for a  $38,000 award for detention uniforms said that he makes frequent  purchases of the same items, so the ability to clone past auctions and  update the quantities, pre-auction cost estimates, clauses, and  sources (open market or existing contracts) saves a lot of time. He  said that with other procurement methods he must re-enter  procurement information each time. Reverse auctions enabled them to work on multiple  procurements simultaneously, rather than sending emails or  making phone calls to individual vendors to obtain quotes. For  example, a DHS Customs and Border Protection contracting official  responsible for two auctions we reviewed said that reverse auctions  allow him to work on multiple contract awards at a time at the end of  the fiscal year. Data we collected from reverse auction providers found that contracting  officials make greater use of reverse auctions at the end of the fiscal year.  While the agencies we reviewed made a disproportionate number of new  awards in the last fiscal quarter of 2016—42 percent—reverse auctions  were used even more heavily, with agencies conducting 53 percent of  reverse auctions in the last quarter (see figure 7). Reverse Auctions Data  Indicate $100 million in  Savings in 2016, but  Savings Estimates Should  be Viewed with Caution Based on fiscal year 2016 data from reverse auction providers, Army,  Navy, DHS, Interior, and State awarded contracts with values that totaled  more than $100 million less than the agencies’ pre-auction cost  estimates, after including any reverse auction provider fees (see table 4). The agencies we reviewed generally rely on reverse auction providers to  report savings estimates to them. FedBid—the largest provider used by  our selected agencies—and GSA Reverse Auctions generally calculate  savings as the difference between the pre-auction cost estimate— represented by the auction’s “target price” set by buyer—and the award  price, which is the winning vendor’s bid plus the reverse auction  provider’s fee. In some cases, however, FedBid will modify this approach  to account for potential shortcomings in the quality of pre-auction cost  estimates. FedBid does this in two different scenarios. First, to correct for situations when using the agency target price  results in abnormally high savings—generally defined by FedBid as  savings more than 50 percent above the target price—instead FedBid  uses a target price based on an average of bids received during the  auction. FedBid representatives explained that these adjustments  help avoid overstating savings caused by outlier target prices. Second, to correct for situations when the agency target price was  lower than the winning bid, and would result in a calculated savings of  less than $0, instead FedBid uses a target price equal to the winning  bid, so that calculated savings equal $0. FedBid representatives  explained that, in their opinion, a contracting official would not  proceed with an award if the winning bid was higher than the target  price unless the contracting official believed that the pre-auction  estimate was invalid. Overall, we found that in 4 of the 33 FedBid auctions we reviewed, the  awarded reverse auction prices were collectively $900,000 higher than  the pre-auction cost estimates (which were used as the target prices).  Prior to reporting savings to the agencies, FedBid adjusted the target  prices to match the award values and reported that these auctions  resulted in no savings. FedBid representatives said that they have  provided details about this data normalization process to the contracting  officers responsible for their agency contracts. We identified other approaches to calculating savings resulting from  reverse auctions. For example, in December 2016, the Army negotiated a  new contract with FedBid that established a different method for  calculating savings in an attempt to isolate the savings due to the specific  effects of reverse auctions. The Army calculates savings as the difference  between the “initial leading bid”—the second bid usually—and the winning  bid. GSA Reverse Auctions and Army CHESS have also calculated  savings through different methods, including as the difference between  the highest bid and the lowest bid, as well as between the winning  vendor’s initial and lowest bids. Contracting officials acknowledged several challenges in using the  pre-auction cost estimate as a baseline from which to calculate savings.  For example: Contracting officials at Interior’s US Geological Services stated that it  is critical to ensure that the pre-auction cost estimates they set in the  reverse auction system are based on good market research, and that  the target price is set at the lowest price they can obtain outside of a  reverse auction. They noted that before conducting a reverse auction  for water filters, these officials lowered the pre-auction cost estimate  by about $450,000 from the program office’s initial cost estimate, to  reflect a lower price identified in subsequent market research. During  the reverse auction, Interior obtained five bids from four vendors,  resulting in an award valued at $1.4 million, including option periods.  The auction’s savings were then calculated to be $670,000. In another auction resulting in a $430,000 contract awarded by the  Army for laptops, the contracting official noted that the pre-auction  cost estimate was developed by the customer based on historic  pricing. In turn, the price obtained through the reverse auction  reflected a calculated savings of $67,000 or about 13 percent from the  pre-auction estimate. However, the contracting official said that this  method is not a reliable way to calculate savings as his customers  typically use a high estimate to make sure they do not have to request  additional funds. The contracting officer also noted that, in his  experience, using historical pricing for technology products can be  problematic since pricing changes very quickly as new technology is  developed and old products become obsolete. We reported in December 2013 that it was unclear whether comparing  auction award prices to the pre-auction cost estimate produced an  accurate estimate of savings, as it depended on the quality of the  pre-auction cost estimate, which is generally informed by market  research. In our current review, contracting officials reiterated this  perspective. Federal regulations provide flexibility in terms of the extent to  which market research should be conducted, and how that research  should be conducted, including for low dollar procurements. Because  the FAR has not yet been amended to address any specific requirements  for reverse auctions as we recommended in our previous report, we are  not making additional recommendations on this issue. Agency Guidance  and Contracting  Approaches Lack  Sufficient Information  to Ensure Good  Business Decisions  and Appropriate  Contract Oversight For reverse auctions conducted in 2016, the five agencies we reviewed  indirectly paid more than $13 million in fees. Similar to our findings from  our December 2013 review, we found that agency contracting officials we  interviewed generally did not have a complete and accurate  understanding of reverse auction fee structures. This hinders their ability  to make informed decisions about when to use reverse auctions or which  reverse auction platform to use for a specific procurement, potentially  leading to paying more fees than necessary for reverse auctions for the  level of service required. Our analysis of agency- and component-level  guidance found that none of the agency-level guidance we reviewed fully  informed contracting officials about the availability of reverse auction  providers and platforms and any applicable reverse auction fee  structures, nor did the guidance ensure that contracting officials would  compare the options available to them when considering whether to use  reverse auctions. In addition, agencies that used the services of FedBid,  the largest reverse auction provider, did not always draft sufficiently  detailed fee arrangements to ensure that the agencies were  knowledgeable about and could conduct oversight of FedBid’s indirect  fees. Selected Agencies Paid  over $13 Million for  Reverse Auctions  Conducted in 2016 The five agencies we reviewed indirectly paid about $13.4 million in fees  to reverse auction providers in 2016. As discussed previously, generally,  in the indirect payment process, the reverse auction provider adds a fee  onto the winning vendor’s bid. Then, the agency pays the winning vendor  this total amount. In turn, the reverse auction provider collects the fee  from the winning vendor. Agencies we reviewed primarily conducted reverse auctions using three  reverse auction providers’ platforms in 2016. The agencies paid indirect  fees to two of these reverse auction providers in 2016—FedBid and  GSA—while the third provider, Army CHESS, did not charge a fee for its  services. Indirect fees paid to FedBid and GSA generally varied from 0 to  3 percent of the value of the transaction, though both FedBid and GSA  cap certain fees and will waive fees in certain circumstances. For  example, GSA does not charge an indirect reverse auction fee for Federal  Supply Schedule orders or agency contracts based on Federal Supply  Schedule contracts. See table 5 for additional details on typical fee  structures of reverse auction providers used by the agencies we  reviewed. Agency Guidance Does  Not Provide Sufficient  Information to Contracting  Officials on Reverse  Auction Fees to Help  Ensure Good Business  Decisions We found that none of the guidance we reviewed from the five agencies  included the information needed to help ensure that contracting officials  understand reverse auction indirect fees and their roles in assessing  those fees. OFPP’s June 2015 guidance states that contracting officers  should consider the amount of fees paid when evaluating whether the  price of a product or service in a reverse auction is fair and reasonable,  including any additional fees for use of another agency’s existing contract.  This expectation is further established in agency guidance at the Army,  DHS, and Interior. Our review found, however, that contracting officers  generally did not understand how fees would be applied or the amount  they would actually pay to use a reverse auction. This finding is  consistent with our observation from our December 2013 report that  agency officials were uncertain about how reverse auction fees were  paid. Understanding reverse auctions’ costs is essential to making  informed business decisions about when to use reverse auctions or which  reverse auction platform to use for a particular procurement. Without such  understanding, the risk increases that agencies may be paying more in  fees than necessary for the level of service required. Agency officials we interviewed generally did not have an accurate  understanding of reverse auction indirect fee structures. For example,  acquisition policy officials at State told us that their contract with FedBid  has no cost to the agency because the fees are paid from the companies  that win the auctions and it is up to the companies whether or not to  include the fee in their final price to the government. As discussed above,  however, FedBid automatically adds fees on to all vendor bids. An official  who was involved in developing policy related to reverse auction use at  Interior told us that agency officials were not fully aware of the fee  structure used by FedBid when they initially contracted for the company’s  reverse auction services in October 2010. The official added that in  hindsight, the fee structure is something that should have been more  closely considered. Additionally, while the contracting officials we interviewed for the  30 auctions we reviewed that incurred an indirect reverse auction fee  were generally aware that they were paying a fee, officials responsible for  28 of these 30 auctions were uncertain about one or more elements of  the reverse auction fee structure. For example: Lack of understanding of fee amount charged: Contracting officials  who conducted 18 of the 29 FedBid auctions in our review were not  aware of the fee charged for the reverse auction. All but three of these  officials told us that they generally do not see the fee amount because  it is included in the vendors’ bids and is not broken out separately, so  they evaluate the price inclusive of the fee. In response, FedBid  representatives told us that since March 2014 they have offered  functionality in the FedBid system that displays the fee separately.  However, FedBid only turns this functionality on at the request of  agency officials, which had not occurred at the time of our review. We  found that procurement officials at all five of the agencies we reviewed  were unaware that this feature was available. According to FedBid  representatives, they have since notified the contracting officers  responsible for their agency contracts about this feature. Confusion about circumstances for fee waivers or reductions:  Although FedBid will waive or reduce its fee when the fee causes the  auction to be above the pre-auction cost estimate or an established  contract price, contracting officials responsible for 22 of the 29 FedBid  reverse auctions did not accurately understand how this would work  when we asked about it. For instance, some contracting officials at  State and Customs and Border Protection told us in error that FedBid  would waive its fee if there was only one bidder in an auction.  Additionally, contracting officials for two auctions told us that they  thought the fees associated with their auctions had been waived and  expressed surprise when they learned the fee amount. For one  auction, a State contracting officer told us that if she had been aware  of the amount of the potential fee for an auction for construction  services for which only one bid was received, she may have  considered other alternatives for awarding the contract. Uncertainty about how fee caps are applied: While FedBid generally  caps its reverse auction fees at $10,000 per transaction, officials we  interviewed that were responsible for 20 of 29 FedBid auctions told us  they were not aware of this or did not know the dollar threshold for the  fee cap. Additionally, while increased competition is typically cited as a benefit of  reverse auctions, we found that about 18 percent of fees paid to reverse  auction providers in 2016—approximately $2.5 million—were for auctions  in which there was only one bidder participating (see table 6 for detail by  agency). Further, we found that agencies in our review indirectly paid  approximately $3.3 million in fees for reverse auctions conducted in 2016  even when an alternative no-fee reverse auction platform was likely  available. The availability of an alternative platform does not necessarily  mean that the no-fee platform is the most appropriate option, because  different platforms provide different levels of service. We did not  determine whether particular platforms were more appropriate or resulted  in lower overall prices to the government. However, we found that  agencies paid these fees to FedBid to conduct reverse auctions for orders  on Federal Supply Schedule contracts or Army CHESS contracts when  they might have used GSA Reverse Auctions or the Army CHESS IT  e-mart without paying a fee. Our 40 case studies included 10 auctions for  orders off GSA’s Federal Supply Schedules or Army CHESS contracts  that used FedBid rather than using GSA Reverse Auctions or the Army  CHESS IT e-mart. For five auctions at Army and State, contracting  officials told us they were required or strongly encouraged by agency or  component policy to use FedBid. For the other five auctions, contracting  officials told us that they preferred FedBid because it was easier to use or  they were more familiar with it than GSA Reverse Auctions. Without  considering which provider best meets its needs in these cases, the  agencies may have paid more in fees than necessary for the required  level of service. We found that none of the agency guidance we reviewed was sufficient to  ensure that contracting officials understood reverse auction fees and their  roles in assessing those fees. A clear understanding is necessary to  make informed decisions about when to use reverse auctions or which  reverse auction platform to use for a particular procurement (see table 7). We found that agency guidance we reviewed at two of the five  agencies—Navy and State—did not address the role of contracting  officials in understanding and assessing reverse auction fees.  Specifically: Navy does not have agency-wide guidance that addresses the  circumstances and processes for using reverse auctions. At the  component level, the Naval Supply Systems Command’s November  2014 guidance states that contracting officials may use any available  government or commercial reverse auction platform for reverse  auctions, unless ordering off GSA’s Federal Supply Schedule or other  contract vehicle posted at GSA’s eBuy site, but the guidance does not  provide information about how contracting officers should consider  reverse auction fees in deciding which platform to use. State’s guidance on reverse auctions does not address the role of  contracting officers in considering reverse auction fees. As noted  previously, State’s May 2015 policy memorandum requires that  contracting officers first consider using FedBid for acquisition of all  non-complex commodities unless a waiver is obtained. Guidance we reviewed at the other three agencies—Army, Interior, and  DHS—did address the role of contracting officials in understanding and  assessing reverse auction fees, although the level of detail varied among  the three agencies. Specifically: A June 2015 policy alert from the Army stated that contracting officials  are required to be aware of reverse auction fees and consider them in  evaluating whether the price of the product or service being acquired  is fair and reasonable. Similarly, Interior’s August 2015 guidance states that contracting  officers need to evaluate the estimated amount of reverse auction  fees that will be paid when assessing whether prices are fair or  reasonable. DHS’s May 2017 guidance states that contracting officers need to  understand the fees charged by a provider, and determine and  document that the fee structure represents a fair and reasonable cost  and offers the best value to the government. None of the agency-wide guidance we reviewed at the five agencies  detailed the fee structure of each reverse auction platform used by the  respective agency. As a result, contracting officials’ ability to understand  and assess the fees—an existing requirement in OFPP guidance and at  the Army, Interior, and DHS—is hindered. Neither State nor Interior had  guidance that detailed the specific fee structures of reverse auction  providers used by contracting officials at those agencies. While one Army  command developed guidance on FedBid’s fee structure, the Army has  not provided any agency-wide guidance on FedBid or GSA Reverse  Auctions fee structures, even though the Army awarded reverse auctions  valued at approximately $326 million using these two providers in 2016.  Similarly, while the Navy’s May 2017 memorandum of understanding for  using GSA Reverse Auctions informs contracting officials of GSA  Reverse Auctions’ fee structure, the Navy does not have guidance that  details FedBid’s fee structure. In 2016, the Navy conducted more than  10 times as many auctions using FedBid’s platform as it did using GSA’s  platform. Additionally, we found that none of the agencies had agency-wide  guidance that required contracting officials to consider whether no-fee  reverse auction alternatives, such as GSA Reverse Auctions for Federal  Supply Schedule orders and the Army’s CHESS IT e-mart for Army  CHESS orders, would meet their needs. State, DHS, and Interior  guidance does not address this issue at all. Similarly, while neither the  Army nor Navy have agency-wide guidance that does so, each agency  has component or command-level guidance that addresses this issue to a  limited extent. For example, Naval Supply Systems Command guidance  issued in November 2014 requires that contracting officials use GSA  Reverse Auctions for products or services off the Federal Supply  Schedule. More recently, according to Army officials, as of July 2017, the  Army’s CHESS program began recommending that reverse auctions for  orders off Army CHESS contracts be conducted using the Army CHESS  IT e-mart. Standards for internal control in the federal government require agencies  to develop policies that address operational processes and the  responsibilities of individuals for carrying out those processes. Our  review found that, while certain agencies or agency components had  guidance that provided some information about reverse auction fees,  none of the agency-level guidance we reviewed fully addresses  contracting officials’ role in understanding and assessing reverse auction  fees, details fee structures for reverse auction platforms used by the  agency, or requires that contracting officers compare the options for  reverse auction providers that are available to them, particularly regarding  no-fee alternatives. Without such guidance, contracting officers are at risk  of paying more in fees than necessary for the level of service they  require. Agencies’ Contracting  Approaches Do Not  Provide Sufficient  Information on Reverse  Auction Fees to Facilitate  Oversight and Adherence  to Internal Control  Standards We found that while nearly all reverse auction fees were paid to FedBid  since FedBid was by far the largest reverse auction provider used by the  selected agencies, agencies’ approaches to contracting with FedBid did  not result in sufficiently detailed fee arrangements to ensure that the  agencies were knowledgeable about the fees they were paying and could  conduct oversight of whether FedBid was applying indirect fees as  expected. For the five agencies we reviewed that conducted reverse  auctions using FedBid in 2016, two did not have documented agency- level fee arrangements with FedBid, while the other three had contracts  that did not fully address at least one element of FedBid’s fees, as shown  in table 8. Three of the five agencies we reviewed that used FedBid—Army, Navy,  and State—had agency-wide contracts in place with FedBid, but we found  that these contracts did not always document key aspects of the fee  terms with FedBid. Specifically: Lack of clarification on how the fee cap applies to contracts with  option years: FedBid representatives stated that their standard  practice is that the fee cap will apply separately to each option year  awarded. The Navy’s January 2018 contract with FedBid is consistent  with this practice and explains how the fee cap will apply to contracts’  option years. In contrast, Army’s and State’s December 2016  contracts with FedBid do not specify how the fee cap would apply to  option years. Contracting officials who were responsible for managing  the FedBid contract at the Army told us they believed that the fee cap  was a total of $10,000 per contract awarded, including for the base  and all option years. Lack of detail on calculation of fee cap: Navy and State’s contracts  with FedBid did not include full details on how the fee cap would be  applied. As discussed above, FedBid generally caps its fee at  $10,000. However, due to the way FedBid calculates fees, if the  lowest bid is not selected, the fee on the selected bid may be over  $10,000. We found that 19 reverse auctions in 2016 resulted in  FedBid fees over $10,000. Neither the Navy’s January 2018 contract  nor State’s December 2016 contract explains that the fee may be  above $10,000. According to agency officials, DHS and Interior did not have agency-wide  contracts with FedBid for reverse auctions conducted in 2016. While three  DHS components had their own contracts with FedBid that were active in  2016, four additional components plus DHS headquarters used FedBid in  2016 without either an agency- or component-level contract in place. At  Interior, the contract with FedBid expired in September 2015 and was not  renewed, although contracting officials at Interior components continued  to conduct reverse auctions on FedBid. Contracting officials at these  agencies used FedBid’s services by agreeing to its standard terms and  conditions each time they accessed the FedBid platform. FedBid  representatives told us they consider the terms of use to be the contract  between FedBid and the government when there is no agency- or  component-level contract in place, and that this is similar to how  commercial e-commerce marketplaces operate with federal agencies for  micro-purchases. FedBid’s standard terms and conditions, however, do  not provide detailed information on fees, such as the precise fee  percentage charged or the amount of the fee cap. FedBid representatives  told us that they typically charge federal agencies a 3 percent fee, but that  fee details are not included in the standard terms and conditions because  commercial and government customers may pay different fees. At DHS  and Interior, when there are not agency- or component-level contracts in  place and contracting officials use FedBid by agreeing to the standard  terms and conditions, there is a risk that they may agree to fees or other  terms that have not been reviewed and approved by agency acquisition  and legal offices. Lastly, we found that only two of the agencies we reviewed—the Army  (since December 2016) and the Navy (since May 2012)—required and  received regular monthly reporting from FedBid on reverse auction fees  paid indirectly by the agency. Both agencies also have contractual  requirements for FedBid to provide this information annually, in addition to  the monthly reporting. Army officials told us that requiring additional data  in their December 2016 contract with FedBid was a result of lessons  learned from their September 2012 contract, and was intended, in part, to  improve oversight of fees paid. Army and Navy officials provided  examples of FedBid reverse auction fee reports, and described how they  used this information to oversee their contracts with FedBid. The Army  and Navy also both requested and received monthly reports from GSA  Reverse Auctions that included detailed information on fees. In contrast, DHS, Interior, and State did not require or receive regular  reporting on fees from FedBid or GSA Reverse Auctions. As previously  discussed, according to officials, DHS and Interior do not have agency- wide contracts with FedBid and, therefore, do not have a mechanism in  place to require agency-wide reporting. Interior officials told us they do  not receive any reports on fees paid from FedBid. For the two DHS  components we reviewed, Immigration and Customs Enforcement  officials told us that they received ad hoc reporting on fees paid to FedBid  and provided us with a sample report that included fee data. While  Customs and Border Protection’s contract with FedBid requires reporting  on costs incurred by the government, officials told us that they do not  receive any reporting on fees. State neither requires nor receives  reporting on fees from FedBid. State and Customs and Border Protection  officials told us that they do not receive such reporting since fees are paid  by winning vendors and therefore there is no direct cost to the  government to use FedBid. We found, however, that these agencies  indirectly paid almost $4.2 million in fees to FedBid in 2016. Standards for internal control require agencies to appropriately document  transactions and significant events to assist with oversight and help  ensure that agency objectives are being achieved effectively and  efficiently. Without a documented contract or arrangement in place  between agencies or components and FedBid that provides a clear and  common understanding of payment terms and fee structure, agencies  lack sufficient information to conduct contract oversight to determine  whether FedBid is applying its indirect fees as the agencies expect. Further, internal control standards emphasize timely and reliable  information and data so that agencies can effectively monitor their  operations. Without requiring reporting on reverse auction fees, agencies  may not have sufficient information to understand and oversee their use of reverse auction platforms and conduct contract oversight to ensure that  the fees they are being charged are appropriate. Conclusions The landscape of reverse auctions has changed slightly since our last  review in December 2013. There are more reverse auction providers,  including government providers, in the marketplace, with the vast majority  of auctions conducted through FedBid. The use of reverse auctions,  however, continues to constitute a relatively small percentage of federal  contract spending. For the most part, agencies are using reverse auctions  to acquire low-cost, commercial products and benefitting from the ease of  use and reduced administrative burden that reverse auctions can provide.  Agencies are also achieving more robust competition in the form of  iterative bidding on nearly three-quarters of reverse auctions. Despite this  level of competition, however, precisely quantifying the amount of savings  is inherently difficult. Given that the vast majority of auctions are small  dollar procurements which are, by design, intended to be simpler and to  pose less administrative burden on the acquisition workforce, it may be  counterproductive to expend more time and resources to produce a better  estimate of savings. Nevertheless, there is room for improvement in the  guidance agencies provide to their contracting personnel to ensure the  appropriate use of reverse auctions, increase benefits, and reduce costs.  Agencies could benefit from paying more attention to  rates of one-vendor participation, provider fee structures, and  contracts with reverse auction providers. Across the agencies in our review, often only one bidder participates, in  particular when agencies conduct a reverse auction using existing  contract vehicles rather than opening the auction to all potential vendors.  At State, its requirement for contacting officers to use reverse auctions for  all non-complex acquisitions may result in reverse auction use in  situations where it is not warranted; that is, without the type of highly  competitive marketplace that can result in savings. Our work also identified a need for agencies to provide contracting  officers better information on the fee structures so that they can make  informed decisions as to whether to use a reverse auction and which  reverse auction platform to use. Further, agencies are not requiring data  on or analyzing the fees they are paying. The indirect nature of provider  fees—combined with fee arrangements that are missing important details  or are nonexistent and a lack of visibility into those fees—puts agencies  at risk of paying more than necessary for the level of service needed.  These issues are not new: we raised similar concerns in our report more  than 4 years ago. Taken together, these issues put the government at risk  of failing to maximize the benefits that the effective use of reverse auction  can provide, and worse, put agencies at risk of paying millions of dollars  more in fees than necessary for the level of service needed. Recommendations We are making a total of 21 recommendations, including 3 to Army, 4 to  Navy, 4 to DHS, 4 to Interior, and 6 to State. We are making the following seven recommendations to heads of  agencies within the Department of Defense: The Secretary of the Army should: assess why reverse auctions that  are conducted using existing contract vehicles have only one bidder at  higher rates than reverse auctions conducted on the open market;  determine what factors indicate that conducting reverse auctions is  appropriate when using existing contract vehicles; and provide this  information to contracting officials so that they can consider it when  developing their acquisition strategies. (Recommendation 1) The Secretary of the Army should: document and provide information  to contracting officials that describes available reverse auction  providers and platforms, and any associated fee structures; and  provide guidance, as appropriate, to contracting officials to ensure  that they compare the options that are available to them when  considering whether to use reverse auctions. (Recommendation 2) The Secretary of the Army should clarify with FedBid how fees apply  when contract option years are exercised. (Recommendation 3) The Secretary of the Navy should: assess why reverse auctions that  are conducted using existing contract vehicles have only one bidder at  higher rates than reverse auctions conducted on the open market;  determine what factors indicate that conducting reverse auctions is  appropriate when using existing contract vehicles; and provide this  information to contracting officials so that they can consider it when  developing their acquisition strategies.(Recommendation 4) The Secretary of the Navy should review the agency’s current  guidance to assess whether it adequately addresses contracting  officer responsibilities to consider the cost of any fees associated with  reverse auction options they may be considering when developing  their acquisition strategies, and revise its guidance as appropriate.  (Recommendation 5) The Secretary of the Navy should: document and provide information  to contracting officials that describes available reverse auction  providers and platforms, and any associated fee structures; and  provide guidance, as appropriate, to contracting officials to ensure  that they compare the options that are available to them when  considering whether to use reverse auctions. (Recommendation 6) The Secretary of the Navy should clarify with FedBid how FedBid’s  fee cap will be calculated. (Recommendation 7) We are making the following four recommendations to DHS: The Secretary of the Homeland Security should: assess why reverse  auctions that are conducted using existing contract vehicles have only  one bidder at higher rates than reverse auctions conducted on the  open market; determine what factors indicate that conducting reverse  auctions is appropriate when using existing contract vehicles; and  provide this information to contracting officials so that they can  consider it when developing their acquisition  strategies.(Recommendation 8) The Secretary of Homeland Security should: document and provide  information to contracting officials that describes available reverse  auction providers and platforms, and any associated fee structures;  and provide guidance, as appropriate, to contracting officials to  ensure that they compare the options that are available to them when  considering whether to use reverse auctions. (Recommendation 9) The Secretary of Homeland Security should determine if it would be  advantageous for the agency to enter into contracts with third-party  reverse auction providers. (Recommendation 10) The Secretary of Homeland Security should obtain timely information  on how much the agency is paying for reverse auction services.  (Recommendation 11) We are making the following four recommendations to Interior: The Secretary of the Interior should: assess why reverse auctions that  are conducted using existing contract vehicles have only one bidder at  higher rates than reverse auctions conducted on the open market;  determine what factors indicate that conducting reverse auctions is  appropriate when using existing contract vehicles; and provide this  information to contracting officials so that they can consider it when  developing their acquisition strategies.(Recommendation 12) The Secretary of the Interior should: document and provide  information to contracting officials that describes available reverse  auction providers and platforms, and any associated fee structures;  and provide guidance, as appropriate, to contracting officials to  ensure that they compare the options that are available to them when  considering whether to use reverse auctions. (Recommendation 13) The Secretary of the Interior should determine if it would be  advantageous for the agency to enter into contracts with third-party  reverse auction providers. (Recommendation 14) The Secretary of the Interior should obtain timely information on how  much the agency is paying for reverse auction services.  (Recommendation 15) We are making the following six recommendations to State: The Secretary of State should review the agency’s current guidance  to assess whether it leads contracting officials to use reverse auctions  in situations where there is not a highly competitive marketplace, and  revise its guidance as appropriate. (Recommendation 16) The Secretary of State should: assess why reverse auctions that are  conducted using existing contract vehicles have only one bidder at  higher rates than reverse auctions conducted on the open market;  determine what factors indicate that conducting reverse auctions is  appropriate when using existing contract vehicles; and provide this  information to contracting officials so that they can consider it when  developing their acquisition strategies. (Recommendation 17) The Secretary of State should review the agency’s current guidance  to assess whether it adequately addresses contracting officer  responsibilities to consider the cost of any fees associated with  reverse auction options they may be considering when developing  their acquisition strategies, and revise its guidance as appropriate.  (Recommendation 18) The Secretary of State should: document and provide information to  contracting officials that describes available reverse auction providers  and platforms, and any associated fee structures; and provide  guidance, as appropriate, to contracting officials to ensure that they  compare the options that are available to them when considering  whether to use reverse auctions. (Recommendation 19) The Secretary of State should clarify with FedBid how FedBid’s fee  cap will be calculated and how fees apply when contract option years  are exercised. (Recommendation 20) The Secretary of State should obtain timely information on how much  the agency is paying for reverse auction services. (Recommendation  21) Agency Comments  and Our Evaluation We provided a draft of this report to DOD, DHS, Interior, State, the  Department of Housing and Urban Development, GSA, VA, and OMB.  Collectively, the agencies concurred with 18 of the 21 recommendations  we made, and did not concur with three. In its written response, reproduced in appendix IV, DOD concurred with  our seven recommendations—three to the Army and four to the Navy— and stated that the department expected to complete actions to address  the recommendations by the end of calendar year 2018. In its written response, reproduced in appendix V, DHS concurred with  two recommendations and did not concur with two recommendations.  DHS concurred with our recommendation that it assess why reverse  auctions conducted using existing vehicles have higher one bidder rates  and provide information to contracting officials about factors that indicate  conducting reverse auctions using existing vehicles is appropriate.  However, DHS did not believe that it needed to conduct an assessment  specific to reverse auctions. The department stated that the factors that  contribute to one bidder participating in other procurements—such as  inadequate market research and poorly defined requirements—would  similarly affect reverse auctions. Nevertheless, DHS stated that the Office  of the Chief Procurement Officer will communicate to its contracting  officials that when market research for a planned reverse auction buy on  an existing contract vehicle demonstrates that only one bid is expected, a  reverse auction must not be used to conduct the procurement. DHS  expects to complete actions in response to this recommendation by the  end of November 2018. DHS also concurred with our recommendation that it determine if it would  be advantageous for the agency to enter into contracts with third party  reverse auction providers. DHS stated that an assessment should be  done periodically to determine if there is a need to have a department- wide reverse auction provider. In that regard, DHS stated that an  assessment was conducted in 2016 to evaluate providers and platforms  and, based on this evaluation, DHS made the decision to continue to  provide contracting offices the flexibility to choose their own reverse  auction provider. DHS stated that it believes its past actions address our  recommendation. However, the intent of our recommendation is not to  suggest that DHS consider whether to mandate a certain provider be  used agency-wide. Rather, we are recommending that DHS assess  whether agency-level contracts with reverse auction providers—be it one  or several different providers—are desirable to protect against the risk  that individual contracting officials may be agreeing to fees or other terms  that have not been reviewed and approved by agency acquisition and  legal offices. It is unclear whether DHS’s 2016 assessment considered  these issues. DHS did not concur with our recommendation that it provide information  to contracting officials regarding available reverse auction providers and  fee structures and, as appropriate, provide guidance to contracting  officials to ensure they compare available options for reverse auctions. In  its response, DHS stated that there is limited value in centrally collecting  and updating this information, and that it is the contracting officer’s  responsibility, as a part of market research, to be knowledgeable about  reverse auction providers and fee structures. DHS stated that its May  2017 reverse auctions policy requires contracting officers to understand  the fees that will be charged and determine and document that the fee  structure represents a fair and reasonable cost and offers best value to  the government. DHS stated that the Office of the Chief Procurement  Officer will issue an alert reminding contracting professionals of these  responsibilities by the end of November 2018. Given the pervasive  confusion we found among contracting officials about the fee structures of  reverse auction providers, we continue to believe that DHS should  document and provide information to contracting officials, which could  help eliminate confusion and minimize the duplication of individual  reverse auction users repeatedly collecting the same information. DHS also did not concur with our recommendation that it obtain timely  information on how much the agency is paying for reverse auction  services, stating that aggregating fee data at the department level would  require systems changes or manual collection that would not inform DHS  as to whether reverse auctions were used correctly or if the fee was too  high. In this case, however, our work found that reverse auction providers  have this data available upon request. As such, in lieu of making changes  to systems or attempting to have contracting officers manually collect this  information, we believe DHS could obtain this information from its reverse  auction provider and use this information to help DHS understand what it  pays for reverse auction services. This approach would also better inform  the department in its periodic assessments of contractual relationships  with reverse auction providers. In its written response, reproduced in appendix VI, State concurred with  all six recommendations, and described actions the Office of Acquisitions  Management intends to take to address them, including reviewing current  guidance and revising it as appropriate; increasing contracting officer  awareness through training and policy guidance; and engaging with its  primary reverse auction provider to obtain a better understanding of the  fee structure and timely reporting of fees. State did not provide  information as to when it expected these actions to be completed. In its written response, reproduced in appendix VII, Interior concurred with  three recommendations and did not concur with one recommendation.  Interior concurred with our recommendation that it assess why reverse  auctions conducted using existing vehicles have higher one bidder rates  and provide information to contracting officials about factors that indicate  conducting reverse auctions using existing vehicles is appropriate. The  department stated that it will implement policy regarding the use of  reverse auctions with existing contract vehicles. Interior also concurred  with our recommendation that it provide information to contracting officials  regarding available reverse auction providers and fee structures and, as  appropriate, provide guidance to contracting officials to ensure they  compare available options for reverse auctions. The department stated it  would review and update guidance to provide contracting officials with  current and relevant information on available reverse auction providers,  platforms, and associated fee structures. Interior also concurred with our  recommendation that it obtain timely information on how much the agency  is paying for reverse auction services. Interior did not provide information  as to when it expected the above actions to be completed. Interior did not concur with our recommendation to determine if it would  be advantageous for the agency to enter into contracts with third-party  reverse auction providers, stating that it would be more efficient to provide  guidance to contracting officials so that they can make the best business  decision. Interior officials told us verbally that they have already  considered whether or not to enter into contracts with reverse auction  providers and determined that it is not to the department’s advantage to  do so. Interior officials told us they would provide us information about the  factors considered in making this decision, but we did not receive this  information prior to issuing this report. In its written response, reproduced in appendix VIII, VA provided  information about its use of reverse auctions for energy purchases  through GSA and its energy reverse auction provider, EnerNOC. The  Department of Housing and Urban Development, GSA, and OMB  informed us that they had no comments on this report. We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Secretary of Homeland  Security, the Secretary of Housing and Urban Development, the  Administrator of General Services, the Secretary of the Interior, the  Secretary of State, the Secretary of Veterans Affairs, and the  Administrator of Federal Procurement Policy. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or dinapolit@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IX. Appendix I: Defense Logistics Agency and  Army Computer Hardware Enterprise  Software and Solutions Reverse Auctions Defense Logistics  Agency’s Use of Reverse  Auctions The Defense Logistics Agency’s (DLA) use of reverse auctions declined  over 80 percent from fiscal years 2013 to 2017 from about $7 billion to  about $1 billion in constant fiscal year 2017 dollars, according to data we  obtained from DLA’s provider Procurex for all auctions conducted (that  may or may not have resulted in an award). According to DLA officials,  the agency’s declining use is largely due to a policy revision that no  longer requires, but rather allows contracting officers to consider using  reverse auctions for all procurements over $150,000. DLA pays a flat fee  to its reverse auction provider for use of the reverse auction platform. This  payment mechanism is different from the fee arrangements in contracts  between agencies and many other reverse auction providers, for which  providers calculate fees on a per-transaction basis. In addition, DLA  generally uses a reverse auction as a price negotiation tool among a  group of selected vendors that the agency determined to be technically  acceptable based on vendors’ initial responses to a solicitation. Because  of these differences, DLA does not have a need to track the reverse  auctions awarded for its reporting and oversight purposes. Army Computer Hardware  Enterprise Software and  Solutions (CHESS)  Information Technology  (IT) e-mart Reverse  Auction The Army Computer Hardware Enterprise Software and Solutions  (CHESS) Information Technology (IT) e-mart program introduced its  reverse auction capability in January 2016. It offers fee-free reverse  auctions for a number of the CHESS contracts. According to Army  officials, in July 2017, the CHESS program began recommending use of  its reverse auction capability rather than other reverse auction platforms.  According to data provided by the CHESS program office for all auctions  conducted (that may or may not have resulted in an award), use of  reverse auctions increased over 225 percent between fiscal years 2016  and 2017 from about $28 million to about $91 million in constant fiscal  year 2017 dollars. The CHESS IT e-mart does not track which auctions  result in awards. According to officials, users capture award information in  the agency’s contract writing system. While CHESS officials told us they  are interested in that kind of information, CHESS does not charge a fee  and does not have a need to track the reverse auctions awarded for its  oversight purposes. Appendix II: Agency Policies and Guidance  Reviewed Appendix III: Objectives, Scope, and  Methodology This report examines (1) federal agencies’ use of reverse auctions  between 2013 and 2017, (2) the extent to which selected agencies  achieved benefits through reverse auctions, and (3) the extent to which  selected agencies have insight into reverse auction fees. For all objectives, we reviewed policies and guidance related to reverse  auctions from Office of Federal Procurement Policy (OFPP) and at  selected agencies and relevant components of those agencies we  reviewed, as well as the Standards for Internal Control in the Federal  Government and relevant work by agency Inspectors General. We also  interviewed procurement policy officials from the selected agencies and  representatives from reverse auction providers. To examine federal agencies’ use of reverse auctions between 2013 and  2017, we collected data from reverse auction providers we identified by  reviewing our past work in this area, reviewing federal procurement  solicitation and award information, conducting interviews with agency  officials, and conducting internet searches about federal use of reverse  auctions. Through these efforts, we identified eight reverse auction  providers that offered reverse auction services either government-wide or  to specific agencies (see table 10 below). While it is possible that our efforts did not identify all reverse auction  providers that federal agencies use, we are reasonably confident we have  included the largest reverse auction providers used by the selected  agencies in our review. In addition to the identification efforts described  above, for the selected agencies in our review, we asked component  officials to identify reverse auction providers with which the agency has a  contractual relationship and which reverse auction platforms the agency’s  contracting officials use. We also asked numerous individual contracting  officers about the various platforms the individual has used. No additional  providers or platforms were identified as part of those efforts. We collected fiscal year 2013 through 2017 data on reverse auctions use  from these reverse auction providers and analyzed it to identify the  number of reverse auctions conducted annually across the government  and the dollar value of those reverse auctions. For our analysis of the  number and dollar value of the auctions, we analyzed auctions that  resulted in a contract award between the agency and a vendor in a  particular year, according to provider data. We describe these as  awarded reverse auctions. The dollar value of an awarded auction is  based on the dollar amount of the bid selected for award; however, the  dollar amount of the bid selected for award is not necessarily equivalent  to the amount ultimately obligated on the resulting contract. We present  the dollar value of agencies’ awarded auctions from 2013 through 2017 in  constant fiscal year 2017 dollars using the Congressional Budget Office’s  June 2017 Gross Domestic Product price index projection—the most  recent projection available at the time of our analysis. We generally  collected data from reverse auction providers because information about  reverse auction use is not available in the Federal Procurement Data  System-Next Generation, a government-wide source of contract data. In  addition, the selected agencies we reviewed do not separately track use  of reverse auctions. We collected data from the Department of Housing  and Urban Development directly because the agency tracks its reverse  auction use, including which auctions it awards. Two of the providers we  identified, Procurex and the Army CHESS IT e-mart reverse auction  platform, do not track the reverse auctions that agencies award to  vendors. The agencies using these providers, Defense Logistics Agency  and the Department of the Army, do not require this information for their  own reporting and oversight purposes or for paying for the reverse  auction services. For purposes of this report, all references to reverse auction use exclude  auctions conducted with these providers. Therefore, our analysis includes  only the value and number of known, awarded auctions between  2013 through 2017. As a result, we underestimate total federal reverse  auction use. Using available data for the Department of the Army, we  estimate our analysis includes over 95 percent of the value and  99 percent of Army auctions. For the Defense Logistics Agency, Procurex  reported that over the five-year period the agency conducted  approximately 7,100 auctions valued at about $19 billion. While we  cannot say with certainty the number and value of awarded auctions, we  can assume the agency awarded fewer auctions than it conducted. Based  on information from other providers for which we have data on the number of auctions conducted and awarded, agencies using these  providers awarded about 45 percent of the auctions conducted between  2013 and 2017. Of the six providers with awarded auction data, FedBid  accounted for almost all auctions and the vast majority of dollars agencies  awarded using reverse auctions from 2013 through 2017. We also used this data to identify six of the largest users of reverse  auctions for that period—Departments of the Army, Homeland Security  (DHS), the Interior, the Navy, State, and Veterans Affairs (VA)—by  number of auctions and dollar value. In determining the largest users of  reverse auctions, we excluded energy-related auctions from our analysis.  Energy-related auctions represented a sizable portion—10 percent—of  reverse auction value, but less than 1 percent of auctions. We determined  that conducting a detailed review of energy-related auctions was not likely  to provide insight for other procurements because the unique  characteristics of energy markets make it difficult to compare to reverse  auctions for other goods and services that were included in our review. For five of the six selected agencies (Army, Navy, DHS, Interior, and  State), we collected additional data on auctions awarded in fiscal year  2016—the most recent year of detailed data available at the time that we  began our review. We limited our analysis to auctions for which we  identified a start, end, and contract award date in 2016, according to  provider data. Our analysis of fiscal year 2016 auctions included almost  15,000 auctions with a total awarded value of approximately $910 million.  We excluded reverse auctions for which the data indicated that they were  awarded in 2016 but for which the auction dates indicated that the  auctions were conducted in a prior year. At least some of these auctions  represent options exercised on earlier auctions, rather than new auctions,  and we wanted to ensure we could compare auction activity to policies  and procedures in place for a specific period. Our analysis of awarded  auctions excluded auctions identified as cancelled or with an auction  start, end, or award date outside of 2016. The sixth agency (VA)  conducted less than a dozen new auctions in 2016, and so we excluded  them from our analysis of 2016 data, as well as our analysis of the  benefits and fees associated with reverse auctions. We analyzed agencies’ use of reverse auctions, including but not limited  to  the number and dollar value of the awarded auctions,  types of products and services purchased,  level of competition achieved (number of participating vendors and  bids received),  savings from government pre-auction estimates, and  fees associated with the auctions. For our analysis of the number and dollar value of the awarded auctions,  we included auctions that resulted in a contract award between the  agency and a vendor, according to provider data. Actual award  obligations may differ. For example, an agency may adjust the  procurement (such as increasing or decreasing the number of items  purchased) between the auction and the final award, which may not be  reflected in the data we used. In addition, the number of awarded  auctions may differ. While we took steps to exclude awarded auctions for  which agencies had cancelled the resulting contracts, if the provider data  did not identify an auction as cancelled we may have included it in our  analysis. For the analysis of products and services, we examined  auctions conducted and awarded in 2016 by two of the three reverse  auction providers, both of which had product and service code data  available for awarded reverse auctions. These two providers accounted  for almost all contracts awarded via reverse auctions that year. Provider  data included an overall product and service code for the auction. The  auction may include goods and services outside that particular code. For  our purposes, we used the code provided to categorize the auction as a  product or service and the type of purchase. The third provider, GSA  Reverse Auction, does not capture similar product and service code data. Using other data GSA Reverse Auction provided, we were able to  estimate that about 20 percent of dollars awarded using GSA’s Reverse  Auctions platform included information technology products and services. For our analysis of contract vehicles, we used provider data on whether  the buyer selected to conduct the auction on the open marketplace or  limit the auction to vendors qualified to bid on existing contract vehicles.  For example, buyers may have conducted auctions on the open market,  which is available to any vendor selling the good or service that is  registered to bid via the reverse auction provider or conducted auctions  that were limited to vendors with specific agency or government-wide  contracts. For our analysis of competition, we included all vendors and  associated bids submitted in provider data. During our interviews with  contracting officials, we learned that in some auctions officials determined  particular vendors were not technically acceptable following an auction.  This information is not available in provider data and, as a result, our  analysis includes vendors that contracting officials determined were not  technically acceptable. We also obtained contract-related information from the Federal  Procurement Data System-Next Generation for awarded auctions with  available contract or order numbers to identify if agencies used  commercial acquisition procedures and firm-fixed-price contracts in  accordance with the effective practices outlined in the June 2015 OFPP  memorandum. Government auditing standards require that we assess the  reliability of data we use in our products. As part of our assessment, we  reviewed the reverse auction data collected for obvious issues, such as  missing data elements, duplicates, and outliers. We also tested the  relationships between variables. In addition, we interviewed agency and  reverse auction provider officials to understand the data and collected  information on the systems used to collect and store the data, as well as  how those data are used. Further, we compared the data for a  non-generalizable sample of 40 auctions to contract files. We assessed  the reliability of the data used in this report and determined they were  sufficiently reliable for describing the known number and value of  awarded reverse auctions by federal agencies from 2013 through 2017  and identifying salient characteristics of selected agencies’ awarded  auctions in 2016, including the number of participating vendors and bids,  type of good or service purchased, and indirect fees associated with the  auction. To identify the extent to which selected agencies achieved the benefits of  reverse auctions, we analyzed the 2016 data we collected on reverse  auction use at our five selected agencies to identify factors related to  competition (e.g., the number of participating vendors in auctions and the  number of bids received, and the frequency of iterative bidding, defined  as when there are multiple bidders and at least one bidder submits more  than one bid during the auction) and savings (e.g., savings as calculated  by the reverse auction providers). This analysis excludes auctions  conducted using the Army CHESS IT e-mart because it does not track  which auctions result in awards. However, the analysis still includes at  least 93 percent of reverse auction award value and 98 percent of the  awarded auctions in 2016. To obtain a more in-depth understanding of  the benefits achieved by selected agencies, we selected and reviewed a  nongeneralizable selection of 40 contracts awarded from 2016 reverse  auctions across the five agencies. These contracts were chosen to  obtain variety across the following characteristics: buying agency and  component; contract vehicle (open market or orders on existing contracts  such as Federal Supply Schedules or agency indefinite-delivery /  indefinite-quantity contracts); dollar value; fees charged by the reverse  auction providers; and goods and services being purchased (see table  11). At DHS, we selected case studies from two components, Customs and  Border Protection and Immigration and Customs Enforcement. Customs  and Border Protection had an active contract with FedBid in 2016 and  Immigration and Customs Enforcement did not, so we selected these two  components in order to understand the difference in how components  with and without an active contract used FedBid. For each of the selected case studies, we reviewed contract  documentation related to the reverse auction, such documentation of  market research, pre-auction cost estimates (e.g. independent cost  estimates), price negotiation memoranda, and contract award documents.  In addition, to obtain contracting officials’ perspectives on the benefits of  reverse auctions, we interviewed the contracting officials involved with  35 of these 40 auctions: for the remaining 5, knowledgeable officials were  not available to interview. We conducted our interviews using a semi- structured interview process in which we asked contracting officials a  standard set of questions about their experiences conducting reverse  auctions. We did not compare reverse auctions to alternative acquisition  methods to compare the relative costs and benefits. To identify the extent to which selected agencies had insight into reverse  auction fees, we analyzed provider data on fees paid indirectly to FedBid  and GSA Reverse Auctions in 2016 for the five agencies selected for our  review. Fees paid to these two reverse auction providers were paid  indirectly by the agencies through the winning vendor. Our analysis  included the total amount of fees paid by each agency in 2016 to each  reverse auction provider and the amount of fees paid by each agency in  2016 for auctions with only one bidder. We also analyzed agency guidance to determine the extent of information  provided to contracting officials on reverse auction fees. Specifically, we  assessed whether agency guidance identified roles and responsibilities of  contracting officials in understanding and assessing reverse auction fees  and provided sufficient information to help ensure contracting officers  understood how reverse auction fees are applied. Further, we interviewed  contracting officials for 35 of our 40 selected auctions to develop an  understanding of the officials’ knowledge of the fees related to the  auctions they conducted. As noted above, officials for the other 5 auctions  were not available to interview. The 40 selected auctions included 33 that  incurred an indirect fee, 2 for which the provider waived the fee, and 5 for  which no fee applied. We interviewed the contracting officials involved  with 30 of the auctions that incurred a fee and 5 of the auctions for which  the fee was waived or no fee applied. To determine whether contracting  officials we interviewed had a complete and accurate understanding of  reverse auction fee structures, we analyzed their responses to questions  about reverse auction fee structures and the fee paid for the reverse  auction we reviewed in detail, and compared their responses to fee  structures documented in agency contracts and reverse auction provider  terms and conditions. Lastly, to determine whether agencies had sufficient insight into reverse  auction fees to conduct appropriate oversight, we analyzed contracts  between the selected agencies and FedBid as well as other fee  arrangements, including provider terms of service and GSA’s Federal  Supply Schedule contract with FedBid. Our analysis included both  contracts that were in place in fiscal year 2016 in order to understand the  terms and conditions that covered the reverse auctions we reviewed in  detail, as well as contracts agencies awarded subsequent to fiscal year  2016 so that we could understand whether and how agencies fee  arrangements with reverse auction providers had changed. We analyzed  the contracts and other fee arrangements to determine the extent to  which they explained details of how the fees were applied, such as what  fee percentage would be charged, how the fees would apply to contract  option years, and how fee caps were applied. We also used a variety of investigative tools and techniques to determine  if reverse auction procurement officials and commercial and government  providers have engaged in potential fraud, waste, abuse, and  mismanagement associated with reverse auction use. We reviewed fraud  alerts to learn about potential complaints, coordinated with agency  inspector general offices regarding work related to reverse auctions,  inquired about contracting officials’ awareness of fraud incidents among  the 35 case studies for which we interviewed contracting officials, and  conducted a limited review for obvious financial relationships among  agency officials responsible for drafting reverse auction policy and  commercial reverse auction providers. While steps we took did not  uncover any obvious fraud, waste, abuse, or systemic mismanagement,  we cannot definitively state that there is no fraud, waste, abuse, or  mismanagement in federal use of reverse auctions. We conducted this performance audit from January 2017 to July 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. We conducted our related  investigative work from April 2017 to March 2018 in accordance with  investigative standards prescribed by the Council of the Inspectors  General on Integrity and Efficiency. Appendix IV: Comments from the  Department of Defense Appendix V: Comments from the Department  of Homeland Security Appendix VI: Comments from the  Department of the Interior Appendix VII: Comments from the  Department of State Appendix VIII: Comments from the  Department of Veterans Affairs Appendix IX: GAO Contact and Staff  Acknowledgments GAO Contact Staff  Acknowledgments In addition to the contact named above, Janet McKelvey (Assistant  Director), Luqman Abdullah, Cory Ahonen, Peter Anderson, Leslie  Ashton, Matthew Crosby, Alexandra Dew Silva, Lorraine Ettaro, April H.  Gamble, Anne McDonough, Miranda Riemer, Robin Wilson, and Helina  Wong made key contributions to this report.
Reverse auctions are intended to result in enhanced competition, lower prices, and reduced acquisition costs. GAO has previously found that agencies did not maximize these benefits. GAO was asked to review federal agencies' use of reverse auctions. This report examines (1) the use of reverse auctions and the extent to which selected agencies achieved benefits, such as competition; and (2) the extent to which selected agencies had insight into reverse auction fees. GAO collected and analyzed data on federal agencies' use of reverse auctions from fiscal years 2013 to 2017. For five of the largest users of reverse auctions—the Departments of the Army, Homeland Security, Interior, Navy, and State—GAO reviewed documentation for 40 auctions that resulted in contract awards in fiscal year 2016 (the most recent data available when the review began), and that were selected to obtain a mix of dollar values and levels of competition, among other factors. GAO also interviewed contracting officials and analyzed agency guidance. Federal agencies' use of reverse auctions—a process where vendors bid against each other with lower prices to win government contracts—declined between fiscal years 2013 and 2017, from about 34,000 to 19,000 auctions valued at about $1.9 billion and $1.5 billion, respectively. In fiscal year 2016, the year GAO studied in detail, nearly three-quarters of auctions at the agencies GAO reviewed resulted in iterative bidding—when there are multiple bidders and at least one bidder submits more than one bid during the auction (see figure). Contracting officers said reverse auctions reduce administrative burden, especially during peak contracting times. Reverse auctions data indicate that selected agencies may have saved more than $100 million in 2016. The five agencies GAO reviewed indirectly paid about $13 million in fees to reverse auction providers through awardees in 2016. However, 28 of the 30 contracting officials GAO interviewed did not fully understand how fees were set. Further, in 2016, agencies GAO reviewed indirectly paid approximately $3 million in fees for reverse auctions for which a fee-free alternative was likely available. None of the guidance GAO reviewed provided sufficient information for contracting officers to assess the appropriateness of these fees (see table). Without better information, contracting officials may be offsetting potential savings by paying more in fees than necessary for the level of services required.