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The Federal Acquisition Regulation (FAR) Bans the Use of Reverse Auctions in Construction Services

On Thursday, September 5th, 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, 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 its 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.

The proposed rule implements the prohibition against using reverse auctions for the procurement of complex, specialized, or substantial design and construction services, forcing contracting officers to comply with the statutory prohibition. While the statute does not prohibit the use of reverse auctions for the subject services at or below the SAT, a reverse auction may only be used if market research indicates it is appropriate. The FAR identifies two types of procurements for which reverse auctions may not be used, regardless of dollar value:

  1. Procurements for the design and construction of a public building, facility or work using the two-phase design-build selection procedures authorized by 10 U.S.C. 3241 and 41 U.S.C. 3309, as implemented at FAR 36.104, may not be conducted using a reverse auction.
  2. Procurements for architectural and engineering services subject to 40 U.S.C. chapter 11, commonly known as the Brooks Architect Engineer Act, may not be awarded using reverse auctions because reverse auctions do not comply with the qualifications-based selection processes required by statute and implemented at FAR subpart 36.6.

Written comments to the formation of this final rule are due on October 28, 2024.

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