REVERSE OR 'Dutch' auctioning in the water industry encourages suppliers to act like desperate Las Vegas gamblers and threatens best value, suppliers told water companies this week.
'Auctions encourage suppliers to take unacceptable risks, and to have a lottery mentality, ' Vexamus managing director Ed Wilson told a major industry conference this week. Vexamus is a process contractor.
Reverse auctions are extra bidding processes imposed on short listed tenderers which have already submitted a price. They are pitted against each other over the internet and asked to reprice in a two hour auction sessions (NCE Water Engineering October 2002).
They have initially been used for commodities but are starting to be introduced for consultancy and contracting.
Desperate suppliers eager to win work ' feel like they are in Las Vegas, ' Wilson added. As a result margins are squeezed and best value in the industry is threatened.
Wilson said he had been in an auction where a bidder knocked £1.2bn off a £4.5bn project in order to win.
'Dutch auctioning is only fit to buy commodities such as toilet rolls and electricity, ' he said.
Arguing for reverse auctioning, Thames Water Commercial Manager John How said that bad experiences of auctioning were largely due to culture change as clients learned to use the process.
One a show of hands only six of the 155 delegates at the conference, said the process brought no value to the industry. However many told NCE they felt they had no choice but to take part.