Driving Down the Cost of Construction Services

Today, I learned about an interesting way in which owners and construction project funders can drive down the total cost of construction services. It is called "Electronic Reverse Auction Bidding" (ERAB).

"I beg you pardon?" Exactly my reaction when I first read about this.

Let me explain.

Everyone knows the concept of traditional bidding.

Example: you buy a house and you're bidding against others. In Belgium, this was often done in restaurants, bars or tearooms. The practice has increasingly moved online with - in our country - the platform "Biddit" being market leader in this space. The process is straightforward: everyone gets to "bid" in a given timeframe and the highest bidder wins the deal. Reverse bidding is well "the reverse": the lowest bidder wins the deal. You can immediately see how this applies to owners looking to get the job done at the lowest price.

The practice has received some criticism with opponents referring to the high degree of psychological temptation to go lower than is actually sane in order to win the bid. Furthermore, some unethical companies appear to have reopened bids using the first "round" only as a way to establish the baseline from which to negotiate further. Lastly, while it is quite straightforward when negotiating the price of goods, it is decidedly less clear-cut when it comes to services.

Interestingly, some states in the USA have outlawed the use of ERAB where they were actually the first to embrace it (examples: Kansas, Pennsylvania). Currently, I do not have any knowledge of the local (Belgian) regulation or the existence of (SaaS) platforms that facilitate ERAB in construction work.