Why has the reverse auction been used by default? The OpenProcurement toolkit uses reverse type of auctions because it is time and cost efficient for procurement purposes. The peculiarity of the reverse auction is that participants lower their bids with each round. Basically, suppliers compete to sell goods to the organizer (procuring entity) at the lowest price. This mechanism significantly reduces the cost of product/service and allows buyer to compare prices, qualifications, and other factors at a glance. The main benefits of reverse auction are:
- the buyer is the primary beneficiary;
- reduction of purchasing costs;
- increased efficiency in the market;
- enhancement of the procurement process.
How does the auction work?
Auction starts automatically on the pre-announced date and time. It is anonymous - nobody knows the exact number of participants and their bid proposals. All users, including organizer, can monitor the progress of the auction online. Bidders receive their individual URLs with the auction page. The auction page displays:
- tender / auction descirption (organizer, procurement subject, start value, increment, etc.)
- bidders (anonymously) and their bids (price offer part)
- time count (before the start of the auction and/or bidder’s turn)
- Bid entry field (available only for biders)
After the start of the auction system pauses for 5 minutes so that participants can get acquainted with bids of anonymous competitors. Once the 5 minutes period ends the system automatically announces the first round.
Auction consists of three rounds with identical rules. In each round during 2 minutes each bidder (in order from the higher initial bid to the lower one, or from later bid proposals to earlier ones, if they coincide) can lower their previous bid. If the participant made bid earlier, system will give him the opportunity to make changes before the end of the allotted time. If the participant was inactive for 2 minutes, system will accept his bid and pass the turn to the next participant. When all participants make their bids, system pauses for 2 minutes and announces the next round.
After the third round system ranks all submitted bids automatically by price, forming ratings of bidders' positions. This information is published as soon as the electronic reverse auction finishes. Then users can get complete information about bid proposals and participants who submitted them.