Savvy or Unethical? Should the Federal Government be a Phantom Bidder in Reverse Auctions?

I recently heard from a contractor regarding an experience he had with reverse auctions. A federal agency was conducting a reverse auction using FedBid and he decided to compete (FedBid, Inc., provides a service whereby federal agencies can conduct reverse auctions). Although he submitted several bids, he ultimately lost the reverse auction. When he checked to see who had won, he was surprised to see that the federal agency that was in need of the required items was the low bidder. In other words, the federal agency was submitting bogus bids in an effort to get the contractor to reduce his bid price. The federal agency then contacted him and offered to purchase the items from the contractor at his lowest bid price. Feeling that he had been duped, he told them to get lost.

The tactic employed by the federal agency, called phantom bidding, is not new. Many view the practice as unethical while others see it as a legitimate tactic. In regular auctions, the legality of seller participation in bidding varies from state to state. For those states that allow it, sellers typically must disclose that they reserve the right to participate in the bidding.

In any case, should the Federal Government be allowed to place phantom bids in reverse auctions? Would your answer be different if the disclosure of the practice was required prior to the reverse auction?

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Angel Delgado

Hey Don, just like on eBay, or any other auction (public, etc)… my thought would be that a bid you submit would be a binding offer and the government would be commiting fraud by phantom bidding on their own bid. Like I say at times, there should be a law against that!! would my answer be different if it was disclosed? Nope!!!

Peter G. Tuttle

Where we start running this ship aground is when we start confusing the concept of something like “phantom bidding” with the concepts of fairness, transparency, etc. I am not sure disclosure would improve the situation. If one of the Federal government’s ultimate National goals is to squeeze the last red cent out of vendors by using less than honest and open business methods, then this could be viewed as legitimate. If, one the other hand, one of our National goals is to continue to build and sustain a vibrant economy which is founded upon a strong commercial business base composed of all sized businesses, I am not sure the use of phantom bidding or similar tactics is very useful.

Sterling Whitehead

Phantom bidding sounds very unethical. Pete is right, transparency won’t make it better either. I actually feel a bit uneasy thinking about this happening.

Peter Sperry

The practice is unethical in the private sector and more so in the public sector. The contractor did the right thing. he might also consider contacting the agency’s Inspector General.

Anne Hasselbrack

Government interference in the free-market – don’t like it one bit, but surprised? Nope. Glad they told the government to “get lost” – just hope they didn’t really censor themselves to that extreme in their reply 🙂

Jaime Gracia

I think reverse auctions are a great way for the government to increase competition, and get competitive prices. In fact, with the proper set of baselined and established requirements, there is no reason that reverse auctions can not be used on certain services, in addition to the commodity based model.

The problem is that reverse auctions have become a model of waste, fraud, and abuse, as “you get what you pay for” is alive in well here. Companies bid well below cost in hopes of getting the business, and either hope they can make up the difference later or get more business in the future at legitimate prices. The legitimate use of reverse auctions in the commercial sector shows they work, but it has to be executed on a model of transparency and realistic prices.

The current budgetary environment is all about low-price, which will sacrifice quality and eliminate price realism altogether. Reverse auctions seem to take this a step further. However, the government artificially driving down the price through these techniques is not only unethical, but outright irresponsible and troublesome. Federal contracting is supposed to be transparent, and these immoral techniques give it a black eye, and add insult to injury.

I too would have had some stronger words than “get lost.”

Ron Falcone

In this day and age of transparency this is ridiculous. If one tried ding that on eBay — they would never be able to sell or buy again. It’s unethical. This is an example of why it is difficult or government procurement and contracting agencies to have true long term business relationships with the supplier/vendor community. It works both ways — scrupulous contractors have given the rest of us “good apples” a black eye — that perception is especially with the current administration.

Jack K

You will need to to know that the procedure of putting in a bid, securing a bid and promoting to government can be very slow in this process. To obtain identify, organizations and people must signify themselves in the best light. Some small businesses provide a chance to get notices for Government Bids in order to have all the important info available as soon as it is ready.