CMAA Statement on Electronic Reverse Auctions
for Construction and Construction Management Services

CMAA opposes reverse auctions for procurement of construction and construction services.

Over years of practical experience, the construction industry has developed and evolved two highly effective ways of pricing construction services that meet an owner’s needs.

 Sealed bids are often used when price is the paramount consideration in awarding a contract, the job itself is seen as relatively straightforward, and bidders are regarded as roughly equal in qualifications.

 Negotiated procurements of various types give owners and construction professionals the opportunity to discuss the work, negotiate the price, and allow for full consideration of factors other than price, including job complexity, risks, and the unique qualifications of specific bidders.

 In recent years, a number of vendors have promoted “electronic reverse auctions” held through the Internet as a means of procuring construction and construction-related services at the lowest possible cost.  In a reverse auction, an owner offers a request for proposal (RFP) for a project and interested firms quote the price they will charge for the services outlined in the RFP.  All bidders are then able to review the bids submitted by other competitors online and in “real time.”  During the auction period, bidders can alter their bid price in response to the prices proposed by their competitors.  At the conclusion of the bid period, the firm submitting the lowest price would be awarded the contract.

 Although reverse auctions have generally only been used to acquire raw materials and manufactured goods, there have been some efforts to utilize this technique for pricing and acquiring construction and construction-related professional services.  Reverse auctions certainly may be appropriate when the scope of work, quality, quantities, and delivery of goods and services are completely defined.  In fact, when price is the principal consideration and all other factors are essentially equal and known, reverse auctions may often be an effective manner in which to procure goods and materials.  Unfortunately, this is rarely the case in construction where a multitude of factors including the quality of construction documents, schedule, weather, different site conditions, subcontracting, labor availability, etc. create significant risk.  In general, the greater the risk the greater a price contingency is applied to the project by the contractor.

 To the potential detriment of a project, reverse auctions for construction and construction services eliminate the consideration of any qualifications except price.  Because bidders are aware of their competitors’ bids, they may focus on the need to “beat” the most recent low price rather than making a thoughtful and deliberate evaluation of their own capabilities, qualifications, and price.  The result can be imprudent bidding, which may lead to a contractor taking exceptional risks where they may be responsible for delivering a job at an unrealistic price—possibly for a price that falls below their costs.

The use of reverse auctions essentially removes qualification-based selection (QBS) from the procurement process.  QBS ensures that the qualifications and past experience of a bidder are considered in order for an owner to make the best informed choice when negotiating a contract.  Basing construction services on only the lowest bid could threaten the quality of a project, safety, and even may lead to an increase in overall project costs due to the necessity of change orders that were not anticipated during the reverse auction process. 
 
  CMAA strongly believes that due to the increasing complexity of all phases and types of construction, the best method to price and acquire construction and construction-related services, when possible, is through a QBS process with a negotiated procurement.  By utilizing this method, owners and construction professionals are able to agree on mutual expectations for the quality, risks, and delivery of a project, as well as the overall cost.  This method provides the greatest likelihood of achieving a successful project in a true partnership between owners and construction professionals.

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