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Bidding work by online "reverse auction"

Discussion in 'Business Fundamentals' started by digger242j, Apr 28, 2003.

  1. digger242j

    digger242j Senior Member
    Messages: 672

    We had an opportunity to bid snow removal for a sizeable facility owned by a large corporation. As it turned out we declined to bid the work for a number of reasons. What was interesting though, was the way they wanted to conduct the bidding.

    There's a website where you, the bidder, have been given an ID and a password. Bidding closes at a certain hour, but if a bid is made during the last minute of the bidding period the system automatically extends the time for two more minutes. If another bid is entered in those two minutes there's a further extension, for as long as it takes. (Prevents "sniping" like on EBay, I guess.)

    The lowest bid on each item is displayed on the site, but without identifiying the low bidder. If you want to lower your bid, you just change the number in that particular box and hit the "submit" button. Supposedly the lowest bid would not necessarily be the winner. Once all the bids were in the contract would still be awarded on the basis of what the customer felt was the best "value".

    The result is that the customer gets bidders to beat each other up, price-wise, in real time. Supposedly they get the best deal this way. (They were looking for hourly pricing on plowtrucks with 7' plows, plowtucks with salters, 3 yard loaders, and triaxle dumps. Personally, I thought they were giving the low bidder a real dis-incentive to be efficient, but that would be another discussion.)

    I was just curious whether any of you have seen this before and what you thought of the process. Did it get you to bid really competitively, or did you simply go looking for work with better margins? They seemed real excited about using this system. Do you think they really were going to get their money's worth out of it?
     
  2. chtucker

    chtucker Senior Member
    Messages: 618

    I will try to hold back!

    That is the stupidest friggin thing I have ever seen.

    Is the contractor going to show up? Do they have well maintained equip? How experienced are their drivers? Do they have insurance and will they maintain it?

    And who the heck plows commercial facilities with a itsy bitsy 7' plow?

    One customer this winter asked for an hourly bid and my immediate response was "do you want me to show up with a 5' plow on my 1942 jeep? or would you like me to show up with my 8' 2001 Ford that will have your lot done in 1/10 the time?"

    Immediatly signed a seasonal contract.

    I grossed 10k on that contract alone with one truck and me as the operator the other bid was by the inch and I made more money.

    Howard
     
  3. long0

    long0 Senior Member
    Messages: 247

    Collusion

    I have run into this type of bidding system a couple of times before, mainly for goverment contracts (water & waste water treatment facilities). The company I work for (Electrical Contractor) has decided to stay away from this type of bidding.

    With most bidding practices, the owner is looking for the most complete scope of work, then the best value based on that scope, by keeping all number private until there is some type of public opening. Contractors are required to turn in a number based on how they view the contract docunments. Whether they are right or wrong on how they view the docunments, they are still required to complete the job based on those docunments.

    With the reverse bidding system, any contractor that is pre-qualified can undercut their competition. The way I see it, it is a legal form of collusion. It is illegal for me to contact my competition before a bid and find out where his number is, so how is this different.

    Andy
     
  4. BRL

    BRL PlowSite.com - Veteran
    Messages: 1,277

    These auctions are quite common for businesses purchasing commodities. I have also seen them for many services contractors provide, and that is starting to become pretty common as well. But I was not aware that the numbers were posted for all to see before the bidding process was over. That is unique I believe.
     
  5. digger242j

    digger242j Senior Member
    Messages: 672

    I didn't think it was a particularly bad idea from the customer's end. The "reverse auction" part, that is. They really did need an education in what are the more efficient assets in a snow removal operation. For instance, they had an item for a truck equipped witha salter, but *no* item for the salt itself. I suggested they add a "per application" item, and they suggested "per ton" instead. I pointed out the difficulties with Per ton pricing (much discussed here), and they seemed to see the logic in asking for "per application", but I don't know if they actually did that for the auction, or not.

    In fairness, they did require proof of insurance--*lots* of insurance. They also asked for references, so I'd assume they were going to be sure they didn't hire somebody who hadn't built some sort of good reputation.

    As far as collusion, I suppose if you knew who the competitors were you could agree beforehand what your minimum price would be, but I'm not sure how you'd know everybody who was bidding. I've had some exposure to municipal type "sealed bid" bidding. The reason the bids are due and opened at a specified time is so that everybody gives their best price without knowing what the competition is going to bid. Supposedly that assures the customer that everyone is trying their best to submit an actual "competitive" bid, not one that's been agreed to in adavance. Illegal as it is we all know price fixing has always gone on, and probably always will. (And please don't read into that statement that I agree with the practice, or have ever participated in it. I was once offered such an opportunity by a friend and politely declined. Since then he's spent time in jail for accepting a bribe. Enough said about that...)


    And, as I understood it, yes, you were able to see the lowest current bid as it was posted. That's how they get you to beat up on each other. As far as purchasing commodities, I can see the usefulness of the program. That is, if all other things are equal--if they want a price on a box of widgets I might bid a dollar lower per box than BRL, but my box might only have 20 widgets, as opposed to BRL's box of 2 dozen. I think that's where the system fails when you're asking for an hourly price for snowplows. Productivity varies so much from one site to another, not to mention from one driver to another. There's no incentive to work productively. I could plow pretty slowly for $90/hour. (Which BTW, is one reason I was happy not bid this one--I like the feeling of being rewarded in proportion to my productivity. I can't stand the idea of just "putting in time".)

    Which brings me back to one of the things I was thinking of when I first asked for your thoughts. How low would you allow yourself to bid the price down before you began to compensate yourself by working at less than your best efficiency? If you're averaging $125/hour/truck on your per push accounts would you really bid the price down to $100/hour, or $90/hour? So is the customer really doing themslves a favor by asking us to bid this way?
     
  6. TCLA

    TCLA 2000 Club Member
    Messages: 2,699

    It is reverse collusion. They are sucessfull at this and they will see a frenzy of dropping prices as there is no shortage of contractors who will get sucked up into it. :nod:
     
  7. 2COR517

    2COR517 PlowSite Fanatic
    Messages: 7,115

    I think this is just a sign of the times. Contractors are getting more and more desperate for work. A little profit is better than trucks sitting empty. And customers are simply trying to get the very best deal. I can see good and bad, from both sides. Assuming the item/service being bid upon is very definable, the Customer should be able to get the best deal. From our side, it keeps us honest. And, I know there have been times I would have dropped another few percent if that meant getting the job.

    In this particular instance, the bid specs are silly. There's no way to get a fair bid, or bid fairly.
     
  8. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    I've had the opportunity to participate in reverse bidding in another industry. I declined. I'll give an honest quote the first time - if I thought I could do it less, I'd have bid it that way from the start.

    How did you happen to dig up a six year old thread, anyway?
     
  9. TCLA

    TCLA 2000 Club Member
    Messages: 2,699


    Ya know Mick, that's a great question!

    And I really have no excuse as to why or how it happened. :dizzy: I would of swore I took it off the first page of the thread!

    :sleeping::sleeping::sleeping:
     
  10. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    I had one last winter for Citizens bank. I didn't do it but I did get the bid because the guy who did bid on went out of business! So the property manager called me to see if I could plow it. Of course my bid was higher,that's why i;m still in business!
     
  11. QuadPlower

    QuadPlower PlowSite.com Addict
    Messages: 1,056

    I can't believe they were reverse bidding 6 years ago! I have done it for Meijers.

    If I was the customer, I would do it. It is like any auction where people spend more money because of the rush. "If I go just one bid higher the other guy will stop." "

    I couldn't believe how cheap mowing a Meijers can go for. For me it would have been like paying them to mow their grass.
     
  12. alsam116

    alsam116 Senior Member
    Messages: 217

    quad plower, i no this is old thread but we mow a meijer in se ohio and the same reverse bid deal. but we were double the low bid. Did you get to see the difference in the low bid and the winning bid??
     
  13. QuadPlower

    QuadPlower PlowSite.com Addict
    Messages: 1,056

    No, I didn't do it this year and I tried to get the info last time and the guy was rude about giving the stuff out.