The document summarizes the City of Los Angeles' use of reverse auctions to reduce procurement costs. It provides an overview of the city's centralized procurement process and annual spending. The city worked with a third party to conduct online reverse auctions, where suppliers bid against each other in real-time to lower prices. Through 11 reverse auctions over 2 years on items like office supplies, traffic signals, and water treatment chemicals, the city reduced annual procurement costs by over $5 million, or around 17% of estimated expenditures. The document details several individual reverse auction successes and savings.

1. PROCUREMENT SAVINGS
STRATEGIES
Reverse Auctions: A Success
Story at the City of Los
Angeles
Kenneth F. Desowitz, C.P.M.
Director of Supply Services
City of Los Angeles
kenneth.desowitz@lacity.org
(213) 928-9557

2. LA City Overview
•Centralized Procurement of Commodities and
Maintenance Services for transactions over $1000
•Supply Services Division is responsible for
Procurement, Inventory Management and Salvage
Functions (148 staff currently)
•Procurement Staff Organized into 5 Commodity
Groups (4 Procurement Supervisors and 14 Procurement
Analysts)
•Fleet Group
•Construction & Maintenance Group
•General Operations & IT Group
•Industrial Group
•Public Safety Group

3. LA City Overview
•Over $451 million in purchases last fiscal
year
•480 annual requirements contracts
•70,000 contract po’s ($347 million)
•2,100 one-time po’s ($96 million)
•18,000 blanket po’s under $1000 ($8
million)

4. Procurement Savings/Avoidance Form
PROCUREMENT ANALYST: CONTRACT/P.O. NO.: SUPPLIER:
SAVINGS/AVOIDANCE METHOD USED:
Value Analysis (i.e. annual fee vs. time & materials maintenance)
New source discovered (new supplier discovered other than suggested supplier or
from the supplier database list)
Market research (i.e. competitive bidding vs. contract renewal; pricing index or other
agency’s pricing vs. current contract pricing)
Negotiated reduction in price and/or payment terms
Annual contract created for item previously purchased as a one-time
Change in design or specification
Substitution (i.e. rebuilt vs. new; lease vs. buy)
State, County or other cooperative purchasing contracts utilized (i.e. piggybacking)
Reverse Auction (projected savings based on old price/established baseline)
SAVINGS/AVOIDANCE COMPUTATION:
ANNUAL CONTRACT: Old Price - New Price = Savings
Savings x Projected Annual Usage = Annual Savings
ONE-TIME PURCHASE ORDER: Req. Pre-Encumbrance - P.O. Encumbrance = Savings
EXPLANATION OF PROCUREMENT ANALYST ACTIVITY:

5. Reverse Auctions
•What is a “Reverse Auction”?
-It is an online/web-based tool where suppliers bid against
each other in real-time by placing multiple lowering bids to achieve a
virtual first place at the end of a defined time period.
•What type of bidding process is used?
-A two step competitive bid process is used to implement
the solicitation strategy.
-During the first step bidders must comply with the
specifications and administrative compliance requirements.
-During the second step, bidders that passed the first step
participate in the pricing phase of the bid process.
•Self administered or managed by a 3rd party?
-3rd party is most effective at maintaining the “sealed bid”
environment and dealing with problems as they occur during the pricing
phase.
-Bidders remain anonymous to the City and only their “rank”
is revealed to the other participating suppliers during the pricing phase.
-Peralta Garcia Government Innovations offers a supplier
funded pricing model eliminating the cost of software procurement.

6. Reverse Auctions
•Does the bidding process take longer than the traditional method?
-By doing RA’s as a two-step process an additional week is
added to the processing time.
-During that additional time the suppliers are trained on how to use
the software platform and lot time frames, extension periods and bid
decrements are established.
-The actual pricing phase has lasted from 40 minutes to two days for
the most complex RA.
-During the pricing phase the number of bids received has ranged
from approximately 100 to over 1500.
•What commodities/services are best suited for RA’s?
-They are only limited by an absence of competition!
-Sole source procurements
-When only one bidder passes phase one
-When too many key suppliers refuse to participate in RA
format.

9. City of LA Successes
•Nodes and Gateway Equipment manufactured by Roam
-There were 5 bidders for an annual contract bid with 3 line items.
-Based on the pricing benchmark from the previous contract which
was a cooperative, the use of the RA resulted in a price reduction of
$160,000 annually .
•Traffic Signal LED’s
-There were 4 bidders for a one-time purchase.
-Based on the benchmarked pricing, the City realized a one-time
savings of $1,078,528.
•Paper, Rolls and Cut (For Publishing Services Division)
-There were 3 bidders and the RA resulted in a price reduction of
$300,000 annually .
•Vacuum Cleaners and Maintenance
-There were 3 bidders and the RA resulted in a price reduction of
$70,000 annually .
•Nitrile Gloves (Cooperative Language Included)
-There were 2 bidders and the RA resulted in a price reduction of
$46,000 annually .

10. City of LA Successes
•Trash Receptacles
-There were 4 bidders and the RA resulted in a price reduction of
$45,000 annually .
•Carbon Media and Change-out
-There were 4 bidders and the RA resulted in a price reduction of
$1.2 million annually .
•Water Treatment Chemicals (Ferrous and Ferric Chloride)
-There were 3 bidders and the RA resulted in a price reduction of
$395,000 annually.
•Water Treatment Chemicals (Sodium Hypochlorite and Sodium
Hydroxide)
-There were 4 bidders and the RA resulted in a price reduction of
$385,000 annually .
•Tractor Truck (Quantity of 16)
-There were 2 bidders and the RA resulted no savings compared to
the Fleet Services estimated budget for this equipment.

11. City of LA Successes
•Office Products (Supplies, Copy Paper, Reman Toner & OEM Toner)
-There were 9 bidders that participated.
-Bid was separated into 10 different lots with high use items (over $3000)
bid as fixed price and non-high use items bid as a discount from City of LA
custom catalog.
-Bid with an estimated volume of approximately $8 million represented
annual usage for City of LA, including the DWP, Airport and Port of LA.
-Over 1500 bids received in two days of bidding.
-Resulted in 4 separate contract awards to:
-Office Supplies: Office Depot, Contract #59415
-Copy Paper: Liberty Paper, Contract # 59420
-Toner, Reman: PTI, Contract #59422
-Toner, OEM: Rasix Computer, Contract #59421
-RA resulted in cost reduction of over $1.4 million annually .
-All 4 Contracts have piggyback language
-Electronic Marketplace established to make it easier for public agencies to
utilize the cooperative contracts.

12. City of LA Successes
•As a result of working with Peralta-Garcia Government Innovations and
executing 11 RA’s over the last 2 years the City of LA has reduced pricing
by over $5 million.
•This equates to an approximately 17% reduction based on the
estimated expenditures.
•Future RA’s include Polybags, Sporting Goods, Liquid Natural Gas and
Police Vehicles

13. Questions?