Reverse auctions used to save money by local authorities could actually delay work and even force firms out of business.
Civil Engineering Contractors Association (CECA) North East regional director Douglas Kell said: “The practice of e-mail auctioning [also known as reverse auctions] is now widespread around the country and causing much concern, particularly to smaller firms.
“Earlier when councils called for tenders, five or six firms usually entered bids on which the councils made their decision. This was based not necessarily on the lowest figure quoted but the one apparently offering best value from a company looking most suitable to do the job (i.e. price and quality).
“However, over recent months the use of e-auctioning, second bids, by authorities has been on the increase. In our experience, it has become their practice to e-mail tenderers following their submissions. They disclose the successful figure which would normally be accepted, but then re-invite a revised quote from any of the companies that feel they might want to ‘re-adjust’ their bid.
“That’s just a euphemism for telling them to offer lower and the job could be theirs. But particularly during a recession, as now, the danger is that firms struggling to survive will give in to temptation, cutting their original bid despite even the threat of economic suicide as a result.
“They may redo their sums out of determination rather than rationale, hoping to avoid cutting their workforces. What will happen in the end if the contract breaks the company is that the whole workforce may have to be paid off - not just some.
“Delays for the councils, from prolonging the process, coupled with the unemployment and other social benefits the state must pay displaced workers, could easily offset the margin of difference in the higher cost of the original winning tender.”
CECA say some are losing their jobs because and firms are even collapsing because bids are being taken to below break-even to win.
Kell believes this will inevitably lead to industry consolidation. “It may seem clever to some to apply high technology to money matters. But bidding for work is totally opposite to E-Bay entertainment, where you heighten your chances by raising your bid knowing what you can afford. It’s not even like tendering for a cups and saucers contract, where stock is already in hand and paid for, and the exact price necessary just to break even is known.
“So many unforeseeable snags crop up as a job goes on in construction and civils work that shaving a price already carefully calculated to take account can be fraught with financial peril.”
“Is this really good practice? Is it value for money? I think not. It’s just a short term fix. Let us see an end to e-auctioning in the construction field, as it cannot work long term,” he asked.
CECA in the north East recently reported a loss of 1,600 jobs among small and medium size firms over the past year, with 1,100 further losses expected to go before the end of 2009 - a total loss of 19%, discounting losses at larger firms operating between Berwick and Whitby.