Why the $1 Bid Makes Me Nervous

Last week, the General Services Administration (GSA) awarded a $1 contract for the development of open source code using a new experiment called a micro-purchasing reverse auction, where the maximum amount must be less than $3,500. Many in the federal community applauded this award and the process used by GSA as an example of how the government can get its biggest bang for the buck. The movement associated with this is part of a larger push toward open source and innovation where little attention seems to be paid to procurement law and competition. Others questioned the logic and legality of the bid, expressing concerns about the possible impacts of collusion and the general set up of the bidding process. Here's where it gets interesting.

Procurement law offers protections to bidders in order to ensure that there is open and fair competition. Fundamental to government procurement is bidders providing a reasonable cost breakdown to tie the price of their offer to the actual cost of performing the work. Intentionally underbidding on a government contract is not allowed as courts have ruled that such action represents a false claim under the False Claims Act. Other laws, such as the Anti-deficiency Act (ADA) have been debated as the their applicability to the development of open source. The intent of this to ensure that bidders don't just throw out a low price, knowing full well they can't perform at that price, and then come back with a request for more funding to cover the actual cost.

Let's suppose the winning bidder is a kid sitting in his basement. I guess if he really wants to offer his services to the government for $1 he can. The problem is, there are open source companies out there that would do the work for actual cost -- but they lost out to a gimmick.

It was reported that the winning bidder actually worked with a friend to complete the task. What a deal, two open source coders for $1. Let's suppose each earns $50 an hour or $100 total working together for each hour. At the winning price of $1, based on potential rate of $100 an hour, actual cost puts the time to complete the coding task at well less than 1 minute. They completed the task in 7 days.

At one point or another during the reverse auction 16 bidders submitted bids to do this work. Presumably, all of those bidders were qualified under the GSA requirements and able to do the work. All of them spent time, money and effort to determine if they could do the work and if so what was a fair price. But at the end of the day, it didn't matter, GSA went with the gimmick bid of $1 knowing that there was no way that was the actual value of the work. And then they applauded their own actions, while recognizing it might not be a good trend.

The $1 bid was a gimmick and let's hope we don't see it again.