Contents
What is reverse auction?
A reverse auction is a procurement method wherein a buyer posts what goods or services they require which attracts potential suppliers or service companies to offer their bids with progressively lower prices. The contract is eventually awarded to the supplier or provider who has the lowest price listed in the bid. Reverse auctions are usually used by large companies and the government.
How does a reverse auction work?
The process of a reverse auction for buyers is as follows:
- Prepare for the auction: what procurement requirements need to be listed, scope, and criteria
- Invite suppliers to participate, this can be done via online auction platforms or specialised platforms. The buyer invites a group of specific suppliers that meet their requirements.
- Auction parameters – buyer arranges parameters of the reverse auction such as start and end times, starting prices, and any other rules that may apply.
- Monitoring the live bidding – and respond to queries as and when they occur.
- Evaluation – Buyers evaluate bids mostly based on price but on other factors stated in the criteria as well.
- Contract award
What are the advantages and disadvantages of a reverse auction?
There are advantages to both buyer and supplier/provider during reverse auctions.
- Cost saving form of procurement
- Time efficient
- Ease of use
- Transparent and fair form of procurement
- Supplier engagement
A concerning disadvantage of reverse auctioning is that often the buyer will prioritise lower costs over quality or other factors.
Try for free
Build your pipeline with 10 free leads from the market-leading construction intelligence platform
