Severn Trent defends use of reverse auctions for consultants

Severn Trent Water this week defended its decision to use reverse auctions, despite strong opposition from consultants.

It  confirmed that it had used electronic auctions to secure consultancy services for its next five year investment programme.

Reverse or e-auctions are bidding processes in which tenderers that have already submitted a price are pitted against each other in a one or two hour internet Dutch auction. Winning bids are normally chosen on a lowest price basis.

The Association for Consultancy & Engineering and British Water, which between them represent water industry consultants and suppliers, have long opposed the practice.  They claim it can be misused to drive down prices to unsustainably low levels.

A Severn Trent spokesman insisted that its selection process was based on quality (84%) and price (16%), with the final stage pricing based on an accelerated negotiation using an e-auctionthrough its Ariba electronic tendering platform.

"This was the first time Severn Trent had used an e-auction for such purposes and it was highly successful," he said.

"As well as time savings, the e-auction had the effect of compressing the range of multipliers for most of the suppliers, establishing a market rate.

"We do not believe that quality of service will be compromised as pricing was a relatively small element of final scores. In fact, the top scoring company had both the highest quality score and the highest salary multipliers in the auction."

British Water director Paul Mullord said: "This type of procurement strategy can work if you are dealing with uniform commodities like pencils or widgets. It is very difficult to evaluate a tender properly for more complex services on price alone."