FedBid, the “reverse eBay” of federal contracting websites, is quickly growing into a powerful contracting tool. Its goal, which it largely succeeds in fulfilling, is to provide federal buyers and contractors with a simple and responsive online marketplace. Federal Agencies and Departments create a listing on FedBid.com for the specific products or simple services they need. Companies then search those listings to find someone buying what they are selling. If they find a match, they can enter a bid and potentially win the contract. As you can see, “a reverse eBay” aptly describes the FedBid process, as the contracts are essentially auctioned off to the lowest qualified bidder in real time.
Founded in 2000, Fedbid, Inc. initially had some difficulty creating buy-in among federal purchasers. Contracting officers government-wide were hesitant to deviate from the longstanding and paper-intensive bid/proposal processes that seemed elemental to federal acquisition. Eventually, however, The State Department entered a contract with Fedbid to conduct its purchasing through their online auction system, and other federal agencies quickly followed suit. In the fiscal year 2010, buyers from all of the major federal agencies purchased over $1.15 billion worth of goods and simple services through FedBid. Total sales volume on FedBid has increased by over 20% each year since 2003 and promises continued growth as more agencies register as buyers each year.
Currently, the Air Force, Army, Commerce, Defense, Energy, Health and Human Services, Homeland Security, Justice, Labor, State, Transportation, Treasury, and Veteran Affairs Departments conduct purchasing through FedBid. Additionally, the U.S. Navy, US. Marshals Service, and the Department of the Interior are some of the auction site’s newest registered buyers.
FedBid’s patented business model successfully matches federal buyers with the cheapest qualified contractor and in turn earns the company a 3% commission of up to $10,000 on all sales made through their auctions. The combination of this commission and the fundamental nature of a reverse auction creates FedBid’s principle drawback: reduced profit margins. Competing on price alone can make it difficult for firms to maximize profitability. For these reasons, our consultants believe FedBid is a tool best utilized by government contractors with significant excess capacity. For these firms, the benefit to average unit production cost from stretching period costs over a greater volume of sales units can make up for the tighter profit margins. For smaller contractors operating closer to their current capacity, however, our consultants stress the importance of ‘quality sales’ over shear sales volume.
For firms unable to benefit from such economies of scale, however, other contracting vehicles offer better balances of quality and volume. Specifically, a GSA Schedule Contract allows firms to sell on pre-negotiated contractual terms government-wide, to every federal department and agency. Pre-negotiated contractual terms translates in practice to less sacrifice on price point and a correspondingly higher profit margin while the ability to sell government-wide preserves the possibility for significant volume.
In sum, while FedBid represents a major evolution in the federal acquisitions process, its patented reverse auction process is not the ideal federal contracting vehicle for everyone. FedBid is ideal for almost all federal buyers, since it virtually guarantees the lowest price, but the ideal FedBid seller is a bit more specific. FedBid sellers sacrifice per unit profitability for an increase in sales volume, and should be sure this tactic conforms to their organizational goals. Firms with high value products or simple services should look to maintain their profit margins through other contracting options.
If need more information about which federal contracting vehicles can best help your firm meet its sales or profitability goals, please contact us. If you think FedBid.com might be an appropriate tool for your company, remember, your firm must be recognized as a qualified federal contractor in order to win any contracts. If you are new to federal contracting please contact us and we can help get your firm recognized.