Judges: JOHN CORNYN, Attorney General of Texas
Filed Date: 12/15/2000
Status: Precedential
Modified Date: 7/6/2016
Office of the Attorney General — State of Texas John Cornyn Mr. Jim Muse Executive Director General Services Commission 1711 San Jacinto Street Austin, Texas 78711-3047
Re: Whether "reverse auctions" constitute a permissible method of competitive bidding by state agencies (RQ-0257-JC)
Dear Mr. Muse:
You have asked this office whether the General Services Commission ("GSC"), in a pilot procurement program using electronic commerce technology instituted pursuant to chapter 2177 of the Government Code, may conduct competitive bidding by means of a procedure called a "reverse auction." We conclude that, because the so-called "reverse auction" is as you put it "an electronic process in which pricing is shared among the participants,"1 it does not constitute a sealed bid method and is not permissible under current Texas law. Specific statutory authorization would be required before GSC could participate in such a process.
As you explain the basis of your question, "GSC has recently been given authority to conduct a pilot procurement program, using electronic commerce technology. . . . One of the optional components that electronic purchasing systems offer is a process known as `reverse auctions.'" Request Letter, supra note 1, at 2.
As you point out, "reverse auctions" are not defined in Texas law. Indeed, our research has revealed no case law in the United States regarding them, nor have we been referred to any. Nevertheless, as we understand it, the reverse auction procedure is fairly simple. Vendors are pre-qualified to participate in the event, and then "are awarded a contract, in which [they] agree to the reverse auctioning process and procedures." See id. After the vendors are trained in using an on-line bid system, the auction is held on a secured web site to which only the vendors, GSC, and the company staging the event have access. See id. at 3. Vendors bid against each other, sending the price for the goods or services down rather than up (hence the phrase "reverse auction") until a set time. At the expiration of the auction, "[t]he offeror of the last bid (lowest) amount would be eligible to receive an award or purchase order, if otherwise determined to be responsible and in compliance with specifications." Id.
Your concern is that the auction process requires the sharing of pricing information among the competing vendors. Any vendor's behavior in the auction depends upon its possession of some information concerning its competitor's bids. As we understand it, at a minimum a vendor must know that one of its competitors has offered a lower bid before it will bid again. Such an auction is markedly different, then, from the sealed bid method which generally characterizes competitive bidding.
As you note, the statute authorizing GSC to conduct the pilot procurement program states that "[t]he requirements of this section . . . are in addition to the requirements of other law relating to the solicitation of bids, proposals, or expressions of interest for a procurement by the commission or another state agency. This section . . . [does] not affect any other law that requires the commission or another state agency to award a procurement through competitive bidding, competitive sealed proposals, or another method." Tex. Gov't Code Ann. § 2177.002(h) (Vernon 2000). Moreover, GSC is directed, with regard to a variety of electronic methods of submitting bids which cannot be "sealed" in a physical sense, to "adopt rules to ensure the identification, security, and confidentiality" of such bids. Id. § 2156.005(b).
A brief submitted on behalf of a commercial enterprise which organizes "reverse auctions" argues that because each bidder in the auction is awarded a contract in which it agrees to be bound by the results of the auction, "[t]he contracts are actually awarded at the end of the first of the two steps using a multiple contract award model. The second step — the reverse auction — merely allows the contract holders to lower their price after they have a signed contract in hand to get orders under the contract."2 Accordingly, the brief argues that the auction may be regarded as a "multiple award contract procedure," a method of procurement permitted under section
As the brief notes, the term "multiple award contract" is not defined in the Government Code. Nor has our research disclosed any definition for the term in Texas case law. The General Services Commission, by rule, defines the multiple award contract procedure as "[a] purchasing procedure by which the commission establishes one or more levels of quality and performance and makes more than one award at each level."
The brief further argues that the "reverse auction" procedure ensures the identification, security, and confidentiality of electronic bids. In particular, it asserts that "[c]onfidentiality is maintained as to the source of each online bid — the real time system does not identify bidders to their competitors, only the amount of the lowering prices." Akin, Gump Brief, supra note 2, at 6. However, this argument fails to note that the statutory language does not require GSC to ensure the confidentiality of the bidder, but the confidentiality of the bid. See
Tex. Gov't Code Ann. §
In our view, the situation presented by this request is analogous to that presented by Attorney General Opinion
Competitive bidding statues are, as we have noted, mandatory. See Niles,
Yours very truly,
JOHN CORNYN Attorney General of Texas
ANDY TAYLOR First Assistant Attorney General
CLARK KENT ERVIN Deputy Attorney General — General Counsel
SUSAN D. GUSKY Chair, Opinion Committee
James E. Tourtelott Assistant Attorney General — Opinion Committee