Q&A: Can you make e-auctions work?
What is an e-auction?
Essentially it is a paperless auction where everything from the advertisement, shortlisting of suppliers and the tendering process takes place online.
The key difference between an e-auction and a conventional auction is that instead of the vendor selling to the highest bidder it is the buyer who purchases from the lowest bidder. Recruiters bid against each other in real time and the result is often known on the same day.
How does it work?
Normally, recruiters are invited to tender and a shortlist drawn up by the prospective buyer. Public bodies who may have historically dealt with 20 or more agencies for their temporary labour now wish to source all their workers from a panel of four or five agencies. They may then draw up a shortlist of agencies who they believe can best meet their requirements and invite them to enter the e-auction.
The outcome is not always dependent on price but as cost is usually one of the primary motivating factors in an e-auction, it will always be relevant.
What are the risks?
The main risk is that you end up bidding at an unrealistic price, get your offer accepted and then find yourself contractually bound to supply services or labour at a price you cannot afford.
If you cannot fulfil your contractual obligations then, as well as being detrimental to your businesses reputation, you may be sued for damages if the buyer suffers losses. In particular the buyer may have to purchase labour from another supplier at a more expensive rate and your business may have to make good the difference.
The key to cracking e-auctions is to be commercially savvy about what to expect on the day and not be trapped into bidding below your absolute minimum base price.
- Familiarise yourselves with the terms you are contracting under. Check what your business has agreed to be liable for if it cannot deliver.
- Familiarise yourself with the e-auction provider’s site so that you understand exactly how to bid.
- Keep a level head. If all you can see onscreen is the lowest price, you must have enough self-discipline to fight any desire to take any steps necessary to get to first place.
- Be prepared. Work out your exact costs before starting to bid — you need to know how far your margins can be stretched.
- Do not enter at your base rate. You need to take time to watch how the auction is unfolding before deciding on what price to enter.
- Forward planning. Buyers who hold e-auctions are likely to operate them annually, so think ahead.
- Do not fall into the trap of pushing your workers down the limited company route to save on paying Pay As You Earn and employers’ National Insurance to increase your profit margin. This may prove disastrous if you are investigated by Her Majesty’s Revenue & Customs.