DLA touts reverse auctions for procurement savings

Nov. 19, 2013 at 11:59 AM
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FORT BELVOIR, Va., Nov. 19 (UPI) -- The U.S. Defense Logistics Agency says it saved more than $1.6 billion in materiel costs over the past 14 months using a reverse auction procurement process.

Reverse auctions, conducted online, involve contractors placing a bid lower than an earlier bid, which the agency said creates intense competition and drives down prices.

The bidding process lasts about an hour.

"Since it's a competition-based event, we need to have at least two vendors that are quoting and that are competitive with each other," said Carmen Pillitteri, a business process analyst at DLA Land and Maritime in Columbus, Ohio. "When they log in, they see their own price, and they also see the current lowest price on the procurement.

"They don't know who their competitors are, and they don't know how many competitors they have in the auction, but they see the prices and have an opportunity to lower their price."

"We set it up, give the sellers two days to prepare, run it for a half hour to an hour, and then it's done," he said. "If someone bids in the last few minutes, the time will be extended by five minutes, so every vendor has an opportunity to put in their best price. But it's a very definite and relatively short time frame. That's one of the best parts about it."

The Defense Logistics Agency is a combat support agency. It provides the Army, Navy, Air Force, Marine Corps, other federal agencies, and joint and allied forces with a variety of logistics, acquisition and technical services. Included are all consumable items, such food, fuel, uniforms and medical supplies. It also provides the military with about 85 percent of its spare parts.

The agency said its reverse auctions are generally conducted for procurements worth more than $150,000 and are held almost daily by DLA units. But procurements of lesser monetary value can also use the reverse auction process.

An example cited by the agency is auctions held by the DLA's Land and Maritime unit, which has a $25,000 threshold for reverse auctioning. DLA said the lower threshold resulted in seven times as many reverse auctions in fiscal 2013 than the year before and resulted in the saving of $34 million in procurement costs.

Another example of money savings cited by DLA: DLA Energy achieved $400 million in savings in fiscal 2013 by using reverse auctions to get better prices and increase competition in awarding fuel contracts.

DLA's Troop Support unit in fiscal 2013 conducted 159 awards, with 91 in the area of clothing. Eight of those will save more than $1 million each, the agency said.

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