What are the recommended Reverse Auction best practices? – PERSUIT

Other key resources:

Video: reverse auctions how-to.
Webinar: 5 Myths (Debunked!) About Reverse Auction in Legal.

Why use a reverse auction?

PERSUIT's Reverse Auction feature allows you to obtain true market-value for any matter. Successful reverse auctions can create:

13% reduction in price across all proposals.
31% savings on the selected provider (compared to market price).
33% reduction in price spread between provider proposals.

How many providers should we invite to a reverse auction?

According to our data, inviting between four to six providers garners the most results regarding savings during a reverse auction.

You should not single-source a reverse auction and only invite one provider.

What should I do if the request only receives one proposal?

We would not recommend proceeding with an auction where there is only one proposal, as the auction process implies that there is more than one bidder and that a competitive process will produce a market price. Where there is no competition, there is no advantage to an auction, and the in-auction messaging to providers may be confusing.

Your recommended options would be:

Proceed with the only provider that did participate (and do not run an auction). Optional: negotiate the price directly with this provider.
Invite additional providers, in order to obtain more than one proposal, and then proceed with the auction.
Engage with the invited providers that declined to participate to obtain a better understanding of what prevented them from participating. You may be able to provide more detail to the RFP and its scope, therefore reopening the opportunity for them to submit a proposal.

How much time should I leave between the key timeline dates?

Publishing the request --> Proposal deadline:

When a request goes out, we recommend giving providers an average of five (5) business days to respond if the matter allows.
However, you can still use PERSUIT if you have a shorter window to select a provider.

Proposal deadline --> Auction start:

Best Practice is to have at least one (1) business day between the proposal deadline and auction start time.
Your Proposal Deadline time should be when you are able to review and assess the proposals to ensure they are apples to apples, prior to the auction.
If an RFP is due on a Monday, the Auction should be held on a Wednesday. The purpose of this review is to ensure that when the auction starts, the providers are fairly competing for the work under the same scope and assumptions.

What is an appropriate auction duration?

Generally, you want to keep auction duration short and concise. Once a provider has submitted their initial proposal, they have had a chance to consider all the issues and their proposed pricing. The Reverse Auction gives providers insight into price so that they can make an informed decision on any proposal revision show they want to revise their proposals. This assessment doesn’t take the providers long as they have already considered the substantial issues. Generally Reverse Auctions only need to be 30 min, however you may want to consider a long period if your matter involves any of the following considerations:

Pricing Complexity - If the matter's pricing structure is complex (10+ pricing items / multiple components) you should consider setting the auction for 1hr +.
Number of Participants - The more participants there are the more time you should give providers to digest the pricing information and revise their pricing.
Visibility Setting - The more pricing data you are showing the more time you should give providers to consider and make adjustments. Rank and Price take more time than Rank Only.
Global RFPs – If the provider is working with local counsel, and they will likely need to seek guidance from local counsel on their pricing to make a price revision, you should consider allowing the providers 48hrs.

When is the best time to hold a reverse auction?

Reverse auctions should be held during standard business hours.

What are the different auction types? What do providers see during auctions?

PERSUIT offers three reverse auction types. You can set the level of visibility providers have regarding their competition: 1. rank; 2. lowest price; 3. all pricing. Please see here for more information on each reverse auction type and what providers see during auctions.

For all of these:

Providers have the opportunity to compete for work via a fair and transparent process.
Providers will be blind to their ranking and price until the official start of the reverse auction.

If you would like to speak more in depth about how to strategically select a ranking type for a specific reverse auction, please email our Legal Advisory team at sourcing@persuit.com.

What's the difference between Total Price and Comparison Value?

Total Price is a figure that is defined by the client. Often this is defined as the sum of particular phases or a different calculation that gives the client a good benchmark to compare providers at a high level. This is helpful when the client wants to utilize a specific reference in assessing the proposals. Instructions and assumptions on how to calculate the Total Price are typically outlined in the pricing section. If pricing items are revised at the phase level, providers and vendors should ensure that those adjustments are reflected in the calculation for the Total Price. This is particularly important during the auction and should be completed before the auction ends.

The Comparison Value is a figure that is automatically calculated based on the sum of all the pricing items. The comparison value does not sum hourly rates, rate cards, or discount %s. This simplifies the high-level comparison figure to a simple sum across the items and does not need to be recalculated or updated by the providers or vendors. The advantage of this figure is to allow providers and vendors to focus on the individual pricings items that make up the new Comparison Value.

What should I do between the key timeline dates?

The time between Proposal Deadline and Auction Start Date should be used to do an initial review of proposals - primarily focused on the pricing, assumptions and exclusions:

Assess each provider's total price.
- Did any provider change the pricing model (fixed fee to budget estimate)?
Review individual pricing items and subitems.
Are there outliers or providers who did not follow the directions?
- Did any provider add additional subitems or not calculate fees correctly?
- Are there particular assumptions taken by providers that you agree with or disagree with? Should clarifications be issued to providers based on these assumptions?

You can either post a clarification to send an update to all the providers at one time or you use the Messages feature to speak with any specific provider, directly.

What happens after a reverse auction ends?

When an auction ends, providers are no longer able to revise their proposals. You can view this article to find more information on what you can do next.