Electronic auctions

Polskie Górnictwo Naftowe i Gazownictwo SA (PGNiG SA), as part of the Central Procurement Office established in 2003, has completed another stage of work on developing a Central Procurement System, the goal of which is to create a new procurement structure organization and better manage the costs of the procurement process within the company. The advisor to PGNiG SA in the development and implementation of this project is the company Marketplanet. One of the tools proposed to reduce procurement prices is electronic auctions. The first such electronic auction at PGNiG SA was conducted on March 16, 2005. Its subject was the purchase of office paper.

The auction was conducted with the participation of Marketplanet, in accordance with the Procurement Instruction, which is an internal PGNiG regulation regarding the awarding of contracts. PGNiG was responsible for preparing the paper specifications and its volume. Previously, the selection of a supplier was made through a price inquiry procedure sent to at least three bidders. It remained the operator’s responsibility to conduct preliminary market research to determine potential suppliers, the starting price, and the price increment. Subsequently, the operator, in cooperation with the Tender Committee, prepared auction regulations containing the rules for submitting bids during the auction and confirming bids after its conclusion. The regulations also included a template for the paper supply contract and assumed flexible ordering according to needs. As part of the market research, 5 suppliers were selected who met the quality requirements for the paper. All suppliers came from the Marketplanet supplier database and had previously participated in auction events.

The preparation of the auction, including market research, took about a week, while the auction itself lasted less than an hour. During this time, discounts ranging from 20 to 43 percent were negotiated, depending on the type of paper. The lowest prices from the last five invoices were taken as reference prices from which savings were calculated. In addition to significant price reductions, the auction is the only objective source of knowledge about the current “market price” for a given good. Furthermore, the auction significantly shortens the tender procedure time. In the case of paper, organizing the auction took half the time of a “classic” tender, and the negotiation element itself was shortened from several days to one hour.