17-Jan-2004 08:00:00

Egan puts reverse auctioning in perspective

Posted by Emily Hodges on 17-Jan-2004 08:00:00
Emily Hodges

There has been recent coverage in the press that reports Reverse Auction bidding to be inconsistent with the principles outlined in the reports Rethinking Construction and Accelerating Change: that Reverse Auction bidding is potentially damaging to the construction industry. Sir John Egan, however, reaffirms his belief that Reverse Auctions, used appropriately, is in line with the thinking of these reports.

The reports Rethinking Construction and Accelerating Change advocate ‘partnering' within the supply chain as being the most efficient way for companies to work together. Partnering enables the creation of a co-operative environment, where everyone is working towards the same set of goals.

Whilst co-operation is required, effective partnering is not a soft option. It instills an obligation for the supplier to keep pace: to proactively adopt measures to support process improvement and innovation. Clients have an obligation to search out those suppliers that are the best. The consequence for suppliers who are not committed to continual improvement is a return to the marketplace.

It is not just important to maintain relationships with the right suppliers, but also to select the right supplier at the start of the relationship. Selecting the right supplier requires selecting the right tool or tools. Using Reverse Auctioning as one of a number of effective procurement techniques enables buyers to choose suppliers using a variety of criteria.

By its nature, Reverse Auctioning passes back control over the negotiations to the bidders and it enables suppliers to bid against one another in a transparent, competitive environment. One of the reasons why Reverse Auctioning is criticized is because people wrongly think that bidders compete purely on the basis on price. This is not the case: any number of criteria could be auctioned against, not just price - e.g. continuous improvement rates against KPIs, warranty periods, delivery guarantees. Also it is required for Reverse Auctioning tools to be used in conjunction with Tender tools. The Tender event prequalifies suppliers so that they are equally positioned to participate in the auction event.

Ultimately, the supplier knows that the same criteria are being used and they can better gauge their position within the market.

Sir John Egan, states "One of the key recommendations of Rethinking Construction was to achieve partnering within the supply chain: to achieve greater transparency, continuous improvement and improved productivity. To establish and maintain these long term relationships, reverse auctioning can be a valuable technique for supplier selection, when used appropriately, enabling bidders to compete in an open and transparent environment. "