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Reverse Auction in Purchasing


A Reverse auction is an auction in which the roles of buyers and sellers are reversed. In an ordinary auction (also known as a forward auction), buyers compete to obtain a good or service, and the price typically increases over time.


In a reverse auction, sellers compete to obtain business, and prices typically decrease over time.
It is an online real time dynamic auction between a single buyer and a group of pre-qualified suppliers competing against each other to win the business of supplying goods or services.

Reverse Auction is used to procure items/ services, where the bidders bid down (reverse) the price, during a specified time period, from their

originally quoted price.

The bidder who quotes the lowest by the end of the bidding schedule is selected and awarded the contract/ Purchase Order.

Known as Online Reverse Auction, it is conducted through the internet with simultaneous bidding by the bidders, operating from “one or more locations”.

n other words, the venue for the auction is on an internet website called host. Bidding starts with a start price ,provided to the host by the firm for which Reverse Auction is being done, just before start of the bidding process.

Start bid price is based on certain criteria like estimated price etc.
Final/ Acceptable Price :

The bidder quoting the lowest price is finally selected as the lowest offer (L1) and is awarded the order/ contract. Price obtained at any stage in the event is legally binding on the bidders.

Auction Time (Duration) :

The bidding competitors keep on offering (lowering) new prices in the given time period which is pre-specified to them by the auction host. However, the automatic extension feature is also there to ensure that if a bidder wants to reduce the price further he shall be given a chance.

The bidding event is terminated when no bidder is further reducing the price after a lapse of certain predetermined period. There is a provision by which a bidder has to reduce his price by a minimum decrement amount (say, each time by X amount) .

How is Reverse Auction different from the existing practice?

For Indentors:

Except for certain terms and conditions stipulated in the tender enquiry by the Purchasing section and price bids to be submitted by the bidders ,electronically, directly to the host, instead of the Purchaser there is no difference in the procedure to be followed, for the indentor. That is, starting with raising of indent to finally arriving at techno commercial suitability stage the practice is same as without Reverse Auction.
It is only the price bid opening event that shall now be taken care of through online price reversals by the participating tenderers, hosted by the service provider.

For Purchasing personnel:

Soon after issuing Limited Tender/ Open/ Global enquiry called Request For Quotation (RFQ) in Reverse auction, Purchaser shall send a copy to the host  with suggested suppliers.

Host shall contact the suggested suppliers to take confirmation on their agreement to participate through Reverse auction.

Host shall also look for more parties than suggested by us. However, the host shall seek the Purchaser's permission on case to case basis

Purchasing section shall finally send the vendor list to the host of those found techno-commercially suitable, for hosting Reverse auction by MJ

Purchasing section shall provide the base price (called Start Bid Price) from where the Reverse bidding shall start.

Host, after completing the Reverse auction process shall send the details to Purchasing section for order placement etc.