
18F micro-purchase experiment bid down to $1 - xn
https://github.com/18F/calc/issues/255#issuecomment-152193310
======
aresant
I started off my career at 19 years old building custom 468x80 pixel web
banners back in 2000.

I found customers on EBAY (yes, literally EBAY's web section) and charged
$9.95 a pop which was a fraction of the big agency rate.

I would pour hours into designing and tweaking the banners to fit into the 15k
size allotment of the day while also being aesthetically beautiful.

After hundreds of iterations I learned how to not only make beautiful banners,
but banners that drove CLICKS & conversions which was all the customer
ultimately cared about.

As the free market took hold in my own life the customers that were showing up
for the cheap rate were pushed aside from the customers that wanted to harness
the value I was delivering and were happy to pay increasing fees.

On the back of those customer relationships I've spent 15 years building
amazing businesses and exceeding my highest expectations for where a lowly
photoshop jockey could go in the world.

My point is while this 18F project is fascinating as a thought experiment the
publicity alone for the winning bidder @ $1.00 disqualifies that from being
the actual "rate".

This isn't an experiment in "I'll deliver quality, high-skill work for $1.00"
this is an experiment in "Who wants a SHOT" at making a name, an intro, or
have a permanent stand-out line on their resume.

If you want to see what kind of work really gets accomplished for $1.00 at
scale, go poke around Mechanical Turk or Fivver.

~~~
xhrpost
Sorry, off-topic, but if you have those banner ads from 2000 sitting around,
you should look into throwing them on archive.org if you haven't already. Nice
little piece of Internet history you may have there.

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ianferrel
The bidding structure, as specified is:

1\. You can only bid lower than the previous lowest bid. 2\. At the end of the
auction, the lowest bid will have 10 days to complete the project. If they
fail, the next lowest bid will.

This appears to be a simple attempt to game the system. A low bid of $1
prevents any other bids from being registered, which guarantees that whatever
the previously lowest bid was will not have to compete on price with other
good-faith bidders.

~~~
mikikian
This would work if the lowest bidder failed to perform, they would have to pay
back the second lowest bidder. For example, if they bid $1, but the second
lowest bid was $1000, they would have to pay back $1000 for not performing.
They should probably also establish a floor to eliminate this $1 gaming
mechanics.

~~~
cortesoft
What if the lowest bidder is nowhere to be found?

~~~
efsavage
For larger projects, the contractor is required to be bonded to cover things
like this.

~~~
plonh
Is $1 a large project?

~~~
dragonwriter
Since the amount at risk is the amount of the bid _prior_ to yours, that
should determine both the amount of any bond requirements and, if there is a
sharp cutoff, the cutoff for the requirement for a bond.

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acveilleux
They could've avoided this at least partly with a sealed bid process and a
(secret) minimum reasonable bid to disqualify ridiculous low bids. Advertising
the fact there is a floor but not its value.

At that point, rational bidders would have had no choice but to bid something
they are willing to work for. Collusion between bidders is possible (as
routinely happen for things like road paving...) but if there are enough
bidders then it becomes impossible to collude with reasonable success
expectations.

Further a registry is needed to allow black listing of trolls and penalizing
of folks who routinely fail to meet terms. It would also be possible to give
slight weighted edge to bidders that have a history of delivering conformant
implementations.

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daveloyall
The micro-purchase experiment is .. an experiment!

My guess is that bidders are interested strengthening the mechanism, so
they've demonstrated exactly how this early version is broken.

Why would bidders want a stronger mechanism? So they can have a reliable
income stream going forward. The broken mechanism serves no one well.

~~~
daveloyall
Update:
[https://news.ycombinator.com/item?id=10522022](https://news.ycombinator.com/item?id=10522022)

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oli5679
Their bidding rules encourage participants to behave strategically by bidding
more than their reservation price, frequently rebidding and waiting until just
before the auction ends to place bids.

Here's a suggested bidding format that would avoid these problems:

(1) Everyone bids the lowest price that they would be willing to accept for
completing the task

(2) If the lowest bid is unique, the task is assigned to the lowest bidder and
they are offered the rate offered by the next lowest bidder

(3) If many people bid the same price, one is randomly chosen and they are
offered the rate that they bid.

(4) If they fail to complete the task according the requirements, the next
lowest bidder is offered a quote according to the criteria above.

This is just standard auction design theory.

~~~
singhrac
Second price auctions are pretty great [1]. I'm sure 18F will figure things
out the next time around.

The interesting 'broken' mechanic in this system is the fact that you can't
bid higher than the current lowest bid, which isn't usually a problem. Is
fixing that equivalent to having a second price auction (in terms of
incentives)?

[1] [https://en.wikipedia.org/wiki/Generalized_second-
price_aucti...](https://en.wikipedia.org/wiki/Generalized_second-
price_auction)

~~~
oli5679
As you say, in a standard auction you can expect the same equilibrium using
second price and a traditional bidding system. The difference is that
participants need to waste time rebidding after being outbid and can face a
technical challenge of submitting bids in time in the scrambles that
inevitably occur just before auctions close.

However, as you point out, the situation gets worse because we want to create
a queue of low-bidders willing to step in should the original winner fail to
deliver. Allowing multiple bids and/or bids higher than the current lowest
would go some way to addressing this but participants may bid strategically.

Eg the current lowest is $50, I'm willing to do it for $70 but don't expect
any more bids under $100 so bid $95, failing to get the job when someone else
bids $80. Also it's unclear whether I get 2 x 10 days to complete the task if
I bid both the lowest and second lowest bid, which is clearly suboptimal and
could even lead to people placing a chain of lower and lower bids, completing
a functional solution but then deliberately waiting for their lower bids to
time out before submitting the solution.

A second price auction would be better in this case for both these reasons.

~~~
singhrac
Good point. The additional problem here seems to be people underbidding
significantly (obviously $1 is an extreme), and there's no way for 18F to
determine quality. While waiting 10 days doesn't seem like a huge problem, the
overhead of iterating through contractors could become huge, especially on
time-sensitive tasks.

One solution would be to charge each bidder (at the time of the contract, if
they're the lowest) a 'down payment' to be involved - where the down payment
might be some function of their bid and the next highest bid.

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teach
Interesting, but what am I looking at? Someone is willing to do a job for a
dollar?

~~~
rory096
A job for the government, specifically. 18F is the (outgrowth of the) team
that overhauled healthcare.gov. Presumably it's an altruistic open source
programmer willing the help out the government without pay.

[https://18f.gsa.gov/](https://18f.gsa.gov/)

~~~
rch
A company doesn't need to be purely altruistic to 1) publicly contribute to an
open source project and 2) effectively 'win' a government contract. Given the
simplicity of the task in question, one could choose to take it on as a
reasonable business development expense.

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shawabawa3
So technically someone could have bid $1, $2 .... $x, then not do anything and
delay the project by 10*x days?

~~~
CaveTech
You can only bid lower than the previous bid. By placing a bid of $1, the
auction effectively ends. Now only people who bid previously have a chance of
getting awarded the work, but only after everyone who bid less fails to
deliver.

~~~
cynix
GP is saying I could have (with the help of 2999 shell companies) bid $3000,
$2999, $2998, ..., $1, and I would effectively have 30000 days to do the work
for $3000.

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msvan
The value of the contract is $1 + $X dollars in expected future revenue from
having 18F on your resume, which is probably higher than the starting bid of
$3499. $1 is win-win, because reputation is really valuable in our world.

------
robotresearcher
Maybe someone with low expenses gets to put "government contractor" on their
resume/portfolio and bill better next time.

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Omnipresent
The bidding structure was set up to have provoked a bidding war. 18f tried a
bold experiment with unconventional ways. It might be good to take a leaf out
of the conventional system...at least for things that work well. There isn't
much broken in the way the govt takes bids for work: They release an RFP,
vendors review it, ask questions, govt. answers the questions, vendors send
their bids for the work. All that works well. What doesn't work well is when
the govt. teams assigned to review the bids from the vendors don't have the
engineering know-how to assess which vendor can actually deliver on what they
want. I've seen a CMS system being proposed and go on to win the work to solve
the need for keeping scattered databases of submarines in-sync.

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sailfast
If a vendor performs part of the service to the government for this micro
purchase bid and does not end up meeting the full criteria, are they able to
sue for partial recoupment of costs of delivery of the software and/or
entitled to it? I can imagine this has already been sorted for commodity
delivery but I'm not sure what happens when that sort of thing is applied to
services. Firm Fixed Price contracts aren't usually an all-or-nothing deal,
but I guess in this case the case could be made for all the risk being on the
vendor side given the scale and intent.

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powera
So is this just a miniature version of how most government contract bids work?
Somebody bids something stupidly low, and then tries to deal with that problem
later?

~~~
Omnipresent
Not at all. Most govt. contracts work like this: Govt. opens a Request For
Proposal on FedBizOps [0], vendors review the proposal, ask questions, govt.
tries to answer all questions from all vendors and releases all answers again
on [0]. Then vendors submit their proposals with written explanation of how
they'll do the work, also, they are required to submit how much it will cost
the govt. When the proposal date closes, the govt. sets up a review board that
goes through all the proposals by vendors and reviews them based on competency
and price. This review panel picks one vendor to win the proposal.

[0] - [https://www.fbo.gov/](https://www.fbo.gov/)

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cowsandmilk
was there any part of the bidding where they verified the bidders were
registered with SAM.gov?

~~~
Omnipresent
As part of placing the bid the vendors were asked to provide their D&B number.
Whether 18f was actively verifying whether the D&B exists in SAM....not sure.

