Daily Archives: April 13, 2012

Will Your e-Auction Be A Success? Or Will You End Up in Court?

As an April Fool’s joke, SupplyManagement.com ran a piece about how a court battle looms over e-auction “error” which discussed a fictional case in the UK High Court as a result of legal proceedings initiated by a Chinese business in an attempt to hold a supplier to a price submitted in an e-auction. According to the article, one independent consultant William Sommers (represented by the UK law firm Jester & Prank), said he was participating in an e-auction for project management services while working at home where he left his iPad alone for a few moments to answer the door. He claims that during that time his daughter grabbed the iPad (because she loves a bit of Angry Birds) and must have pressed something to place a bid on his behalf as he returned to the iPad to find a bid he couldn’t change. As a result, to honour the bid he would have had to offer his services for “almost nothing” for a three-month project and argues that the supplier, Hohhot Axle Industries, is being unreasonable in trying to hold him to an offer that was a “genuine mistake”.

While this article was a prank, the issue it discusses is all too real. As pointed out in this recent piece on a genuine bargain or a genuine mistake, (poorly designed) e-auction software makes it very easy for buyers to submit incorrect bids and, even worse, correct bids that the supplier might decide, after the heat of the auction is over, that it does not want to honour. What do you do when its time to sign the contract, after you’ve informed all of the other suppliers that they lost and won’t be getting your business, and the supplier tries to back out? Especially if you need the goods or services quickly?

Chances are you panic and pay more because not only were the other bids higher, but when you desperately have to scramble to find product quickly, suppliers will know they have the upper hand and won’t be as competitive as when they (believed) they had to compete for your business. You’re taking a loss. But can you recover it in court?

As the above article indicates, if one party makes an error that the other party should know is a genuine error, the offer, even if it is an implied contract, can be rendered void by the courts. In fact, if the court believes that the details or circumstances of the offer from one party are such that the other party should know that a genuine error has been made, or the council for the party can argue that the other party should have known that a genuine error has been made, that is enough to void an offer.

So what can you do to prevent this from happening? Take lots of precautions.

  1. Describe the auction process in detail.
    Describe end-to-end how the event is going to play out from the initial invitation, through the pre-event data collection and supplier qualification, to the actual auction and the final contract award. There should be no unknowns in the supplier’s mind.
  2. Define the rules and force a bidder to accept the rules.

    Describe the rules for participation, the process for bidding, and the terms and conditions associated with the contract award up-front and force the supplier to accept all of the rules, processes, and terms and conditions before they can participate in the event.
  3. Create a secure account for each individual authorized to use the system and force them to accept full responsibility for the account.
    Force each representative to assert that this is their account, they take full responsibility for it, no one else will be allowed to use it, and they take full responsibility for all offers made through the account.
  4. Use software with controls and make sure you use the controls.
    Not only should you force confirmations on bids to prevent “genuine mistakes”, but you should also put limits on how much lower a bid can be with respect to the current lowest bid (to minimize errors as a bid should not drop from 10,000 to 100, which would indicate either a decimal point error or a misunderstanding as to lot size) as well as an absolute floor that defines the minimum acceptable bid (as you should not accept a bid that you know is lower than the theoretical lowest cost based on your cost model and the maximum efficiency that is achievable).

While this may not be enough to guarantee that 100% of bids will have to be honoured, as you cannot always predict the results of a court case if an argument were to go to court, it certainly puts the odds in your favour and minimizes the chances of a supplier making a bid that the supplier would be uncomfortable in honouring (especially since you’d have a stronger case if it went to court).