The growing use of electronic auctions in NHS procurement

The use of electronic auctions (“eAuctions”) has recently become a hot topic in NHS procurement, as contracting authorities, such as NHS Supply Chain, seek to drive further competition. 

For NHS buyers, eAuctions can provide a mechanism for testing the market and achieving more competitive pricing if they are conducted in a legally compliant manner. For suppliers, they introduce an alternative form of competition that can drive prices down further and ultimately make the difference between winning and losing an NHS contract.

Primarily a mechanism to drive down price, the potential for increased use of eAuctions by NHS Trusts makes sense against the backdrop of ongoing budget pressures. However, their focus on driving the lowest price is seen by some as undermining the DHSC’s commitment to introduce Value Based Procurement (looking at whole life cost and broader value such as patient outcomes instead of just initial price). 

It is important for contracting authorities and suppliers to understand the procurement rules that govern the use of eAuctions and the implications they may have for bidding strategies and contract pricing.

What is an eAuction?

The Procurement Regulations 2024 define an electronic auction as an iterative electronic process involving new prices, new values for quantifiable non-price elements related to the evaluation criteria, or both, resulting in the ranking or re-ranking of tenders.

An eAuction is typically referred to as a “reverse auction” because suppliers compete by submitting progressively lower prices, rather than buyers submitting progressively higher offers. In some procurements, a supplier's quality or technical score is combined with its auction price to determine the overall ranking.

Under the Procurement Act 2023 (“PA23”) regime, contracting authorities must identify in the tender notice whether an electronic auction will be used and provide details of how the process will operate. An eAuction typically takes place after an initial evaluation of tenders and uses an electronic platform to enable suppliers to submit revised bids. Depending on the procurement design, contracts may be awarded on the basis of price alone, or on a combination of price and other quantifiable evaluation factors. The auction process must be structured so that bids can be ranked automatically using the methodology disclosed to suppliers in advance.

Benefits of using an eAuction

For NHS trusts, health boards, integrated care boards (“ICBs”) and other public sector buyers, eAuctions can provide an alternative form of competition following the evaluation of tenders. Their principal purpose is to test the market and secure more competitive pricing while maintaining transparency and objectivity in the award process.

NHS procurement guidance suggests that eAuctions are particularly well suited to the procurement of high-volume, standardised goods and services where requirements can be clearly specified and compared. They are generally less suitable for highly bespoke, complex procurements or those related to intellectual property, where value cannot easily be reduced to price or other quantifiable criteria.

For contracting authorities, eAuctions mean that suppliers are given an opportunity to improve their offers in real time, potentially delivering additional savings beyond those achieved through the initial tender evaluation process.

Implications for suppliers into the NHS

For suppliers, an eAuction means that successfully passing the initial evaluation stage may not be the end of the competition. Instead, it may be followed by a further period of live price competition in which suppliers are invited to improve their offers. 

While eAuctions provide suppliers with an opportunity to strengthen their competitive position, they also require careful preparation. Suppliers should ensure they consider:

• how the auction will operate and how bids will be ranked;
• whether the auction is based solely on price or incorporates quality or technical scores;
• who within the organisation has authority to approve pricing decisions during the auction; and
• the commercial and operational implications of any revised bids submitted.

Suppliers should also remember that the lowest bid will not always represent the winning bid. Depending on the procurement design, quality scores and other evaluation factors may continue to influence the final ranking. It is important to fully understand the evaluation methodology before participating in an eAuction. 

Overall, industry trends indicate that eAuctions are becoming a more familiar feature of NHS procurement processes. Whilst they are unlikely to be appropriate for every procurement, they represent another tool available to contracting authorities seeking an alternative form of competition.

This article was written by Alex Bones, Rory Trust, Andrew Walls and Patrick Parkin.