The OCG is also cock-a-hoop that it has saved 29% on procuring teabags for the Ministry of Defence and NHS. And the government is unlikely to stop at beverages - buidings could be next.
The construction industry will shudder at the news. Many in the industry believe that the concept will take us back to the bad old days where partnering and long-term relationships were sacrificed at the alter of lowest price.
Although opponents of reverse auction bidding accept that the method can be used for simple well-defined items, tea bags for example, they argue it should not be used for more complex projects.
Chairman of the strategic forum Peter Rogers is one who bemoans the emergence of reverse auction bidding. If you go down that route he argues, the supply chain will not integrate properly, and the opportunity to eliminate costs at the design phase will be lost.
BAA supply-chain director Martin Plimmer argues that reverse auction bidding does not mean the end of the integrated supply chain. He says that the process is just a method of selecting the companies that will form the supply chain. Plimmer says once the bidders have been selected they are subject to the normal performance evaluations. It is important to make sure that the suppliers on the shortlist are capable supplying the service, says Plimmer.
Supporters of reverse auction bidding say that the more complex the project the more information the suppliers will need before the auction to ascertain what their lowest bid can reasonably be. Plimmer concedes that reverse auction bidding would not be appropriate for complex masterplans for airports, but they could be used for construction projects - provided what is supplied is clearly defined.
The danger of reverse auction bidding according to Rudi Klein, chief executive of the Specialist Engineering Contractors Group, is that it discourages best practice behaviour. Whole life costing, the elimination waste, and decent margins for suppliers all fall by the wayside with reverse bidding, says Klein.
If reverse auction bidding takes off there will have to be safeguards in place. Simon Rawlinson, partner at cost consultant DLE, says there should be a code of conduct that involves a broader tender process including prequalification and the opportunity to resolve queries prior to the conclusion of the bidding process.
The most surprising advocate of reverse auction bidding is Sir John Egan. He says that to establish and maintain long-term relationships, reverse auction can be a valuable technique. If the man who wrote Rethinking Construction says reverse auction bidding is compatible with partnering then the industry better prepare itself for online bidding. Click on to Ebay and get practising …