March/April 2012
The U.S. military sells more than 300 million pounds of scrap each year through online auctions. The process opens bidding to a wide array of buyers, so long as they can meet sometimes-tricky removal requirements.
By Theodore Fischer
On a chilly December day in a quiet part of Fort George G. Meade, a U.S. Army base near Baltimore, Robbie Schultz of Schultz & Sons Salvage (Denton, Md.) carefully maneuvers a small grapple in and out of a pile of metal scrap, dropping material into a mobile baler. Once the bale chamber is full, Schultz activates the baler, then he uses the grapple to place the finished bale with others in a neat stack nearby. It’s more convenient to bale this material on site, he says, than to transport the loose material across the Chesapeake Bay to his facility in Denton and then back across the bay to the buyer.
Schultz & Sons has won a series of six-month contracts to remove Fort Meade’s scrap metal from Government Liquidation (Scottsdale, Ariz.), which for the past decade has held an exclusive contract to dispose of all U.S. Department of Defense surplus—and, since August 2005, all Defense Department scrap—via its online auctions and sealed-bid sales.
It wasn’t always thus. “Sixty years ago, once [military units were] done with a vehicle, they’d push the thing off the end of a pier. It was out of sight and out of mind,” says Tom Burton, president of Government Liquidation. He recalls legendary (and probably fictional) tales of people scoring $35 jeeps and demobilized weapons, among other items, out of a military surplus system that was not as attuned to safety, security, efficiency, and profit. Nor did the military expend much energy on marketing the surplus to buyers. Before Government Liquidation got involved, military installations that deemed any of their surplus resalable would auction it off themselves. “In the live-auction days, everything was sold where it was,” Burton says. “You had to walk up and physically look at [the material], and buyers were probably pretty local. Somebody at the facility—one of the government employees—would be auctioneer.”
Government Liquidation changed all that by using the Web to market Defense Department assets from 209 facilities in the United States, including those in Guam, Puerto Rico, and the U.S. Virgin Islands. It auctions more than 500 different categories of surplus materials, from audiovisual equipment, forklifts, and X-ray machines to boats, trucks, and aircraft parts. It also runs Uncle Sam’s Retail Outlet, an online military surplus store, to sell smaller quantities of surplus goods. But a significant portion of Government Liquidation’s business consists of scrap—more than 300 million pounds of it each year, which it sells in 12 categories that include steel (126 million pounds a year), tires/rubber (94 million), mixed metals (48 million), paper (13 million), and irony aluminum (9 million). Most of the scrap is held at nine locations across the country: Bremerton, Wash.; Anniston, Ala.; Texarkana, Texas; Crane, Ind.; Fort Hood, Texas; Oklahoma City; Fort Benning, Ga.; Jacksonville, Fla.; and Fort Meade.
A subsidiary of Liquidity Services, a 12-year-old “global surplus goods marketplace” that has sold more than $2.4 billion of surplus assets, Government Liquidation has created a system that it believes works for all parties involved: the government—which gets 75 percent of the scrap-sale proceeds—the buyers, and itself. “We’re very proud of the part we’ve played in keeping this property moving, keeping restricted dangerous items out of the flow, and giving American small businesses the opportunity to use it to move their businesses forward,” Burton says.
What’s in it for scrap dealers? Volume, for one. “In the scrap business, quantity is king—and we are close to being the largest online scrap seller in the United States,” Burton says. “We sell 20 to 30 million pounds of scrap a month, and we’ve got a pretty consistent flow.” He also touts the material quality and documentation. “You know where it came from, what it was used for, who originally bought it—you’re sure you’re getting [Defense Department] surplus paid for by U.S. taxpayer dollars. If you’re interested in steel, you have high confidence that those gun tubes are exactly the steel the government wanted and bought according to pretty specific specifications. If you wanted, you could probably find the original spec sheets.” Smaller scrap companies—those that can’t afford cross-country jaunts to live auctions—might benefit from Government Liquidation auctions the most, Burton says. “The Internet is the great equalizer. It gives unlimited access” to buyers regardless of size or location, compared with “what we were doing 20, 30 years ago, when it was so much more difficult to get out the word.”
On the Auction Block
To participate in one of Government Liquidation’s online auctions, the first step is to go to www.govliquidation.com and register by providing some basic information about yourself and your company. You won’t need to provide a credit-card number until you make a bid. (Final payment can be by credit card, PayPal, wire transfer, cashier’s check, or money order.) Any registered user can bid, although the winning bidders on certain items (brass, for example) might have to fill out an end-use certificate—a form with information on the company and the planned use of the item that Government Liquidation must send to the State Department’s Directorate of Defense Trade Controls for approval. Registered users can search the site’s inventory by federal supply classification code, national item identification number, national stock number, or keyword. Online video tutorials walk users through these and many other processes.
Each lot-detail page provides a wealth of information: the type of auction and its time frame; a detailed description and an array of photos of the material for sale; instructions for bidding; the current high and minimum bids; applicable forms; state sales tax, if any; and the amount of the buyer’s premium—a surcharge that’s usually 10 percent of the pre-tax total but sometimes more. Further details on the material might include how it’s packaged, instructions and deadlines for loading it, whether buyers are required to destroy the material in the presence of a government inspector before hauling it off the base, and possible final cost revisions based on changing commodity prices. Potential bidders also can submit questions to Government Liquidation.
Listings contain instructions for previewing sale items, including the precise location and times for viewing the material as well as other requirements. Nearly all of the scrap is held on working military bases, which means those bases’ security and conduct requirements come into play for anyone who wants to gain access to the material. Visitors might need to be U.S. citizens, show a government-issued photo ID, dress appropriately, and not bring on base any hazards or illegal materials. One recent auction of stainless steel pipe in Washington, for example, gave this warning: “Previewers may not bring any of the following items onto the site with them: firearms, ammunition, explosives or fireworks, incendiary devices, illegal drugs and paraphernalia, alcohol and lethal weapons, including knives with a blade over 4 inches in length. All previewers must wear long pants, full shirt (no tank tops), and sturdy construction-type footwear. Any and all vehicles driven onto any part of the site will be subject to random searches.”
Though all scrap is available for preview, some buyers have found the online descriptions and photos provide enough information to make a bid. “Years ago … I would fly all around the country and look at the material before I would bid,” says Bill Goldkind, CEO of Crestwood Metal Corp. (Holbrook, N.Y.), who has purchased large quantities of aluminum, mixed metals, electronic scrap, and computers from Government Liquidation over the past seven years. Now that the auction site provides photographic documentation of the material, that has become less necessary, he says. Further, “I’ve been doing this for so long that I understand what they’re selling, and I don’t have to travel as much I did. … You’re still better off if you go, but that’s almost a full-time job.”
Bidding on and Retrieving the Scrap
Government Liquidation sells government scrap primarily via eBay-style online auctions. It posts the lot detail page 15 days before an auction begins. Auctions last for three days (72 hours), with one caveat noted below. Most of that time, bidders keep their cards close their vests, Burton says. “Those first two-and-a-half days are just for people to try their strategies and stuff.”
Bidding begins at $150, with the minimum bid increment pegged to the size of the bid. For bids in the $150–$499.99 range, for example, the minimum increment is $20; for bids from $10,000 to $24,999.99, it’s $500; for bids over $2 million, it’s $25,000. Like eBay, Government Liquidation has an auto-bid feature that automatically increases a user’s bid by the required minimum increment over the current high bid until it reaches the maximum the user has set. Also like eBay, Government Liquidation lets bidders maintain a watch list of items they can eyeball from the sidelines before they plunge into the fray.
Government Liquidation auctions are different from eBay auctions in at least one significant way: They don’t always end when they’re supposed to. To make sure every bidder has plenty of time to decide how high it’s willing to go, Government Liquidation auctions remain open for 15-minute increments “until all bidding has ceased” regardless of the stated closing time. Not everyone is thrilled with this arrangement. “It’s a little bit disconcerting,” Goldkind says. “I can understand their position—they want to make as much money as they can for their company—but for the credible buyer, if you put in your highest price, and 10 minutes later somebody puts in a higher price, it can go on forever.”
The other type of Government Liquidation auction—used much less frequently for scrap—is the sealed-bid sale, in which each bidder submits its best and only bid, either online or by fax, without the benefit of seeing others’ bids.
One potential challenge of buying military scrap is getting it off the base. The lot-detail page might specify that the buyer must remove the material in a specific window of time, by a certain deadline, or by scheduling an appointment to do so. It also will note whether the removal requires specialized equipment. Recyclers could be subject to the same requirements they faced for previewing the material, and then some. “We certainly try to make it as easy as possible, but there are a lot of moving parts here,” Burton says. “Security for each of these military installations is squarely on the shoulders of the base commander … and each facility has a different mission,” he says. “Some facilities require 24 hours’ notice … and if the guy shows up, and [his] birth date and Social Security number don’t match [what was provided previously], that doesn’t qualify as 24-hour notice.”
The bases take their removal deadlines seriously, Burton adds. “We don’t make storage arrangements because it’s not our base—it belongs to the [Defense Department]. So if there’s a two-week removal requirement, and you’re going to be on vacation … you’d better have somebody ready to take care of [it] or the item’s not going to be there anymore.” Government Liquidation keeps a list of transportation companies with experience removing surplus from the military-base auction sites; Burton encourages buyers to contact one or more companies on the list before they make a bid to find out exactly what load-out from that particular location is likely to involve—and how much it’s going to cost.
The Buyer’s Perspective
Scrap dealers who have participated in Government Liquidation scrap auctions are for the most part pleased with the experience. “They’re doing a marvelous job with it, and we’re buying a lot of metal from them,” Goldkind says. That’s not to say the system is perfect. Although he believes the scrap costs about the same as scrap from anywhere else—“prices are prices”—auctions don’t leave room for relationship-building, this 50-year veteran of the industry points out. When he’s working with other scrap suppliers, he explains, “we’ll develop a relationship, and sometimes they’ll let me have an edge because I’ve been giving them good service.” With the Government Liquidation auctions, “I’m paying top dollar because I’m competing against everybody in the United States, but there’s never any, ‘Thank you, you did a great job.’”
Bids from unqualified buyers have been a problem, too. “When [Government Liquidation] first started doing this, we were bidding against [overseas] brokers [who] had no clue about what it meant to handle the material,” Goldkind says. They would put in a high bid, “then they would renege and walk away from the bids when they found out they had to handle the material. But [Government Liquidation] got smarter, and on some of the bigger lots they make you put up a deposit.” The size of the deposit is intended to dissuade buyers that aren’t serious, the company says. Robbie Schultz of Schultz & Sons Salvage also finds unserious bidders an annoyance. “The competition’s pretty stiff. Usually, when the bidding starts, there might be four or five [bidders], but some of them get into it just to see what it’s about,” he says. For the lots he bids on, however, “it usually just comes down to me and another scrap company before it’s over with.” The site now has multiple layers of verification for bidders’ account information and to ensure bidders have the ability to fulfill their contract, Government Liquidation says. If a buyer does renege on a contract, the company suspends the account and assesses liquidated damages.
Auction buying can create a credit crunch, too, Schultz says. “You need a lot of credit to deal with [Government Liquidation] because they want their money three days after you get the invoice,” he says. “A lot of the mills pay in 30 to 60 days, which kind of [hurts] the cash flow. If I hauled [all the scrap] out of here as it comes in, it would be hard to pay them. They’d eat up a quarter-million-dollar line of credit in a couple of weeks.”
Despite the criticisms, these buyers are sold on government surplus scrap auctions. “It’s a wonderful thing: They award us the material, we pay for it, we pick it up,” Goldkind says. “Ninety-five percent of the time it’s a fine deal, and if there are any problems, we can call them and work it out.” In any case, he points out, if you want Uncle Sam’s scrap, “they’re the only game in town.”
Theodore Fischer is a Silver Spring, Md.-based writer.
The U.S. military sells more than 300 million pounds of scrap each year through online auctions. The process opens bidding to a wide array of buyers, so long as they can meet sometimes-tricky removal requirements.