Doing Well by Doing Good: Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning
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A White Paper From The Reverse Auction Research Center, by Dr. David Wyld

A White Paper From The Reverse Auction Research Center, by Dr. David Wyld

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Doing Well by Doing Good: Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Doing Well by Doing Good: Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Document Transcript

  • DOING WELL BY DOING GOOD: Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning A White Paper from The Reverse Auction Research Center Author: David C. Wyld Founder and Director Reverse Auction Research Center April 2013 © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 2 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning In Brief Public and private sector organizations are facing increasing pressure to “do the right thing” by purchasing from a more diverse supply base. Year after year, the federal government has come under intense criticism for its collective lack of success in meeting its own marks set for contracting small, diverse businesses. But some innovative federal acquisition leaders in agencies across the government are bucking that trend. These procurement pioneers have implemented a new best practice for purchasing that has, and is, helping them meet and even exceed federal diversity goals, while saving money. The proven best practice? Purchasing through reverse auctions. This white paper presents the findings of a research effort analyzing the most recent five years of procurement data across all federal agencies that purchased simple goods and services through the fully-managed, online reverse auction marketplace, FedBid. This data reveals the power of reverse auctioning to level the playing field, giving small businesses a fair shot to compete for federal contracts. The results demonstrate the capacity for reverse auction-based procurement practices to save buying organizations significant time and money, while engaging more small businesses—specifically those owned by Minorities, Women, Veterans and those located in socioeconomically disadvantaged areas of the country—with more opportunities to compete for, and potentially win, awards. Doing Well by Doing Good: Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 3 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Tables and Figures Table 1: Growth in Number of Awards: Total Federal Government, FY2008 – FY2012................................................................................8 Table 2: Growth in Awarded Dollars: Total Federal Government, FY2008 – FY2012...................................................................................9 Figure 1: Total Number of Awards Made to Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012....................................................................................................................................................................................7 Figure 2: Total Annual Awards Made to Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012....................................................................................................................................................................................7 Figure 3: Decline in Average Total Award Size on Acquisitions Made by Federal Agencies Through FedBid, FY2008 – FY2012...................................................................................................................................................................10 Figure 4: Total Number of Awards Made to Minority-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................11 Figure 5: Total Annual Awards Made to Minority-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................11 Figure 6: Total Number of Awards Made to Woman-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................12 Figure 7: Total Annual Awards Made to Woman-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................12 Figure 8: Total Number of Awards Made to Small Disadvantaged Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................13 Figure 9: Total Annual Awards Made to Small Disadvantaged Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................13 Figure 10: Total Number of Awards Made to Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................14 Figure 11: Total Annual Awards Made to Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................14 Figure 12: Total Number of Awards Made to Service-Disabled Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012.......................................................................................................... 15 Figure 13: Total Annual Awards Made to Service-Disabled Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012...........................................................................................................15 Figure 14: Total Number of Awards Made to HUBzone Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012..................................................................................................................................................16 Figure 15: Total Annual Awards Made to HUBzone Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012....................................................................................................................................................................16 Figure 16: Total Number of Awards Made to 8(a) Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012...................................................................................................................................................................................17 Figure 17: Total Annual Awards Made to 8(a) Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012....................................................................................................................................................................17
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 4 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Overview Diversity is a critical issue for public and private sector organizations today. Whether it is an organization’s human resource department examining its diversity efforts in hiring, or marketing department learning how to best reach more diverse audiences, there is a growing recognition that diversity is more than just the right thing to do—it’s also the smart way to do it. Likewise, in procurement, acquisition or purchasing departments, many organizations are increasingly recognizing the importance of having a vibrant and diverse supply base. In addition to the many arguments in support of diversity, consider this: By 2015, the total buying power of ethnic minorities will reach approximately $2.1 trillion annually or roughly 15%. By 2040 it is estimated that ethnic minorities will comprise the majority. When added to the buying power of other small, diverse businesses, it’s no wonder major corporations with consumer brands such as automotive, consumer goods, travel and leisure, restaurants and a multitude of others, have recognized that diversity outreach is just plain good business. Diversity in Procurement: Does It Cost or Save Money? We often hear that diversity pays, yet there is a widespread, though often unspoken, perception that diversity costs, particularly in the area of procurement. Often, organizations may face the choice of going with the best-cost supplier or with a more costly diverse supplier. If the organization opts to purchase from the more expensive Minority, Woman, or Veteran-owned small business, this results in what is known as a “diversity cost”. Because of this additional cost, organizational efforts to build a supply base that reflects the growing diversity of the country are often widely perceived as investments in worthy social responsibility efforts as part of a savvy public relations strategy. As the data in this white paper proves, this does not—and has not—been the case for federal agencies purchasing from diverse suppliers through FedBid. Rather, agencies are able to obtain best value for the U.S. taxpayer while tapping into the diverse small business supplier community. Doing Well by Doing Good: Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 5 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Diversity Goals Unmet: The Federal Government and Small Business In spite of years working to promote a more diverse supply base, federal acquisition executives often find themselves the subjects of highly-publicized criticism for their collective failure to show concrete results. Since its founding in 1953, one of the primary tasks of the U.S. Small Business Administration (SBA) has been to promote small business involvement and success in federal contracting and subcontracting opportunities. They work to achieve this through a variety of programs and outreach efforts. In addition, Congress has established a statutory goal that 23 percent of all prime federal contracting dollars should be awarded to small businesses. Yet, despite significant outlays from the SBA and all federal agencies towards helping small businesses—especially those owned by members of diverse populations—most small firms have either not participated or failed to win federal contracts. Each year, the SBA publishes a report card on the progress made in achieving that goal by both the federal government as a whole and 23 cabinet-level agencies (http://www.sba.gov/content/small-business-procurement- scorecards-0). As can be seen in the corresponding chart (Share of Federal Contracting Dollars Awarded to Small Businesses), according to the SBA’s own report card data, while federal agencies vary in their ability to include diverse small businesses in their contracting, the federal government has failed to meet this goal in any fiscal year since at least 2006. Analysts have projected that this collectively costs small businesses billions of dollars annually in lost potential revenues from federal contracting dollars—lost dollars that could dramatically help members of diverse populations build their businesses and create jobs in local communities. In a recent Washington Post article, Margot Dorfman, the CEO of the Washington-based U.S. Women’s Chamber of Commerce, stated that small business’ ability to succeed in federal contracting, “should be one of the top concerns of the Small Business Administration and the President”. Ms. Dorfman called for immediate action on the matter, calling upon government leaders to, “Fix it now. Let’s not wait.’’ (http://www.washingtonpost.com/business/ economy/ big-firms-edge-small-for-billions-of-dollars-in- awards/2012/11/18/02f60a06-) Share of Federal Contracting Dollars Awarded to Small Business The Power of Reverse Auctions to Help Small, Diverse Businesses Compete and Succeed in Federal Contracting While the overall federal track record on contracting small businesses is far less than par, a previously untold success story has emerged over the past number of years. These successes center on the use of reverse auctions for purchasing. Today, innovative contracting executives across a number of federal agencies are consistently demonstrating that employing reverse auctioning enables the federal government to save significant money on procurements while sourcing more diverse small businesses, effectively fueling the economic engines of communities throughout the country—and therefore the country as a whole. This white paper presents an analysis of the federal government’s use of reverse auctioning, showing how the employment of competitive bidding works to save taxpayer dollars while helping small businesses gain access, and win, in the federal contracting arena. The data shows that diverse, small businesses (Minority, Veteran or Woman- Owned) were particularly successful in the competitive bidding environment, which translates into greater prospects for their success based on their future involvement with federal contracting—all powered through the online reverse auction marketplace, FedBid available to all firms, regardless of size. Federal Goal (23%) FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 22.8% 22% 20.5% 21.9% 22.7% 21.7%
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 6 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Analysis In analyzing the issue, we examined the results of the past five fiscal years (FY2008 – 2012) of federal agency procurements made through the fully-managed online marketplace, operated by FedBid, Inc. In FY2012 alone, federal agencies procured over $1.3 billion in goods and services through reverse auction competitions on FedBid, saving over $121 million in the process. Currently, over 60,000 companies, the vast majority of which are categorized as small businesses, participate in FedBid’s online marketplace. Through the data in this white paper we will see that small businesses in general, and those with diverse ownership designations, were particularly successful in competing for and winning federal contracting opportunities due to the level playing field on FedBid. Definitions For the purposes of this research, we took a two-stage approach. First, we examined the success of small businesses overall, then we examined the success of small businesses with diverse ownership. Small businesses were defined per the following SBA designations: The SBA, for most industries, defines a “small business” either in terms of the average number of employees over the past 12 months, or average annual receipts over the past three years. In addition, SBA defines a U.S. small business as a concern that: • Is organized for profit. • Has a place of business in the U.S. • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor. • Is independently owned and operated. • Is not dominant in its field on a national basis. The business may be a sole proprietorship, partnership, corporation or any other legal form. In determining what constitutes a small business, the definition will vary to reflect industry differences, such as size standards. Additionally, the small business designation may vary significantly based on the industry North American Industry Classification System (NAICS) code the business is classified under. Source: Small Business Administration, “Am I a Small Business Concern?” (www.sba.gov/content/am-i- small-business). Additionally, small businesses can be further classified into subgroups based on the characteristics of their ownership. These include the following designations: • Minority-Owned • Woman-Owned • Small Disadvantaged • Veteran-Owned • HUBZone • Service-Disabled Veteran-Owned • 8(a) Details on these classifications can be found at www.sba. gov/category/navigation-structure/contracting/working- with-government/small-business-certifications-audi. In this research, we will first look at the experience of small businesses in reverse auction-based federal contracting competitions, and then look at the success found by each diverse subgroup of small businesses.
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 7 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning $547,328,025 $655,682,381 $791,518,420 $950,800,874 $1,026,961,337 FY2008 FY2009 Awarded Amount (in $Dollars) FY2010 FY2011 FY2012 9,050 10,126 11,897 16,294 24,880 FY2008 FY2009 Number of Awards FY2010 FY2011 FY2012 Small Businesses in the Online Marketplace As can be seen in Figures 1 (Total Number of Awards Made to Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) and 2 (Total Annual Awards Made to Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012), small businesses saw rapid growth over the past five years in both the number of acquisition opportunities they won and in the actual dollar amounts awarded to small firms. In FY2008, small businesses were awarded 9,050 contracts for goods and services through competitive bidding in FedBid’s online marketplace. This represented a total of just over half a billion dollars in federal procurement spend ($547,328,025). In the most recent fiscal year, FY2012, small business participation and success in the online marketplace grew to the point where 24,880 awards, totaling over a billion dollars in acquisition spending ($1,026,961,337), were awarded to successful small businesses across the country. Figure 1: Total Number of Awards Made to Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Small Business Overall Figure 2: Total Annual Awards Made to Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Small Business Overall While the growth of small business wins is impressive, it is more important in the overall context of the federal acquisition environment that small businesses are competing, and succeeding on their own merits. What we have seen through the analysis of the past five years of reverse auction competition data is small businesses gaining federal agency procurements versus their bigger competitors. As can be seen in Table 1, out of the total number of reverse auction-based awards from federal agencies, the share awarded to small businesses has grown tremendously over time. In fact, the growth rate for small business awards over the FY2008 – FY2012 time frame was 174.9%. More importantly, this growth has come not in the area of “set-aside” acquisitions, where small businesses only compete against one another in a limited scope. Rather, the growth has come in open market competitions open to all qualified competitors—large and small businesses alike. The growth rates for specific categories of small businesses have been even greater than the category as a whole. The growth rates for these small business subcategories are displayed in Table 1.
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 8 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Table 1: Growth in Number of Awards: Total Federal Government, FY2008 – FY2012 AWARDED AMOUNT (IN $DOLLARS) FY2008 FY2009 FY2010 FY2011 FY2012 GROWTH RATE OVER PAST 5 YEARS TOTAL FEDERAL GOVERNMENT 10,339 11,785 14,313 19,791 29,048 181.0% Small Disadvantaged Business 1,225 1,526 1,835 2,600 5,205 324.9% Service-Disabled Veteran-Owned Small Business 896 847 1,012 1,502 2,927 226.7% Veteran-Owned Small Business 1,591 1,576 2,006 2,814 4,942 210.6% 8(a) Small Business 401 359 464 827 1,186 195.8% Small Business 9,050 10,126 11,897 16,294 24,880 174.9% Minority-Owned Small Business 2,305 2,788 3,208 4,318 6,104 164.8% Woman-Owned Small Business 2,770 2,980 3,365 4,749 6,673 140.9% HUBZone Small Business 521 624 623 857 1,164 123.4%
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 9 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Table 2: Growth in Awarded Dollars: Total Federal Government, FY2008 – FY2012 AWARDED AMOUNT (IN $DOLLARS) FY2008 FY2009 FY2010 FY2011 FY2012 GROWTH RATE OVER PAST 5 YEARS TOTAL FEDERAL GOVERNMENT $648,840,600 $780,985,603 $1,011,276,773 $1,209,436,772 $1,302,079,822 100.7% Service- Disabled Veteran-Owned Small Business $40,654,518 $36,339,682 $74,219,569 $134,240,538 $181,048,375 345.3% Veteran-Owned Small Business $74,199,726 $67,968,192 $118,756,901 $185,717,947 $239,289,338 222.5% 8(a) Small Business $28,149,326 $20,184,741 $33,618,817 $45,090,243 $59,519,827 111.4% Small Disadvantaged Business $130,491,073 $136,802,190 $134,765,354 $212,280,588 $264,726,288 102.9% Small Business $547,328,025 $655,682,381 $791,518,420 $950,800,874 $1,026,961,337 87.6% HUBZone Small Business $22,334,455 $51,376,730 $35,145,352 $52,319,223 $41,722,260 86.8% Woman-Owned Small Business $130,333,938 $175,132,821 $152,742,284 $186,246,290 $202,649,480 55.5% Minority-Owned Small Business $225,264,293 $272,804,951 $231,568,830 $334,403,640 $333,055,788 47.9% When examining the past five years of data in terms of actual acquisition dollars awarded by the federal government, the overall dollars garnered by small businesses has grown rapidly, even if at a slightly more moderate rate than the number of awards. As can be seen in Table 2, the growth rate for small businesses was 87.9% over the FY2008 – FY2012 period. In fact a milestone was hit in the most recent fiscal year, as for the first time, small businesses were awarded over a billion dollars ($1,026,961,337) from federal agencies’ procurement activities. Again, the success rates for specific categories of small businesses were impressive. This was especially true in the realm of small businesses owned and operated by military Veterans. In fact, the five-year growth rate for Veteran-Owned Small Businesses was 222.5% and for Service-Disabled Veteran-Owned Small Businesses, the growth rate was 345.3%. Finally, there is an important trend in the data that is especially favorable to small businesses. Our analysis has shown that the average award size has declined over the five-year period under review. This trend can be plainly seen in Figure 3 (Decline in Average Total Award Size on Acquisitions Made by Federal Agencies Through FedBid, FY2008 – FY2012). As the average award size declines, there are increasing numbers of acquisition opportunities for small businesses.
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 10 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Figure 3: Decline in Average Total Award Size on Acquisitions Made by Federal Agencies through FedBid, FY2008 – FY2012 At present, there are over 60,000 companies actively participating in FedBid, most of which are small businesses. With more and more bidding opportunities on contracts for goods and services of all varieties and for amounts ranging from millions of dollars down to just a few thousand dollars, small companies can find opportunities that match their particular profile and succeed in delivering profitable government sector sales for their firms. In the next section of this white paper, we will examine the federal contracting success of the specific diversity groups competing in FedBid’s online marketplace. Diverse Small Businesses in the Online Marketplace In drilling down into the past five years (FY2008 – FY2012) of data from FedBid’s online marketplace, the success of diverse small businesses is striking. In this section of the white paper, we will present summary graphics on the following diversity group reverse auction successes: • Minority-Owned Small Businesses • Woman-Owned Small Businesses • Small Disadvantaged Businesses • Veteran-Owned Small Businesses • HUBZone Small Businesses • Service-Disabled Veteran-Owned Small Businesses • 8(a) Small Businesses For each diversity category, we will track their performance both in the number of awards and the awarded dollars. $62,757 $60,478 $44,825 $41,227 FY2008 Average Award Average Small Business Award FY2012
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 11 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning 2,305 2,788 3,208 4,318 6,104 FY2008 FY2009 Number of Awards FY2010 FY2011 FY2012 $225,264,293 $272,804,951 $231,568,830 $334,403,640 $333,055,788 FY2008 FY2009 Awarded Amount (in $Dollars) FY2010 FY2011 FY2012 Minority-Owned Small Businesses In this first diversity subgroup, consisting of small businesses owned by individuals classified as belonging to an ethnic minority group, there was significant growth in the number of awards won. As can be seen in Figure 4 (Total Number of Awards Made to Minority-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012), the number of awards secured by Minority-Owned Small Businesses grew from 2,305 in FY2008 to 6,104 in FY2012, a 164.8% increase over the five-year time span. More impressively, the number of awards secured by Minority-Owned Small Businesses rose by 41.4% in the most recent fiscal year. Likewise, Figure 5 (Total Annual Awards Made to Minority-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) shows that the total awarded dollars secured by Minority-Owned Small Businesses grew by 47.9% over the five-year time span between FY2008 and FY2012. Figure 4: Total Number of Awards Made to Minority- Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Minority-Owned Small Business Figure 5: Total Annual Awards Made to Minority- Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Minority-Owned Small Business
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 12 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Woman-Owned Small Businesses The next diversity subgroup of small businesses analyzed were those that are Woman-Owned. As the category name indicates, this subgroup is comprised of all small businesses that have female ownership. As Figure 6 (Total Number of Awards Made to Woman-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) reveals, in terms of the number of awards secured annually, Woman-Owned Small Businesses succeeded in increasing their presence in federal contracting greatly over the past five years. In FY2008, Woman-Owned Small Businesses secured 2,770 awards. By FY2012, this figure grew to 6,673. This represents a five-year growth rate of 140.9%. In terms of the actual total awarded dollars won by Woman-Owned Small Businesses, as is illustrated in Figure 7 (Total Annual Awards Made to Woman-Owned Small Businesses by Federal Agencies Through FedBid, FY2008-FY2012) this amount grew from $130,333,938 in FY2008 to $202,649,480 in the most recent fiscal year (FY2012). Thus, over this five-year time frame, Woman-Owned Small Businesses succeeded in gaining 55.5% more federal contracting dollars through their competition in FedBid’s online marketplace. Figure 6: Total Number of Awards Made to Woman- Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Woman-Owned Small Businesses Figure 7: Total Annual Awards Made to Woman- Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Woman-Owned Small Businesses 2,770 2,980 3,365 4,749 6,673 FY2008 FY2009 Number of Awards FY2010 FY2011 FY2012 $130,333,938 $175,132,821 $152,742,284 $186,246,290 $202,649,480 FY2008 FY2009 Awarded Amount (in $Dollars) FY2010 FY2011 FY2012
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 13 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Small Disadvantaged Businesses This third subcategory of small businesses consists of companies that self-identify their business as being disadvantaged, based on a number of qualifying factors outlined by the SBA. Over the five-year time span under review, Small Disadvantaged Businesses, as a group, proved to be particularly adept at competitive bidding via reverse auction. As Figure 8 (Total Number of Awards Made to Small Disadvantaged Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) illustrates, the number of awards won by Small Disadvantaged Businesses rose 324.9% between FY2008 and FY2012. Figure 9 (Total Annual Awards Made to Small Disadvantaged Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) shows that this growth in competitive success via reverse auction participation translated into more than doubling the total dollars awarded to Small Disadvantaged Businesses over the five-year period, rising from $130,491,073 in FY2008 to $264,726,288 in FY2012. Figure 8: Total Number of Awards Made to Small Disadvantaged Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Small Disadvantaged Businesses Figure 9: Total Annual Awards Made to Small Disadvantaged Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Small Disadvantaged Businesses 1,225 1,526 1,835 2,600 5,205 FY2008 FY2009 Number of Awards FY2010 FY2011 FY2012 $130,491,073$136,802,190 $134,765,354 $212,280,588 $264,726,288 FY2008 FY2009 Awarded Amount (in $Dollars) FY2010 FY2011 FY2012
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 14 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Veteran-Owned Small Businesses The fourth subcategory of small businesses under review were those defined as being controlled by a former member of the armed services, Veteran-Owned. As can be seen in Figure 10 (Total Number of Awards Made to Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012), the number of awards secured by Veteran-Owned Small Businesses grew from 1,591 in FY2008 to 4,942 in the most recent fiscal year (FY2012). This represents a growth rate of 210.6% over the five-year period under review and in the last fiscal year in particular, there was a rise of 75.6% in awards garnered by Veteran-Owned Small Businesses. Further, as Figure 11 (Total Annual Awards Made to Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008-FY2012) illustrates, this subcategory of small businesses saw a rapid rise in actual award dollars. In FY2008, Veteran-Owned Small Businesses recieved just under $75 million in awarded contracts from federal agencies. By FY2012, this amount had risen to almost $240 million dollars. This amounted to an increase of 222.5% over the five-year period. Figure 10: Total Number of Awards Made to Veteran- Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Veteran-Owned Small Businesses Figure 11: Total Annual Awards Made to Veteran- Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Veteran-Owned Small Businesses A 1,591 1,576 2,006 2,814 4,942 FY2008 FY2009 Number of Awards FY2010 FY2011 FY2012 $74,199,726 $67,968,192 $118,756,901 $185,717,947 $239,289,338 FY2008 FY2009 Awarded Amount (in $Dollars) FY2010 FY2011 FY2012 The five-year growth rate for Veteran-Owned Small Businesses was 222.5% and for Service-Disabled Veteran-Owned Small Businesses, the growth rate was 345.3%.
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 15 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Service-Disabled Veteran-Owned Small Businesses The fifth small business subcategory under review included businesses whose ownership includes a former member of the armed services who sustained a service-related disabling physical or mental injury, Service-Disabled Veteran-Owned Small Businesses. In light of the plight of Veterans and the attention being rightfully paid today to their lingering apparent and hidden impairments, this subgroup of small businesses is especially seen as a critical area for supplier diversity success. And in light of the subcategory’s performance in reverse auctions in FedBid’s online marketplace for federal contracting opportunities, this sub-grouping of Veteran-Owned Small Businesses has proven especially competitive. As can be seen in Figure 12 (Total Number of Awards Made to Service-Disabled Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012), Service-Disabled Veteran-Owned Small Businesses saw a vast increase over the five-year review in their collective ability to win federal contracting opportunities. In FY2008, Service-Disabled Veteran-Owned Small Businesses succeeded in winning a total of 896 awards. By FY2012, this number had climbed to 2,927! This represents a five-year growth rate of 226.7%, and in FY2012 alone, the growth rate was almost 95%! And as Figure 13 (Total Annual Awards Made to Service-Disabled Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) illustrates, Service- Disabled Veteran-Owned Small Businesses also succeeded in garnering an ever-increasing share of actual contracted dollars from federal agencies. In FY2008, this subcategory of small businesses won awards totaling $40,654,518. By the last fiscal year, this amount had grown to $181,048,375. Figure 12: Total Number of Awards Made to Service- Disabled Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Service-Disable Veteran-Owned Small Businesses Figure 13: Total Annual Awards Made to Service- Disabled Veteran-Owned Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 Service-Disable Veteran-Owned Small Businesses 896 847 1,012 1,502 2,927 FY2008 FY2009 Number of Awards FY2010 FY2011 FY2012 $40,654,518 $36,339,682 $74,219,569 $134,240,538 $181,048,375 FY2008 FY2009 Awarded Amount (in $Dollars) FY2010 FY2011 FY2012
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 16 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning HUBzone Small Businesses The sixth subcategory of small businesses reviewed included businesses designated by the SBA to be a located in an Historically Underutilized Business (HUB) Zone. HUBzones are located throughout the country, consisting presently of: • 13,635 Qualified Census Tracts • 506 Qualified Non-Metropolitan Counties • 127 Qualified Base Closure Areas • 819 Qualified Indian Lands (Source: www.sba.gov/content/hubzone-maps) In an examination of the five years of data from small business performance on reverse auctions on FedBid, small businesses that were located in designated HUBzone areas collectively saw substantial growth in both the number of awards won and the total amount of awarded dollars gained. As Figure 14 (Total Number of Awards Made to HUBzone Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) shows, HUBzone Small Businesses share of federal agency awards grew from 521 in FY2008 to 1,164 in FY2012. This corresponds to a growth rate of 123.4% over the five-year period under review, and in FY2012 alone, HUBzone Small Businesses saw growth in awards of over 35%. In regards to the total amount of awarded dollars, as Figure 15 (Total Annual Awards Made to HUBzone Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) reveals, there was great variability found over the five-year time period under review. However, from FY2008 to FY2012, there was growth of 86.8% for HUBzone Small Businesses in terms of the total awarded dollars secured by this subcategory of small businesses. Figure 14: Total Number of Awards Made to HUBzone Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 HUBzone Small Businesses Figure 15: Total Annual Awards Made to HUBzone Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 HUBzone Small Businesses 521 624 623 857 1,164 FY2008 FY2009 Number of Awards FY2010 FY2011 FY2012 $22,334,455 $51,376,730 $35,145,352 $52,319,223 $41,722,260 FY2008 FY2009 FY2010 FY2011 FY2012 Awarded Amount (in $Dollars)
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 17 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning 8(a) Small Businesses The seventh and last subgroup of small businesses whose performance was evaluated was of 8(a) Small Businesses. According to the SBA, the 8(a) program is: • A business assistance program for small disadvantaged businesses. The 8(a) Program offers a broad scope of assistance to firms that are owned and controlled at least 51% by socially and economically disadvantaged individuals. • An essential instrument for helping socially and economically disadvantaged entrepreneurs gain access to the economic mainstream of American society. The program helps thousands of aspiring entrepreneurs to gain a foothold in government contracting. (Source: www.sba.gov/content/8a-business- development-0) Figure 16 (Total Number of Awards Made to 8(a) Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) illustrates the growth in the number of awards secured by small businesses with the 8(a) designation. As the graphic shows, 8(a) Small Businesses garnered 1,186 awards in FY2012. With consistent growth over the five-year time frame under review in this study, this translates into a growth rate of almost 200% (195.8%). There was a corresponding increase in the actual total dollar amounts awarded to 8(a) businesses. As Figure 17 (Total Annual Awards Made to 8(a) Businesses by Federal Agencies Through FedBid, FY2008 – FY2012) shows, the total dollar awards more than doubled over the five years, growing from $28,149,326 in FY2008 to $59,519,827 in the most recent fiscal year (FY2012). Figure 16: Total Number of Awards Made to 8(a) Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 8(a) Businesses Figure 17: Total Annual Awards Made to 8(a) Small Businesses by Federal Agencies Through FedBid, FY2008 – FY2012 8(a) Businesses 401 359 464 827 1,186 FY2008 FY2009 Number of Awards FY2010 FY2011 FY2012 $28,149,326 $20,184,741 $33,618,817 $45,090,243 $59,519,827 FY2008 FY2009 Awarded Amount (in $Dollars) FY2010 FY2011 FY2012
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 18 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning Conclusion Through the federal government’s experience with reverse auctioning using FedBid’s online marketplace, competition and diversity can be achieved together—making the use of competitive bidding a proven, winning strategy for procurement executives to fast replicate as a best practice in their own organizations. The results clearly deliver a call to action for federal acquisition executives to build upon their successes by making greater use of reverse auctioning through FedBid to meet and exceed small business contracting goals overall and for specific diverse populations. In a wider context, the research contained in this white paper demonstrates a remarkably simple reality. For buying organizations today, whether they are in the private sector, state and local governments, or in educational entities such as colleges and universities or local school districts, purchasing through the online reverse auction marketplace is an achievable way to save money on procurements and advance organizational goals to support small businesses and diversify supply base. Dynamic competitive bidding not only levels the playing field for potential suppliers to compete with much larger firms, but the process enables the power of competition to ensure that the buying organization is getting the best value for its acquisition expenditures. Simultaneously, organizations achieve corporate responsibility goals of “doing well by doing good”, advancing the interests of diverse groups including women, minority, Veterans and those from economically disadvantaged areas—without paying a premium for doing so. In fact, as this research has shown, rather than there being a cost to advancing the interests of small businesses in general and diverse firms specifically, there can be substantial cost savings brought about by tapping into a wider supply network. And finally, there are significant benefits to be gained by all parties from widening any organization’s supply base away from just the largest companies and the “usual suspects”. Having a diverse supply chain not only adds different solutions and variety to goods and services, but such diversity efforts can also reinvigorate communities. Doing business with local small to medium-sized diverse businesses fuels economic growth and gives local customers more disposable income to spend, resulting in greater revenue potential for the business and more tax revenue for local, state and federal government. The participation of more and more small businesses, particularly diverse companies on FedBid, is enabling procurement executives not only to contribute hard-dollar savings to the bottom line, but also to advance organizational social responsibility and diversity goals by having a more diverse and representative supply base. And whether we are speaking of commercial firms or state and local governments, the ability to source locally translates into more opportunities and jobs for those living in their communities. While corporations have come a long way in their thinking, their ability to meet their diversity goals has not. Even after investing significant dollars into supplier diversity programs consisting of initiatives such as mentoring, matchmaking events, conference sponsorships, internal policy and tracking systems; the total spend being awarded is a small fraction of the total available spend. Now is the time for corporations to follow the best practice so effectively being used by the federal government’s procurement pioneers.
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org 19 Encouraging Supplier Diversity While Saving Procurement Dollars Through Reverse Auctioning David C. Wyld currently serves as the C.E. Laborde Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is the director of the College of Business’ Strategic e-Commerce/e-Government Initiative, the founding editor of the International Journal of Managing Information Technology, and a frequent contributor to both academic journals and trade publications. He has established himself as one of the leading academic experts on emerging applications of technology in both the public and private sector. He has been an active consultant, a qualified expert witness and an invited speaker on the strategic management of technology to both trade and academic audiences, as well as an invited panelist on technology issues on The Discovery Channel, Federal News Radio and other media outlets. In addition, he serves as founder and executive director of the Reverse Auction Research Center (www.ReverseAuctionResearch.com) , which servers as a hub of research and news in the expanding world of competitive bidding. In recognition of his research accomplishments, Dr. Wyld has been awarded Southeastern Louisiana University’s “President’s Award for Excellence in Research” and been named a “Rising Star in Government Information Technology” by Federal Computer Week Magazine. Dr. Wyld and his family reside just outside New Orleans. About the Author Contact Information: David C. Wyld Founder and Director The Reverse Auction Research Center C.E. Laborde Professor of Management SLU - Box 10350 Hammond, LA 70402-0350 Office: 985-549-3079, 985-542-6831 Cell: 985-789-2127 Fax: 985-549-2019 DWyld@selu.edu
  • © 2013 The Reverse Auction Research Center. All Rights Reserved. | www.ReverseAuctionResearch.org FedBid is the fully-managed online marketplace proven to optimize how governments, businesses and educational institutions buy the goods and services they need to keep their organizations running. Over a decade ago, FedBid was founded on the belief that there’s a better way for organizations of all sizes to buy smart, save money and reduce risk when purchasing the things they buy every day. Since then, thousands of Buyers across the public and private sectors have increased procurement efficiencies while saving hundreds of millions of dollars by purchasing through FedBid’s online marketplace. FedBid-registered Buyers save time, stretch budgets, improve transparency and increase small business utilization FedBid can maximize any organization’s purchasing power, regardless of size—delivering substantial savings through enhanced procurement efficiency and increased competition. FedBid-qualified Sellers gain access to thousands of real federal, state and local government, education and commercial sales opportunities while maximizing administrative and sales efficiencies. Buyers save significant time and money. Sellers gain equal access to more opportunities. It’s a marketplace win-win whose benefits positively impact the success of organizations, communities, small businesses, schools, local economies, families and much more. For more information, visit FedBid at www.FedBid.com. The Reverse Auction Research Center, founded in 2010, was created to stimulate research in the use of reverse auctions in procurement, both in the private and public sectors. Since the founding of the Center, the institution has become a catalyst for reporting research findings and has served as a hub for news and resources on the use of reverse auctions. ​The Center is under the direction of Dr. David C. Wyld, who is the C.E Laborde Professor of Management at Southeastern Louisiana University. Dr Wyld is one of the world’s leading experts on reverse auctions, and under his leadership, the Center has produced findings that have been reported in major news stories, cited in academic journal articles, and served as a foundation for corporate and governmental entities to guide their decision-making on reverse auctions as part of their acquisition strategies. Dr. Wyld continues to lead the Center in exploring new applications of the reverse auction model beyond the procurement of commodities and simple services, with new efforts underway in the fields of energy and telecommunication resource allocations. ABOUT FEDBID ABOUT REVERSE AUCTION RESEARCHREVERSE AUCTION RESEARCH