The Navy recently became the first U.S. military service and second federal
government organization to enlist the services of FreeMarkets Inc., a business-to-business
(B2B) provider of online auction services. Under an agreement with the Naval
Supply Systems Command, the Pittsburgh-based company will offer access to its
B2B eMarketplace, which the Navy can use to purchase items such as ship components.
Unlike other Internet auction services with which you may be familiar, such
as eBay, where you bid on items and watch the prices rise, FreeMarkets offers
a program where buyers watch the prices fall, as contractors try to underbid
each other for business. Auctions feature industrial parts, raw materials, commodities
The company already has received significant support in Pennsylvania, where
Republican U.S. Sens. Arlen Specter, and Rick Santorum have endorsed the auctions
for federal procurement. Specter is on the Senate Appropriations Committee,
and Santorum is a member of the Armed Services Committee.
"The FreeMarkets B2B eMarketplace has already proven hugely beneficial
to private sector companies," said Santorum. "Now, the public agencies
can benefit from the same reductions in the cost of a range of goods and services."
The company, founded in 1995, received support from the senators after administering
auctions for the Commonwealth of Pennsylvania. The company saved the state money
on items ranging from road salts to telecommunications to electricity, said
Dave McCormick, vice president of the public sector business for FreeMarkets.
FreeMarkets recently was added to the General Services AdministrationÕs
(GSA) IT (information technology) schedule for federal procurement. This means
that procurement officers can access the B2B eMarketplace at set terms and pricing
through existing contracts. Being on the GSA list is a huge boon for the company
because it makes it easier to secure government business, said McCormick.
"The federal government is increasingly turning to the FreeMarkets B2B
eMarketplace to achieve measurable savings on the incredible volume of goods
and services it purchases," he said. "The inclusion of FreeMarkets
on the GSA IT schedule will make it significantly easier for federal agencies
to dramatically reduce the cost of goods and services they purchase, while improving
efficiency of the procurement process."
The other government agency that signed up with FreeMarkets is the U.S. Postal
Service. Santorum believes online auctions also could be beneficial to the Defense
Department. It is not clear yet, however, what implications online auctions may have on
procurement laws and regulations.
David Oliver, principal deputy undersecretary of defense for acquisition and
technology, in a letter to Santorum, stated the Pentagon's intentions regarding
"The Office of the General Counsel has advised that, if properly structured,
auctioning is permissible within the framework of existing law and regulation.
Therefore, we are considering establishing pilot projects to test the use of
this unique procurement method ... The department believes that online auctioning
has the potential to save the department significant resources in time, funding
and labor," said Oliver.
The Defense Department requires open competitions in any procurement activity.
McCormick noted that FreeMarkets offers the ultimate venue for competitive bidding.
"All suppliers are trained prior to the bidding event," he said. The
suppliers do not know who they are competing against, but they are able to see
bidding prices during the event. Bidders are only eligible for a bidding event
if they are invited by the buyer.
Representatives from FreeMarkets work with clients and suppliers to tailor
the auctions to meet the buyers' specific needs. If there are technical problems with computer equipment during the bidding,
suppliers can call in through FreeMarkets and conduct a surrogate bidding, said
McCormick. Phone conversations are recorded, which makes each offered price
a legally binding bid, he added. In the event that a registered supplier is unable to take part in a bidding
event, FreeMarkets can act as a surrogate bidder for the company.
The Naval Supply Systems Command can purchase items for any other components
of the Navy under its agreement with the company. In its first online auction, the Navy purchased 756 recovery sequencers from
Hi-Shear Technology Corporation for $2.375 million. Recovery sequencers are
components for the advanced concept ejection seat, which is found in the B-1,
F-15, F-16 and F-117 aircraft. The auction lasted 51 minutes, and three companies
competed for the contract.
FreeMarkets, to date, has conducted online auctions for more than $5 billion
worth of goods and services and created potential estimated savings of more
than $1 billion for its customers, according to company figures.
The company offers free registration for those wishing to participate in a
bidding event. FreeMarkets provides its BidWare software free to all participants.
Computer requirements call for an IBM-compatible Pentium class personal computer,
a modem capable of 28.8 kilobytes per second, and 32 megabytes of random access
The company makes its profit by collecting fees from the buyers. Payments are
based on volume, meaning that the buyer pays FreeMarkets a sum depending on
the number of items that pass through the eMarketplace for bid, said McCormick.