PG_Fall07_pages

30 popular government

ccording to the National Associ-

ation of State Procurement Offi-

cials, local governments often

overlook the importance of materials

management, including disposal of sur-

plus and confiscated goods.

Yet the

manner in which a local government

disposes of such goods affects many as-

pects of the organization, including staff

responsibilities, revenues, and storage

space. In addition, disposal often is

strictly regulated by law.

Recently, several vendors have made

claims about their ability to increase

revenues and provide additional benefits

to local governments in this oft-

overlooked area of property disposal.

A representative for the online auction

company GovDeals.com asserts that

using it increases revenues while avoid-

ing depreciation, pilferage, environmen-

tal waste problems, storage concerns,

collusion, and transportation issues.

PropertyRoom.com, an online auction

vendor of confiscated goods, claims that

using its service results in revenues two

to ten times higher than those from

traditional auctions.

Praise for online auctions of surplus

and confiscated goods is not confined to

vendors. A 2001 ar

ticle in

Gover

ning

magazine notes, “[G]over

nments ar

finding that selling surplus goods online

can be mor

e efficient—and can bring in

a lot mor

e money than a traditional

auction.”

Does evidence support these claims

of increased efficiency? Our study ex-

amined the use of online auctions at the

local government level. We explored

experiences in North Carolina cities

and counties by asking the following

questions:

• How are online auctions being

used? Are they supplementing or

replacing on-site, traditional

auctions?

• What are the benefits of using

online auctions for surplus and

confiscated goods (for the differ

ence between the two types of

goods, see the sidebar on this

page)? Does use lead to increased

revenues and savings in staff time?

• What are the drawbacks of using

online auctions for surplus and

confiscated goods?

• What are factors to consider in

choosing and implementing an

online auction system?

We analyzed information from several

sour

ces. W

ebsite analysis of two major

online auction companies, GovDeals.com

and PropertyRoom.com, and personal

inter

views with the or

ganizations’ ex

ecutives helped us understand what these

vendors offer to local governments.

also sent e-mails to r

egister

ed clients of

GovDeals.com and PropertyRoom.com.

Further, we posted a request for in-

formation on the North Carolina Local

Government Purchasing Listserv (hosted

by the School of Government) to gather

data on the use of online auctions across

the state. We received responses from

fifteen jurisdictions in North Carolina

that currently use GovDeals.com

and from four jurisdictions that use

PropertyRoom.com.

On-Site, Traditional Auctions

All responding local governments held

on-site, traditional auctions before

transitioning to online auctions. The

majority hired an auctioneer and used

their own staff to oversee the process,

rather than going thr

ough a contracted

company. Local governments reported

on-site auctions lasting two to five

hours, with all participating employees

receiving overtime pay for time spent

helping conduct the auctions.

On-site auctions have a number of ad

vantages and disadvantages. Among the

advantages are that they give potential

buyers greater access to surplus items,

and local gover

nments are not burdened

with the responsibility of transporting or

shipping items after they are purchased.

Also, l

ocal governments receive some form

of payment immediately after the sale.

Increased staff time and overtime pay

were cited as two significant disadvan-

tages of on-site auctions. Not only do

staff spend time categorizing and pricing

items, but also they are responsible for

advertising the auction to the commu-

nity and preparing final sales data.

Finally, local governments often must

stockpile and stor

e smaller items for up

to one year to acquire a sufficient num-

ber of high-dollar items to attract a

lar

ge audience. As a r

esult, these items

depreciate in value.

The authors are 2007 graduates of the

Master

of Public Administration Pr

ogram

at UNC at Chapel Hill. Bovid is a budget

and evaluation analyst for the City of

Winston-Salem. Sparks is

pursuing a car

eer

in human resource management.

Contact

them at [email protected] and

brandy.sparks@alumni.unc.edu.

Going Once, Going Twice . . . :

Are Local Governments Sold on Online Auctions?

Kristen A. Bovid and Brandy N. Sparks

Definitions

Confiscated goods: Items seized by

the police.

Surplus goods: Items or property

once owned and used by local

governments that is no longer useful

or needed.

POPULAR GOVERNMENT From the MPA Program

fall 2007 31

Online Auctions—Thr

ee V

endors

In contrast to traditional on-site auctions,

online auctions can take place more

equently. Some local governments

hold online auctions monthly, while

others list items continuously. To list an

item, a staff member or a contracted

vendor uploads a photograph and a

written description of the item. Some

jurisdictions allow bidders to inspect

items personally befor

e making a bid,

but typically bidders must rely on the

description.

e found that the vast majority of

responding local governments use online

auction systems cr

eated by vendors, al

though at least one local gover

nment

created an internal auction system.

Nor

Car

olina local governments

ovided us with data on thr

ee vendors:

GovDeals.com, PropertyRoom.com,

and eBay

. These vendors have var

ying

fee schedules, services, policies, and

audiences.

GovDeals.com contracts exclusively

with government entities to auction sur

plus property online at www.govdeals.

com. There are no fees or start-up costs

for local governments

to sign a contract with

GovDeals.com. The

company’s Web-based

application allows cli-

ents to upload photo-

graphs and written

descriptions about surplus items and

establish opening and closing times for

the auctions. GovDeals.com provides

training to its clients and can typically

get a new local government client up

and r

unning with an auction in under

an hour

Bidders must register and undergo

a verification process before bidding.

This

policy keeps the default rate under

3 percent. If a bidder does default,

GovDeals.com credits the client and

allows the client to block the bidder

from any future bids on its items.

The client pays GovDeals.com a fee of

7.5 per

cent of the highest bid for each

item sold, with a minimum $5.00 fee.

Occasionally, the marketing department

adver

tises lar

ge or unusual pr

oducts at

no charge to the client. For example,

GovDeals.com advertised Kansas City’s

ten-year-old line of fire

trucks in

Fire Chief

magazine and sent e-

flyers to bidders who

previously bid on fire

trucks.

Whereas GovDeals.

com enables local governments to cr

eate

their own online auctions, PropertyRoom.

com prides itself on being a full-service

online auction

site. It sends tr

ucks to

gather a police department’s confiscated

goods. Fr

ee, regular pickups are scheduled

as needed. The goods ar

e cleaned, or

ganized, tested, appraised, and photo-

graphed at a distribution center before

being auctioned online. After the auc

tion has closed and the highest bidder

has paid for the item, the company

sends a check for 50 per

cent of the bid

to the police department from which the

item came. If an item does not sell, the

company disposes of it.

Regarding verification of bidders,

PropertyRoom.com requires bidders to

egister a cr

edit car

d with the company.

The company, rather than the local gov-

ernment, deals with defaulting bidders.

On-site auctions have several

drawbacks: staff time, storage

costs, and goods’ depreciation

in value.

32 popular government

In addition to auctioning goods,

PropertyRoom.com invites people who

have had property stolen to register it

on www.stealitback.com. Incoming

items are compared with the list, and

goods are returned to rightful owners

when possible.

Recently the company began allowing

a limited number of third-party vendors

to auction items online. It also launched

a pilot program with a local government

in Califor

nia to sell surplus pr

oper

ty.

Unlike GovDeals.com and

opertyRoom.com, eBay does not

cater to local gover

nments. Founded in

1995, it is open to any and all clients,

bidders, and items. It is the most widely

known and used online auction vendor

giving items listing on its site the poten-

tial to receive a great amount of ex-

posur

e. W

ith so many clients, however

eBay cannot provide hands-on training

to new clients. Also, sellers are charged

a listing fee ranging fr

om $0.20 to $4.80

for each item to be sold, whether or not

the item actually sells. Sellers are charged

5.25 percent of the highest bid for items

selling for less than $25.00. Items sold for

more than $25.00 but under $1,000.00

are subject to a fee equal to $1.31 plus

3 percent of the item’s cost over $25.00.

For items over $1,000, an additional fee

is charged, equal to 1.50 percent of the

cost over $1,000. Of the three vendors

detailed in our study, eBay has the lowest

percentage fee, but it also provides the

least customer service.

Clearly, the three vendors offer dif-

ferent services, require different fees,

and target different audiences (for a

summar

y, see Table 1). A local govern-

ment should carefully consider these dif-

ferences in selecting a vendor. The ma-

jority of cities and counties that r

esponded

to our questionnaire use only GovDeals.

com for the sale of their surplus property.

One jurisdiction, however

, uses a hybrid

system, selling items with broad appeal

on eBay but listing items that are diffi-

cult to ship or used mainly by local

gover

nments on GovDeals.com.

Findings

Among local governments that have

adopted online auctions, online auc

tions appear to be r

eplacing, rather than

supplementing, on-site auctions. Of the

fifteen local gover

nments using GovDeals.

com, ten r

eplaced traditional auctions in

he same year that they adopted online

auctions. Three allowed for a period of

overlap between the two systems,

typically one year, before abandoning

the traditional auctions. Only two cities

etained traditional auctions and now

manage a hybrid system for disposal of

surplus goods.

Use of online auctions for the sale of

confiscated goods appears to be more

limited. Only twenty-one jurisdictions

in the state have signed contracts with

PropertyRoom.com.

In addition to identifying patterns

of use, we examined the two major pur-

ported benefits of online auctions: in-

creased revenues and savings in staff time.

On the whole, increased revenues do

seem to be a benefit of using online

auctions. Results regarding savings in

staff time are mixed.

We also heard anecdotal reports of

other benefits, such as an increase in

storage space. This appears to be espe-

cially helpful in evidence rooms of po-

lice departments, where space often is at

a premium because of laws requiring

evidence with DNA samples to be stored

for lengthy periods.

We discovered an unexpected benefit

while researching online auctions of

surplus goods: a decrease in liability.

According to a posting on the North

Carolina Local Government Purchasing

listserv, one city faced legal challenges

Local government

surplus goods

7.5% of bid with

minimum $5.00

fee; smaller

percentage for

tems selling for

ore than

$100,000

New clients

provided training,

customer support

desk available on

weekdays, and free

advertising

provided for large

and unusual items

Local government

confiscated goods,

xcluding weapons,

ate materials,

imitation brands,

food, and alcohol

50% of bid

Full ser

vice

provided: items

picked up, cleaned,

organized, tested,

photographed, and

auctioned online

for client

Nearly all items,

except weapons,

obacco, and other

angerous

materials

Listing fee of $0.20–

$4.80, plus 5.25%

of bid for items

selling for less than

25.00, plus 3% of

cost over $25.00

for items selling for

more than $25.00

but less than

$1,000, plus 1.5%

of cost over $1,000

for items selling for

more than $1,000

raining DVD

available for $7.95

Table 1. A Comparison of Three Vendors

GovDeals.com PropertyRoom.com eBay

Items Auctioned

Fee Schedule

Customer Service

60% –

50 –

40 –

30 –

20 –

10 –

0 –

Fayetteville

Chapel Hill

Jacksonville

Cleveland County

Goldsbor

Figure 1. Percent Change in Annual

Net Revenues Using

Multiyear A

verages

fall 2007 33

fter a citizen was injured at an on-site

public auction.

We discuss our detailed findings

regarding revenues and savings in staff

time from the use of GovDeals.com and

ropertyRoom.com separately in the

following sections. We do not discuss

eBay because we want to focus on online

vendors that cater to local governments,

and eBay does not.

GovDeals.com

We obtained data for multiple years

of on-site auctions and at least one year

of GovDeals.com auctions from five

local governments. Many factors,

including the types of items being sold

and the weather, influence attendance

and overall sales at on-site auctions.

Using multiyear averages rather than

revenue data from one single year can

help smooth out yearly fluctuations

and provide a mor

e accurate represen-

tation. The average net revenue increase

associated with the use of GovDeals.

com for the five jurisdictions was 22

per

cent when multiyear averages were

used and revenues were adjusted for

inflation (for the individual increases,

see Figure 1). This percentage corre-

sponds to the low end of the “typical

range of 25 to 40 per

cent” increase

described to us by a GovDeals.com

representative.

here are many possible explana-

tions for the 22 percent increase. The

exposure to a much larger audience,

sometimes accompanied by targeted

advertisements, likely leads to higher

ids. Also, on-site auctions are typically

held only one time per year. If a vehicle

becomes surplus property soon after an

auction occurs, it must sit in storage for

nearly a year. This storage time depre-

ciates the value of the vehicle. Frequent

online auctions mitigate against further

depreciation. In addition, expenses are de-

creased. Items no longer need to be trans-

ported to an auction site, and employees

do not need to be paid overtime.

Most local governments that we con-

tacted attributed the increase to higher

bids per item, rather than an increased

quantity of items. However, there were

no data to support

these claims because

none of the local gov-

ernments could share

with us average unit

prices for commonly

auctioned items. Also,

the sustainability of

the initial revenue increase is unclear be-

cause many of these jurisdictions just

began using GovDeals.com.

Although overtime pay is not a con-

cern with online auctions, we did not

find evidence of significant savings in

staff time. Fifty-seven percent of juris-

dictions reported very limited or moder-

ate time savings (see Figure 2). None of

the reported savings amounted to a full-

time equivalent. Staff in charge of online

auctions often have added responsibil-

ities, including photographing items,

writing descriptions, and responding to

bidders’ inquiries. One pur

chasing

dir

ector explained how labor

-intensive

the process can be:

The online auction takes two hours

or more per item or lot. This breaks

down into locating the item or

making up a lot, snapping a pictur

getting all of the information about

the item and

then putting it into the

GovDeals system.

Befor

e the closing

date, I or the department averages

about five calls asking questions that

wer

e not in the detailed infor

mation.

When the item is sold, I average

about three calls trying to get the

uction winner to my door to make

payment. Then I must get the winner

to the department where the item is

located, and the winner needs help

loading the item at least 80 percent

f the time.

Clearly, local governments should

not expect major savings in staff time

when they are beginning to use an

online auction for surplus property. In

fact, the most significant drawback we

found to using online auctions for the

sale of surplus goods was frustration

among staff members.

PropertyRoom.com

As might be expected with the use of

a full-service vendor, all four of the

PropertyRoom.com

users that we con-

tacted reported

significant savings in

staff time. None of

these amounted to a

full-time equivalent,

but police depart-

ments do not typically

have staff devoted solely to disposal of

unclaimed goods. When asked to com-

ment on savings in staff time, one evi-

dence custodian noted,

With the old way, not only would

we have to list the items for auction,

we would have to coordinate the

sales, physically hold the auction

with someone from the Finance

Department, and sign over the items

to the buyer while Finance took the

money

. Using the Inter

net, we r

each

a tremendous amount of people,

and we don’

t have to do two-thirds

of the work.

This savings in staff time translates

into an increase in net revenues. The

cities and the counties that we contacted

have experienced very high expenses

during traditional public auctions, lar

gely

because of overtime for police officers.

For example, one respondent noted that

80 percent of the gross proceeds from

the town’s 2003 public auction of

unclaimed property went to covering

expenses. Two local governments

provided us with multiyear data from

sale of confiscated goods. Revenues

increased sharply with the use of the

Figure 2. Savings in Staff Time

Reported

Very limited savings

Moderate savings

No savings

19%

38%

43%

If traditional auctions cost 50

percent or more of proceeds, the

online approach may be better.

34 popular government

nline auction vendor. Using multiyear

averages, both cities experienced an

average increase in net revenues of

approximately 140 percent. One city

has continued to see an increase for

hree years, suggesting the potential for

sustainable increases.

Recommendations

fter analyzing the data we received

from cities and counties currently using

online auction sites to dispose of their

surplus goods, we offer the following

observations and recommendations:

1. Keeping closer

track of data from on-

site and online auction

sales could influence

managerial decisions

regarding current or

future purchasing

practices.

Many of

the local govern-

ments participating

in this study kept

relatively little data

on their online sales

of surplus goods,

thereby limiting

their ability to assess

fully the benefits of

this option. A par-

ticularly useful

measure to track

would be the unit

prices for selected items (for example,

sedans).

2. Police departments should assess

the success of their current method of

disposing of confiscated goods and

consider the option of an online service

specializing in police items.

If expenses

incurred with the department’s current

disposal method consume 50 percent or

more of the proceeds from sales, the

option might be war

ranted. For instance,

PropertyRoom.com charges a 50 percent

fee for its services, effectively capping a

depar

tment’s cost because nearly all

usual expenses ar

eliminated. Not only

would gover

nments’

confiscated goods

eceive exposure to a larger audience on

a national website, but also

governments would free up storage

space and staff hours otherwise spent

dealing with auction-related issues.

3. Experimentation with online

auction sites is relatively inexpensive

and could reveal a better system of

urplus property disposal.

ur data

suggest that local governments that

switched from traditional public auctions

to online auctions saw, on average, a

22 percent increase in revenues in the

first year of using

online auctions.

Given that there are

virtually no start-up

costs associated with

using online auction

vendors, we r

ecom-

mend that local gov-

ernments consider

registering and sell-

ing surplus items on

secure and reputable

online sites for at

least one year to see

if they receive

additional revenues

or other potential

benefits associated

with online auctions.

4. Local

governments

experimenting with online auctions

should anticipate changes in staff

responsibilities.

Our study offers no

evidence that using online auctions

significantly reduces personnel costs in

comparison with using traditional public

auctions. Online auctions do

not require as much staff participation as

on-site auctions, but they do require at

least

one staff person to organize surplus

items,

maintain the online database,

and

ensur

e that payments ar

e r

eceived and

items picked up or delivered in a timely

manner

. A

staf

f member assigned these

esponsibil

ities should, of course, be

trained and compensated appropriately

for the new duties.

otes

We conducted our study for SOG faculty

member David Ammons’s course Productivity

Improvement in Local Government. The full

report is available from Susan Lynch at

[email protected].

1. National Association of State Purchas-

ng Officials,

tate and Local Government

Purchasing Principles and Practices

(Lexing-

on, KY: National Association of State Pur-

chasing Officials, 1997), 100.

. Terry Bazzoon, “Selling Surplus Gov-

ernment Equipment On-line,”

County Focus

17, no. 1 (2006): 20–21.

3. PropertyRoom.com, Press Room,

Fast

Facts about PropertyRoom.com,

http://about.

propertyroom.com/factsheet.html.

4. Ellen Perlman, “Going, Going . . .

Click!” Tech Talk,

Governing, November

2001, www.governing.com/archive/2001/

nov/techtalk.txt.

5. Steve Kranzusch (vice-president of

marketing, GovDeals.com), interview by

authors, September 28, 2006; Tom Lane

(chair

man and founder, PropertyRoom.

com), telephone interview by authors,

October 26, 2006.

6. The fifteen jurisdictions that provided

us with data about use of GovDeals.com

were Apex, Asheville, Buncombe County,

Catawba County, Chapel Hill, Charlotte,

Cleveland County, Davidson County,

Edgecombe County, Fayetteville, Goldsboro,

Hickory, Jacksonville, Monroe, and Winston-

Salem. Currently, GovDeals.com has more

than one hundred clients in North Carolina,

including twenty-five counties. The four

jurisdictions that provided us with data

about use of PropertyRoom.com were Car-

rboro, Chapel Hill, Raleigh, and Winston-

Salem/Forsyth County. Our study focuses on

the jurisdictions that provided usable data in

response to our request for information

through the North Carolina Local Govern-

ment Pur

chasing Listser

v, by telephone, or

by e-mail. Many other jurisdictions re-

sponded to our request, but the specific data

we needed were unavailable.

7. Respondent from Apex, personal

correspondence with authors, October 2006.

8. This information appeared in a posting

by a City of Fayetteville employee on the

following listserv: http://lists.unc.edu/read/

?forum=ncpurchasing.

9. Respondent from Davidson County,

personal correspondence with authors,

October 2006.

10. Respondent from Carrboro, personal

correspondence with authors, November 2006.

Local governments that

switched from traditional to

online auctions saw a 22 percent

increase in revenues in the

first year.