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Hearing of the Contracting and Workforce Subcommittee of the House Small Business Committee - Contracting Away Responsibility: Reverse Auctions in Federal Agency Acquisitions


Location: Washington, DC

As the buyer of more than $500 million in goods and services each year, the U.S. government represents a major market for small businesses. For these firms, obtaining a federal contract can take a company to the next level, allowing it to grow stronger, gain experience, and add more employees. By having more options to purchase from, agencies can also benefit in terms of quality and price. As a result, it is critical that small businesses are not left behind when it comes to federal contracts.

Over the years, a wide range of initiatives have been enacted to accomplish this. Goals have been established to measure agencies' small business contracting efforts, while the SBA operates an array of programs to channel contracts to smaller companies. Among these are initiatives targeted at increasing opportunities for veterans, women, and minorities, which together have helped direct more $90 million in total contracting dollars to small firms. While this sounds like progress, more needs to be done.

One such area that needs greater attention and oversight is emerging procurement methods. These techniques -- such as multiple award contracts, web-based buying platforms, and strategic sourcing -- are becoming more prevalent, and small businesses risk being left out. Today, we are going to explore another such method -- reverse auctions -- and how agencies are using them and whether or not they are benefitting the taxpayer and small firms.

Reverse auctions seek to focus competitive forces on behalf of the taxpayer. By doing so, prices can be forced lower. Last year, agencies reviewed in the GAO report we will be discussing today used this method to procure more than $800 million of goods and services, nearly double their amount from 2008.

However, in part given to this rapid growth, concerns have been raised across a wide range of issues, calling into question whether reverse auctions are saving money and providing opportunities for small firms. One such issue was raised during a hearing held earlier this year in this Small Business Subcommittee. By driving prices down, these auctions may not be suitable for service contracts, such as construction, which often depend on overall value. Unfortunately, service contracts continue to be awarded through this method, potentially shortchanging taxpayers and causing small contractors to miss out on opportunities.

In its report, GAO has recently brought to light other issues. This includes a finding that more than one-third of auctions had only one bidder. One has to question the need for an auction where there are no competing bidders. Further concerns were raised that over half of auctions were used to procure items from pre-existing contracts. In many cases, this caused the government to pay two fees -- one to use the original contract and another for the reverse auction. I hope today's hearing can shed further light on how these fee structures operate and if agencies are paying more than they should be.

In theory, reverse auctions have the potential to achieve real savings for the taxpayers. But in practice we are not yet there. A first step would be incorporating regulations into the FAR and issuing government-wide guidance, as the GAO has recommended. This could help address many of the concerns that we will hear about today and help ensure that reverse auctions maximize the government's value, while allowing small firms to fully participate.

Like other sectors, the procurement sector is evolving. Our job today is to oversee this "change" and make sure that it is NOT doing more harm than good. I want to thank all of the witnesses who have traveled here today for both their participation and insights into this very important topic.

Thank you and I yield back.

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