Your comments are well presented and well taken. In the spirit of discourse here’s a few thoughts that come to mind:

Separating software from consultants

Thank you for making that delineation. I agree, self-serve software without the procurement, or specific service/item intelligence, can be dangerous for the buyer.

However, customers looking to save money (many attracted to reverse auctions in the first place) may be reluctant to hire a professional firm to manage their reverse auction. They’re seeking to save money, and their procurement people will justify their jobs in the process. Obviously your firm is capable of providing the value proposition that persuades customers to use your firm’s intelligence/experience for greater outcomes.

But I’d guess your customers are more of the enlightened buyers, leaving a large majority of lower cost buyers out there.

Buying Facility Services vs. a Project-based Service -or- Products

I’m not knowledgeable about construction contracting, but I’d consider a construction service as a project (beginning, middle, end), and the processes used to accomplish desired outcomes may be very similar from contractor to contractor (i.e. pouring foundations, framing, etc. – these examples show my ignorance don’t they?).

With that said, facility service contracts (i.e. security, janitorial, etc.) are on-going operating expenses where each contractor can differ widely in “how” they deliver service and comply with contract terms.

Maybe this is just my familiarity with these niche services, but there’s a world of difference between “how” things get done. And for facility services, “how” service is delivered (courteously, visibly, etc.) is as important as the finished result (clean office, safe parking lot, etc.).

Services differ from products in buyers’ ability to spec out both the resulting outcomes as well as “how” those services are delivered.

Reverse auctions work great for products and select services that can be more finitely specified for comparison. I don’t believe facility services in particular falls into that category.

Going Forward

In the facility services’ industry, reverse auctions are shaking out as buying experiences (realized over the term of contracts) bring home painful lessons learned.

Reverse auctions for facility services are now often used as only one step in the evaluation process and not the final determinant. In these instances they’re used to simply the financial comparison of data, and are then combined with the qualitative assessment of contractor delivery for a final decision.

Thanks for your insights.

* Not intending to switch contractors, just checking market pricing
* Intentionally including unqualified contractors to drive pricing down
* Providing incomplete or inaccurate specifications

What you are referring to sounds like self-serve reverse auction technology to me, which is why outsourcing of procurement through reverse auctions has been so successful, where companies are contracted for specific one-time or term-bid source and supply purchases. These companies do the research required, source the eligible vendors, ensure that every vendor meets all qualifications – all prior to the first bid being placed during a reverse auction. You can’t give a child a toy as powerful as reverse auction software and leave him with it without supervision and guidance. With most self serve software, although service is provided, it has to be requested. With a managed reverse auction solution, the guidance comes with each and every purchasing event.

Construction projects do work in conjunction with reverse auctions. Build terms, contract pricing and materials, labor force and follow up can all be specified, and just as in any paper bid system, surely those items can be skewed, ambiguous or downright misleading, but it doesn’t mean that every reverse auction provider out there is dishonest, or that every buyer has evil intentions at heart. Certainly contractors may not like the process, but as a former contractor, I hated bidding against anyone for anything. I wanted my full markup. So to register their complaints without acknowledging the nature of the construction beast seems a little skewed in my opinion.

I have had companies ask me to run “test bids” to see if they can drive pricing down. I always, without exception, refuse. There’s no gain in it for my company, and in the end, if I engaged in that behavior, then I haven’t provided the guidance I was hired to provide. I only get paid once a company chooses to buy what I have assisted them in procuring. I know their existing pricing prior to a reverse auction, and many times set a “Baseline Price” for consideration, so that vendors know up front if they want to get involved. If I don’t believe I can save my customers money and time, I don’t take on a specific project.

Yes, Ariba and SAP have huge market share. But they have that market share because many times they run around and tell potential clients that they can save them money on anything and everything they can buy. I despise self serve software for that reason, as it gives all of us, even those of us who practice managed reverse auction services, who have integrity and value the effectiveness of our business model, a bad name.

I have found in my dealings with suppliers, that the most push-back comes typically from the incumbent supplier who is afraid to “get in the ring” as I say, with a new supplier. In this day and age of volatile pricing, why would a company or municipal not want to find where the market really lies for a given product? It would seem almost irresponsible to refuse to do so.

Not to put too fine a point on my point, but it would be great if writers of blogs would stop lumping those of us who provide managed reverse auction services in with self serve reverse auction software. There are those companies out there who actually care about what we do, and care about preserving the buyer/supplier relationship.

Vaughn Blaylock
Southern Procurement Services