Can reverse auctions put the elderly at risk?
David Rae
8 Comments
If you read The London Times yesterday you would be forgiven for waking up this morning firmly of the belief that reverse auctions are an evil invention best consigned to the history books. In an article which looked into the supply of medical care to the elderly, it reported that:
An online auction system developed for councils to buy cheap wheelie bins and stationery is being used to buy end-of-life and dementia care for vulnerable elderly people.
The article, which you can read here doesn't stop there. It claims that the UK's NHS has carried out a series of 30 "reverse auctions" [note the dramatic inverted commas, ed] for £195m worth of contracts for palliative and dementia care for patients who are leaving hospital.
It goes on:
Reverse auctions to buy care for the elderly are relatively new and The Times has found that standards and quality have deteriorated rapidly where they have been used.
However, while at first glance, the story might show a lack of understanding of the reverse auction process, the journalist in question went on to speak to some of the companies who took part in the process (although, it must be noted, obviously didn't win).
Companies who took part in the London NHS auction told The Times that they were asked hardly any questions about the quality of palliative or dementia care that they provided, beyond whether they complied with minimum standards.
...
The NHS and local authorities are under increasing pressure to drive the hardest bargain they can for services, such as care for the elderly, which they buy in from the private sector. Reverse e-auctions, though, were intended to be used to drive down prices for basic goods such as office furniture, IT or stationery, which have limited and exact specifications and where quality is not a serious concern. Critics of care e-auctions say that those who hold them are aware that driving prices down affects the quality of care.
So, not only are the chief executives of semiconductor companies rejecting the benefits of e-auctions, it may not be long until the NHS follows suit. But is the charge made here by The Times a valid one? Should reverse auctions be restricted to simple goods where quality is assured?
My view is that a reverse auction is only as good as the person - or people - who is running it. Specifications must be clearly laid out and quality standards adhered to. Otherwise, this sort of situation could well rear its head.
View Printer Friendly Version
Email Article to Friend
Reader Comments (8)
Prior to that the customer will (or should) have decided that the proposals, other than price, of ALL the suppliers allowed into the auction meets their FULL requirements. That given why would they then not want to ensure that they do not over pay for that good or service.
Subsequent to the award of Contract it is for the customer to ensure that they are receiving their full requirements and take appropriate action if not. As far as I am aware the auction process itself has not brought about a deteriation of goods and service and has brought about a marked reduction of market price. If the quality of goods and services has reduced then this can only have been done by the suppliers themselves.
Reverse auctions have been around for over a decade and suppliers have been opting out all that time until they realise that they are not getting any work. I have no doubt that the semi-conductor industry will be back bidding against themselves shortly.
It is the responsibility of the organization creating the auctioning environment to validate the bidding proposal levels and enforce the clearly written goals and objectives required to perform at acceptable levels.
I believe this process and system has been utilized (in most cases) as a whipping post for suppliers unable to meet the goals of the sourcing entity. This leads to lower end services and cutting the pay and capability of organizations provide human health programs. Just check out your local elderly care centers in Metropolitan Systems. There will be a vast difference in the level of education the employees from private money verses health systems and government type programs.
I prefer to use the e-auctioning and traditional bidding process with a full disclosure program. The company being hired or contract to provide services must make a profit on the service being provided. They also must pay there employees a competitive wage to keep turnover low and provide a quality service.
I suggest the readers leverage the best of both worlds. This will eventually put the two parties at the table to determine the appropriate levels of compensation that is affordable, long term in nature and a written commitment from the management teams sourcing and contract winners.
On the other hand, this story also amplifies the need for better education of procurement staff (including software/tool vendors' consultants) in conducting reverse auctions for optimal results. While companies (or at least certain procurements experts at companies) like GE and Bechtel have mastered the reverse auctions beyond 99.99% practitioners, suich knowledge is hard to share since provides competitive advantage...
I note the Times reported that NHS checked that all invited vendors could meet minimum standards. And where cost-competitiveness is the aim, if they meet minimum standards, then that should be all that's necessary.
It is likely that the e-auction is not faulty, but there may be a fault with the tender team, if the minimum standards are set below true 'acceptable requirement'.
That said, I also lament the potential abuse of the auction process as the close to a complete sourcing cycle as well. It gives all Auctions and qualified, trained Procurement practicioners a bad name.
The following process could have avoided the above scenarios:
1. Pre Qualification of suppliers
2. Detailed Scope of Work & Service Level Agreement
3. RFQ Walkthrough of suppliers before auction