Reverse auctions are similar to traditional auctions, except that the sellers compete against each other to sell their products or services to the buyer. Unlike a traditional auction, in which multiple buyers bid against one another to push the price up, reverse auctions enable a buyer to evaluate proposals submitted from multiple sellers, in which sellers compete against one another to provide the lowest price or highest-value offer. After considering all offers, the buyer selects the winning proposal, often at a reduced price. Figure 1 compares these two types of auctions. Prior to 1997, auctioning techniques were prohibited in the federal government under the Federal Acquisition Regulation (FAR) procedures for negotiated procurements. Agencies were prohibited from advising an offeror of where its bid stood compared with those of other offerors and furnishing information about other offerors’ prices, both of which are key tenets of a reverse auction. In 1997, the FAR Council rewrote Part 15 of the FAR to eliminate these prohibitions as part of an overall effort to make the source selection process more innovative, simplify the process, and facilitate a best value acquisition approach. Currently, while the FAR does not specifically address reverse auctions, several provisions facilitate agencies’ use of them, such as allowing the use of innovative strategies and electronic commerce. OFPP has considered the necessity for government-wide guidance on reverse auctions numerous times since 1997, when the auctions prohibition was removed from the FAR. In October 2000, the FAR Council issued a notice in the Federal Register requesting information from the acquisition community to help determine the best approach to inform thinking regarding the use of reverse auction techniques. In 2007, when responding to the Conference Report accompanying the National Defense Authorization Act for Fiscal Year 2006, OFPP conducted a survey of both sellers and buyers to assess how federal government buying activities could most effectively use reverse auctions to increase savings. According to OFPP officials, neither of these efforts resulted in guidance being provided to federal agencies. In 2001, the Department of Defense (DOD) issued guidance on acquiring commercial items that stated where competition exists, the reverse auction environment results in driving down the sellers’ offered prices. Since then, several reviews have addressed agencies’ use of reverse auctions. In 2003, the Army Corps of Engineers concluded that the method was useful for commodities purchases but was not suitable for construction services acquisitions. In 2004, we reported that the U.S. Postal Service claimed over $5.9 million in savings by using reverse auctions in fiscal year 2003; however, we found that $2.1 million of the claimed savings was questionable because of incorrect baseline data. We also noted that the Postal Service may not have obtained the lowest prices possible when, in about a quarter of the auctions, it received only one bid. In 2011, we found that half of the 24 agencies involved in an Office of Management and Budget (OMB) cost savings initiative reported using reverse auctions to improve competition and reduce prices on commonly purchased products and services. The agencies we reviewed—Army, DHS, DOI, and VA—have steadily increased their use of reverse auctions in volume and dollars in recent years. From fiscal years 2008 to 2012, the number of reverse auctions almost tripled—from 7,193 to 19,688—and resulted in about $828 million in fiscal year 2012 contract awards. While there is no requirement to limit reverse auctions to commercial items, agencies generally used them to acquire commercial products and services—primarily for information technology (IT) products and the lease or rental of equipment. Combined, the agencies used reverse auctions to award only a small portion of all commercial acquisitions—not quite 7 percent of actions. Across the agencies we reviewed, reverse auctions shared several common characteristics, such as relatively small dollar value awards and a high rate of awards to small businesses. DLA’s guidance, issued in June 2012, states that the reverse auction pricing tool should be used for all competitive purchases over $150,000. Across the agencies we selected, use of reverse auctions increased almost 175 percent between fiscal years 2008 and 2012. Figure 2 summarizes the growth in use of reverse auctions in dollars and number of auctions. Agencies in our review used reverse auctions to purchase a variety of commercial products, although the top five categories varied among agencies. For example, Army, DHS, and DOI purchased mostly IT products, while the VA purchased mostly medical equipment and supplies. In addition, DHS and DOI purchased comparatively less in medical supplies than the Army and the VA. Across the selected agencies, 41 percent of all reverse auctions were for IT-related items and 23 percent were for medical supplies in fiscal year 2012, as shown in figure 3. Of the $828 million in fiscal year 2012 contracting actions that resulted from reverse auctions, $746 million—or 90 percent—were for products. Services, in contrast, constituted about 10 percent. Across the agencies, four categories of services—Lease or Rental of Equipment; IT and Telecom; Medical Services; and Maintenance, Repair, and Rebuilding of Equipment—made up nearly 60 percent of the $83 million used to buy services through reverse auctions. In fiscal year 2012, the four agencies in our review collectively reported more than 234,000 contract actions, excluding modifications, for commercial items that were valued at $21.5 billion.agencies used reverse auctions to award only a small portion of all commercial acquisitions—not quite 7 percent of actions—which represented a little less than 4 percent of the dollar value of those commercial actions. Figure 4 compares the relationship between the number and value of reverse auctions as a percent of all commercial actions in fiscal year 2012. While to date most reverse auctions have been used for commercial products, some agency officials told us that the use of reverse auctions to acquire services is increasing and are also being used for more complex contract actions. Our analysis of the data from FedBid identified four common characteristics among contract awards: For $150,000 or Less There is no requirement to limit reverse auctions to a certain award value, and the reverse auctions at the selected agencies in fiscal year 2012 resulted in awards that ranged in value from about $100 to almost $6.3 million. However, we found that about 95 percent of the acquisitions using reverse auctions resulted in awards of $150,000 or less. See figure 5. While we could not assess DLA’s activity at this level of detail, its guidance states that the reverse auction pricing tool should be used for all competitive purchases over $150,000. About 86 percent of fiscal year 2012 acquisitions using reverse auctions—16,906 of 19,688—went to small businesses, in keeping with the FAR requirement that acquisitions of supplies or services with expected values of more than $3,000 but not over $150,000 are reserved for small businesses, with some exceptions.accounted for $661 million (80 percent) of the dollar value of all reverse auction awards. See figure 6. Almost half of the reverse auctions in fiscal year 2012 across the four agencies in our review—9,257 of 19,688—were conducted to place orders for products and services using existing contracts. Federal agencies can use a number of existing contract vehicles to leverage buying power and obtain lower prices, including the General Service Administration’s (GSA) multiple award schedule (Schedule) program, multi-agency contracts, and government-wide acquisition contracts (GWAC). In some cases, the use of these contract vehicles includes a fee that the ordering agency must pay. The remaining reverse auctions did not result in placing orders under existing contracts but were considered open market transactions. See table 1. See appendix II for a description for each of the existing contracts used and the associated fees. Almost 60 percent of the contract actions resulting from reverse auctions conducted in fiscal year 2012 across the selected agencies were awarded at the end of the fiscal year, as shown in figure 7. Agency officials told us that the surge of fourth quarter reverse auctions parallels what happens with acquisitions in general at that time of the year and can be due to late release of funds. According to agency officials, reverse auctions, which can take as little as an hour for uncomplicated purchases, can facilitate the timely award of contracts at the end of the year. In prior work, we reported that a contracting officer turned to procedures that facilitated the rapid award of contracts in the fourth quarter. Four of the five agencies included in our review used the same service provider, FedBid, to conduct their reverse auctions. Agencies pay a variable fee to conduct reverse auctions through FedBid, which is no more than 3 percent of the winning bid. FedBid has a limited role in the acquisition process, since contracting officers are still responsible for making key decisions that affect the auction, such as selecting the winning vendor. For example, contracting officers select the basis for award, which may include award to other than the lowest priced bidder and we found that about a fourth of the 2012 contract actions resulting from reverse auctions were not awarded to the lowest bidder. The Army, DHS, DOI, and VA contracted with a company called FedBid to conduct their reverse auctions during fiscal year 2012. The agencies used an existing GSA Schedule contract to procure FedBid’s services, which include an online user interface, data management, and regular reports on reverse auction activity. According to FedBid, its product is a commercially available online procurement service that allows sellers of commercial items to the government to compete against each other in real time and in an interactive environment. FedBid also states that it safeguards each seller’s identity and pricing. Other companies also conduct reverse auctions, and some officials noted their agencies had undertaken a cost/benefit analysis to determine which company to contract with for this service.