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CHIPS Articles: The Navy's Web-based Reverse/Forward Auction

The Navy's Web-based Reverse/Forward Auction
By U.S. Navy Cmdr. Steve Dollase, SC - January-March 2003
Sept. 5, 2002, NAVICP (Naval Inventory Control Point) conducted the Navy's first online forward auctions. The two auctions ran in two phases, with each phase consisting of the sale of two damaged CH-53D helicopters and associated parts packages. Three firms registered to participate as bidders. The winning bidders are expected to refurbish the aircraft for commercial applications such as firefighting, a requirement that has generated significant demand for heavy lift aircraft in the past few years.

The two contracts resulting from the auctions are valued at nearly $5 million. Naval Air Systems Command (NAVAIR) will receive the aircraft proceeds and NAVICP will retain the remaining proceeds to purchase similar helicopter parts.

The forward auctions, leverage the latest commercial technology and are part of NAVICP's innovative strategy to reduce U.S. Navy excess inventory, which consists of weapons system parts that the Navy might need later, but will most likely replace with state-of-the-art designs. The auctions also create a commercial marketplace for future sales. In fact, both of the winning bidders will have the option to buy additional CH-53D helicopters and parts within six months of contract award. This creative initiative allowed NAVICP to transform unusable assets that might otherwise deteriorate — into funding to support the next generation of weapons systems.

The forward auctions are the latest success story in NAVICP's Internet-based action program. In May 2000, NAVICP conducted the first Internet-based reverse auction in the Federal Government. The auction, which lasted 51 minutes, provided the competitive pricing mechanism for NAVICP to award a contract for aircraft ejection seat recovery sequencers (the "brains" of the ejection seats). The auction saved an estimated 28 percent from the historical price for recovery sequencers. NAVICP awarded the contract within an hour of the auction closing — a significant time savings.

NAVICP conducted four additional auctions under the pilot reverse auction program, resulting in estimated savings of 21 percent, or $14.8 million. Internet-based reverse auction technology allows online bidders to compete in real-time for contracts by lowering their price offers (or raising them in a forward auction) as they see other bids posted. Bidders are unable to identify competitors, only the current low bid is visible.

The auctions are conducted in a secure, Web-based environment. Participants are screened in advance before granting access to the auctions to ensure that they are qualified sources for the items under consideration. This is particularly important with complex weapons systems. Auctions work best when there are three or more bidders, and when specifications permit easy comparison between products.

Convinced of the power of the concept, NAVICP, with the sponsorship of its parent command, the Naval Supply Systems Command (NAVSUP), awarded two five-year, best-value contracts for auction services; one to Procuri for a self-service, desktop tool and the other to eBreviate for a fullservice tool. The eBreviate solution also offers market research services, helpful in determining suppliers for a particular requirement.

In the first year, NAVICP contracts were used by NAVSUP activities and twelve other Federal Government agencies to conduct 43 auctions valued at over $144 million with typical savings of 8 to 24 percent. The auction tools are available, free of charge, to Navy and Marine Corps activities, and to other Federal Government activities on a fee-for-service basis.

The NAVSUP/NAVICP Reverse Auction Team earned a FY 2000 Department of the Navy Competition and Procurement Excellence Award for their success. These tools are just one more way that the Navy and Marine Corps team can maximize resources and improve combat readiness.

Cmdr. Steve Dollase is NAVICP's Director of Acquisition Policy.

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