When Amazon Business won a multi-year contract last year with public agencies worth up to $5.5 billion, its new clients cited the procurement advantages. Now critics are saying the contract favors Amazon over its customers.

About 1,500 public agencies and jurisdictions—including counties, cities and school districts—have signed onto a procurement contract awarded to Amazon Business early last year by U.S. Communities, a buying cooperative for tens of thousands of agencies. The contract, valued at $500 million per year and up to $5.5 billion if renewed over an 11-year period, opens up to public sector procurement managers and employees the ease of shopping among millions of products on a single marketplace.

“Amazon Business delivers the buying experience our end-users want, and we are thrilled to provide the contract vehicle for this extensive nationwide online marketplace,” Anthony Crosby, the head of purchasing for Prince William County (Virginia) Schools, the lead agency that worked on the contract, said when announcing it in February 2017.

Amazon is using the contract to position itself as the gatekeeper between local businesses and local governments.
Institute for Local Self-Reliance

But a report released this week by the Institute for Local Self-Reliance, a nonprofit organization that advocates for strong local communities and public organizations, contends that the contract favors Amazon and fails to come through with such expected advantages to buyers as low pricing, fast deliveries and transparency in contract terms.

It also asserts that the request for proposals for the U.S. Communities contract favored Amazon because of its position as a dominant marketplace. Although 12 companies including Amazon responded to the RFP, only Amazon and four others submitted complete materials for consideration. Essendant Inc., a multibillion-dollar distributor of workplace products, came in second to Amazon with a bid score of 36.7. Amazon scored 91.3 as the winning bidder.

The ILSR contends that Amazon is now using the contract as a way to get more suppliers favored by public agencies to become sellers on the Amazon Business marketplace, furthering Amazon’s dominance in online sales.

advertisement

The different opinions of Amazon Business as generated by the U.S. Communities contract point to the pros and cons of dealing with a single large marketplace.

“Amazon is using the contract to position itself as the gatekeeper between local businesses and local governments. As it does so, it’s undermining competition and fortifying its position as the dominant platform for online commerce,” the ILSR says in its report, “Amazon’s Next Frontier: Your City’s Purchasing,” which was written by ILSR researchers Stacy Mitchell and Olivia LaVecchia.

Amazon’s contract with U.S. Communities covers 10 product categories: office supplies; classroom, school, art supplies and materials; home kitchen, food and grocery; books; musical instruments; audio visual and electronics; higher education scientific equipment and lab supplies; clothing; animal supplies equipment and food; and miscellaneous.

In winning the contract, Amazon was able to show that it could provide access to all of these categories through a single portal, with products available from thousands of suppliers in addition to Amazon itself.

Amazon notes that it won the contract after a formal evaluation that, among other criteria, considered overall costs and the ability to perform as an online supplier.

advertisement

“The competitively solicited contract helps education and public sector organizations purchase directly from the Amazon Business marketplace, which includes small, local and socio-economically diverse businesses,” an Amazon spokeswoman says. “More than 90,000 public sector organizations, from individual schools to school districts to higher education institutions across the nation, can now access multiple purchasing categories in an online marketplace, as well as be confident that they are receiving dynamic and competitive pricing.”

But the ILSR, whose report was covered this week in The Washington Post (which is owned by Amazon founder and CEO Jeff Bezos), contends that Amazon received special treatment when U.S. Communities granted it the contract without receiving any promise of discounted pricing on such a large volume of business. “What’s striking here is that Amazon won this contract without having to compete on price,” Mitchell told the Post. “This contract deviates from the norm in significant ways that put local governments at risk for spending more and getting less.”

The issue comes down to the technology and processes that run the Amazon Business marketplace, and in particular the “dynamic pricing” system designed to constantly change product prices throughout the course of a day based on product availability and other criteria. Amazon asserts that this consistently offers a good market price.

But the ILSR report cites several examples of where buyers at public agencies have been able to get lower prices from independent dealers compared with Amazon Business. The institute worked with OPSoftware, a firm that tracks prices of office supplies across merchants including Amazon Business, Staples, Walmart and independent dealers. Rick Marlette, founder of OPSoftware, identified a list of 57 items, including notebooks, binders and Crayola washable markers, purchased by a California school district over a two-week period in January 2018. The bill came to $1,205.00.

Marlette then determined that, if the same school district had purchased the same products from Amazon Business during same two-week period, it would have spent $1,328.00, the ILSR report says. Amazon Business had the lowest price on 32 of the 57 items, but higher prices on the remaining 25 made it more expensive overall, the ILSR notes.

advertisement

The report also cites a December 2017 analysis conducted by two Air Force captains, Holland Canter and Tabitha Gomez, as part of their master’s of business administration degree program at the Naval Postgraduate School’s Graduate School of Business and Public Policy. Their study compared prices of 60 common products routinely purchased by U.S. Air Force personnel using a government purchasing card, including computers, office products and medical supplies. That analysis found that suppliers selling on the GSAAdvantage.gov e-commerce site operated by the U.S. General Services Administration offered lower prices and faster delivery times than Amazon Business 80% of the time.

The plight of suppliers who must compete with Amazon is also brought out in the ILSR report. Guernsey, an independent office and janitorial supplies dealer that sells online at BuyGuernsey.com, struggles to compete against Amazon even though it has offered services like next-day delivery for decades, owner David Guernsey says in the ILSR and
Washington Post reports. “There’s this perception that Amazon has everything and that it’s easy to use, but we’ve been providing next-day delivery for three decades,” he told the Post. “It’s not as if they invented the wheel.”

Some municipalities, including Pittsburgh and Phoenix, are pushing back from participating in the U.S. Communities contract with Amazon Business, according to the ILSR. Pittsburgh signed onto the contract last year, but has developed doubts about using it because of uncertainty of getting the best prices, Michael Lamb, the city controller, says in the ILSR report. In Phoenix, the city procurement department spent only $700 with Amazon in 2016 because it has been favoring local businesses that offer special services.

Proponents of the U.S. Communities contract, however, point to the overall helpfulness and convenience of purchasing among the broad range of products on the Amazon Business marketplace.

Crosby, the Prince William County Public Schools procurement manager who helped set up the contract, says his district plans to spend about $1.5 million this year on Amazon Business, which has become a “one-stop-shop” for school personnel accustomed to using Amazon’s purchasing and fulfillment features. “Before this contract, people were out here independently setting up Prime accounts and making purchases,” he told the Post, referring to school personnel’s use of Amazon’s Prime program for expedited shipping. “All this does is create a legal pathway for them to do so.”

advertisement

Many public sector buyers also appear to prefer Amazon because they’re so accustomed to using it for their personal shopping, studies have found. The Naval Postgraduate School study, for example, surveyed 428 Air Force procurement personnel and found that 70% of them preferred Amazon Business over GSAAdvantage.com, even though the latter more often offered lower prices and faster delivery times. The study also notes that, compared to the GSA site, the Amazon Business website is easier to use, has a better product search engine, and did not require a minimum number of items per order—a requirement on the GSA site that could force some buyers to purchase more than they needed.

“A lot of people use Amazon in their personal life, so they are associated with how it works and its ease of use,” Capt. Gomez says in an article posted on the school’s website. “For them, Amazon is a preferable experience.”

Amazon, meanwhile, has been actively pushing into more public sector business. In the education market, for instance, it secured a contract two years ago to supply e-books to New York City’s public schools and has increased its sales to universities including the University of Washington, Stanford and Penn State. It’s considered by rivals to be the leading bidder for a pending Pentagon contract for cloud technology services. And in the fall of 2016, it hired Anne Rung, who headed up procurement in the White House during the Obama administration, as its global leader of public sector sales.

Amazon also maintains a large lobbying presence before the federal government, spending more than $13 million last year alone on lobbyists, according to OpenSecrets.org, an organization that tracks such expenditures.

Sign up for a complimentary subscription to B2BecNews, a twice-weekly newsletter that covers technology and business trends in the growing B2B e-commerce industry. B2BecNews is published by Vertical Web Media LLC, which also publishes DigitalCommerce360.com, Internet Retailer and Internet Health Management. Follow B2BecNews editor Paul Demery on Twitter @pdemery.

advertisement

Follow us on LinkedIn and be the first to know when new B2BecNews content is published.

Favorite