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Last edited 12 Nov 2020
E-auctions in tendering
E-auctioning is a form of E-procurement. E-procurement refers to tendering processes carried out online and through information and networking systems. More information is available in the article on E-procurement.
E-auctioning refers to a web-based system that allows potential suppliers to compete online, in real-time, pricing for goods/services. E-auctioning can be used in a similar way to the platform e-bay where the highest bidder wins. In construction, this can be used in reverse where contractors will compete for business in an online event by submitting the lowest bid. In the industry. This is referred to as reverse auctioning. The reverse auctions can either be open or closed/private.
 Open auctions
In open auctions, a great number of competitors can be invited to compete. Bid pricing will either be visible or competitors will have visibility of their ranking. During the e-auction, the bidder can reduce their price in successive bids within a given timescale.
Some of the benefits of open auctions include:
- The contactor involved can progressively lower their bid.
- It can save time on the project program with lengthy negotiations cut short.
- There are possible financial savings due to lower transactional costs.
Some of the challenges of open auctions include:
- Contractors can make errors of judgement, ultimately resulting in reduced quality and disputes.
- It can promote the ‘lowest price’ rather than the best value for money.
- Software errors can create additional costs, delays and potential disputes
- Potential bidders may be unable to compete due to software requirements or the complexities of procedures.
To avoid some of the challenges of ‘open auctions’ the procurement team should ensure that all documents and procedures are well defined. It is also advisable to use known contractors that the client's team are familiar with and have market-tested before.
 Closed/Private auctions
In private/closed auctions a selected number of bidders will compete to submit a price. The bidders will have no visibility of who they are competing against or see the prices of bids entered. This is similar to traditional route for procurement other than it is done electronically.
There is some scepticism in the industry about using electronic auction platforms to tender for construction projects. However, in the future, the industry is likely to refine the process to avoid the current challenges and it might become more widely used.
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