ASA Supports: FAR Case 2023-003 - Prohibition on the Use of Reverse Auctions for Complex, Specialized, or Substantial Design and Construction Services
On September 13, 2024, we highlighted that the Department of Defense (DOD), the General Services Administration (GSA) and the National Aeronautics and Space Administration (NASA) announced their proposal to amend the Federal Acquisition Regulation (FAR) to implement a section of the Construction Consensus Improvement Act of 2021 that prohibits the use of reverse auctions for certain construction services, which ASA championed.
Due to the complexities of federal construction projects, the procurement of construction services using the reverse auction, with sellers competing against one another by cutting prices during the open auction, this method fails to consider construction’s unique mix of services and systems tailored to individual owner needs and budgets, site requirements and the changing composition of the project team, while products and commodities are manufactured with little or no variability. The reverse auction process is not appropriate for construction because it bids are for a process rather than a manufactured product.
The FAR is requiring a rulemaking to promulgate a definition of “complex, specialized, or substantial design and construction services”, which includes site planning and design; architectural and engineering services (as defined in 40 U.S.C. 1102); interior design; performance of substantial construction work for facility, infrastructure, and environmental restoration projects; and construction or substantial alteration of public buildings or public works. The statute prohibits the use of reverse auctions for such services having a value that exceeds the simplified acquisition threshold (SAT), which is $250,000.00.
With the above in mind, ASA, along with the Construction Industry Procurement Coalition (CIPC), sent a letter to the GSA thanking the FAR Council for aligning the final rule with statutory language and Congressional intent. Congress has recognized the significant drawbacks of procurement by reverse auctions and has enacted further restrictions on its use. To that end, we support the final rule’s requirement that the federal government cannot not use reverse auctions for an award of a contract, blanket purchase agreement, or order if the award is anticipated to exceed the simplified acquisition threshold for complex, specialized, or substantial design and construction services. Reverse auctions are inappropriate platforms for procurement of construction services.
The letter addressed the following issues related to reverse auctions, which do not offer federal owners a good way to evaluate non-price factors, nor do they guarantee any proven savings over competitive bidding. “When price is not the sole determinant, owners increasingly rely on selection criteria such as past performance, qualifications and the capacity to meet the project’s unique needs. Reverse auctions do not promote this dynamic. Instead reverse auctions promote an approach in which parties focus only on price. Software vendors and other similar industries promoting reverse auctions have not proven that reverse auctions generate savings in the procurement of construction or provide benefits of “best value” comparable to currently recognized selection procedures. Unlike many products, for which the government awards contracts to the lowest bidder, or other services, which are awarded based on the “best value”, construction services have long been recognized as having a significant impact on public health, welfare and safety. Moreover, reverse auctions can put small businesses at a competitive disadvantage.”
Additionally, “reverse auctions ignore the protections of sealed bid procurement laws and regulations, and years of precedent that address critical factors and ensure the integrity of the process. Where price is the sole determinant, the sealed bid procurement process ensures integrity by assuring that the successful bidder is the most responsive and responsible competitor with the best price. The pressure and pace of the auction environment removes any assurance bids will be responsive and material to the owner’s needs. This encourages significant risk taking, which is not appropriate for construction services that potentially impacts life and property safety.”
Unfortunately, “proponents in support of utilizing reverse auctions might view this procurement method as practicable and economically advantageous for procuring simple off-the-shelf commodities; however, design and construction services are vastly different, far too complicated, and present a high risk of failure when procuring construction contracts using this procurement method. It is for this reason that qualified and sophisticated construction firms do not participate in federal reverse auctions as the process moves too rapidly in order for bidders to accurately assess their costs, which in turn has the potential to jeopardize their construction firm, as well as downstream parties, i.e., subcontractors, and suppliers. Furthermore, the surety industry responsible for furnishing surety bonds, which are mandated on federal construction contracts above $150,000 by the Miller Act (40 USC 3131, et, seq.) is opposed to reverse auctions for design and construction services due to high-risk and the potential for contract default.”
Again, ASA, along with the CIPC, remain in lockstep in advancing the common goals of fair competition and of economic and efficient performance of federal procurement. We thank the FAR Council for aligning the final rule with statutory language and Congressional intent.