GeM Reverse Auction: A Complete Guide (2024)

In the world of government procurement, efficiency and cost-effectiveness are paramount. A standard auction involves a single seller and multiple buyers, with the highest bidder winning. However, a reverse auction flips this model. Here, a single buyer invites multiple sellers to compete. The seller offering the lowest price wins the contract. This method, especially the reverse auction process on the GeM portal, has revolutionized how government entities procure goods and services.

What is Reverse Auction in Government Procurement? 🤔

A reverse auction is a strategic procurement process where a single buying entity issues a requirement to a pool of potential suppliers. Instead of bidding prices up, sellers compete by bidding prices down. The seller who meets all the technical specifications and offers the lowest price (known as the L1 bidder) wins the contract. This process of quoting a price is called reverse bidding. Many government bodies in India use the Government e-Marketplace (GeM) and other e-procurement portals for this. It brings transparency and drives significant cost saving in government reverse auction activities.

The Reverse Auction Process on GeM Portal ⚙️

The GeM portal reverse bidding process is designed for transparency and simplicity. Here’s how it typically unfolds:

Buyer Creates the Auction: A registered buyer on GeM initiates a bid, which is essentially a reverse auction. This bid contains comprehensive details: the product or service, technical specifications, required quantity, auction duration, and the submission deadline.
Sellers Place Their Bids: Registered sellers on GeM review the auction details. If it matches their offerings, they participate by submitting their initial price within the specified time frame.
Competitive Bidding Phase: During the live auction period, sellers compete in real-time. They can see the current lowest bid (without seeing the bidder's identity) and can lower their own price to gain the top position. The L1 ranking continuously changes as sellers revise their bids downwards.
Auction Conclusion: Once the auction time ends, the system automatically determines the winner. The seller with the final lowest bid (L1) is awarded the contract, creating a fair and competitive environment. This reliance on the L1 criteria in GeM reverse auction is a core feature of the system.

Types of Reverse Bidding in Procurement 🗂️

Reverse auctions are not one-size-fits-all. They can be categorized based on participation criteria:

Open Reverse Auction: This auction is open to all sellers registered on the GeM portal who deal in the relevant product or service category. It encourages maximum participation and competition.
Limited Reverse Auction: In this type, participation is restricted. Only a select group of sellers, who are pre-qualified based on specific criteria set by the buyer, are invited to bid.
Multi-Round Reverse Auction: This is a more complex process involving multiple stages. Sellers must first pass through initial qualification rounds (technical, financial, etc.) before they are eligible to participate in the final price-bidding round.

How to Create a Reverse Auction on GeM (For Buyers) 📋

Creating a bid or RA on the GeM portal is a structured process. Here are the steps to create bid/ra on the GeM portal:

Log in to your GeM buyer account.
Navigate to the “Marketplace” from the main menu.
Choose “Product” or “Service” based on your requirement.
Use the search bar to find and select your desired item.
In the left-side menu, click on “Administrative”.
Select “Bid/RA” as the procurement method.
Click on “Select Consignees” to specify delivery locations.
The portal will display products available near the consignee's location.
Use the left panel to filter by specifications and parameters.
Choose a product that best matches your required specifications.
Click “Add to Cart” and proceed.
Define participation eligibility: Choose to allow any value, select a specific product’s value, or manually set golden parameters for eligibility.
Select any seller/reseller that matches your criteria and proceed.
From the cart, click on “Checkout” and then select the “Bid” button.
Confirm all product specifications on the next page. You can add additional specifications if needed.
Continue to select the consignee details and the required quantity.
Set the delivery days (minimum 50 days).
Enter crucial bid details: auction duration, offer validity period, and seller redressal time.
Provide the estimated value of the bid and set its visibility to public or private.
Define the GeM reverse auction eligibility criteria, such as required turnover, past experience, etc.
Specify the documents needed for GeM reverse auction from sellers.
For orders above ₹5 lakhs, you can demand an Earnest Money Deposit (EMD).
Add any additional terms and conditions.
Verify the bid with an OTP, review the final tender PDF, and publish it.

Advantages and Disadvantages of Reverse Auction ⚖️

For Buyers

Pros:

Time Savings: Automates the price negotiation process, eliminating the need to manually collect and compare quotes.
Significant Cost Savings: The competitive nature drives prices down, leading to substantial procurement savings.
Market Intelligence: Provides valuable insights into market pricing, supplier competition, and capabilities.
Enhanced Fairness: Online platforms like GeM ensure the process is transparent and fair for all participants.

Cons:

Risk of Low-Quality Bids: The intense focus on the L1 price can sometimes lead to compromises on product or service quality.
Potential for Low Participation: Highly restrictive eligibility criteria or unattractive terms might deter sellers from participating.

For Sellers

Pros:

Direct Access to Opportunities: Provides a direct channel to compete for large government contracts.
Level Playing Field: The transparent process allows businesses of all sizes to compete fairly.

Cons:

Pressure on Margins: The L1 model puts constant downward pressure on prices, squeezing profit margins.
Excludes Premium Products: It is difficult for sellers with premium, higher-cost products to compete in a purely price-driven auction.
Digital Literacy Barrier: Sellers who are not digitally savvy may struggle to participate effectively in the online process.

Tips for Sellers: How to Participate in GeM Reverse Bidding 💡

Winning a reverse auction requires more than just a low price. Here's a quick GeM procurement reverse auction guide for sellers:

Understand the Documents Thoroughly: Before bidding, carefully read the bid document, technical specifications, and all terms and conditions. Ensure you meet every eligibility criterion.
Calculate Your Best Price: Determine your absolute lowest price (or Best and Final Offer - BAFO) before the auction begins. Factor in all your costs, including materials, labor, and overhead, to ensure profitability.
Stay Active During the Auction: Monitor the bidding activity closely. Be prepared to lower your price strategically to maintain the L1 position without going below your pre-calculated floor price.
Build a Strong Profile: Ensure your GeM seller profile is complete, up-to-date, and showcases your capabilities and past performance. A strong profile can build buyer confidence.

Debunking Common Reverse Auction Myths 🕵️‍♂️

Several misconceptions surround this procurement method. Let's clear up some reverse auction myths in government procurement:

Myth 1: Cost savings are not sustainable. This is false. While there are immediate savings, consistent and well-managed reverse auctions lead to long-term market efficiency and cost control.
Myth 2: It's the same as unethical bid shopping. No. Reverse auctions are transparent processes governed by clear rules visible to all participants. Bid shopping is an offline, unethical practice of pitting suppliers against each other secretly.
Myth 3: It only benefits large companies. This is not true. On GeM, a majority of sellers are Micro and Small Enterprises (MSEs). The online format makes it accessible for businesses of all sizes to secure a govt tender.

Is GeM Reverse Auction Right for Your Business? ✅

For both buyers and sellers, the reverse auction model offers a powerful, transparent, and efficient way to conduct business. It provides control and opens up new revenue streams. However, it's crucial to weigh the pros and cons. If your products and pricing are a good fit for the competitive L1 environment, it can be an excellent channel for growth. For buyers, it’s a proven method for cost-effective procurement, provided quality checks are in place.

Finding the right reverse auction or e-tender can be challenging. With over 20,000 new tenders added daily from 50+ portals, TenderX simplifies your search. For personalized notifications and to explore the latest opportunities on GeM and other platforms, visit our tender search page.

For any queries, feel free to contact us at info@tenderx.in or call us at +91 7020625727.

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