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Howrey LLP
A government agency that requires annual physical inspections of its rental housing units issued a notice of intent to conduct an online reverse auction under the simplified acquisition procedures of Federal Acquisition Regulation Part 13. FAR Part 13 governs procedures for acquisitions with a value below the simplified acquisition threshold of $100,000 and/or micro-purchase threshold of $2,500.
Under the agency's reverse auction procedure, participants submit bids to a Web site, which displays the property to be inspected, the current lowest bid and the time remaining in the auction. The Web site does not display the names of vendors, other identifying information or the time at which bids are submitted. At the close of the auction, competing vendors can view all submitted bids in addition to the winning bid. The agency provides unsuccessful vendors with the name of the winning vendor and its quotation but not the identity of the unsuccessful vendors.
A vendor protested that the reverse auction procedure violates the Office of Federal Procurement Policy Act, 41 USC §423 (a), which "prohibits government officials and those acting on behalf of the government from knowingly disclosing contractor quotation or proposal information before award." The Comptroller General of the United States determined that the reverse auction was a proper method of procurement by the Department of Housing and Urban Development. Matter of: MTB Group, Inc., 2005 WL 433615, 2005 U.S. Comp. Gen. LEXIS 34.
First, the Comptroller General determined that an online reverse auction is proper under FAR Part 13. FAR does not expressly prohibit reverse auctions, and under §1.102(d), procurement procedures are permissible when not specifically prohibited. Moreover, FAR Part 13 encourages using simplified acquisition procedures when they would be the most suitable, efficient and economical manner based on circumstances (§13.003(g)); when the value of the acquisition is below the simplified acquisition threshold (§13.002); or in furtherance of the policy of using innovative procedures to the maximum extent possible. (§13.003(h)). FAR Part 13 also encourages electronic purchasing techniques (§13.003(d)) and electronic commerce where practicable and cost effective. (§13.003(f)). Thus, FAR Part 13 supports the use of online reverse auctions.
The Comptroller General then addressed the vendor's specific objection that a reverse auction would violate the Act by disclosing vendors' prices.
First, the Comptroller General held that because the Act does not prohibit vendors from disclosing their own prices and because vendors, not the agency, would be submitting their bids to the Web site, the disclosure at issue is not prohibited by the Act. But, because submitting bids to the Web site is a condition to participate in the auction, the Comptroller General recognized that government disclosure could be implied.
Accordingly, the Comptroller General determined that the reverse auction falls within an exception to the Act: "the Act specifically provides that it does not 'restrict disclosure of information to, or its receipt by, any person or class of persons authorized in accordance with applicable agency regulations or procedures, to receive the information.' " (41 USC §423 (h) (2)). Because the disclosure at issue would be "pursuant, and integral, to the reverse auction procurement procedures established by the agency. disclosure [would be] to persons authorized by agency procedures to receive the information, consistent with the exception language."
In making the above findings, the Comptroller General noted that this issue was one of first impression and that it found no judicial or other authoritative interpretation regarding the exception language of the Act.
In response, the vendor argued that the exception language of the Act was meant to refer only to contractor personnel assisting in proposal evaluation and related activities. The Comptroller General rejected this argument, finding that it lacked support and was "untenable" in light of the Act's stated purpose - "prevent[ing] government officials from disclosing sensitive procurement information in exchange for gratuities or future employment opportunities."
Finally, the vendor argued that the agency improperly divided the single requirement for inspection services into several smaller requirements in order to reach the threshold amounts of FAR Part 13. To support its argument, the vendor pointed to previous large regional procurements and a provision of FAR Part 13 that admonishes agencies not to divide aggregate work into several below-threshold purchases for the sole purpose of using its simplified procedures.
The Comptroller General held that these arguments were without merit. It gave no weight to what the agency did on other procurements. It accepted the agency's explanation that its purpose in dividing this procurement was the inclusion of smaller inspectors who would not otherwise bid on multiple inspections. The agency also stated that, in its experience, smaller requirements resulted in lower inspection prices overall. Lastly, the Comptroller General noted that the vendor could not show any prejudice, nor was it precluded from competing for any of the contracts.
In a footnote, the Comptroller General stated that it does not consider the reverse auction procedure to be any different than other procurement procedures where all bidders' prices are revealed at the public bid opening. It noted that "[t]he disclosure of prices - and any competitive advantage that inures to competitors as a result - is simply an inherent feature of the transparency in any public competition for a federal contract award."
(The U.S. Court of Federal Claims also declined to enjoin use of the reverse auction procedure in this procurement. MTB Group, Inc. v. United States, 65 Fed.Cl. 516 (Fed.Cl. 2005).)
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2006 Howrey LLP
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