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McKenna & Cuneo, LLP
Client Alert
FEDERAL ON-LINE AUCTIONS: ARE THEY COMPATIBLE WITH THE FAR?
On-line auctions, the buying vehicle made popular in the commercial world, have now reached the federal government. Both the Navy and the Postal Service recently have announced agreements with companies that will provide on-line auction services, and the Navy recently awarded a contract as a result of a so-called reverse auction. In addition, on-line auction services are now available on at least one GSA Schedule contract, making such services available to all authorized schedule users.
In a reverse auction, prospective sellers bid the price down as they compete for the work. For on-line auctions hosted by a private company, offerors submit their bids electronically, often by means of proprietary software developed by the hosting company. Auctions provide potential benefits to the government in terms of lower prices and reduced acquisition times.
As federal agencies begin to embrace this commercial buying practice, questions remain as to whether this practice is fully compatible with the Federal Acquisition Regulation ("FAR"), the set of regulations that governs the federal government's procurement of most goods and services. For many years, the FAR prohibited auctions of any kind to ensure that prices were not unreasonably low. As a result of the recent FAR Part 15 "rewrite," however, FAR Part 15 now permits the disclosure of an offeror's price to other offerors if that offeror grants the government permission to do so.
In the Navy's recent on-line reverse auction, the solicitation made permission to disclose one's prices to the other offerors a condition of participation. Offerors may attempt to challenge whether giving such permission satisfies the FAR requirement. In addition, other provisions of the FAR present certain issues with respect to conducting on-line auctions.
First, for those companies seeking to provide on-line auction services to the federal government, they must structure their contracts to avoid infringing upon inherently governmental functions. Federal government policy prohibits the use of contracts for the performance of what are characterized as "inherently governmental functions." See FAR subpart 7.5. Such functions include the approval of contract documents, awarding contracts, and administering contracts.
Companies providing auction services to federal agencies also must take care to safeguard the source selection and proprietary data that they will obtain in the course of conducting or hosting auctions. Improper use of this information for competitive advantage may lead to organizational conflicts of interest and disqualification from future procurements. See FAR subpart 9.5.
Second, companies participating in on-line auctions as sellers also should be aware of the requirements of FAR § 52.203-2, Certificate of Independent Price Determination. For acquisitions greater than $100,000, offerors are required to certify that they have not disclosed their prices to other offerors for the purpose of collusive bidding or other anti-competitive purpose. See FAR § 52.203-2. In the recent auction conducted by the Navy, offerors were required to certify that their prices were disclosed only for the purpose of conducting the auction and not for an anti-competitive purpose. Companies participating in future auctions can expect to see similar provisions as agencies attempt to reconcile the auction process with this certification.
Finally, contractors should be aware of and closely follow the solicitation provisions governing how the auction will be conducted. Auction participants may pursue the usual protest remedies if the government or the auctioneer violated the terms of the solicitation, applicable law, or regulations in making an award. Immediately after an award, disappointed bidders should request a debriefing from the awarding official to learn about the basis for award and to preserve possible protest remedies.
Indeed, one of the disappointed bidders in the recent Navy auction has protested that award based on the Navy's acceptance of an apparently late bid. McKenna & Cuneo, L.L.P. is representing the protester in what is believed to be the first protest of an on-line auction award by a federal agency.
For more information, please contact:
Tom Burke in our Washington, D.C. office,
(202-496-7132 or thomas_burke@mckennacuneo.com
<mailto:thomas_burke@mckennacuneo.com> ),
Dick Oliver in our Los Angeles office
(213-243-6169 or richard_oliver@mckennacuneo.com
<mailto:richard_oliver@mckennacuneo.com> ), or
Bob Sherry in our San Francisco office
(415-267-4124 or bob_sherry@mckennacuneo.com
<mailto:bob_sherry@mckennacuneo.com> ).
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