How low can they go? Pretty low, the Pennsylvania Department of Transportation has found.
Over a year ago, PennDOT teamed up with FreeMarkets Online to become one of the first states to use downward auctions to purchase commodities. That saved PennDOT so much money that it decided to become the first state to use the process to purchase new equipment.
Is it working? Yes. The question is more like, how much is it working? That's what PennDOT's presenters - Ray Rugh, Rick Dolbin, and Larry Allen - will analyze in "Join the Online Bidding World - Invitation to Quality," scheduled for Thursday, March 1, from 10:45 am to noon.
FreeMarkets OnLine, based in Pittsburgh, is the world's first company to organize and manage online, real-time auctions for purchasing departments. Using advanced electronic commerce software, it conducts "reverse auctions," in which industrial suppliers submit competitive bids in an interactive environment. That drives the market and saves buyers time and money in the purchasing process.
"It's like a sealed bid," Rugh says. "You can watch the bids drop at different intervals, and we know who's bidding against whom. They know who the players are. They're watching the bids as well. Every time they watch a bid drop, they extend the time one minute to give the bidders a chance to submit a lower bid. It can be pretty quiet the first half-hour. But towards the end, it gets really active."
When Pennsylvania Gov Tom Ridge announced in February 1999 a budget proposal that earmarked $35 million for technology tax cuts and $228.5 million in state and federal technology investments, he called on lawmakers to make Pennsylvania a national leader in e-commerce by saying, "We expect taxpayers to save millions as a result. That's the power of e-commerce."
And that's what Rugh, Dolbin, and Allen will be talking about: saving money.
PennDOT saved $1.5 million on salt last November. And it has experienced big savings on equipment: $1,000 per dump truck (which will translate into $200,000 this year); $57,000 per chassis for line stripers (which, with a purchase of three, saved a total of $171,000); and $500 per loader.
One of the negatives, according to Rugh, is that FreeMarkets requires a minimum purchase of $1 million and charges a $35,000 fee.
Another negative: The bidding doesn't always work. PennDOT, in an attempt to increase the GVW on its crew cabs from 11,000 to 15,000, ended up with two Ford dealers bidding against each other, because GMC does not offer 15,000 GVW chassis. PennDOT canceled the bid, but still ended up saving half of what it originally expected to pay.
"You have to be careful," Rugh says. "It's like balancing a checkbook, in a sense. It's so new."
He says that when PennDOT is finished buying $6 million worth of trucks this year, "I think we'll all be smarter."