Historic Event Held

IRS's Reverse Auction was a first for Treasury & the largest ever held

Treasury's headquarters building has been the site of many historical
events since it was built over a century and a half ago. One such event
was in 1877 when the first commercial telephone ever used by a Federal
agency was installed in the building. The phone was connected to a
telephone line that extended from the Treasury Building to the White
House. The Secretary of the Treasury at that time, John Sherman, would
use the phone to impress visitors by calling his friend, Dr. Johnson,
and have him sing over the phone in his big bass voice.

Telephone lines played an important role in another historic event that
took place in the Treasury Building's Diplomatic Room on May 14^th^ of
this year. The event employed the Internet to conduct Treasury's first
automated reverse auction where the IRS requested bids on desktop and
laptop computers, monitors, and installation services worth
approximately \$131 million at pre-auction prices. In addition to being
Treasury's first reverse auction, this auction was the largest ever
conducted by the Federal government. According to Government Executive
Magazine, the previous largest reverse auction of \$10 million was
conducted last September by the Defense Finance and Accounting Service
for the purchase of computers and IT equipment.

The auction began promptly at 10 AM and several bids were immediately
placed that significantly reduced the pre-auction prices. The room
buzzed from the excitement brought about by successively lower prices
placed by the three bidders, which were: Presidio representing IBM,
PlanetGov representing Dell, and Government Acquisitions representing
Gateway Computers. Steven Heutlinger, Ariba's Director of Sales Support,
provided an excellent narration of the event as it unfolded, educated
everyone on Ariba's auction application and provided insight into the
possible strategies being employed by the bidders.

By the time bidding concluded at 1:24 PM, the IRS had saved over \$67.8
million!

![](media/image1.wmf)An example of the savings that were achieved was
the unit price of a top-end desktop computer was reduced from a
pre-auction price of \$1,434 to \$625. That's a saving of 56%! Not bad
for an investment of a few hours where the vendors did all the work and
the IRS reaped the benefits. Comparisons of pre-auction prices, the
lowest priced bidder, their bid price and the percentage savings are
shown in Table 1-1. It should be noted that when the lowest bid prices
that were achieved through the auction process are compared against
computer buys of similar quantities and specifications, the desktop and
laptop savings are closer to 25% and 27%, respectively.

In addition to achieving significant savings, the evaluation of best and
final offers was concluded the day the auction was conducted as opposed
to this process taking several days.

The invited guests who were present at this event represented a cross
section of the finance, procurement and technology communities from the
Mint, Financial Management Service, US Secret Service, Bureau of
Engraving and Printing and the Bureau of Alcohol, Tobacco and Firearms.
Everyone seemed impressed with what was accomplished and talked about
how reverse auctions could benefit their organizations. Dan McLaughlin,
Director of Information Systems Acquisition, remarked: "As the
government moves further into E-Commerce, reverse auctions will become
an important tool to help speed delivery of service to our customers and
stretch scarce program resources."

The auction is part of Treasury's strategic goal for making the reverse
auction pricing tool available for Treasury's procurement officials'
toolbox. This reverse auction was the first step toward achieving that
goal by gaining first hand experience with conducting a reverse auction
and learning what to expect when conducting them.

The auction was hosted using Ariba's eSourcing auction application, one
of several applications on the market today that brings buyers and
suppliers together in a reverse auction environment. These reverse
auction applications also permits suppliers to bid against each other
using a web-based application that permits sellers to view, in
real-time, each others' bids and aids competitors with deciding what
price they must bid to secure the buyer's business. Additional reverse
auctions are planned for this summer to learn other enablers' auction
applications. (Enablers are firms that perform reverse auctions.)

The IRS's requirements were solicited on a best value basis and it is
widely anticipated that PlanetGov will be selected to provide the IRS's
requirements. An official announcement on the IRS's selection is
expected shortly.

The future of reverse auctions in Treasury is here!