Reflecting the growth of reverse auctions in federal contracting, technology entrepreneurs Steve Case and Ted Leonsis have become the largest outside investors in FedBid Inc. of Vienna, VA, a leading reverse auction contractor.

The amount of the investment was not disclosed. It is the first investment by the Revolution Growth fund, a $450 million vehicle formed in November by Case and Leonsis, co-founders of AOL Inc.

Leonsis was named chairman of FedBid’s board. He wrote on his blog, “Fedbid has the potential to revolutionize the way the federal government buys goods and services by creating a fully managed online marketplace in which companies compete to sell to the government – saving taxpayers hundreds of millions of dollars, improving transparency, and opening doors for small businesses.”

The company said it handled $1.4 billion worth of federal procurements last year, and claimed the reverse auctions saved the government $150 million. It said 80% of the sales went to small contractors.

“This significant new investment will enable us not only to strengthen and increase our presence in the federal market, but also to impact other markets where dynamic, transparent competition can significantly reduce spending inefficiencies,” said Ali Saadat, CEO of FedBid.

While reverse auctions have grown in popularity among federal buyers, some vendors resent the emphasis on price above all else. “Many contractors have long been uneasy with FedBid as the company has encouraged the use of reverse auctions in situations that aren’t suitable for its use,” consultant Larry Allen of Allen Federal Partners wrote in his newsletter. “Additionally, FedBid fees have in the past been less than transparent, making it difficult for a winning contractor to know what its own net price was.”

A study published last year by the IBM Center for Business and Government estimated that federal agencies could save nearly 12% by using reverse auctions to buy commodities and certain services.

The study’s author, David Wyld, professor of management at Southeastern Louisiana University, urged chief acquisition officers to adopt an “Auction First” strategy for those purchases.