Reverse auctions, where the lowest bidder automatically wins the contract, are becoming more popular in the construction industry. Several major corporations hold such auctions online.
But according to a white paper written by the Associated General Contractors of America and endorsed by the Associated Specialty Contractors, the auctions are bad news for everyone.
The groups claim reverse auctions:
· Do not guarantee the lowest price
· May encourage imprudent or careless bidding
· Tend to degrade trades relationships
· Place undue emphasis on price vs. value-added services
May contravene federal procurement laws and certain state laws
According to the paper, "Software vendors and Internet service providers that promote the use of electronic reverse auctions to procure construction are misapplying a procurement process originally designed for commodities. These firms often cite success with commodities and manufactured goods as justification....
"Such application, however, ignores the unique nature of construction. Construction contractors ... provide a mix of services, materials and systems. They do not ‘manufacture' buildings, highways or municipal facilities. Manufactured goods are subject to little or no variability or change in manufacturer or application. Construction projects, on the other hand, are inherently variable."
Members of the Associated General Contractors include the Mechanical Contractors Association of America, the Sheet Metal and Air Conditioning Contractors' National Association, the Plumbing-Heating-Cooling-Contractors Association, the National Roofing Contractors of America and the National Insulation Association.