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U.S. contractors group launches reverse auction resource centre

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by Daily Commercial News last update:Jul 23, 2008

The Associated General Contractors of America (AGC) has launched a reverse auctions resource centre to keep the construction industry informed of significant position statements and research papers on this front.
U.S. contractors group launches reverse auction resource centre

CCA co-sponsoring American study

BY PATRICIA WILLIAMS

STAFF WRITER

The Associated General Contractors of America (AGC) has launched a reverse auctions resource centre to keep the construction industry informed of significant position statements and research papers on this front.

Reverse auctions are an Internet-based method of bidding for the supply of goods and services.

The proliferation of electronic commerce has resulted in some owners exploring use of this procurement method for construction services, among others.

“Launching the new resource centre is the next step in our continued leadership to provide critical information about this growing trend,” said AGC chief executive officer Stephen Sandherr.

“The centre will provide a new layer of information services to the construction industry about the latest news concerning reverse auctions.”

The intent of reverse auctions is to hold a live, online bidding competition. The successful bidder is determined by the lowest price submitted to the tendering authority at the conclusion of the auction.

The process is a controversial one, both in Canada and the United States.

At its summer meeting, the board of the Canadian Construction Association (CCA) agreed to co-sponsor a U.S. study designed to measure the effects of reverse auction use in construction. The AGC, which represents more than 33,000 firms, is one of the study sponsors.

For its part, AGC has developed a white paper stating that reverse auctions will seldom, if ever, provide the same level of benefits and protections existing in currently recognized selection procedures for contractors.

The paper offered five major points for consideration by owners, contractors and other construction project participants:

• Reverse auctions do not guarantee the lowest price for owners.

• Reverse auctions may encourage imprudent bidding practices.

• Negotiated procurements allow thorough evaluation of value.

• Sealed bidding assures that the successful bidder is responsive and responsible.

• Reverse auctions may contravene federal procurement laws in the U.S. and certain state laws.

Available through the resource centre, the white paper explains “the important differences” between commodities and construction, noting that construction is a unique mix of services and systems tailored to individual owner needs and budgets, site requirements and the changing composition of the project team, while products and commodities are manufactured with little or no variability.

Confirming AGC’s finding, the U.S. Army Corps of Engineers recently reported after conducting a lengthy pilot program that reverse auctions should not be used to procure construction services—and that reverse auctions in fact fail to realize any additional savings over the sealed bid process.

“The Corps of Engineers report verifies what we have known all along: that reverse auctions are an inappropriate acquisition tool to procure construction,” Sandherr said.

That report has generated interest in Canadian construction circles as well. The Mechanical Contractors Association of Canada included an item entitled “U.S. Army Corps of Engineers report scuttles Internet reverse auctions” in its Aug. 23 weekly newsletter.

“I think that speaks well for our objections, and actually everyone else’s, to reverse auctions,” said president Richard McKeagan.

MCAC was represented on a CCA task force that developed a tool kit for associations to use when confronted with such events.

last update:Jul 23, 2008

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