I wrote here last week about a reverse auction trial that 18F was undergoing on GitHub for small pieces of work involving computer code. Well, the first results are in and the winning bid was...$1. The bid was not a fluke and the code worked as it was supposed to, passing the acceptance criteria. 18F is puzzled with the result, particularly the value of the winning bid, but why should they be?
A reverse auction will always have an effect on price and by lowering the transaction costs to near zero it encourages the S of SMEs to turn up, including "one man bands". Many developers are familiar with GitHub and half of them registered in the SAM service after the job was posted. The fact that 10,000 people looked at the tender and only 16 bids were received also indicates a reasonable interest from this specific sector to get involved in the action but without being overpowering. So far I have not seen anything that would be considered unexpected. The numbers are higher than my experience with the simplified open procedure pilots I ran a few years ago but provide further (anecdotal) evidence that lowering the procurement barriers does not have as a consequence a deluge of bids.
But what about the $1 bid?
There is nothing wrong with a $1 bid. Economic operators are free to set the prices they deem appropriate for their work. Discounting the fact that a contract of only $3500 would never be covered by the Directives, In the EU such bid could have led to an abnormally low price analysis but only that.
But is $1 not below the minimum wage?
That may or may not be a problem, depending on the actual circumstances. First, if there are no employees (ie, the winner is self-employed or runs his own company) there is no violation of minimum wage rules as there are literally no wages to be paid. Minimum wage rules only cover employment relationships and in the absence of one, they are inapplicable. Second, if the code had already been produced in advance - for example for another customer - what forbids a company to sell effectively a second copy at its marginal cost? It may have recouped all the costs in the original contract with the other client.
There are however other potential problems
One of the things I would like to know is where the liability for that code lies. For example, if it violates someone else's intellectual property, who is on the hook for this liability? If something goes wrong with that code once it is put in production - ie knocking an important Government service out - who is left holding the liability can?
Now, for really small, self contained pieces of work probably the above are just red herrings. If that is the case, there is no point in saddling the procurement procedure with unnecessary transaction costs which will effectively push the price upwards and negate at least part of the benefits that can be achieved by it.