Reverse Auctions
By Jeff Wagner
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C

During my Legislative Update at the Mississippi Airports Association Annual Conference this year, I noted that the Mississippi Legislature had broken with long-standing procedures for public procurements in Mississippi by requiring the use of a reverse auction in most circumstances. In a reverse auction, bidders compete to obtain an award by actively bidding against each other, offering increasingly lower prices, usually in real time. This is a departure from long-standing Mississippi law requiring submission of sealed bids that cannot be changed after submission.

HB 1106 (2017) revises Section 31-7-13 of the Mississippi Code to provide that reverse auctions “shall be the primary method for receiving bids” and further provides that each “purchasing entity,” unless authorized otherwise by the Public Procurement Review Board, must procure all equipment and other goods it is required to publicly advertise for bids with a value of $50,000 or more through a reverse auction. This provision is effective January 1, 2018. HB 1109 (2017) contains the same language as HB 1106 requiring reverse auctions and is also effective January 1, 2018. Neither provision, though, applies to procurement of design or construction of any public facility.

The use of the term “purchasing entity” in HB 1106 (and HB 1109) is unusual and has now led to uncertainty for local governments such as airports. The term is not defined in either HB 1106 or HB 1109 and does not appear anywhere in Section 31-7-13 other than with respect to the new reverse auction provisions. The terms used throughout the remainder of the statute are “governing authorities” when referring to local governments and “state agencies” when referring to units of the state government. Notwithstanding that the Legislature elected not to use the statutorily defined and well-understood terms when amending Section 31-7-13, many people did not believe the reverse auction requirement would apply to local governments (i.e., governing authorities) since the Public Procurement Review Board has no jurisdiction over local governments.

However, in a pair of official opinions to Anthony Nowak, County Attorney for DeSoto County dated June 9, 2017, and October 13, 2017, and in an opinion to Jeff Smith, Chairman of the Ways and Means Committee of the Mississippi House of Representatives dated September 29, 2017, the Mississippi Attorney General opined, and then affirmed, that the reverse auction provisions of HB 1106 and HB 1109 apply to governing authorities as well as state agencies. Notably, another change made by HB 1106 and HB 1109 to Section 31-7-13 requiring state agencies and governing authorities to allow electronic delivery of bids for construction, exempts smaller municipalities (population less than 10,000) and counties (population less than 20,000) from the requirement. It is likely that if the Legislature intended to require local governments to use reverse auctions, it would have exempted small local governments from those provisions as well.

Regardless, as it stands, the Attorney General has officially taken the position that the new reverse auction requirements apply to local governments. My personal view (bolstered by Representative Smith requesting the Attorney General to reconsider his initial opinion to Mr. Nowak), is that the Legislature did not intend for the reverse auction requirements of HB 1106 to apply to local governments. I would expect that since Representative Smith (and other legislators as I understand) disagree with the Attorney General on this matter, that the Legislature will act quickly to clarify its original intent in the upcoming legislative session. Any airport contemplating a procurement early in 2018 that may be subject to the reverse auction provisions may want to wait until the Legislature has a chance to act before deciding how to structure its procurement. I would suggest that any airport needing or desiring to proceed with a reverse auction prior to the Legislature having a chance to act contact the Mississippi Department of Finance Administration which will have systems and procedures in place for conducting reverse auctions when the changes become effective January 1, 2018.

Jeff Wagner is a shareholder at Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. in Jackson, Mississippi, and may be contacted at
(601) 973-3610 or by email at
[email protected] with any questions.