Online auctions could transform federal marketplace

Online auctions could revolutionize the way federal agencies purchase goods and services, dispose of assets and even decide where to deploy workers, according to a new report.

The report, "The Auction Model: How the Public Sector Can Leverage the Power of E-Commerce Through Dynamic Pricing," explores how the public sector can benefit from auction-based exchanges in the online marketplace. Surveying applications of the online auction model in business-to-customer and business-to-business transactions, the report recommends how government can take advantage of the e-auction format. The report was prepared by David C. Wyld, an associate professor at Southeastern Louisiana University under a grant from the PricewaterhouseCoopers Endowment for the Business of Government.

"There is immense potential for cost savings, along with increased revenue streams, that can be achieved through better and more efficient acquisition, use and disposition of governmental assets by using auction technologies," Wyld wrote in the report.

The report highlights three government operations that could benefit from the auction model: procurement; disposition of used, surplus or seized government assets; and the internal allocation of resources.

The e-auction format could make the procurement process much more efficient and cost-effective for both government and industry, the report argues. Industry-led consortia could create a common platform through which purchases could be arranged, avoiding the problem of agencies having their own procurement systems. At the same time, multiple agencies could pool their purchasing power to net increased savings.

Wyld estimates that federal, state and local government organizations combined could save more than $50 billion annually in procurement costs if they achieved half the projected savings forecast for private sector firms that are using the e-auction format.

Online auctions could also transform how the government disposes of used or seized assets, according to the report. Wyld envisions "virtual eBays" in which agencies sell unneeded assets to the highest bidder.

The model could even be applied to the allocation of physical and human resources within and across agencies, the report said. Under such a model, all agency employees would be listed by area of expertise in an online database. A manager could then distribute employees according to need throughout the agency's operations. Some private firms are already taking steps along these lines. Hewlett-Packard, for example, has developed a Web-based tool to help managers allocate employees where they are needed most within the firm's business units.

Wyld identified a number of challenges agencies will face in using auctions: increasing public access to electronic services, working with public employees' unions and creating an entrepreneurial culture that embraces change throughout government.

But failure to employ the auction model and other e-business strategies could have dire consequences for government, the report warned.

"If governmental leaders cannot adapt to and take advantage of e-marketplaces in procurement, the public sector will be left to deal with only those suppliers who have not adapted to their role in an information-based, dynamic and increasingly dynamically priced economy," it said.

Currently, less than 1 percent of the more than $1 trillion in federal, state and local government transactions take place online, the report said.

In an Oct. 31 notice in the Federal Register, the Clinton administration asked agencies and contractors if they needed guidance on the use of reverse e-auctions, in which vendors compete for government purchases.

"The Auction Model: How the Public Sector Can Leverage the Power of E-Commerce Through Dynamic Pricing" and other PricewaterhouseCoopers Endowment reports are available at endowment.pwcglobal.com.

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