Today I stumbled upon an article about South Korea introducing reverse auctions as a tool for public procurement.
SEOUL, Aug. 28 Asia Pulse – South Korea will introduce a reverse auction system in the public sector as part of efforts to streamline the nation’s overall procurement process and drive down purchasing costs, the Finance Ministry said Thursday.
The reverse auction is a tool mostly used in industrial procurement contracts, in which sellers compete to obtain business.
Many advanced nations such as the United States and Britain use the auction system, but experts say it may cause some unwanted side effects, such as dumping and quality problems as a result of overheating competition.
The Public Procurement Service will introduce the new auction system starting next year after revising related laws this year.
To minimize these side effects, the reverse auction will be applied only to contracts worth 190 million won (US$176,000) or less, the ministry said.
The procurement service expects the introduction of the new system to save around 20 billion won a year in purchasing costs.
Found on http://asia.news.yahoo.com/080828/4/3o94a.html
The approach of setting a contract limit to reverse auction negotiations is very similar to the public sector regulations for online auctions in Germany. It seems that in many countries the public sector is afraid of adapting this way of negotiating. The so called side effects will only appear if the auction preparation work is not done in a proper and professional manner. If all products and services are clearly defined and non price factors such as quality are taken into account when designing the auction these side effects will never take effect. I believe it’s about investing in education and preparation.
