Para 4.5 — GOODS_MANUAL

2. Electronic reverse auctions can be a powerful tool for procuring goods and services, but they also come with potential risks and drawbacks. Here are some reasons why caution is advised:

a) Quality and Supplier Relationships: In an electronic reverse auction, the focus is on price, and suppliers may be forced to cut corners to win bids, affecting the overall quality of the product or service. Additionally, aggressive bidding can strain supplier relationships, leading to long-term negative effects. b) Value for Money: While reverse auctions can drive down immediate costs, they may not optimise value for money. Factors like total cost of ownership, lifecycle costs, innovation, reliability, sustainability, and strategic alignment may get overlooked. c) Lack of Technology Development: Suppliers may hesitate to invest in innovation or process improvements if they are constantly pressured to lower prices. This can hinder long-term competitiveness and limit the introduction of new technologies or ideas in hitech goods and services. d) Risk of Supplier Dropouts: Aggressive bidding can lead to suppliers dropping out of the market segment, reducing competition. If critical suppliers exit, it can disrupt the supply chain and impact availability.

3. Thus, while electronic reverse auctions can drive cost savings, they should be used judiciously, considering the broader implications beyond price alone. Therefore, eRA should not be used indiscriminately or as a default mode of procurement. A procuring entity may choose procurement of goods that are amenable to procurement by this mode of procurement as per the following guidelines:

4.5. Dynamic Price Discovery - Electronic Reverse Auction (eRA) 1. Electronic Reverse Auction (eRA, a type of auction classified as a dynamic procurement mode) is an online real-time purchasing technique used to select a successful bid. eRA is an iterative process with automatic evaluation of bids, where bidders can offer successively more favourable bids to displace the lowest bid at any given moment within the duration of the eRA. The starting price, minimum bid decrement, duration of the auction, and the maximum number of automatic extensions are announced before the start of the online reverse auction. If a new lower bid is received within the last few minutes (pre-announced, say five minutes) of closing time, the closing time may get automatically extended by a few minutes (pre-announced, say ten minutes) for others to respond. A maximum number of such extensions may be pre-announced (say 50). The most favourable bid at the end of the stipulated/ extended time is declared as successful. It has, however, to be ensured that the entire process is conducted transparently and fairly.

a) A reverse auction would be appropriate where: i) Items are commodities, Commercially-off-the-shelf items; Chapter 4: Modes of Procurement and Tendering Systems ii) it is feasible to formulate a detailed description of the subject matter of the procurement; iii) there is a competitive market of bidders (say more than five) anticipated to be qualified to participate in the electronic reverse auction so that effective competition is ensured; iv) the criteria to be used by the procuring entity in determining the successful bid are quantifiable and can be expressed in monetary terms;

b) Where caution is needed in using Reverse Auction i) In the case of repetitive/ regularly procured items, future procurements may be affected, as there may not be the same type of price reduction in future procurements as in the first Reverse Auction. Procuring entities may face a situation of not being able to justify the higher rates received subsequently or ii) Where it is proposed to issue parallel orders by splitting the total order quantity among more than one supplier, a reverse auction may be avoided. However, in such a case, if the reverse auction is resorted to, then there should be adequate suppliers available, i.e., if the quantity is to split into N parts, then suppliers available should be at least N+3.

c) Reverse Auction would not be appropriate for: i) The requirement is not of high enough value to generate competitive pressures on bidders. ii) Items of strategic/ critical/ vital/ high technical complex nature, items that are in short supply in the market, or iii) Where the QCBS system of selection is used (wherever permissible in case of Consultancy, Non-consultancy Services or Works); or iv) Where FBS (Fixed Budget Based Selection) system of selection is used in Consultancy Services wherein the only parameter for evaluation is quality/ technical criteria or v) In Engineered products having complexity in design; or vi) EPC contracts and complex Works contracts, or vii) Items where there are only a few suppliers.

4. Terms and conditions: a) Subject to more detailed guidelines in the category-specific manual or organisational variations, the procedure for electronic reverse auction shall include the following: i) In stand-alone eRA, the procuring entity shall solicit bids through an invitation to the electronic reverse auction to be published or communicated in accordance with provisions like e-procurement. The invitation shall, in addition to the information as specified in e-procurement, include details relating to: 1) Access to and registration for the auction; 2) Opening and closing of the auction; 3) Norms for the conduct of the auction; 4) Any other information that may be relevant to the method of procurement. ii) If the consideration of quality requires competition only among qualified bidders, eRA may be preceded by a stage of PQB (on the same platform as eRA) to shortlist qualified bidders, who would only be allowed to participate in the eRA process that follows.

iii) Procuring Entities may combine a full two envelope eProcurement process with Reverse Auction (Tender cum e-Reverse Auction). Then, after an eProcurement process, the e-Reverse Auction process is mandatorily conducted taking the L1 price as the benchmark (upper limit), after the financial bid opening (declaration of L-1 landed price/ s), provided the number of valid bidders is not less than a stipulated number (3 if not specified). iv) In such a combined procedure, unless otherwise stipulated, the following procedure shall be followed for elimination/ shortlisting of bidders (from among those qualified in the preceding eProcurement process) eligible to participate in eReverse Auction: 1) The bids disallowed from participating in the Reverse Auction(e-eRA) shall be the highest bidder

(s) in the tabulation of prices in the financial bid. If the highest bidders quote the same rate, the Price Offer received last, as per the time log of the Portal, shall be removed first, on the principle of last in, first out by the system. 2) If the number of valid bidders is less than the minimum stipulated number (or 3 if not specified), a Reverse auction shall not be conducted, and the financial bids from the eProcurement process shall be evaluated and finalised. In the case of 4 to 6 valid bidders, the lowest three (3) bidders shall be allowed to participate in the reverse auction. In the case of more than 6 valid bidders, only 50% of the bidders (rounded up to the next integer) shall be allowed to participate. 3) However, if MSE bidders or Class-I Local suppliers under the Make in India policy do not meet the above criteria but their prices in financial bids are within the policy's margin of preference, they shall be allowed to participate. Such bidders would be over and above the shortlist mentioned above.

b) E-Reverse Auction Process: If the Portal e-RAP process is different from the one described below for the combined procedure (sub-para e) and f) above), the portal provisions shall prevail.

i) There shall be no participation fees for the e-Reverse auction. ii) Where pre-qualification precedes the eRA, an electronic invitation shall be issued, giving sufficient notice period to the successful bidders, so that they can formulate pricing strategies. The starting price shall be decided by the Procuring Entity. iii) In case of combined procedure (sub-para e) and f) above), upon opening the financial bids, a reverse auction platform shall be created. The reverse auction shall start within the specified period (two hours if not specified) of the bid. Unless modified by the procuring Entity, the L-1 landed price in the financial bid (as per the calculation schema based on the Tender Document evaluation criteria) shall be the start bid price on which the auction shall be initiated. iv) The Procuring Entity shall specify the decrement value before starting the eReverse Auction (or, if not specified, 0.5% of the start bid price rounded off to the next unit, tens, hundreds, thousands, etc., with a minimum of Rs. 1). The reduction in bids shall have to be made as per decrement value or in multiple thereof. A bid decrement that is too small may prolong the auction, and a decrement that is too large may restrict competition. v) An initial period of the reverse auction shall be as stipulated (or two hours if not specified). All times and periods are as per the server time stamp. In case a reduction in price is recorded in the stipulated last-minute-bidding-period (five minutes, if not so specified) before the auction closing time, there shall be auto extensions of time by a specified auto-extension period (ten minutes if not specified). The Maximum number of auto extensions shall be as stipulated (or 50 if not stipulated). The last-minute-bidding period should not be so small that unscrupulous bidders may catch others off guard, preventing competitive responses. The auto-extension period should be sufficient to allow bidders to consider their next move. The number of auto-extensions should not be too large to prolong the auction, leading to bidder fatigue. vi) In case of service disruption at the service provider’s end during the reverse auction, the reverse auction process shall start all over again, with the last recorded lowest price of prematurely ended e-RAP as the ‘Start bid’ price. The prices quoted in the prematurely ended e-RAP shall be binding on all the bidders for consideration if the restarted process does not trigger within the stipulated time (or by 5.00 pm on the same day, if not stipulated). Disruption and restarting of e-RAP shall be intimated to all the bidders through system/ SMS/ e-mail through the eprocurement portal. vii) Bidders must submit only the landed price in the reverse auction, and only the itemwise L-1 price shall be displayed without disclosing the number of bids and names of the bidders. The landed price would not be the same for two bidders, even if any bidder makes such an attempt. While evaluating the bids, the exchange rate captured by the e-procurement system shall be considered for converting foreign currency into Indian Rupees. viii) After the auction's closing time, the bid history showing all the last valid bids offered, along with the names of the bidders, shall be published. All bidders shall have the facility to see and get a print of the same for their records. ix) All electronic bids submitted during the reverse auction process shall be legally binding on the bidder. Only the chronologically last bid submitted by Bidder until the end of the auction shall be considered the valid financial bid of Bidder, and consideration of the same for entering into a contract by the Procuring Entity shall be binding on the bidder. x) In case of combined procedure, If a bidder does not submit his bid in the Reverse Auction, the price quoted in the financial bid in the preceding eProcurement shall be considered the valid price of that bidder. The status of the Bidder (L-1, L-2, etc.) shall be evaluated considering either the bid price submitted in the Reverse auction, or the Price quoted in the financial bid, whichever is lower. xi) Purchase Preference: Short-listed (MSE or Class-I Local suppliers), eligible for any purchase preference policy as per the Tender Document, shall get an opportunity to match the L-1 prices concluded after the reverse auction if their final prices in the Reverse Auction fall within the permitted percentage. xii) There shall not be any negotiation after the e-reverse auction process is closed. xiii) The successful L-1 bidder, after the reverse auction, must upload within a stipulated period (within 2 working days, if not specified) the breakup of Landed Prices in the shortfall documents, at which the contract shall be awarded. While giving the breakup, the Bidder shall include the same taxes and duties as quoted while submitting the financial bid. If the L-1 bidder fails to submit the breakup of the landed price within the stipulated period, the Procuring Entity shall place an order based on the breakup of the financial bid submitted by the Bidder, and the same shall be binding on the bidder. xiv) The Procuring Entity shall monitor whether there is improper use of the reverse auction, including, for example, evidence of predatory pricing, collusion, interference with the proper operation of the technology, etc. Bidders (including their subsidiaries) found to have engaged in collusive activities or other improper practices will be treated in accordance with para 7.6.8 below.

(Rule 167 of GFR 2017)