A supplier held up his thumb and first finger, put the tips close together and announced “we missed that contract two years ago by this much’’. How frustrating was that? He’d had the ability to improve the competitiveness of his price, but not the opportunity to do so.

Meanwhile, the tendering organisation will have paid a higher price than was necessary for that particular contract. E-auctions work well when a supplier’s opening bid can be improved and when that supplier is made aware of their position in the bidding. Companies have time to improve their offer.

All’s fair in e-auctions

For suppliers, this is at once a very competitive environment and also an incredibly fair one. Suppliers are sent passwords to access an online questionnaire, in order to provide required information such as pricing, references, in essence exactly the same information collected manually on a traditional tender. At this stage there is a shortlist of acceptable suppliers, with each supplier’s initial pricing proposal entered into the e-auction as an opening bid. At a prearranged time, each supplier goes online to take part.

Let bidding commence!

E-auctions typically run for a short time, usually 20 minutes. In practice, that’s long enough for suppliers to be able to assess whether they should (or could) improve their bid. Although suppliers can see bids being made by competitors, at no time can they see how many other suppliers are involved, or who they are. Importantly, if a bid comes in as the 20 minutes comes to a close, a three minute extension is triggered. Proponents of e-auctions say that this price transparency is a boon. New suppliers may not be quite sure how to pitch their bid. This way, they can quickly assess whether the contract is actually a viable one for them. Another positive is that any incumbent supplier feeling that they can rely on an existing relationship with the client will see, as the price falls, that they cannot rest on their laurels.

Lots of value

Ideally suited for contract values of £100,000+, e-auction results can be spectacular because the final price is what the market dictates rather than what the client has been paying. In some cases, this can mean cost reductions of 15-20 per cent. E-auctions’ proponents also point to the time that can be saved compared to traditional dealing – a result of reduced administration and negotiation. Critics point to the way that e-auctions focus on price, but the counter-argument is that if a poor buyer is going to take the lowest price it won’t matter what method is used. When a supplier puts forward an unrealistic price on any type of tender and a buyer accepts it, both parties are asking for trouble. With e-auctions, standard due diligence remains an integral part of the process – the e-auction simply covers the pricing element, involving all interested suppliers.

The key difference is that the supplier who missed that contract by a small amount now has a chance to improve his offer.