Electronic Reverse Auctions in Public Construction Procurement – Empirical Evidence from the Czech Republic

Abstract

Electronic reverse auctions (e-RAs) are considered to be an effective tool for negotiating tender prices and achieving cost savings. Furthermore, if multicritera evaluation is used, it can be expected that e-RAs will also contribute to achieving benefits in other areas, e.g. helping to minimize life-cycle costs. This study aims to analyse the mutual relationships between selected e-RA variables. More specifically, correlation analysis is applied to explore real e-RA data representing public tenders for construction work. This study's findings reveal that the correlations examined are generally weak or very weak. Furthermore, it has been found that the value of correlation coefficients varies depending on the type of structure, and that public tenders are usually evaluated solely on the basis of the criterion of the lowest bid price. Recommendations for public authorities in using e-RAs in the role of the buyer are also provided at the end of this paper.

Challenges of Electronic Reverse Auctions in Construction Industry—A Review

“…However, pre-determining the amount of work to be done accurately is the main problem when estimating the bid price (Marovic et al 2012). Nevertheless, taking into consideration specific features of the construction industry, suitability is also dependent on to what extent the subject of purchase is an intellectual property (Hanak 2018). Therefore, tender for project documentation preparation for a specific and unusual structure should not be realized with eRA as the creation of unique project documentation (or architectonic design) requires the invention of the author that cannot be considered in eRA appropriately.…”

“…In another study, the authors claim that awarding the contract to a bidder that has submitted abnormally low bids (ABL) may end up abandoning the project even before the competition (Hatipkarasulu and Gill 2004). In relation to this, a model of relationships between eRA inputs and outputs in the context of the construction sector is of particular interest as it involves and discusses post-auction effects such as supervision on the construction site or the effect of additional works (Hanak 2018). It is therefore important to pay attention when selecting capable suppliers, Wang (2015) proposed establishing the quality preset intervals and setting the default payment mechanism to punish the low-quality suppliers.…”

“…In general, the submission of ABL and supplier's opportunistic behavior are frequently detected in all competitive bidding systems instigating the reduction of bid prices (Lo and Yan 2009). Hanak et al (2018) mentioned an increased tendency to submit ABL in eRA-supported tenders compared to traditional procurement as a result of higher competition. The ability to detect ABL is crucial and belongs to the main concerns in construction procurement.…”

“…Such a low adoption rate is in line with general eRA use given in Section 3. When compared to traditional bidding, eRA tenders suffer from lower participation of bidders (Hanak 2016). Understanding and evaluation of drivers and barriers for e-procurement adoption are necessary for making the correct decision about taking part in eRA.…”

“…Hence, instead of having just the only one opportunity to submit their best prices (sealed bids), they are exposed to fierce and open price competition. Another aspect of the controversy is the question of what types of construction works/projects are suitable for eRA in terms of the ability to specify the subject of purchase sufficiently (Hanak 2018). Therefore, this paper aims to consolidate and critically discuss relevant issues concerning the use of eRA in the construction industry and propose future research directions.…”