Buy your next construction project on eBay?

• Author: Palmer, Robert B.
• Position: Real Estate & Construction - Electronic Reverse Auction Bidding is a terrible idea

Throw out the idea of a single bid opening and allow bidders to post their construction-services bids on the Web site for all to see and at the appointed time, select the lowest bid ... voila! Electronic Reverse Auction Bidding (ERAB) is born. It is a terrible idea, and on top of that, it is very shortsighted.

On its Web site, reverse auction and procurement software developer Silanta makes the following claim, "This product is aimed at the enterprise that wants to clear excess inventory, enrich the content of an existing Web site, or eliminate the middleman, manufacturers who sell direct or who wish to automate their sales to distributors and liquidators seeking to obtain the best prices for products through dynamic pricing and the mass reach of the Internet."

Notice the words "inventory," "manufacturers" and "distributors"? Those words are associated with commodities. Black's Law Dictionary, says that the term commodity means tangible goods, such as products or merchandise, but not services. Construction is a service that combines professional services such as engineering and construction management with materials and labor. Paper clips and police cars are commodities. Construction isn't.

One factor that distinguishes construction from manufacturing is that plans and specifications for construction are not always sufficiently detailed to successfully complete the project. It is fairly straightforward for a purchasing agent to write a request for proposal (RFP) for paper clips or police cars that is detailed enough for manufacturers or distributors to submit a bid. In construction, incomplete bid documents result in numerous change orders. A successful low bid very well may cost the owner more alter the change orders have been added.

As explained by Stanford University economics professors Patrick Bajari and Steven Tadelis in a paper co-authored with Robert McMillan, a Stanford graduate student, "[A] limitation of auctions is that they stifle coordination between the buyer and the contractor before the plans and specifications are finalized, since the only information that the buyer receives from sellers is...