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Concrete | Skills Training

March 22, 2005

CCA CONFERENCE COVERAGE

Association kicks in funds

Online reverse auctions subject of landmark study

CANCUN, Mexico.

The Canadian Construction Association (CCA) has given the go-ahead for the second phase of a landmark study of online reverse auctions.

The research was commissioned by The Associated General Contractors Education and Research Foundation and the Foundation of the American Subcontractors Association which provided the primary financial support.

Additional funding is being provided by the Associated Specialty Contractors Inc. and the Construction Management Association of America in addition to CCA.

The Canadian association is contributing $5,000 (U.S.) towards the cost of the study, being conducted in phases by two professors at Louisiana State University (LSU).

A progress report on the first phase, which entailed a review and collection of existing materials and data, was disseminated during a recent meeting here of the CCA’s e-construction committee.

The researchers reviewed hundreds of published articles, papers and reports relating to the auctioning of commodities and services with an eye to the use of cost-savings data that could justify the use of reverse auctions.

The review, which excluded advertising materials, revealed 11 primary areas in which online reverse auctions are being used.

However, the analysis exposed a scarcity of information supporting cost-savings claims in all industries, including construction. The study uncovered only one document that included aggregated data/analysis of cost savings of reverse auctions in construction.

That pilot study by the U.S. Army Corps of Engineers did not associate cost savings with online reverse auctions for construction services.

Doug Hotston

In a memo sent to the e-construction committee prior to the meeting, secretary Doug Hotston said there were some “interesting” findings from the LSU study’s initial phase:

— Few of the construction owners contacted, all based in the United States, who use reverse auctions were willing to share data or provide proof of cost savings realized through reverse auction tendering in comparison to the traditional sealed-bid process.

— None of the reverse auction service providers contacted could substantiate with data any claims of cost savings realized by the use of reverse-auction tendering in construction.

— Reverse-auction use now is prevalent in many other service sectors, namely bulk legal services and medical services.

“There was very little owner input,” Hotston said during the committee meeting in Cancun.

“But there were lots of statistics and feedback from suppliers who were getting squeezed.”

The second phase of the LSU study will gauge the impact of online reverse auctions in the construction industry — such as impact on bidding processes, project relationships and work quality.

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