Service area:
Procurement, capital and assets
Savings:
In excess of £20 million
Partnership name:
Improvement and Efficiency West Midlands (IEWM)
Local authorities involved:
West Midlands authorities
Summary
An eAuction is an electronic ‘reverse' auction in which potential suppliers compete online and in ‘real time', providing prices for the goods/services that are being procured under auction.
Prices start at one level and gradually, throughout the course of the eAuction, then reduce, as suppliers offer improved terms in order to gain the contract. eAuctions can be based on price alone or can be weighted to account for other criteria such as quality, delivery or service levels.
IEWM has an established work programme for eAuctions, providing funding for eAuctions in West Midlands councils which are delivering savings.
Total current savings secured via the West Midlands eAuction programme are in excess of £20million (and set to grow substantially in 2011) with some local authorities securing a return on investment of 70:1.
Why do it?
When managed well, eAuctions help to deliver very competitive contracts, which are both commercially sustainable and provide high quality goods and services.
Additional benefits from using eAuctions are:
- Transparency to all parties
- It is a legally compliant process
- The process discipline supports high quality procurement execution
- Suppliers have clear visibility of selection criteria and competitive pricing levels
- Suppliers have multiple opportunities to bid (a traditional tender provides ONLY one opportunity to bid)
- Can lead to improved trading relationship with suppliers, via communication and training
- Can encourage suppliers to introduce electronic invoicing, via increased use of technology within their business
- Allows opportunities for smaller businesses to win local authority business
What are the challenges?
1. Checking what is required in the OJEU notice:
If you are using an eAuction to award the actual contract/framework you must tick ‘yes' in section IV.2.2 of the OJEU notice because this section is concerned with the actual award of the contract/framework, NOT the call offs from the contract/framework. Additionally, you should include in section II 1.5 under ‘Short description of contract or purchases' a note to say the contract/framework will be awarded using an eAuction.
Alternatively, if you are not awarding the contract/framework using an eAuction tick ‘No' in
section IV.2.2 BUT if you would like to use an eAuction to call off the contract/framework (mini compete) you must make your intention clear in section II.1.5 highlighting to potential bidders that this is your preferred way of running a mini competition.
2. Getting the Specification right:
It is vitally important that you get the specification right and you communicate exactly what your organization is looking to buy with suppliers. This will require extensive upfront work with your client and stakeholders. Suppliers must be given adequate information about
how and why an eAuction will be used.
The eAuction will always take place at the end of the tender process and as such should always replicate the award criteria specified within the OJEU/tender. This may be Price Only but will often be a blend of Price and Quality to establish the Most Economically
Advantageous Tendered solution. eAuctions are a method of introducing competition to effectively "negotiate" (or finalise) the price/value solution with Suppliers; Yes this will in many cases reduce cost but this should NOT at the expense of quality. Therefore, a
couple of additional points to consider are the Price Quality Weighting of the Award criteria and also, since the result of the eAuction is binding to both the bidder and the awarding authority, it is essential that any pre-qualification stage results in ONLY those Suppliers
capable of satisfactorily providing the goods or services are invited to participate in the eAuction event.
3. Knowing how an eAuction works:
It's important to see a LIVE eAuction, so talk to others who have conducted auctions, learn from their experiences, ask questions.
4. Make sure you engage a proficient eAuction provider:
There are a number of eAuction providers who can assist you with conducting an eAuction. It is not
advised that you go it alone, this can often lead to failure and negativity towards use of eAuctions
with some suppliers. You need the support of their helpdesk and experience. Use an eAuction provider that has experience of delivering successful eAuctions in the category you are selecting, also remember - eAuctions should only cost you around £5,000 - £7,000 per eAuction (depending upon the level of technical expertise required).
5. You need to prepare and support suppliers as much as possible:
It cannot be emphasised enough how important it is to get your suppliers ready for participation within your eAuction. Some will be more receptive than others and you may find some will require time for training and improvement to their in-house technology. Hold a supplier briefing day to gear them up and use any support offered by your eAuction provider such as access to an ‘on-line' dummy auction for practice prior to the real auction.
What are the results?
IEWM has supported many of the West Midlands authorities with carrying out eAuctions including Worcestershire County Council who have secured savings of £3.5m from home to school eAuctions to date.
Other savings include:
- Birmingham have held 14 eAuctions releasing savings of up to £6 million
- Shropshire have saved £2.5 million on Home to School Transport eAuctions
- Solihull have saved £125,000 on IT hardware
- Coventry have saved circa £500,000 (£1.5 million over four years) on Home to School Transport and are identifying other potential areas to auction
- Warwickshire have saved over £100,000 with more expected from other eAuctions in their forward plan
- Dudley have saved 29 per cent on office furniture and a 7.7 per cent saving on a recent eAuction for MFD's (multifunctional devices)
eAuctions have been successfully run by OGCBS (now GPS), various Improvement and Efficiency Partnerships and some larger authorities. So contact GPS your IEP legacy network or local procurement hub for details of what might be available, such as:
- Improvement East and East Midlands IEP Home to School eAuction
- Capital Ambition's ICT eAuction (savings of £10.5 million)
- North West eAuction saved £3.5 million on office supplies
Contact
Jonathan Jones, Programme Manager - Smarter Procurement
Email [email protected]